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Ronald Reagan Presidential Library
Digital Library Collections
This is a PDF of a folder from our textual collections.
Collection: Reagan, Ronald: Gubernatorial Papers,
1966-74: Press Unit
Folder Title: Issues - Withholding
Box: P32
To see more digitized collections visit:
https://reaganlibrary.gov/archives/digital-library
To see all Ronald Reagan Presidential Library inventories visit:
https://reaganlibrary.gov/document-collection
Contact a reference archivist at: [email protected]
Citation Guidelines: https://reaganlibrary.gov/citing
National Archives Catalogue: https://catalog.archives.gov/
leithholding
HEARINGS
before the
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Assembly of the State of California
o00o
Personal Income Tax and Bank and Corporation Taxes
1. A Personal Income Tax Withholding and Estimates Plan
2. The 1967 Personal Income Tax Prepayment Plan
3. State Conformity with Recent Changes in the U. S.
Internal Revenue Code
4. Proposed Federal Legislation Regarding the Taxation
of Interstate Commerce
Statement by:
Martin Huff
Executive Officer
Franchise Tax Board
January 5, 1968
San Francisco, California
1. A PERSONAL INCOME TAX WITHHOLDING AND ESTIMATES PLAN
Assumptions
In order to quantify the additional revenue to be expected from a
Personal Income Tax Withholding and Estimates Plan, it is necessary
to make a number of assumptions as to specific provisions. For the
purposes of this report we have assumed that the withholding and
estimates provisions of A.B. 484 (1967 regular session) would be enacted
with the effective dates set forward one year.
The key features of such a plan are:
(1) There would be no forgiveness.
(2) Payroll withholding would start October 1, 1968.
(3) Monthly withholding by employers would be paid over to
the State by the fifteenth of the following month if
more than $50.00, except that the payment for the final
month of each quarter would not be due until the last day
of the month following the close of the quarter.
(4) Quarterly estimates would start April 15, 1969, with
succeeding payment dates to be June 15, September 15 and
January 15.
(5) The present Prepayment Plan would be continued through
December 31, 1968, and then repealed.
Fiscal Effect
Using the above assumptions for fiscal year 1968-69, the estimated one-
time revenue would be $407,000,000 and the ongoing revenue would be
$15,000,000. (See Exhibit A)
For 1969-70 the estimated one-time revenue would be $38,000,000 and the
ongoing revenue would be $84,000,000. (See Exhibit B)
-1-
1/5/68
For 1970-71 the estimated ongoing revenue would be $89,000,000. (See
Exhibit C)
These data are based on the same economic assumptions that were developed
for the 1967 legislative session. When the Department of Finance releases
more current data, revisions will be necessary.
Administrative Costs
The administrative costs of a Withholding and Estimates Plan were studied
in the spring of 1967 and the following cost projections were made:
(Millions)
1967-68
$4.1
1968-69
5.8
1969-70
4.6
A number of adjustments to these projections would be necessary:
(a) They must all be set forward one year.
(b) Changes in salary levels and price changes for equipment
and supplies must be taken into account.
(c) Offsets to the costs arise from the fact that the department's
budget for 1968-69 will include the costs of the present
Prepayment Plan.
(d) Changes in both the Personal Income Tax Law and the Bank and
Corporation Tax Law for 1967 made it necessary to expand the
capacity of the department's electronic data processing system.
As a result, the incremental cost of adopting withholding
would be significantly less than previous projections.
Costs would vary to some extent depending on the specific provisions of
any legislation. For this reason we have not attempted to refine the
previous projections at this time. However, we believe they do give some
indication of the general magnitude of the costs to be expected.
FTB 1/5/68
-2-
The full administrative cost of the tax legislation enacted in 1967 will
not be accurately measurable for several years. A sharp rise in "no
remittance" and collection cases could easily result in higher incremental
costs for the 1967 legislation than for a withholding plan.
Employer Compliance Burden
How long an employer would have the use of tax withheld monies depends on
the pay period of the particular employer.
Very large employers using sophisticated accounting and payroll systems
would probably make effective use of the funds for the short term retained.
Small employers with a single payroll clerk would incur some cost because
they would absorb it as an extension of one person's activities.
Employers using the services of bookkeeping companies would probably
experience increased costs; however, this would be partially offset by
their use of the money.
Federal Estimates Plan vs California Prepayment Plan
If a Withholding Plan were to be adopted, we believe serious consideration
should be given to integrating the present Prepayment Plan into it, rather
than adopting the Federal estimates plan. One of the main reasons for the
success of the Prepayment Plan was the issuance of bills.
If the billing feature is retained, however, it would not be possible to
have a quarterly estimate plan, as bills could not be issued in time
for the first or second payments. A three-payment plan, with the first
payment on October 15, the second payment on January 15 and a final payment
with the return on April 15 would be feasible.
If a quarterly estimate plan were adopted, it would still be possible to
FTB 1/5/68
-3-
base the estimate requirement on the prior year's tax which is another
important feature of the present Prepayment Plan. It could be required,
for example, that every individual owing tax of $100.00 in excess of that
covered by withholding file an estimate.
The Federal Government and many states have serious problems with their
estimates programs. The present Prepayment Plan avoids most of these
problems. We feel that every attempt should be made to retain the good
features of the present plan.
Present Withholding Program
The department's present withholding program is a very limited one.
Taxes are withheld from nonresidents who are entertainers, winners
of horse races, and individuals with similar types of income. The total
tax collected for the year 1966 was $1,042,731 from 308 withholding agents'
accounts and involving approximately 2,500 taxpayers.
Withholding - Other States
Thirty-six states (including Washington, D. C.) have personal income tax
laws. All of these have withholding except California, Mississippi and
North Dakota.
"TB 1/5/68
-4-
2. THE 1967 PERSONAL INCOME TAX PREPAYMENT PLAN
The payments made under the Prepayment Plan provided by S.B. 556 (1967
regular session) are deductible for Federal income tax purposes in the
year of payment as are the estimate payments made under the provisions
of the laws of other states.
Our opinion is supported by a specific Federal ruling in respect to
Maryland (Revenue Ruling 56-24, Cumulative Bulletin 56-1, page 27) and
News Releases issued by the Los Angeles and San Francisco District
Directors of Internal Revenue as to the California provisions.
Through November 1967, the Prepayment Plan produced cash receipts of
$130,540,000. Further comparatively small sums were received during
December and are being received currently.
Forty-seven percent of the revenue was received from taxpayers whose
prepayment liability was under $600. Twenty-one percent was received
from those whose liability was under $200. The under $200 cases
constituted 57% of the total number of items billed. (See Exhibit F)
Of the 375,000 items billed, 4.6% were non response cases. In the under
$200 class, the non responses were slightly higher than the over-all
average and amounted to 5.4% (See Exhibit G)
Those paying estimates rather than one-half of last year's tax represented
2.75% of those billed. Ten thousand three hundred taxpayers were billed
for $14,000,000 and paid $4,000,000. Eleven thousand five hundred
individuals, or 3.1%, paid more than the amount billed. In this group,
the amount billed was $5,500,000 and the amount paid was $12,000,000.
These two categories tend to offset one another. The State received within
FTB 1/5/68
-5-
$3,500,000 of the amount billed on a combined basis. (See Exhibits H and I)
Some individuals did have difficulty understanding the estimate provisions
and we received a number of letters, telephone calls and visits at the
counter. In several hundred cases individuals thought they were being
billed for 1966 taxes which they had already paid. While we did receive
several thousand inquiries, the total was small compared with the number
billed.
The procedure in handling estimates to date has involved the identification
of those required to file estimates, issuance of bills, and the handling of
the remittances and correspondence. Through November, the direct costs of
this operation were approximately $211,000.
Future processing procedures, involving verification of credits claimed,
will run about an additional $245,000 in direct costs.
It is possible for an individual to prepay more than the 1967 tax liability.
