05/24/2010 11:56 am ET Updated May 25, 2011

Time to Scrutinize California Tax Breaks

Today, Gov. Arnold Schwarzenegger will release the May revision to his proposed state budget that will surely include further spending reductions and more borrowing.

Legislators will then work to reach a budget agreement with the governor that likely will rely on more draconian program cuts, further decimating funding for our public schools, cutting programs that serve the elderly and our most vulnerable, raiding local government coffers and imposing increased debt burden on our children and future generations of Californians.

However, one option that should be on the table but has consistently been dismissed is the billions of dollars of tax breaks that have yet to be examined.

California law allows tax breaks that arguably are beneficial, such as tax credits for donations of property for conservation purposes. They also can make the tax system more equitable for those incurring costs due to certain circumstances, such as excluding Social Security benefits from gross income subject to tax.

Although some are meritorious, tax breaks reduce the revenue that is desperately needed today. They have escaped serious scrutiny during the annual budget process for possible modification, suspension or repeal, leaving unanswered the question of whether their policy objectives remain a priority for our state.

And examining these special tax provisions is more imperative now than ever, as California enters its fifth straight year of budget shortfalls for which low-income and working families and individuals have had to bear the burden from program cuts in education, health care and public assistance.

For example, should there be any grace period for which the purchases of yachts for use outside of California are exempt from sales and use tax when these vessels ultimately are brought into California for use?

Should the mortgage interest deduction allowed for second vacation homes be modified or suspended when so many California families can ill afford to pay their rent or mortgage payments on their principal residence?

Should corporations be allowed to elect how they apportion their income to maximize their tax benefits?

Should businesses that locate in economically depressed areas continue to be eligible for special business expense deductions and hiring credits for employees when there is very little evidence that these credits have helped to stimulate economic activity and create a significant number of net new jobs?

Or should the forgone revenue from these tax breaks be appropriated and directed to higher priority objectives, such as: providing health care, food assistance and housing programs for our needy senior citizens and low-income families and individuals; and education and job training or retraining for the million-plus Californians who have lost their jobs since the recession?

The choices for how to direct our tax revenue are best considered and given sunshine during budget deliberations, when these tax breaks can be weighed against program expenditures.

Additionally, the controversy over whether to enact a new spending cap to rein in spending and limit the use of one-time revenue is a false debate. California already has such a spending cap - the State Appropriations Limit - that was originally approved by the voters in 1979.

A new automatic spending cap would be an irrational tool for how to best deal with the economic hardships and budget shortfalls that we are experiencing, especially if the cap does not, among other things, consider the lost revenue from tax breaks. As for how to address the expenditure of one-time revenue, that is the purpose of a budget reserve.

Difficult times require bold leadership to ensure essential government services are available for Californians in need and to ensure all Californians, including our most wealthy, step up to accept sacrifice. If we have any hope of reversing the spiral of disinvestment in our precious human capital, imposing more cuts to public education, health care and social services cannot continue. As a public official, I share in the responsibility of ensuring California's budget is balanced each year.

Yet during these stressful times for millions of Californians, all public officials have a moral obligation to do their very best to ensure that the pain and adverse consequences of budget shortfalls are borne fairly by all, not just those who are least able to shoulder the additional burdens.

So let the budget deliberations begin in earnest, with attention focused on the revenue from tax breaks and the need for broader shared responsibility.