All State Businesses Deserve Tax Help

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

Hooray for Hollywood! Oh, yes, and hooray for batteries for electric cars. And another hooray for some jet plane manufacturers. It seems the state Legislature has found a number of causes to create state tax credits to encourage business and jobs in the Golden State.

All well and good, but what about businesses that don’t qualify for tax credits? You would think legislators would recognize that with the rash of requests for tax help they are dealing with this year that something is wrong with the business climate.

What’s wrong is high taxes and a briar-patch of regulations that California businesses have to deal with. The state is continually ranked near the bottom of surveys on good places to do business.

It is certainly understandable that industries seek help from the Legislature to lessen their burdens.

The movie industry is a brand recognized around the world as made in California. Not so much any more. According to Kevin Klowden, director at Santa Monica-based Milken Institute’s California Center, “Between 1997 and 2008, the state lost more than 10,000 direct jobs in the industry and 25,000 more indirect jobs; all told, that’s a loss of $2.4 billion in wages and $4.2 billion in real output.”

Job losses continue to grow.

California now competes with other states and other nations for film and television business, and these locales offer subsidies to lure some of the creative businesses. Canada has been baiting its subsidy hook for almost two decades, first offering subsidies and an attractive exchange rate. When the exchange rate neutralized, Canada upped the subsidies.

California jumped into the tax-credit game under then-Gov. Arnold Schwarzenegger, offering $100 million in tax credits. The state of New York tax credit program is four times as large. Now California legislators are trying to catch up, considering a bill to increase the state’s credit.

The Legislature also passed a bill offering $420 million in tax credits over 15 years to the aerospace industry, specifically a partnership of Boeing-Lockheed Martin on a strategic bomber project. If Gov. Brown eventually signs the bill, the aerospace companies would be in better shape to bid for defense contracts for fighter planes.

Tesla is considering building what has been termed a “gigafactory” for electric car batteries. Originally, Tesla said four states were being considered for the factory, with a bonanza of 6,500 new jobs. California was not one of them. State authorities noted that Tesla was given breaks to start its business in the Golden State, and the company should consider building its gigafactory here. Legislators are working furiously on incentives to make that happen.

While some opposition arose to the aerospace tax credit because it did not cover all aerospace companies, there has been scant opposition to the movie tax-credit measure.

Democrats in the Legislature don’t want to be branded as anti-job in this high-profile case. Republicans, who have argued that the way to improve the business climate is to cut taxes and regulations for all business, support the industry-by-industry breaks because they say these types of measures are the only tax-cutting proposals that can get through the Legislature as currently constituted.

The reality is that California is in competition with other states for businesses and jobs. Turning away from offering tax credits while waiting for changes in the current business climate will mean a loss of many jobs and businesses.

However, we cannot continue to throw the rose petals of tax breaks before selected businesses, as much as those particular businesses mean to the state.

A solution would consist of acknowledging the immediate problem and granting the needed tax credits. At the same time, recognize that the call for credits is really a cry for help from a suffering business community. Legislators should acknowledge the need to compete now and long into the future by supporting credits as a short-term fix and move, not just promise, to clean up the tax codes and regulations that give California a sour business reputation.

There was even a sign that such a move would occur when the Legislature passed the aerospace tax credit and pledged to expedite a bill when they return from recess that expands eligibility of the credit to other contractors.

A start perhaps, but not enough.

Let’s keep the Hollywood brand strong while getting rid of California’s bad-for-business reputation by helping all the state’s businesses.

Originally published in the Los Angeles Register.

(UPDATE: Since this article was published, Gov. Jerry Brown signed a bill offering the aerospace tax credit. The bill included incentive language to benefit the battery manufacturing plant.)

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