If this occurs, the taxpayer will normally claim the credit on his 1967
return. A refund will be made as soon as the verification of the payment
is made and the necessary formal steps involved in making refunds are com-
pleted.
It is, also, possible for the State to derive some revenue from unclaimed
refunds but this is somewhat unlikely. All payments received which are
not matched against returns will be audited. Thus, if a taxpayer pays
$500 on an estimate and fails to claim it on his return, this will come
to our attention and a refund will be initiated by the department.
There may be a few cases where estimated payments are made, no return is
filed, and the taxpayer cannot be located. In such cases the State would
retain the payment. It is unlikely there will be any significant number
FTB 1/5/68
-6-
of such cases.
Based on Finance Department revenue projections made some time ago, and on
our 1967 experience with this new program, we anticipate the Prepayment Plan
will realize $241,000,000 in October and November 1968 receipts.
FTR 1/5/68
-7-
3. STATE CONFORMITY WITH RECENT CHANGES IN THE U. S. INTERNAL REVENUE CODE
The first session of the 90th Congress has produced only one amendment
to the Internal Revenue Code which affects the laws administered by the
Franchise Tax Board. Public Law 90-78 amended Section 152 of the Internal
Revenue Code. This is equivalent to Sections 17056 through 17059
of the Personal Income Tax Law and relates to the $600 deduction for
dependents with respect to the children of divorced or separated parents.
The determination of which parent is entitled to the deduction has been
a troublesome administrative problem. Public Law 90-78 provides rules
designed to facilitate the determination of which parent is entitled to
the deduction in these cases.
It is our recommendation that we conform our law to the Federal law,
since we also have numerous problems in this area. Conformity here
would result in a negligible revenue loss. This is because the California
law now provides for an exemption credit of $8.00 for a dependent rather
than a $600 deduction which under prior law could be deductible at the
maximum rate of tax.
We have prepared the draft of a bill to accomplish this.
FTR 1/5/68
-8-
4. PROPOSED FEDERAL LEGISLATION REGARDING THE TAXATION OF INTERSTATE
COMMERCE
This is my third report to the Committee upon the status of Federal
legislation which would limit the right of the states to impose taxes
upon corporations engaged in interstate commerce. H.R. 2158 is the bill
presently before Congress. It is known as "The Interstate Taxation Act"
or, more popularly, "The Willis Bill" after its author, Congressman Willis
of Louisiana. It is the third bill to bear these titles.
Attempted Federal intervention in the field of taxation of interstate
commerce stemmed from two decisions of the United States Supreme Court
rendered in 1959. These were Northwestern States Portland Cement Co. V.
Minnesota and Williams V. Stockham Valves & Fittings, Inc. These decisions
merely reaffirmed the right of a state to impose an apportioned income tax
upon a corporation whose only activities in a state were interstate commerce
activities. This was not a new holding. The California corporation income
tax, enacted in 1937, and similarly taxing corporations engaged in inter-
state commerce, had been upheld by both our state courts and by the United
States Supreme Court.
However, much publicity was given to the 1959 decisions, and it was contended
by the business world that interstate corporations would be unduly burdened
if all of the states enacted income taxes of the type upheld. Congress
reacted by enacting for the first time legislation which restricted a state's
right to impose a tax. After very limited hearings, Congress hastily enacted
Public Law 86-272.
This law provided that a corporation could not be subjected to a state income
tax if its activities within the state were confined to soliciting sales.
FTB 1/5/68
-9-
This law was stop gap legislation. The act contained a time limitation
and it directed that a study be made by Congress of state taxation of inter-
state commerce to serve as a basis for future legislation.
This study was made by a Special Subcommittee on State Taxation of Interstate
Commerce of the Committee on the Judiciary of the House of Representatives.
After four years a report was made and a Subcommittee bill, H.R. 11798,
was introduced by Subcommittee Chairman Willis.
Although only income taxes were the subject of the Supreme Court decisions
I have mentioned, H.R. 11798 proposed to regulate most phases of state and
local taxation and further provided for Federal administration of at least
a part of these taxes.
The bill was vigorously opposed by industry and by the states. A principal
reason for the opposition was the danger the bill posed to the continuation
of our Federal system of government.
As a result of the widespread opposition, the Subcommittee dropped H.R. 11798
shortly after the hearings on the bill were concluded. In its place, a sub-
stitute bill, H.R. 16491 was introduced.
H.R. 16491 eliminated some of the more objectionable features of the original
bill, including the provisions for Federal administration of state taxes.
No hearings were held upon this bill. It was voted out of the House Judiciary
Committee but was held in the Rules Committee. It did not reach the House
floor during the 89th Session of Congress.
In early 1967, shortly after the 90th Congress convened, Congressman Willis
introduced a new bill, H.R. 2158. This bill was identical to the old H.R.
16491. Before voting this bill out, the Special Subcommittee amended the
10
bill to extend the power of states to tax corporations engaged in interstate
business beyond the severe restrictions contained in the earlier bills. These
amendments represented substantial improvements in the bill. These changes
had been suggested by California to the California delegation and to Congress-
man Willis.
Arguments for the bill are that while state taxes are not now a burden
upon interstate business, they might become so if state tax compliance
is vigorously enforced. Some groups of small businesses argue that diverse
state taxing methods and requirements cause inconvenience and unreasonable
compliance expenses.
Arguments against the bill are: (1) it is an unwarranted Federal invasion
in the state tax field, (2) it places many California businesses at a
substantial competitive disadvantage with out-of-state business (5% on gross
sales and 7% of net income under the new rates), (3) it deprives California
of revenues at a time when revenue needs are most acute, and (4) it would
require Californians to incur an additional tax burden because they would
be forced to subsidize multistate businesses not based in California, which
are taking advantage of our markets.
In February of this year, the Judiciary Committee voted the bill out, as
amended, after a skirmish in the Committee whereby it was sought to delete
all income tax provisions, except for jurisdictional standards. The motion
to do this was lost by a 14-14 tie vote.
The bill was sent to the Rules Committee in March of last year. In July,
it passed out of the Rules Commitee under an open rule which would permit
amendment on the floor of the House. To date it has not been called up for
consideration. We understand that the rule given the bill is still good
for the session of Congress that will start ten days from now. Our best
1/5/68
-11-
information is that the bill was not brought up at the last session because
the Speaker of the House didn't feel there were enough votes for passage. At
this point in time, we don't know what the prospects for 1968 are.
Problems do exist in the area of interstate taxation. The states, including
California, are working on these problems and considerable progress has been
made. One major problem has been the diverse methods used by the states to
apportion income of multistate businesses. There are 39 states which impose
a tax on or measured by income. To date, 21 of these, including California,
have enacted the Uniform Act for apportioning such income. This Act is
under consideration by 11 more of the states. It is felt that the states
can best solve these problems and should be given time to do SO. We feel
that H.R. 2158 in its present form is unacceptable.
This unacceptability is spelled out in detail in Assembly Joint Resolution
No. 25, passed by the Legislature in the 1967 session.
