Tough Questions, Tough Times in California


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Last month, the California Legislative Analyst's Office (LAO) released a report examining the state's largest tax expenditure, its personal income tax deduction for mortgage interest. At an annual cost of $5 billion, the deduction loses as much personal income tax revenue as some states collect in a given year, yet Californians -- particularly low- and moderate-income taxpayers -- don't seem to be getting much for their money.

Nearly half of the benefits from the mortgage interest deduction go to the richest 10 percent of taxpayers in the state and, as the report points out, the deduction probably isn't doing all that much to improve homeownership rates. Accordingly, the report offers a number of recommendations -- such as converting the deduction to a credit -- for making this particular tax expenditure more cost-effective, ideas that Daniel Borenstein of the Contra Costa Times recently endorsed.

Of course, such critical thinking about California's tax system will be even more essential in the months ahead, as it now appears that the Golden State will face a budget deficit as big as $14 billion in the coming fiscal year.

Thank you for visiting Tax Justice Blog. CTJ and ITEP staff will soon retire this domain. But ITEP staff are still blogging! You can find the same level of insight and analysis and select Tax Justice Blog archives at our new blog, http://www.justtaxesblog.org/

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