TLDR: I believe that the purpose of the new electricity rate scheme is to force everyone in California to file an income tax return.
In California, people who make less than $12,550 if filing single or $25,100 if filing jointly are not required to file a tax return (unless you have a business license. In California, anyone with a business license of any type is required to file a tax return).
Since 2017, I have been watching all of the Franchise Tax Board’s quarterly Board meetings. Over the years, FTB has frequently discussed how they can incentivize people to file returns when they are not required to do so. At first, I found it strange that the tax agency was so focused on people that they know don’t owe any money in taxes. But eventually I realized that the State of California uses tax returns as part of a data collection system to track and exploit people, and the State wants everyone enrolled in their system.
This became crystal clear at the March 2022 meeting, in which Susan Maples, Director of the Economic and Statistical Research Bureau, gave an uber creepy presentation about how for the last decade, her department has been stalking low-income people who are not required to file. To get information on them, she partnered with “many community-based advocates as well as our peer state agencies.” She stated that she’d worked closely with the California Department of Social Services and the Department of Health Care Services, and focused on people enrolled in the CalFresh and MediCal programs.
Her primary goal was to figure out how to make filing simpler so that people would be more willing to file tax returns in order to claim tax credits. Her secondary goal was to “develop methods of collaboration and coordination with state agencies in order to increase collective efforts to reach this population.”
She stated that while the data she collected from these other partners “did have value to help FTB identify ‘who’s who,’” she didn’t think that tracking people through these other agencies would have high success rates in getting the low-income to file returns because FTB wasn’t able to make filing tax returns easy enough to make it worth the effort to claim the tax credit. She was also dubious of how legal it was to be sharing this information between agencies. For example, she had looked into auto-populating tax-forms with data collected from these other agencies. However, the data FTB utilizes isn’t necessary the same as what the other agencies utilize, so that meant that tax returns utilizing other agency data would be incorrect.
At the close of her presentation, Board Member Gayle Miller (who usually attends meetings in lieu of her boss, Joe Stephenshaw, who is the true Board Member) said “…Thank you. I know how hard you’re working and I do think we’re getting closer each year and I hope that between we continue to study it, continue to understand the data, and hopefully next year there can actually be a proposal to make sure that we’re working towards an effective implementation of a new system.” It is important to note that, as an employee of the Department of Finance, she is privy to information about legislative efforts that are slated to be introduced. This is the video. The presentation starts at 37:20. Here is the transcript. The presentation starts on page 28.
As promised, this year, a new system to incentivize everyone to file a tax return has been rolled out: tie your electricity bill to your tax return. On June 30, 2023, the legislature approved Assembly Bill 205, which states (in part):
“Existing law requires the PUC to continue the California Alternative Rates for Energy (CARE) program to provide assistance to low-income electric and gas customers with annual household incomes that are no greater than 200% of the federal poverty guideline levels…
Th(is) bill would require the fixed charge to be established on an income-graduated basis, as provided, with no fewer than 3 income thresholds so that low-income ratepayers in each baseline territory would realize a lower average monthly bill without making any changes in usage….
(5) The Personal Income Tax Law and the Corporation Tax Law, in conformity with federal income tax law, generally define “gross income” as income from whatever source derived, and provide various exclusions from gross income.
This bill, for taxable years beginning on or after January 1, 2022, and before January 1, 2027, would exclude from gross income any amount of bill credits received by a customer from a utility applicant pursuant to those acts. The bill would repeal these provisions on December 1, 2027.
I am not a lawyer, and I could be interpreting this wrong, but it sounds to me that in order to for the utility companies to determine which tier your household is to be billed at, households will have to submit tax returns. My guess is that if you don’t submit a tax return, your household will be billed at the highest tier.
Quite frankly, from the State’s perspective, this is brilliant. After a decade of trying to figure out how to get people to file a tax return when they are not required to do so, the State has finally found the right carrot. I’ve read articles that speculate the lowest tiers could be as low as $15 a month and the highest tiers up to $128 per month. I’m sure most low-income people will file tax returns to avoid the extra $1,300ish per year in higher electricity bills they will have to pay if they don’t file.