FTB 1/5/68
-12-
HEARINGS
before the
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Assembly of the State of California
0000
APPENDIX
to
Statement by Martin Huff, Executive Officer, Franchise Tax Board
January 5, 1968 San Francisco, California
Personal Income Tax
EXHIBIT A - A WITHHOLDING AND ESTIMATES PLAN
Revenue Sources - 1968-69 Fiscal Year
EXHIBIT B - A WITHHOLDING AND ESTIMATES PLAN
Revenue Sources - 1969-70 Fiscal Year
EXHIBIT C - A WITHHOLDING AND ESTIMATES PLAN
Revenue Sources - 1970-71 Fiscal Year
EXHIBIT D - A WITHHOLDING AND ESTIMATES PLAN
Estimated Cash Flow - By Source of Revenue
EXHIBIT E - A WITHHOLDING AND ESTIMATES PLAN
Forgiveness
EXHIBIT F - 1967 PREPAYMENT PLAN
Revenue Generated - By Class
EXHIBIT G - 1967 PREPAYMENT PLAN
Nonresponse Cases - As a Percentage of Items Billed
EXHIBIT H - 1967 PREPAYMENT PLAN
Revenue from Those Paying Estimates Rather Than Billed Amount
EXHIBIT I - 1967 PREPAYMENT PLAN
Revenue from Those Paying More Than Billed Amount
General
EXHIBIT J - October 31, 1967 Letter From Hon. John G. Veneman, Chairman,
Assembly Revenue and Taxation Committee
EXHIBIT A
Personal Income Tax
A WITHHOLDING AND ESTIMATES PLAN
Revenue Sources - 1968-69 Fiscal Year
(Effective October 1, 1968 without forgiveness and including quarterly estimates)
Fiscal effect
1. ONE TIME REVENUE
A. Withholding - accelerated collection: Taxes withheld by employers during January . - May 1969,
would be remitted to the State during fiscal 1968-69. These taxes would not normally be
collected until April 1970
$282,000,000
B. Declarations of estimated tax - accelerated collection: Declarations of estimated tax on 1969
income would be due on April 15, 1969, and June 15, 1969. This is the counterpart to with-
holding. These taxes would not normally be collected until October 1969 and April 1970
$135,000,000
C. Accounts receivable: Some taxpayers would not completely understand the new system and others
would resist it. As a result it is expected that "no remittance" returns would increase on
April 15, 1969. These taxes would not be collected until 1969-70
-$10,000,000
Subtotal One time revenue
$407,000,000
2. ONGOING EFFECTS OF PROGRAM
A. Improved compliance: Primarily from people who file "no remittance" returns or who do not file
returns at all. The amounts are frequently too small to be collected under the present system.
Also included are returns with small computational errors that are below the billing limits
$5,000,000
B. Accelerated collection: Primarily attributable to earlier collection of revenues otherwise
receivable through the department's filing enforcement programs, as well as a drastic reduction
in the number of "no remittance" and "partial remittance" returns on which payment is received
during the billing cycle, but before collection effort is instituted
$5,000,000
C. Other: Attributable to monies withheld from people who fail to file for a refund, deaths, emi-
grants whose taxes are uncollectible, and bankruptcies
$5,000,000
Subtotal Ongoing revenue
$15,000,000
Total - 1968-69 fiscal effect
$422,000.000
FTB 1/5/68
EXHIBIT B
Personal Income Tax
A WITHHOLDING AND ESTIMATES PLAN
Revenue Sources 1969-70 Fiscal Year
(Effective October 1, 1968 without forgiveness and including quarterly estimates)
Fiscal effect
1. ONE TIME REVENUE
A. Accounts receivable: This is the converse of the $10,000,000 of delayed receipts in 1968-69
indicated in 1C for 1968-69
$10,000,000
B. Declarations of estimated tax - improved compliance: Many taxpayers will underestimate their
declarations filed on April 15, 1969. This will be corrected when they have a year's experience
and make more precise estimates on April 15, 1970. If taxpayers correctly estimated their 1969
liabilities on April 15, 1969, this $15,000,000 would be realized during 1968-69
$15,000,000
C. Delayed refunds: A11 refunds on 1969 income year taxes would not be paid during 1969-70
because of a delay in receiving the refund claims and some backlog in the processing of claims
(primarily because of the necessity for selected prerefund audits)
$13,000,000
Subtotal - One time revenue
$38,000,000
2. ONGOING EFFECTS OF PROGRAM
A. Improved compliance: Primarily from people who file "no remittance" returns or who do not file
returns at all. The amounts are frequently too small to be collected under the present system.
Also included are returns with small computational errors that are below the billing limits
$20,000,000
B. Accelerated collection: Primarily attributable to earlier collection of revenues otherwise
receivable through the department's filing enforcement programs, as well as a drastic reduction
in the number of "no remittance" and "partial remittance" returns on which payment is received
during the billing cycle, but before collection effort is instituted
$10,000,000
C. Withholding - accelerated collection: This is the result of an expanding economy. The benefit
of economic growth is realized during the income year rather than the subsequent year
$29,000,000
D. Declarations of estimated tax - accelerated collections This is the result of an expanding
economy. The benefit of economic growth is realized during the income year rather than the
subsequent year
$15,000,000
(continued next page)
EXHIBIT B (cor
Personal Income Tax
A WITHHOLDING AND ESTIMATES PLAN
Revenue Sources - 1969-70 Fiscal Year
(Effective October 1, 1968 without forgiveness and including quarterly estimates)
Fiscal effect
C. Other: Attributable to monies withheld from people who fail to file for a refund, deaths, emi-
grants whose taxes are uncollectible, and bankruptcies
$10,000,000
Subtotal - Ongoing effects of program
$84,000,000
Total - 1969-70 fiscal effect
$122,000,000
FTB 1/5/68
EXHIBIT C
Personal Income Tax
A WITHHOLDING AND ESTIMATES PLAN
Revenue Sources - 1970-71 Fiscal Year
(Effective October 1, 1968 without forgiveness and including quarterly estimates)
Fiscal effect
1. ONE TIME REVENUE
None
2. ONGOING EFFECTS OF PROGRAM
A. Improved compliance: Primarily from people who file "no remittance" returns or who do not file
returns at all. The amounts are frequently too small to be collected under the present system.
Also included are returns with small computational errors that are below the billing limits
$20,000,000
B. Accelerated collection: Primarily attributable to earlier collection of revenues otherwise
receivable through the department's filing enforcement programs, as well as a drastic reduction
in the number of "no remittance" and "partial remittance" returns on which payment is received
during the billing cycle, but before collection effort is instituted
$10,000,000
C. Withholding - accelerated collection: This is the result of an expanding economy. The benefit
of economic growth is realized during the income year rather than the subsequent year
$30,000,000
D. Declarations of estimated tax - accelerated collection: This is the result of an expanding
economy. The benefit of economic growth is realized during the income year rather than the
subsequent year
$17,000,000
E. Delayed refunds - annual growth: This is the result of an expanding economy. The benefit of
economic growth is realized during the income year rather than the subsequent year
$2,000,000
F. Other: Attributable to monies withheld from people who fail to file for a refund, deaths, emi-
grants whose taxes are uncollectible, and bankruptcies
$10,000,000
Total - 1970-71 fiscal effect
$89,000,000
EXHIBIT D
Personal Income Tax
A WITHHOLDING AND ESTIMATES PLAN
Estimated Cash Flow - By Source of Revenue
(Effective October 1, 1968 without forgiveness and including quarterly estimates)
Fiscal month
Present
Withholding law
Estimated
law
With- Declar- Returns &
Net1
change 2/
holding
ations
misc. coll.
Refunds
flow
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(MILLIONS)
July 1968
$20
-
-
$20
-
$20
-
Aug. 1968
10
-
-
10
-
10
-
Sept. 1968
10
-
-
10
-
10
-
Oct. 1968
160
-
-
140
-
140
-$20
Nov. 1968
90
$52
-
80
-
132
42
Dec. 1968
30
54
-
40
-
94
64
Jan. 1969
20
90
-
15
-
105
85
Feb. 1969
20
48
-
20
-
68
48
Mar. 1969
50
49
$5
50
-$2
102
52
Apr. 1969
440
85
60
294
-3
436
-4
May 1969
120
49
10
100
-4
155
35
June 1969
20
51
60
30
-1
140
120
1968-69 total
(See Exhibit A)
$990
$478
$135
$809
-$10
$1,412
$422
July 1969
$10
$85
$3
$10
-
$98
$88
Aug. 1969
10
50
3
10
-
63
53
Sept. 1969
10
51
68
5
-
124
114
Oct. 1969
165
85
3
5
-
93
-72
Nov. 1969
105
58
-
5
-
63
-42
Dec. 1969
30
59
15
10
-
84
54
Jan. 1970
30
100
80
10
-$1
189
159
Feb. 1970
30
53
3
15
-4
67
37
Mar. 1970
60
54
4
20
-26
52
-8
Apr. 1970
480
94
77
100
-42
229
-251
May 1970
130
54
7
20
-68
13
-117
June 1970
25
56
77
15
-16
132
107
1969-70 total
(See Exhibit B)
$1,085
$799
$340
$225
-$157
$1,207
$122
(continued next page)
EXHIBIT D (con't
Personal Income Tax
A WITHHOLDING AND ESTIMATES PLAN
Estimated Cash Flow - By Source of Revenue
(Effective October 1, 1968 without forgiveness and including quarterly estimates)
Fiscal month
Present
Withholding law
Estimated
law
With-
Declar-
Returns &
Netl
change 2/
holding
ations
misc. coll.
