Arnold Protects Tax Cheats, Refuses Tax Relief for Struggling Families

At a time when California is facing yet another budget crisis, you’d think Gov. Arnold Schwarzenegger would want to crack down on tax cheats, especially if it meant that families and businesses would receive some tax relief as a result.

Think again.

This week, the Governor said he would not sign a bill passed by the Legislature to give tax relief to struggling homeowners and renewable energy companies because the bill would also increase the penalty on multi-million dollar corporations and the wealthiest Californians who blatantly cheat on their taxes.

State Senator Lois Wolk:

The only reason you would oppose this penalty is if you’re cheating on your taxes.

So the Governor won’t sign in to law tax relief for working Californians and green business but he’s willing to protect tax cheats? That’s right, if those tax cheats are his wealthy corporate friends and benefactors.

Usually big corporations love when the Legislature enacts tax breaks—the state gives away $14.5 billion in corporate tax breaks every year. But corporations don’t like it when those tax breaks come with new scrutiny and accountability, and penalties for breaking the law. A coalition of business groups, including the California Chamber of Commerce and the Western States Petroleum Association, lobbied against the bill, SBx8 32, and convinced Governor Schwarzenegger not to sign.

SBx8 32, introduced by Senator Wolk, does several things to bring California state tax law into line with federal law and bring some tax relief to Californians who sought mortgage debt forgiveness. According to the Jim Wasserman at the Sacramento Bee:

One clause would eliminate state tax penalties for those who received loan modifications last year or did short sales. In loan modifications, lenders sometimes forgive a few months of payments. In short sales, they agree to sales prices below what they're owed to avoid foreclosing. The differences in both are considered forgiven debt for the homeowner and typically taxed as extra income.

Vacaville homeowner Mark Mosley said Monday he received a $21,000 tax bill last week for a $59,000 loan modification he received in 2009. He said his lender notified him he owes $13,000 to the federal government and $9,000 to the state.

It's almost certain, however, that Mosley doesn't owe federal taxes. The federal government has banned the IRS from taxing forgiven mortgage debt through the end of 2012. The state government had similar bans in place for the 2007 and 2008 tax years. But it hasn't yet extended the ban to the 2009 tax year.

While every homeowner's case can be different, typically those who live in the homes they own can avoid being taxed for forgiven debt. Lawmakers called it a fairness issue Monday, arguing that people having mortgage hardships shouldn't also get hit with a big state tax bill.

The bill also excludes federal grants for renewable energy production to prevent businesses that sends a message that California supports and encourages the development of a clean energy sector in the state. Without this important clarification, financing for projects in the works to bring jobs to California could fall through.

SBx8 32 brings California tax law into line with federal law and extends badly needed tax relief to homeowners and green technology. But the Governor would rather protect multi-millionaire tax cheats. Send a message to the Governor that Californians will not tolerate corporate tax cheats. Give relief to ordinary Californians and green business NOW! Click here to contact the Governor.