Government employee unions and their liberal allies have mobilized to submit for title and summary a ballot measure that would repeal three tax incentives that bolster California’s competitiveness and improve fairness.
First on their hit list is an important change in how multistate companies calculate their taxes that will make California more attractive for growth and investment. The Legislature agreed to reward companies who invest in new facilities and jobs in California by reducing the weight that those two factors contribute to a company’s tax liability. Current law creates the perverse situation where companies that simply invest in more jobs or property here see their tax bills increase.
The second change conformed California law on tax losses to common practices by the IRS and other states. Taxpayers pay taxes on income (profits) and can write off losses. But for many, their business cycles do not match the arbitrary dates of a tax year. The IRS recognizes this fact of economic life and allows taxpayers to write off losses back two tax years and forward up to 20 years. (The latter is particularly helpful for businesses with long gestation periods, like biotech.)
The third change would allow companies to apply certain tax credits to all of their corporate income, making it more likely that they would participate in the behavior being incentivized by these laws: investing in enterprise zones or in more research and development, for example.
Lost in the faux outrage over improving the tax climate for employers is the fact that the 2008 budget included nearly $6 billion in new or accelerated taxes on California businesses and investors. Our state’s employers gave at the office in 2008, and again in 2009 as part of the $12 billion tax increase recently adopted. Even more taxes on the backs of business will stifle any economic recovery and hurt working families in the midst of a dire recession.
The government employee union strategy is two-fold: increase taxesGto prevent cuts in their ranks, and then repeal the two-thirds Legislative approval requirement for state taxes. But that is merely a recipe for economic deterioration. The fiscal health of the state will be revived only by turning around the state’s economy, adding billions to the treasury without increasing taxes. This will only occur if the Governor and Legislature commit to improving our state’s competitiveness to ensure a welcome environment for job creation.