Refunds
flow
(1)
(2)
(3)
(4)
(5)
(6)
(7)
( MILLIONS )
July 1970
$10
$94
$3
$10
-$6
$101
$91
Aug. 1970
10
55
4
5
-3
61
51
Sept. 1970
10
56
77
5
-1
137
127
Oct. 1970
180
95
3
5
-1
102
-78
Nov. 1970
120
64
-
5
-1
68
-52
Dec. 1970
30
65
3
10
-1
77
47
Jan. 1971
30
110
91
10
-1
210
180
Feb. 1971
30
58
4
15
-5
72
42
Mar. 1971
70
59
4
20
-29
54
-16
Apr. 1971
540
103
85
105
-47
246
-294
May 1971
140
59
9
25
-76
17
-123
I
June 1971
30
62
85
15
-18
144
114
1970-71 total
(See Exhibit c)
$1,200
$880
$368
$230
-$189
$1,289
$89
1/
Col. 2 + 3 + 4 - 5 = col. 6.
2/
Col 6- col. 1 = col. 7.
EXHIBIT E
Personal Income Tax
A WITHHOLDING AND ESTIMATES PLAN
Forgiveness
Consideration of enacting a withholding program is incomplete without
a discussion of whether or not a portion of the prior year's taxes
should be forgiven during the year of implementation. Consideration
of whether to provide no forgiveness, full forgiveness, or partial
forgiveness is a policy matter. One time revenue to be realized during
the year of implementation will be determined by this decision.
The computation of the amount subject to forgiveness is as follows:
1968-69
(millions)
Estimated collections, present law
$990
Estimated receipts not subject to forgiveness
Collections based on prior year assessments
-40
Returns of estates and trusts*
-10
Taxes on net capital gains at marginal tax rates*.
-120
Estimated amount subject to forgiveness
$820
25 percent forgiveness
$205
50 percent forgiveness
$410
Exhibit A indicates a $422 million revenue increase. It 25 percent of 1968
income year taxes are forgiven, the revenue increase would be $217 million.
If 50 percent is forgiven, then the revenue increase would be $12 million.
Forgiveness of 1968 income year taxes would also reduce revenues in 1969-
70 and 1970-71 because of reduced assessments that were based on the 1968
income year.
Taxes from estates and trusts and taxes based on sales of capital assets
are excluded from forgiveness because they are controllable sources of
income. If they were not excluded, a major loophole would be introduced
into the tax structure.
EXHIBIT F
Personal Income Tax
1967 PREPAYMENT PLAN
Revenue Generated By Class
Prepayment
Bills
Revenue
class
Number
%
Amount
%
Under $200
197,809
57.2
$27,094,000
20.8
$200 - 399
76,232
22.1
21,661,000
16.6
400 - 599
25,331
7.3
12,695,000
9.7
600
-
799
13,308
3.9
9,296,000
7.1
800
-
999
8,529
2.4
7,745,000
5.9
1,000 - 1,999
16,444
4.8
22,755,000
17.5
2,000 - 2,999
4,087
1.2
9,708,000
7.4
3,000 - 3,999
1,578
.5
5,203,000
4.0
4,000 - 4,999
761
.2
3,043,000
2.3
5,000 - 9,999
1,054
.3
5,895,000
4.5
10,000 and over
444
.1
5,445,000
4.2
Totals
345,577
100.0
$130,540,000
100.0
EXHIBIT G
Personal Income Tax
1967 PREPAYMENT PLAN
Nonresponse Cases - As a Percentage of Items Billed
Prepayment
Billed
Nonresponse cases
class
Number
Amount
Number
%
Under $200
217,311
$28,785,000
11,726
5.4
$200 - 399
81,702
22,454,000
3,237
4.0
400 -
599
26,867
13,065,000
908
3.4
600 -
799
14,095
9,742,000
448
3.2
800 - 999
8,995
8,024,000
273
3.0
1,000 - 1,199
17,288
23,594,000
503
2.9
2,000 - 2,999
4,294
10,329,000
128
3.0
3,000 - 3,999
1,668
5,731,000
60
3.6
4,000 - 4,999
801
3,556,000
19
2.4
5,000 - 9,999
1,116
7,347,000
31
2.8
10,000 and over
478
9,991,000
17
3.6
Totals
374,615
$142,618,000
17,350
4.6
EXHIBIT H
Personal Income Tax
1967 PREPAYMENT PLAN
Revenue From Those Paying Estimates Rather Than Billed Amount
Prepayment
class
Number
Billed amount
Paid amount
Under $200
2,539
$359,000
$182,000
$200 - 399
2,414
692,000
326,000
400 - 599
1,317
641,000
268,000
600
-
799
784
543,000
208,000
800 - 999
550
492,000
187,000
1,000 - 1,999
1,380
1,908,000
674,000
2,000 - 2,999
472
1,131,000
388,000
3,000 - 3,999
231
803,000
251,000
4,000 - 4,999
158
701,000
193,000
5,000 - 9,999
281
1,877,000
495,000
10,000 and over
184
4,602,000
957,000
Totals
10,310 (1)
$13,749,000 (2)
$4,129,000
(1) 2.75% of number billed.
(2) 9.64% of amount billed.
EXHIBIT I
Personal Income Tax
1967 PREPAYMENT PLAN
Revenue From Those Paying More Than Billed Amount
Prepayment
class
Number
Billed amount
Paid amount
Under $200
5,612
$751,000
$1,720,000
$200 - 399
2,668
740,000
1,798,000
400 - 599
988
480,000
1,224,000
600 - 799
508
354,000
787,000
800 - 999
398
356,000
798,000
1,000 - 1,999
878
1,194,000
2,724,000
2,000 - 2,999
229
553,000
1,171,000
3,000 - 3,999
89
308,000
640,000
4,000 - 4,999
42
190,000
365,000
5,000 - 9,999
56
363,000
709,000
10,000 and over
14
202,000
303,000
Totals
11,482 (1)
$5,491,000 (2)
$12,239,000
(1) 3.1% of number billed.
(2) 3.9% of amount billed.
FTB 1/5/68
EXHIBIT J
MEMBERS
SHIRLEY BICKEL
MARCH K. FONG
RECD NOV D 1 1967 SAC
COMMITTEE SECRETARY
VICE CHAIRMAN
DAVID R. DOERR
WILLIAM T. BAGLEY
California Tegislature
COMMITTEE CONSULTANT
CHARLES E. CHAPEL
KENNETH CORY
RAYMOND R. SULLIVAN
ASSISTANT CONSULTANT
WADIE P. DEDDEH
BILL GREENE
FRANK LANTERMAN
Assembly Committee
ROBERT MONAGAN
ROBERT MORETTI
nn
ALAN G. PATTEE
JOHN P. QUIMBY
Revenue and Taxation
VINCENT THOMAS
STATE CAPITOL. ROOM 5128
GEORGE ZENOVICH
445-8570
JOHN G. VENEMAN
CHAIRMAN
October 31, 1967
Martin Huff, Executive Officer
Franchise Tax Board
1025 'P' Street
Sacramento, California 95814
Dear Martin:
This is to request your participation in a discussion of several points relating
to the personal income tax with the Assembly Committee on Revenue and Taxation
at a hearing on November 30, 1967 in San Francisco.
