Seems that Governor Schwarzenegger wants to help out his old Hollywood friends with millions of dollars in tax breaks. He makes a case that lower taxes on film and television companies will reverse the trend of runaway production. Currently, California is losing out to at least 40 other states and Canada that are luring away production companies with very attractive tax incentives.
Five years ago, 66% of feature film production took place in California. Last year this was reduced to just 31% and the governor wants to help an industry that supports about 250,000 employees.
While a non-critical evaluation might make this tax cut seem a good idea — encourage a major business to remain in our state and retain taxpaying employees — it is coming from the same governor who is supporting tax increases on all Californians.
The average taxpayer looks at the lesson of runaway Hollywood production and draws an entirely different conclusion. They see just one more example, out of many, of high California taxes driving business, jobs and taxpayers out of state. The U.S. Census Bureau reports that the state is suffering a massive net out-migration of citizens to other states. In most cases, those leaving also represent a loss of jobs and taxpayers who are vital to supporting state and local services.
The governor would be wise to reexamine a tax policy that creates some winners — like his Hollywood friends — and many losers, i.e., ordinary California taxpayers. If we can afford to give entertainment companies a tax break, how about a break for all businesses and taxpayers? If a tax break for production companies will keep them here, why not apply the same principle to all and not only encourage native businesses and taxpayers to remain in the state, but encourage new business and taxpaying citizens to relocate here?
Californians like to think of themselves as leading the way for the rest of the nation. When it comes to taxes, we do. Our state has the highest income and sales taxes in the nation. We have the highest business taxes west of the Mississippi. When it comes to providing a healthy climate for business, several studies show we are leading the way to the bottom.
A few months ago, I had the privilege of speaking to a group of Utah legislators. When the subject of the California Legislature came up, they began to chuckle. They explained that they credited California lawmakers, with their anti-business policies, as a significant asset in getting businesses to relocate to their state.
It is time for the Legislature and the governor to take off their blinders and recognize that California is rapidly losing the competition with other states. Higher taxes that Sacramento politicians are pushing would make us even less competitive. If they want to grow the economy, put people back to work and ultimately increase revenues to government they need to move in the opposite direction.
A tax cut would go a long way toward polishing the image of the now tarnished Golden State. The Hollywood example has already shown businesses will respond to an attractive tax climate. Why not go on the offensive and be among the first states to make businesses an offer they can’t refuse? A tax cut for all would be the quickest way to lift us from the grip of recession.