The goal was simple - bring California's tax code regarding debt forgiveness - specifically regarding short-sales and foreclosures - into conformity with federal tax code.
In Sacramento nothing is simple, folks.
I was on a conference call with CAR Chief Lobbyist Alex Creel yesterday when he broke in to announce that both our Senate and Assembly had rushed a bill through and sent it to the Governor for signature. This was a 'cleaned-up' version of a bill the Gov. vetoed a couple weeks ago because it had a bunch of frivolous crap tacked on by Democrats. We didn't have any specifics on exactly what was in the bill or even who voted for and against because it was essentially introduced yesterday morning and passed within an hour or so in the interest of 'helping those in distress'.
So last evening I was at a campaign event with Assemblyman Kevin Jeffries and thanked him for getting this bill through since, in concept, it is similar to a bill sponsored by CAR to accomplish the same goal. Kevin said "Don't thank me - I didn't vote for it." Nor did any Republican in the Assembly or Senate for that matter. Here's why.
The bill does contain the provisions to bring California tax code into conformity with federal tax code regarding the forgiveness of debt for short sale and foreclosure situations as promised. But the other 106 pages contain a number of new and/or increased taxes that everybody else gets to pay. As is customary in Sacramento, all 108 pages of this bill were dropped on Legislators desks and asked for their immediate vote. Republicans called their caucus together to at least give themselves a chance to read the bill (drafted by a Democrat). As they discovered at least 6 new taxes in the bill, they determined they could not, in good conscience, vote for the bill even though it contained the provision badly needed by as many as 87,000 Californians.
How did this happen and how were Democrats able to get new taxes through without the required 2/3 vote? Simple. They called the bill 'revenue neutral'. In a classic tit-for-tat Democrats said - if you want tax breaks for this classification of people it's going to cost other segments of the populace. So since, in theory, the bill does not increase taxes across the board, it can pass on a simple majority vote, which the Democrats hold in both our houses.
So the bill allows tax breaks in conformity with federal law set to expire in 2012. But the tax increases go on and on and on. That's what 'revenue neutrality' looks like to the Democrats. The bill is so cumbersome I would challenge anybody to read it and make sense of it in an hour, let alone the few minutes given before the vote. (click that first line up there and start reading.)
There is even one provision I know is in the bill and I can't find it. Republicans referred to it as the 'kiddie tax'. If you've got a minor that earns money by mowing lawns or working fast food or delivering newspapers, they will now be taxed at their parents tax rate, not on the paltry few bucks they earn. Way to encourage our entrepreneurial youth you dim-bulbed bastards. The only good thing to come out of that will be to encourage a whole new generation of pissed-off people who, by the time they reach voting age, will be ready to throw the scoundrels out. Building a Tea Party one (young) businessperson at a time.
So if you have sold your home short in 2009 and will benefit from this new legislation, congratulations. The Association of Realtors has been supportive of this relief all along. But just be aware that your relief comes with an additional tax burden that will be born by the rest of us long after your immediate gratification runs out. Thank Lois Wolk and the Sacramento Democrats for that.
SB401: The bill would bring a number of areas of California tax code in line with federal law, including a provision that excludes "forgiven debt" on a principal residence from being considered taxable income. Currently, people who sell their homes back to the bank for less than what they owe on their mortgages are being hit with tax bills counting the difference between the mortgage balance and sale price as income. The bill would apply to short sales, foreclosures, deeds in lieu of foreclosure and loan modifications that reduce the principal due. The Legislature is expected to pass this bill today, and it appears likely the governor will sign it. The 108-page bill would be retroactive to the 2009 tax year.