Specifically, we are seeking the following information:
I. Semiannual Prepayment
In your opinion, is the prepayment deductible from federal
income tax? Does the federal government allow the quarterly
estimate made in other states as a deduction in the year of
the estimate?
What was the total amount of revenue generated to date with
the total amount received where the payment was less than
than $100? Between $100 and $200? Between $200 and $300?
Between $300 and $500? Between $500 and $1, 000? Between
$1,000 and $10,000 and over $10,000? Was there any
difference in compliance based on the amount owed?
What has been the administrative cost of this program? What
procedures were used in receipting these income tax payments?
What was the magnitude, both in number and dollar amounts,
of those who made estimates rather than paying one-half of
last year's tax bill? Did any one estimate and pay more than
one-half of last year's taxes? From these returns was there
any evidence that people had difficulty understanding the
estimate provisions? How do you plan to verify these estimates
in April if they are predicated neither on last year's tax
structure or next year's tax structure? What will be the cost
Martin Huff, Executive Officer
Franchise Tax Board
October 31, 1967
Page 2
of this verification program?
Is it theoretically possible for someone to prepay more than
their entire 1967 tax liability? In such cases, what program
has been established for refunding the over payment? Is it
theoretically possible then for the State to derive some revenue
from unclaimed refunds? What is the projected October
revenue from prepayment in 1968?
H. Withholding
Will withholding produce additional revenue? If any, how much
on an annual basis? (Please distinguish between one-time revenue
and on-going revenue.)
Can you give us an estimate of cash flow which will result from
the adoption of withholding? Can withholding and the prepayment
system be integrated? What is the magnitude of the Department's
present withholding program? What other states have adopted
withholding? What would be the administrative cost of withholding?
When would the money be remitted to the State by the employers?
What would be the average length of time employers would have
interest-free use of this money? Is there any way this value can
be determined? Would this tend to compensate the employer for
the cost of collection?
III. Income Averaging
Would you briefly explain the income averaging provision in
California's tax law? How do these provisions relate to the
changes in the structure made by SB 556? What are the revenue
implications and the relation of SB 556 to income averaging?
What is the number of taxpayers who have utilized income
averaging on their 1966 returns? Revenue loss to state?
IV. Progress Report on the Willis Bill
Would you briefly review the Willis Bill for members of the
Committee? What is the status of the measure?
V. Conformity
What personal income tax legislation and bank and corporation
tax legislation has been passed by the 90th Congress? What
Martin Huff, Executive Officer
Franchise Tax Board
October 31, 1967
Page 3
are the advantages and disadvantages of State income
tax conformity to these new laws under the revenue
implications?
Please feel free to add to or to elaborate on any of the five topics in the
outline.
I very much appreciate your assistance.
Sincerely,
JOHN G. ENEMAN
JGV:Ds
Withholding
FRANCHISE TAX BOARD
Bill Analysis
Fiscal
AB 20 - 68 R. S. (Veneman)
Personal Income Tax Withholding
Assembly Bill 20 would require employers to start withholding State income
taxes on October 1, 1968. Monthly remittances would be required if more
than $50 is withheld monthly. All other employers would file quarterly.
Quarterly reports of tax withheld would be required of all employers.
Declarations of estimated tax would be due April 15, 1969. Quarterly
installments would be due on June 15, 1969; September 15, 1969; and
June 15, 1970. The details of declarations of estimated tax would
generally conform with the Internal Revenue Code.
The present prepayment plan would continue through October 31, 1968, and
then be repealed.
The iginal fiscal analysis of Assembly Bill 20 was based upon personal
income tax estimates and assumptions developed for Assembly Bill 484 (1967
regular session). Since that time, more current estimates of personal
income tax revenues have been released by the Department of Finance. Also,
the most recent experience of other States who have withholding has been
used to modify the basic assumptions used to estimate the cash flow.
The revised estimates for Assembly Bill 20 are summar ed as follows with
details set forth in the indicated Exhibits:
Exhibit A - Fiscal 1968-69
$445,000,000
Exhibit B - Fiscal 1969-70
$177,000,000
Exhibit C - Fiscal 1970-71
$107,000,000
Exhibit D - Estimated Cash Flow - By Source of Revenue
Revised 3/11/68
Personal Income Tax
Year 1
A WITHHOLDING AND ESTIMATES PLAN - AB 20 (1968 RS)*
Revenue Sources - 1968-69 Fiscal Year **
Fiscal Effect
1. ONE TIME REVENUE
A. Accelerated Collections: Remittances received during fiscal 1968-69 that would not nor-
mally be collected until October 1969 (pre-pay billings) or April 1970 (returns).
(1) Taxes withheld by employers during January-May, 1969 that would be
remitted to the state during fiscal 1968-69
$310,000,000
(2) Declarations of estimated tax for 1969 that would be due April 15,
1969 and the first installment that would be due June 15, 1969
125,000,000
$435,000,000
B. Accounts Receivable: Some taxpayers would not completely understand the new withhold-
ing system and others would resist it. This would result in the filing of returns par-
tially paid thru withholding, but with no remittance for the balance due. Collection
would be deferred until fiscal 1969-70
-10,000,000
Subtotal - One time revenue
425,000,000
2. ONGOING EFFECTS OF PROGRAM
A. Improved Compliance: Primarily from mobile taxpayers who do not file returns, or if
they do file, they file "no remittance" returns. The amounts escaping are frequently
too small to be collected under the present system. Also included are returns with
small computational errors that are below the billing limits
5,000,000
B. Accelerated Collection: Primarily attributable to earlier collection of revenues other-
wise receivable thru the department's filing enforcement programs, as well as, a re-
duction in the number of "no remittance" and "partial remittance" returns on which pay-
ment is received during the billing cycle, but before collection effort is instituted
10,000,000
C. Other: This is the difference between the amounts withheld by employers and the amounts
reported on returns by taxpayers. These people don't file returns and are unidentifiable.
They probably don't file Federal returns either. In most cases, there is a tax liability
and the taxpayer feels that withholding satisfies his obligation. This also includes emi-
grants who leave the State and fail to file returns, people who fail to file for a refund,
deaths, and bankruptcies
5,000,000
Subtotal - Ongoing Revenue
20,000,000
TOTAL - 1968-69 FISCAL YEAR
$445,000,000
FTB 3/11/68
*Effective October 1, 1968 without forgiveness and including quarterly estimates. ** Cash basis
Personal Income Tax
Year 2
A WITHHOLDING AND ESTIMATES PLAN - AB 20 (1968 RS)*
Revenue Sources - 1969-70 Fiscal Year **
Fiscal Effect
1. ONE TIME REVENUE
A. Accounts Receivable: This is the converse of the $10,000,000 of delayed receipts in
1968-69 indicated in 1.B. for 1968-69 (Exhibit A)
$ 10,000,000
B. Declaration of estimated tax - improved compliance: Many taxpayers will under-
estimate their declaration on April 15, 1969. This will be made up by increased
collection on returns due April 15, 1970. If taxpayers had correctly estimated
their 1969 liability on April 15, 1969, this would have been collected during
1968-69
20,000,000
C. Delayed refunds: All refunds on 1969 income year taxes would not be paid during
1969-70 because of a delay in receiving the refund claims and some backlog in the
processing of claims (primarily because of the necessity for selected prerefund
audits)
20,000,000
D. Other: This is the acceleration of delayed receipts resulting from the anticipated
increase in "no remittance" and "partial remittance" returns arising from the
passage of SB 556 (1967 RS)
34,000,000
Subtotal - One time revenue
$ 84,000,000
2. ONGOING EFFECTS OF PROGRAM
A. Improved Compliance: Primarily from mobile taxpayers who do not file returns, or if
they do file, they file "no remittance" returns. The amounts escaping are frequently
too small to be collected under the present system. Also included are returns with
small computational errors that are below the billing limits
$ 22,000,000
B. Accelerated Collection: Primarily attributable to earlier collection of revenues other-
wise receivable thru the department's filing enforcement programs, as well as, a re-
duction in the number of "no remittance" and "partial remittance" returns on which pay--
ment is received during the billing cycle, but before collection effort is instituted
10,000,000
C. Growth: This is the result of an expanding economy. The benefit of economic growth is
realized during the income year rather than the subsequent year. This amount is from
the following sources:
(1) Withholding
$35,000,000
(2) Declarations of estimated tax
15,000,000
50,000,000
FTB 3/11/68
(Continued next Page)
EXHIBIT B
Personal Income Tax
PAGE 2
Year 2
A WITHHOLDING AND ESTIMATES PLAN - AB 20 (1968 RS) *
Revenue Sources - 1969-70 Fiscal Year **
Fiscal Effect
D. Other: This is the difference between the amounts withheld by employers and the amounts
reported on returns by taxpayers. These people don't file returns and are unidentifiable.
