Among the hundreds of bills introduced in every session of the California Legislature, a few deal with what state officials term “tax expenditures,” which requires some explanation.
The term refers to provisions in personal and corporate income taxes and sales taxes that exempt specific financial transactions from levies that otherwise would be applied. They have exactly the same fiscal effect as direct appropriations in the budget, which is why they are dubbed “expenditures.”
While many loopholes reflect a broad public and political consensus that they serve positive purposes — such as making prescriptions drugs and most grocery store foods tax-free — others provide subsidies to special interests with political clout.
My personal favorite among the latter was enacted about 35 years ago at the behest of Silicon Valley interests. It exempted custom computer programs from sales taxes, generally benefiting corporations willing to pay millions of dollars for such software, while continuing to tax off-the-shelf programs such as Quicken or TurboTax purchased by ordinary consumers.