THE CAL SIMPLE TAX PLAN

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UNITED CALIFORNIANS  

FOR TAX REFORM  

info@CalSimpleTax.org   

 

THE CALIFORNIA SIMPLE TAX

Economic Impact on State Finances

Taken in context of the Expenditures and Revenue Stream which make up California's General Fund, the economic impact of our tax plan is negligible. 

Consider, for example: The California Franchise Tax Board and its 6000 employees spend $445 million each year to interpret, prepare and process 13 million California income tax returns. They spend an average of $34 on each long form tax return but only about $2 on each 540EZ short form.  If we were to replace 10 million complex tax forms with our 540-Simple tax form the FTB could reduce its workload by 75% and save $320 million for the State Fund.

In addition to this savings in bureaucratic overhead, the real question is why a tiny percentage of the various exemptions and deductions could not be cut - a small price to pay to free 3 out of 4 Californians from the Franchise Tax Board's annual torture test, Form 540.

SUPPORTING DATA

In order to understand the effect of our modest tax reform on California's State Finances it is important to first discuss in broad terms the income stream which makes up the state's general fund, its overall size, and the Tax Expenditures (Deductions, Exemptions and Credits) which reduce State Revenue.

In 2001 the General Fund revenue stream consisted of the following:

Personal income tax $ 43.1 Billion      (57.4%)
Bank and Corporation Tax $ 5.5 Billion (7.3%)
Retail Sales Tax $ 21.1 Billion (28.1%)
All other sources $ 5.4 Billion (7.2%)
Total Revenue Received $ 75.1 Billion (100.0%)

The California Legislative Analyst's Office reported that Tax Expenditures in both the personal and corporate income tax reduced State revenue over $20 billion in 2001.

Some of the larger Tax Expenditures are listed below:

Personal Income Tax:
     Mortgage interest deduction $3.2 Billion
     Exclusion of pension contributions $3.2 Billion
     Exclusion of health plan contributions    $2.7 Billion
     Exclusion of Social Security benefits $1.2 Billion
     Charitable contributions deduction $1.2 Billion
     All other tax expenditures $6.6 Billion
     Total personal income tax revenue lost $18.1 Billion
   
Sales and Use Tax revenue lost $1.1 Billion
   
Bank and Corporation Tax revenue lost $4.0 Billion

Eliminating just 5 percent of these Tax Expenditures would more than pay for our tax plan. 

 

References:

1 Informational Hearings on Review of Tax Expenditures: Assembly Committee on Revenue and Taxation January 8 2002 (visit Committee website in a new window)

2 Annual Report 2001: California Franchise Tax Board (see FTB Reports in a new window)

3 Personal communications with the California Franchise Tax Board: Notes on file with Roland Boucher, Chairman, United Californians for Tax Reform.

4 Personal communications with the Statistics of Income Division of the Internal Revenue Service: Notes on file with Roland Boucher, Chairman, United Californians for Tax Reform.   The IRS and its 100,000 employees spend over $9 Billion each year to interpret, prepare and process 130 million Federal Income Tax returns. They spend an average of $69 on each tax return. Were our simple tax plan adopted by the Federal Government, and were they able to process a simple tax form as efficiently as California, the IRS might be able to reduce its budget by $7 Billion and its work force by 70,000 personnel.

 

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