They probably don't file Federal returns either. In most cases, there is a tax liability
and the taxpayer feels that withholding satisfies his obligation. This also includes
emigrants who leave the State and fail to file returns, people who fail to file for a
refund, deaths, and bankruptcies
11,000,000
Subtotal - Ongoing effects of program
93,000,000
TOTAL - 1969-70 FISCAL YEAR
$177,000,000
FTB 3/11/68
*Effective October 1, 1968 without forgiveness and including quarterly estimates. ** Cash basis.
EXHIBIT C
Personal Income Tax
Year 3
A WITHHOLDING AND ESTIMATES PLAN - AB 20 (1968 RS)*
Revenue Sources 1970-71 Fiscal Year **
Fiscal Effect
1. ONE TIME REVENUE
None
2. ONGOING EFFECTS OF PROGRAM
A. Improved Compliance: Primarily from mobile taxpayers who do not file returns, or if
they do file, they file "no remittance" returns. The amounts escaping are frequently
too small to be collected under the present system. Also included are returns with
small computational errors that are below the billing limits
$ 25,000,000
B. Accelerated Collection: Primarily attributable to earlier collection of revenues other-
wise receivable thru the department's filing enforcement programs, as well as, a re-
duction in the number of "no remittance" and "partial remittance" returns on which pay-
ment is received during the billing cycle, but before collection effort is instituted 10,000,000
C. Growth: This is the result of an expanding economy. The benefit of economic growth
is realized during the income year rather than the subsequent year. This amount is
from the following sources:
(1) Withholding
$41,000,000
(2) Declarations of estimated tax
17,000,000
(3) Delayed refunds
2,000,000
60,000,000
D. Other: This is the difference between the amounts withheld by employers and the
amounts reported on returns by taxpayers. These people don't file returns and are
unidentifiable. They probably don't file Federal returns either. In most cases,
there is a tax liability and the taxpayer feels that withholding satisfies his
obligation. This also includes emigrants who leave the State and fail to file
returns, people who fail to file for a refund, deaths, and bankruptcies
12,000,000
TOTAL - 1970-71 FISCAL YEAR
$107,000,000
FTB 3/11/68 * Effective October 1, 1968 without forgiveness and including quarterly estimates. ** Cash basis
Personal Income Tax
A WITHHOLDING AND ESTIMATES PLAN - AB 20 (1968 RS) *
Estimated Cash Flow to State Controller - By Source of Revenue
(in millions of dollars)
Fiscal month
Withholding law
Present
With-
Declar-
Returns
&
Net 1/
Estimated
law
holding
ations
misc. coll.
Refunds
flow
change 2.
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Jul 1968
$
14
$ -0-
$-0-
$ 14
$-0-
$
14
$-0-
Aug 1968
13
-0-
-0-
13
-0-
13
-0-
Sep 1968
11
-0-
-0-
11
-0-
11
-0-
Oct 1968
99
-0-
-0-
99
-0-
99
-0-
Nov 1968
161
53
-0-
161
-0-
214
53
Dec 1968
8
54
-0-
8
-0-
62
54
Jan 1969
33
96
-0-
26
-0-
122
89
Feb 1969
15
52
-0-
14
-0-
66
51
Mar 1969
48
52
6
43
-2
99
51
Apr 1969
388
95
39
316
-3
447
59
May 1969
197
56
18
100
-4
170
-27
Jun 1969
22
56
62
20
-1
137
115
1968-69 total
$1,009
$514
$125
$825
-$10
$1,454
$445
3/
Jul 1969
$
15
$104
$ 3
$ 17
$-0-
$ 124
$109
Aug 1969
14
60
1
9
-0-
70
56
Sep 1969
12
61
62
9
-0-
132
120
Oct 1969
115
99
3
6
-0-
108
7
Nov 1969
179
60
3
6
-0-
69
-110
Dec 1969
10
60
22
11
-0-
93
83
Jan 1970
37
108
74
11
-1
192
155
Feb 1970
17
58
4
24
-6
80
63
Mar 1970
52
58
7
29
-34
60
8
Apr 1970
512
105
44
74
-42
181
-331
May 1970
150
62
19
54
-39
96
1 54
Jun 1970
26
63
70
11
-33
111
85
1969-70 total
$1,139
$898
$312
$261
-155
$1,316
$177
Jul 1970
$
17
$ 115
$ 3
$ 6
-$ 11
$ 113
$ 96
Aug 1970
16
67
2
4
-
5
68
52
Sep 1970
13
67
70
3
-
1
139
126
Oct 1970
129
111
3
2
-
1
115
- 14
Nov 1970
201
67
3
2
-
1
71
-130
Dec 1970
12
67
23
4
-
1
93
81
Jan 1971
41
120
83
11
-
1
213
172
Feb 1971
19
65
5
26
-
7
89
70
Mar 1971
59
65
8
30
- 38
65
6
Apr 1971
566
117
49
68
- 47
187
-379
May 1971
170
70
22
56
- 43
105
- 65
Jun 1971
30
70
78
11
- 37
122
92
1970-71 total
$1,273
$349
$223
$1,380
$107
5/
$1001
-$193
1/ Col. 2 + 3 + 4 - 5 = col 6.
4/ See Exhibit B
Col. 6- - col. 1 = col. 7.
5/ See Exhibit C
See Exhibit A
* Effective October 1, 1968 without forgiveness and including quarterly estimates.
FTB 3/11/68
te of California
Franchise Tax Board
Memorandum
To
:
Mr. Caspar Weinberger
Date
: March 11, 1968
Director of Finance
State Capitol
File No.: MH:jgs
Room 1145
Sacramento, California 95814
From :
Martin Huff
Subject:
Income Tax Withholding - Revised Fiscal Effect (Cash Basis)
AB 20 (Veneman)
In our testimony on the subject of Income Tax Withholding before the
Assembly Revenue and Taxation Committee on January 5, 1968 (copy at-
tached), we indicated that the data on fiscal effect would be revised
after the Department of Finance released their new revenue estimates
for the 1968-69 Budget. Our revisions are attached. They have been
reviewed by your staff and that of the Legislative Analyst. They are
in agreement with our updated figures. Both agencies feel that our
cash flow projections are conservative.
It is our understanding that Assemblyman Veneman will release this
new data immeidately.
with
Executive Officer
CC: Charles E. Dixon
Attachments: 1/05/68 Testimony
3/11/68 Revised Fiscal Analysis (AB 20)
State of California
Memorandum
To
Governor Reagan
Date
:
June 11, 1969
Subject: Private Sector Sentiment
Regarding Withholding
From : Jim Crumpacker and Jerry Martin
Program Development
We have made a quick survey of business, labor and media sentiment
on withholding, both compulsory and voluntary, and present the
following wrap-up for your information.
