CalCoast News

GEORGE SKELTON
Poor won't have the luxury of a tax loophole

Los Angeles Times
February 18, 2008

SACRAMENTO — When you've got Republicans who won't even close a tax loophole for yacht buyers, there isn't much hope of honestly solving California's budget mess.

How can anyone take seriously lawmakers who insist on protecting a "sloophole," as Assembly Speaker Fabian Nuñez calls it? Why should anyone regard them as anything but rigid ideologues, unwilling to compromise even as the state tumbles toward bankruptcy?

Shamefully, the longest, most intense debates in each legislative house over a $7-billion deficit-reduction package Friday concerned whether to continue allowing purchasers of yachts, RVs and airplanes to avoid the California sales and use tax. They do that by taking delivery out of state and parking the toy there for 90 days. The bill that Republicans blocked in the Assembly would have required the plaything to be stashed outside California for at least a year.

Oregon doesn't impose a sales tax, but offers temporary moorings that are popular with rich California boat buyers.

There was a more logical debate in both houses over whether to cut the already miserly medical provider fees for treating poor patients who are covered by Medi-Cal, California's version of Medicaid. This state right now has the lowest Medicaid reimbursement rates in the nation. And the Legislature voted to slash them 10% starting July 1.

Lawmakers of both parties winced.

Republican Assemblyman Rick Keene of Chico called it "a bad move," warning that rural hospitals, patient transportation firms and pharmacies "will be going out of business," denying poor people access to care.

"Thank you for your Democratic speech," Nuñez told him.

In the Senate, Republican Sam Aanestad of Grass Valley -- a dentist -- said he already had stopped serving Medi-Cal patients because of low rates. Under the new cost-cutting, he said, "there'll be hundreds of doctors dropping out of the program. I predict it's going to lead to the demise of the Medi-Cal program as we know it."

Aanestad added: "It's also an unfair action. We're not reducing salaries of teachers or prison guards or highway patrolmen. But this is easy, because these [providers] don't have a [union] contract."

Democratic Sen. Sheila Kuehl of Santa Monica responded that when Republicans won't consider raising taxes, they can't be too picky about what spending to cut.

A few Republicans also objected to postponing the appointment of new judges in their districts.

Nobody seemed to cringe, however, before delaying meager cost of living increases for 1.3 million impoverished aged, blind and disabled from June until October. Welfare moms also had their scheduled July benefit hikes put off until October.

Actually, these people will be lucky to receive any kind of benefit boosts in the foreseeable future. By the Legislature's calculation, there's still a $7.5-billion hole to fill for the next fiscal year. And that's just the latest depressing figure. The hole is expected to grow even larger Wednesday, when nonpartisan Legislative Analyst Elizabeth G. Hill delivers worse news about the state's declining tax revenue.

Closing the yacht tax loophole would provide mere nickels and dimes: $26 million in the current and next fiscal years.

You can argue over the amount -- and lawmakers did -- but the dollars are less pertinent than the principle.

"It's pretty hard to consider cutting people's medical care without also cutting other people's yacht tax loophole," declared Assembly Budget Committee Chairman John Laird (D-Santa Cruz).

But the committee vice chairman, Republican Roger Niello of Sacramento County, rose to protect the tax break. "I do not believe -- and our [Republican] caucus does not believe -- that raising taxes is an appropriate way to solve our budget problems," he asserted, looking a little uneasy.

In the Senate, Republican Tom McClintock of Thousand Oaks agreed with Democrats that "this is not a tax increase." The loophole, he said, has been "a way to avoid paying the California sales tax. It's tax avoidance, no question." But he still opposed closing it because, the senator insisted, that would hurt California boat-builders and the economy.

The loophole previously had been plugged, but was restored during last summer's protracted budget negotiations by sailboat skipper Dick Ackerman of Irvine, the Senate Republican leader. Closing it again would result in "a severe economic impact," he cautioned. There'd be layoffs of boat craftsmen.

Democrats didn't buy it.

The loophole is a "subsidy for those who are very fortunate to own yachts, planes -- God bless 'em, already," said Sen. Gil Cedillo (D-Los Angeles). But the subsidy needs to end. "I miss Gov. Wilson," Cedillo added. "I respected his courage to confront head-on the challenges of this state."

In 1991, Republican Gov. Pete Wilson raised taxes a record $7 billion and cut spending a like amount to fill a giant deficit.

Today, Cedillo said, "the real crisis is a crisis of leadership."

That was a shot at Gov. Arnold Schwarzenegger. It's unfortunate how little influence the Republican governor has with GOP lawmakers. Blame that largely on his failure to help them more politically, especially in raising campaign money.

Schwarzenegger, I suspect, would be willing to consider a temporary tax increase to balance the books if there was any hope of coaxing Republicans to follow his lead.

It was the governor who suggested closing the yacht tax loophole. But only three Senate Republicans voted for it, barely enough to pass the measure. In the Assembly, however, just two Republicans voted for the bill, and it fell nine short of receiving the necessary two-thirds majority.

Nuñez will push for another vote Tuesday.

Politically, Democrats would love for Republicans to continue carrying water for tax-dodging, multimillionaire yachtsmen. But for public policy, it would leave budget negotiators dead in the water.

george.skelton@latimes.com