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Contributor
John
Campbell
John
Campbell (R-Irvine) is a California State Senator representing
the 35th District
in Orange County. He represents the cities of Newport
Beach,
Laguna Beach, Irvine, Costa Mesa, Huntington Beach, Seal Beach
and Cypress. He can be reached through his Senate website
and through the website
for his California Senate campaign. [go to Campbell index]
 Tax
Day: Ouch.
California's tax code could be simpler, but...
[John Campbell] 4/18/05
I can't
remember if I have ever written this weekly report on the dreaded
tax day. When I was a practicing
CPA preparing tax returns for Ernst and Young, I looked forward
to April 15th because it meant the end of a 7-day work week with
16 hour days. I don't do that anymore. And I don't look forward
to April 15th. I doubt that you do, either.
As you write those checks to the U.S. Treasury and the Franchise
Tax Board, you may notice that your federal tax rates have been
reduced in the last few years while your state tax rates have
gone up. This is because the federal government has expanded
various deductions and other tax breaks in the last few years
and California has adopted almost none of those changes since
2001. Therefore, the California tax code has become increasingly
different from the federal tax code causing you or your CPA more
work, and costing you more in taxes.
I have believed for some time that there is no reason that California
should have its own separate tax code. The reason we do is to
allow legislators to reward you for behavior we like and punish
you for behavior we don't like in our own separate code. We could
raise the same amount of revenue and literally have a postcard-sized
California Tax Return if we merely took your federal taxable
income and applied a separate rate structure to it as is. Maybe
someday, when we are over the current fiscal crisis, I will reintroduce
this idea.
Until then, it would be nice just to eliminate some of the differences
between federal and state tax laws that have developed recently.
One of the most glaring and taxpayer- punishing of these differences
has to do with Health Savings Accounts (HSAs).
HSAs were established by federal law to allow people to obtain
relatively inexpensive high-deductible health insurance, and
then put away tax-deductible money into a savings account to
cover the deductible expense. It is a cost-effective way for
people who could not otherwise afford insurance to acquire it.
It is also a way for small businesses to affordably offer health
insurance to their employees.
But if you set up an HSA in California today, you have to pay
state taxes and a penalty on your contributions to the HSA. So,
rather than make it easier, California makes it harder. Senator
Abel Maldonado (R-Santa Maria) and myself have authored legislation
(SB 173) to fix this.
But, Democrats are worried because it creates a new tax deduction
and thereby will reduce revenue to the state. Now I won't suggest
that this bill will solve the entire problem with uninsured people
in California. But it will help with some of it. Giving people
a tax break to get their own insurance is far cheaper than putting
them in the Medi-Cal program or paying for them when they show
up in emergency rooms.
With all of the talk of new multibillion dollar programs to
insure the uninsured, you would think that endorsing highly cost-effective
HSAs would be a no-brainer. But this is the California legislature.
Nothing logical is a no-brainer for this crowd.
If you think we should have tax-deductible HSAs in California
or if you would like to share how California penalized your HSA,
shoot me an e-mail back so we can begin a chorus of voices demanding
this reasonable approach. There is a lot of time left this year
to get this done. CRO
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