BUSINESS
National Federation of Independent Business (small businessmen)
which represents 35,000 California businesses of under 500 employees
has been solidly opposed to any form of withholding. The NFIB takes
weekly polls of its membership on issues submitted by the Governor'
Office. On the specific subject of withholding, from January through
May, small businessmen in this state voted 1,529 to 538 (about 3-1)
with 147 no opinion votes against Federal-type compulsory withholding.
California State Chamber of Commerce. The last referendum of the
entire membership on compulsory withholding came out 38 per cent
in favor; 58 per cent opposed; four per cent undecided. The state-
wide tax committee, however, is looking over the subject again. We
have discussed the state chamber situation with William French Smith,
and will continue to discuss developments with him as they occur.
Local Chambers (representative sampling). Los Angeles, no position
but John Vaughn indicates this group could go for voluntary withholding
(with the state reimbursing employers for bookkeeping costs as pro-
posed by the Governor); Fresno, officially opposed to compulsory
withholding; Long Beach, on May 22, 1967, and March 24, 1969, the
Long Beach Chamber of Commerce issued policy statements firmly opposed
to withholding of state income taxes; Sacramento, no recent poll taken,
but the last time the membership was queried--about four years ago
they voted to oppose withholding; San Francisco, no official position
taken; San Diego, no official position; San Jose, no official position.
It is interesting to note that the Marin County Chamber of Commerce
and Visitors Bureau in a letter of April 22, 1969 to Assemblyman
Bagley, announced its opposition to withholding.
1. Merchants & Manufacturers Association. Executive Committee
split evenly for and against withholding.
2. Western Oil and Cas I ssociation. No position; studying the
matter.
continued
LABOR
International Longshoremen's and Warehousemen's Union. On April 10,
1969, the ILWU unanimously changed its long-time support of with-
holding to one of vigorous opposition. Their reasoning boiled down
to the contention that they would rather have their money to invest
or gather interest than give it to the government without ever having
the chance to get their hands on it.
AFL-CIO. Favors compulsory withholding. Teamsters. Favors compulsory
withholding, but rather midly. (Their main concern seems to be the
floaters who drift in and out of the state on construction jobs and
the like.)
NEWS MEDIA
Among daily newspapers that have consistently opposed compulsory
withholding are the following: Los Angeles Herald-Examiner, Sacramento
Union, Oakland Tribune, Santa Monica Evening Outlook, San Diego Union,
San Diego Tribune and San Jose Mercury. It is important to note that
these papers represent the backbone of the Republican press in California.
PUBLIC OPINION
The Muchmore Poll, has taken no polls solely on the withholding
issue. The Field Poll, has taken three polls on the subject. All
favored a "pay-as-you-go" system (polling 1,011 persons - 549
Democrats, 368 Republicans and 94 others.) Because of the sampling
and the description of "pay-as-you-go" tax payments, the poll's
results as applied to withholding are questionable.
In discussing the issue of withholding with private sector groups
and individuals, it was obvious that many otherwise knowledgeable
businessmen and chamber of commerce officials are not fully aware
that the issue has become one of voluntary VS. compulsory withholding.
Also, many people are unaware that the Governor's program for voluntary
withholding includes provisions for both a discount to the taxpayer
for paying in advance and compensation for employers for accounting
expenses involved in setting up withholding.
Those respondents who tended to favor withholding, and who knew about
the voluntary aspects of the Governor's program, said they would go
for any one of the voluntary packages. We should continue to fight
compulsory withholding, while at the same time, building a solid
foundation of support for the voluntary plans. Some businessmen
indicated that they would be glad to provide a forum for the Governor
to personally discuss the situation. There was an indication that
only the Governor, personally, can sell this package. Seminars
featuring the Governor were suggested in Rus Walton's April 14 con-
fidential memo outlining a program for gaining statewide support
for the tax program. The cooperation of all units is needed if this
program is to be effectively carried out.
There is considerable amount of "backing and filling" going on state-
wide on the subject of withholding. This is apparent from the number
of groups suddenly switching to "no position" or are "studying" the
proposal. There were indica cions that the voluntary aspects of with-
holding would become acceptable to some influential groups if they
were more fully explained throughout the state.
Attachments
CC: Meese, Walton, Deaver, Beck, Sturgeon, Steffes.
State of California
TABULATIONS FROM MAY 23 THRU MAY 29, 1969 = 109 Respon
GOVE 1507 office *****
TO CALIFORNIA
RONALD ACADAN
N.F.I.B. MEMBERS
Sent to Gov.
49
11
Doerr
60
On April 1, Richard E. Thomas, Western Field Director
way 6, 1960
Total
N.F.I.B., accompanied by Niel Heard, Assistant to the
E. Thomas
109
President, N.F.I.B., conferred with Governor Reagan on
abolition of the inventory tax in line with the desires of the
San 94402
independent businessmen. Governor Reagon expressed
his
apprecia-
strong favor of such elimination and has asked for further
Dear For. Thomas:
Governor asked interestiale me to express with what him you had early
advice from you "on some of the major issues that are
zion last to eay month. for one always He of was looks small very the businessmen forward to enroughout in questions results
before us." Thus, your cooperation in answering these
questions prepared by the Office of the Governor will
California.vey I 22 sorry but it I has have would taken been has than I to you get may these down be issues may to able move in be so to
enable us to take further action and work on your
behalf
use, before the would have
of the or major all of If them. you that
No
Yes
No Opinion
8. Do you favor tax reform which will shift
are the any Governor questions. thanks please again let for no your assistance. NO all
the burden from property tax?
97
9
3
1998
appreciate it.
9. If your answer to question 8 is yes,
128
89
which tax, if necessary, would you favor
Rebert
increasing?
(a) Increase sales tax
49
10
Press
(b) Increase personal income tax
7 25
(c) Increase corporate income tax
25
15
(d) Increase cigarette and liquor tax
56
11
No
GENERAL
Yes
No
Opinion
(e) Broaden sales tax to increase other
1. California's unemployment remains
39
15
categories, including food and others
21
above the national average. Do you feel it
75
13
EDUCATION
is primarily the state's responsibility to
10. Would you favor tuition, or fee increases
solve the problems of the unemployed?
at the University of California and State
69 25 12
IF NO, how'can this problem be solved?
Colleges, if the money were used ex-
clusively for grants to needy students and
(a) Federal Government
4
14
teacher enrichment?
(b) Private industry
12
11
11. Do you support the principle of tuition
1033
(c) Combination of government and private
to help defray the cost of higher educa-
industry
68
4
tion in general?
12. It has been proposed in several School
2. Spending for welfare and higher educa-
Districts to bus public school children in
6976
tion are major expenses. In order to
order to integrate the schools. Do you
avoid increased taxes, it may be neces-
favor this?
sary to decrease one in favor of the
13. Do you favor legislation for greater con-
other. Which do you prefer?
trols on demonstrations and control of
10162
(a) Decrease welfare and increase higher
dots on the college campuses?
education expenses
86
4
LAW ENFORCEMENT
(b) Decrease higher education and increase
5
14. Is the answer to reducing crime more
welfare
29
police officers?
26 59 24
(c) Raise taxes so no cuts will be neces-
6
34
15. Which of the following do you think is
sary
the answer to not prevention in the
3. Do you feel there is a need to overhaul
ghetto areas?
the Medi-Cal program?
85 3 21
(a) More minority police officers
39
19
4. Do you support Governor Reagan's poli-
82 8 19
(b) Police participation in community
cies in the mental health programs aimed
projects
49 12
at greater local treatment and reduced
(c) Educational emphasis on respect for
state hospital costs?
law and order
86 /
(d) On-the-job training and re-training
51
6
TAXES
538
(c) Better education and tutorial assis-
5. It has been proposed that the state de-
46
26
77
6
tance
7
duct income tax from paychecks in the
same manner 25 employed for Federal In-
NATIONAL FEDERATION OF INDEPENDENT BUSINESS
come Tax. Do you favor this?
