Fix California‘s discouraging business climate
By Dan Walters
California is struggling to emerge from the worst recession since the Great Depression and has more than 2 million unemployed workers, plus countless others who have given up seeking work out of frustration and/or have fled to other states.
Clearly the state needs many billions of dollars in job-creating investment. But its attractiveness to that investment is problematic, given its relatively high tax burden, its dense regulatory structure, its deficiencies in education, transportation and water supply, and its tangled government finances.
Chief Executive magazine's most recent survey of corporate leaders finds that California ranks dead last among the states in business climate for the eighth straight year.
Given that, one might think that Gov. Jerry Brown and other political figures would place improving the state's investment climate at the top of their agendas. But they may be making California less competitive.
Brown's tax increase ballot measure, for instance, would sharply increase state income taxes on those at the top of the economic pecking order. And Brown and other politicians are fiddling around with corporate taxation, aiming to increase taxation of out-of-state corporations by about a billion dollars a year.
Requiring multistate corporations to base their California tax liability on what's called a "single-sales factor" would, if enacted, tax out-of-staters more while, it's said, benefiting in-state companies.
But that's a bit specious because the in-staters already have the option of using sales only to apportion taxable income, if they wish, thanks to a change in law three years ago.
Two years ago, voters turned down a measure to impose the single-sales factor on all corporations, but it's back this year.
Assembly Speaker John A. Perez, who's carrying one of the bills to make the single-sales factor mandatory, calls it a "loophole" and that closing it "levels the playing field for California businesses." He wants it to reduce college student fees.
But it's not the only version. A Senate bill would use the new corporate taxes to finance veterans' services, while a ballot measure would finance clean energy projects.
Is it good tax policy?
Perez, et al., say it would remove a disincentive for out-of-state firms to expand production operations in California, and there's some validity to that. But it cannot guarantee that expansion would occur and it would certainly raise their tax bills.
Nor would it provide a new incentive for in-state firms to invest here.
California icons such as Intel and Apple have been expanding mostly in other states.
If it's truly a loophole, it should be closed. But if it's just a way of extracting more money that discourages desperately needed investment, it could be very shortsighted.
Dan Walters is an editorial writer for Sacramento Bee.