What you don't see in the state budget

There's a lot in the state budget that you don't see, so-called tax expenditures. These are exemptions from taxation or other tax-favored treatment. A crude way of measuring them is to assume that if the exemption vanished, behavior would be unchanged and revenue would increase based on that assumption. Of course, tax expenditures are created typically to encourage behavior, i.e., if the tax-favored treatment lapsed, the behavior would be reduced. Still, even estimated in the crude way gives some idea of the importance of the various tax expenditures.

Jason Sisney of the Legislative Analyst's Office (LAO) on his blog has provided the table below of state tax expenditures.

As can be seen, the biggest ones relate mainly to employment: retirement plan contributions, health plan contributions, Social Security Benefits, benefits under cafeteria plans,* and IRA contributions.

Sisney adds up the various tax expenditures and comes up with a total equal to 45% of existing (non-exempt) general fund revenue. So these de facto expenditures "matter" a lot in state budgeting, even if they tend to be hidden from view (and even considering the fact that the methodology likely overstates the revenue "loss").

UC, of course, benefits from the tax-favored treatment of charitable contributions. Whether the governor will propose any changes on the tax side of the budget for 2025-26 will be known in January.

===

*Cafeteria plans don't deal with food service. They are employment plans in which the employee can allocate employer contributions to a choice of benefit options.