6. Do you favor partial or "under-withhol-
ding" of state income tax?
13 77 19
Address: 150 West 20th Avenue, San Mateo, Calif.
7. Do you support the present system,
bi
29
19
10
San Transisco Chronide
***
Thurs.,
Apr.
10,
1969
Withholding System Now Opposed
ILWU Tax Reform Fight
U
By Dick Meister
housemen's Union vowed
burden from workers and
to is that the Government is
Labor Correspondent
yesterday to lead a battle
middleclass people," to large
willing to trust the wealthy
for "radical changes" in
corporations and other "spe-
and well-to-do to manage
Los Angeles
the country's tax laws.
cial interest groups" who, it
their own finances and pay
The International Long-
The union's aim will be to
charged, now avoid paying
their own taxes when due.
shoremen's and Ware-
shift an "ever-growing tax
their fair share.
Delegates also complained
The ILWU's chief target
that the withholding system
will be the withholding tax
keeps people from refusing
system - "one of the great-
to pay their taxes as a way
est swindles the Government
- the mòst effective way
perpetrates on working peo-
to get action on their de-
ple."
mands for tax reform.
SUPPORT
"The union's for taxes
The union had supported
paying our fair share, like
the system ever since it was
we pay union dues." de-
started by the Federal gov-
clared ILWU president Har-
ernment during World War II
ry Bridges. "But this is a
as a "temporary measure,'
damned disgrace
a
and had endorsed current
damned disgrace.'
proposals to use it for the
In addition to action
collection of State taxes.
against withholding toxes,
But that position was ab-
the ILWU's agenda for tax
rupfly, angrily and unani-
reform includes these aims:
mously changed here yester-
o On the Federal level,
day at the union's biennial
abolishing the 10 per cent
convention.
surtax, doubling the $600 in-
"Some $80 billion, almost
come tax exemption, raising
half of the Federal budget, is
the standard deduction. clos-
taken directly from our pay-
ing legal "loopholes" that re-
checks without our ever hav-
duce the taxes of corpora-
ing a chance to get our hands
tions and businessmen and
on the money," delegates
tightening regulations on
complained in one of several
charitable deductions and on
resolutions urging broad tax
tax free foundations.
reforms.
0 Repealing sales taxes or
SYSTEM
allowing people to deduct
The withholding system
them from their State in-
may soften the blow, they
come taxes, and shifting the
said, "but at the same time
burden of local property tax-
it serves to hide or obscure
es from renters and home
how much of our money ac-
owners
tually goes for taxes."
In other action delegates
Delegates said that busi-
pledged to lead an alliance of
nessmen and others who do
unions, young people, minori-
not get their income from
ty groups, poor, clergymen,
employer paychecks pay
scientists and intellectuals in
their taxes in one lump sum,
a massive new popular
once a year.
anti-war protest
Thus, all they earn in the
They also opposed Presi-
year between their single tax
dent Nixon's proposal for the
payments can be invested
ABM nuelear defense sys-
and. perhaps. bring them
tem.
more money.
(Actually larger taxpayers.
both individuals and corpora-
tions, pay Federal income
taxes on 8 quarterly basis.)
But workers "aren't al-
lowed to decide what to do
Jim
MARIN COUNTY
no
CHAMBER OF COMMERCE & VISITORS BUREAU
824 - 5TH AVENUE
SAN RAFAEL, CALIFORNIA 94901
April 22, 1969
Assemblyean William T. Bagley
State of California
Room 4130, State Capitol
Sacramento, California 95814
Dear Bill,
By direction of its Board of Directors, the Marin County Chamber of
Commerce and Visitors Bureau wishos to register with you opposition to the
proposal that withholding be added to the State income tax structure.
We thoroughly agree that tamation generally needs an objective over-
haml on the bases of equitability, the mitigation of complexities and the
filtering out of cutristed or inflated governmental service "neods." We
heartily disapprove of devices, such 03 withholding, intended to ease the
pain of payment and accolerate collection. Boyond that, withholding has
a built-in inflationary effect since it reduces take-home pay and induces
pressures for componsating (seater remuneration.
It 10 fractuating that year after year in the abundance of tax measures
proppeed by all lovels of government and texing jurisdictions, most of them
are directed townrd a greater take, but revely are there fruitful efforts
directed toward olther scosible re-chrechwing or udaningful reduction.
Sincerely yours,
(signed)
(ichard . Have
RPH13V
President
OFFICE OF LIEUTENANT GOVERNOR
IMMEDIATE RELEASE
Sacramento, California 95814
Contact:
Jim Woodworth
916 445-7760
October 20, 1971
STATEMENT BY ACTING GOVERNOR ED REINECKE AT
NEWS CONFERENCE ON WEDNESDAY, October 20, 1971
The citizens of California are going to be the victims
of burdensome tax payments in the spring if the Democratic-
controlled State Legislature doesn't act quickly in passing a
Tax Withholding Bill.
Because of mechanical and administrative problems,
taxpayers may possibly be hit with three months' State withholding
plus federal income taxes all due in the same month, April of 1972.
This burden need not be placed upon the taxpayers. It
can be avoided by quick enactment of the State Withholding Tax
legislation that has been in the hands of the State Legislature
for months.
Unless the legislation is enacted quickly, there is a
potential that the administrative lead time needed will prevent
the actual withholding of State income taxes from going into
effect until the beginning of the second quarter of 1972. If
this happens, taxpayers will be paying 12 months' taxes in nine
monthly installments instead of spreading the payments over
12 months.
As the end of this Legislative session draws near, I'm
urgently concerned that swift enactment of personal income tax
withholding after months of delay could create hardships by not
-2-
allowing sufficient lead time for orderly employer and
administrative preparation.
The adoption of withholding places major responsi-
bilities on employers to revise their payroll accounting
systems. The amount of lead time required to make these
revisions varies considerably depending on the size of the
employer and the type of accounting system used.
For example, one large California employer, who also
represents 4,000 employer accounts, reported he would need at
least four months' preparation time from receipt of tax
instructions. Two other large California employers polled
requested six months. The latter estimates may represent an
excess of caution but we must not underestimate the massive
changeover task.
Unless reasonable lead time is provided, the ability
of employers to implement in time would be jeopardized. And,
a considerable reaction particularly from large employers must
be expected.
To offset the possibility of short notice from the
Legislature, the Department of Human Resources Development and
the Franchise Tax Board have spent considerable effort on pre-
enactment planning, programming, printing of forms and some
tax instructions. The central feature of this plan is to have
all employer material ready to mail immediately after a with-
holding bill is signed. Nevertheless, each day's delay without
-3-
enactment or certainty of the effective date increases the
administrative problems and causes waste.
To illustrate, the initial mail to 375,000 employers
has been ready for months but addresses and other pertinent
information have become stale. This material must soon be
reprinted, imprinted with current names and addresses, and
prepared for mailing again. This rerun is costly and will
defeat our plan to promptly inform employers.
Major changes in the tax structure at the last minute
and/or extending the effective date well into 1972 will require
preparation of new formulas and tables for the Employer's Tax
Guide which is ready to print.
Here again the delay in enactment contributes to
administrative problems and costs, and could encourage negative
taxpayer response if, for example, twelve months of taxes are
collected in nine monthly bites. This planned use of an
accelerated tax rate schedule to recover taxes for elapsed
months in 1972 will also create one-time employer programming
changes due to the unique, shortened tax year.
The magnitude of the dilemma caused by continued delay
in enactment is growing. When pressures due to lack of funds
force fiscal legislation, we are hopeful that the tight time
limits imposed will not cause unreasonable demands upon the
employer population. This will insure timely and willing
compliance by employers and enhance our ability to administer
the program effectively.
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