California Sunshine

The Golden State starts to grapple with corporate tax breaks.

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Data regarding the fiscal hole states are finding themselves in due to coronavirus lockdowns are starting to come in, and it’s all bad news. Hundreds of billions of dollars in revenue have vanished. Many states, including Colorado, New Mexico, and Wyoming, are predicting revenue declines of more than 20 percent for fiscal year 2021.

So too is California, which is looking at a budget hole of more than $50 billion. Unlike the federal government, most states can’t run a deficit, meaning those $50 billion will need to raised or cut, somehow.

One clear and obvious thing to do — instead of laying off public workers and cutting government services — would be to clear out corporate tax giveaways that are lying around the state budget doing no good. The trouble is, for California, many of those tax programs have no transparency or accountability measures attached. Like many states and cities, California doesn’t track who they go to or whether they are effective in achieving their stated goals.

Two bills that recently moved out of committee in California’s state senate would at least start to bring some sunlight to these programs.

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One, from Sen. Hannah-Beth Jackson, would require audits of eight tax expenditures “that have no metrics of efficacy associated with them, no sunsetting provision, and result in revenue losses of greater than $1 billion each over 10 years.” Just one of those eight, called the “water’s edge” provision, allows corporations to choose which of two accounting methods results in their taxes being lower, and costs the state $2.4 billion annually.

“As a result of the pandemic, California is facing a budget deficit amounting to tens of billions of dollars with significant cuts to education, resources to combat homelessness, MediCal benefits, fighting climate change, reductions to developmental services, and child care. … Californians deserve to know where their dollars are going and whether they are being put to their best use,” Jackson told me in an email.

A second bill from Sen. Nancy Skinner, would require the state to track and publicly disclose the tax benefits received by companies with receipts in the state higher than $5 billion. “Californians deserve to know how much — or how little — large corporations pay in state taxes, and they deserve to know much big businesses pocket in state tax credits,” Skinner said.

California already does some tracking of smaller tax credit programs, and the beneficiaries are exactly who you’d expect: Lockheed Martin, Northrop Grumman, Tesla, and on and on. Knowing whether those same companies take advantage of the big programs is valuable information.

In the 1970s, corporate income tax revenue made up about 15 percent of California’s budget. It’s below 10 percent today. In the 1980s, corporations in the state paid more than 9 percent of their income in taxes; that’s fallen by more than half, down to 4.2 percent, according to the California Budget and Policy Center.

Meanwhile, the state has relied more and more and more on personal income taxes, which made up one-third of the budget in the 70s, but account for two-thirds today.

Of course, merely gathering the relevant information on corporate tax breaks is just the first step in the process. After that, state lawmakers need to find the wherewithal to actually cut some of them away. But it’s telling that even the act of assessing tax breaks has its opponents. Those folks would rather the state continue to operate in the dark, doling out corporate largesse year after year without question.

But in a time of COVID-related budget catastrophe, the status quo is simply unacceptable. These bills need to make it to the governor’s desk, fast. And other states need to do the same thing, to stop the coming budget fallout from disproportionately falling on those who can least afford it.

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One more thing: I have a piece up at Public Seminar today on cities fawning over Tesla even after Elon Musk’s awful and absurd behavior during the pandemic. As I say in the piece, it’s the perfect collision of America’s cult of CEO worship and pandemic profiteering.


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— Pat Garofalo