Tax Raisers Target Businesses—How Long Will Businesses Stay in CA?

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

Businesses, particularly corporations, are the targets of tax raisers in the legislature, at city hall and on the ballot. Piling on business taxes in a state notorious for its poor attitude toward business, one wonders how long businesses will put up with it before leaving. As Jim Wunderman, the president and CEO of the Bay Area Council told the San Francisco Business Times, “Taxes equal Texas.” 

The state legislature recently eliminated business tax credits, suspended the net operating loss deduction, and made other moves to find budget revenue with $9.2 billion from business. San Francisco and Oakland, as examples, are looking at proposals to restructure their business taxes with the goal to raise revenue from big businesses. Coming on the November ballot is the largest property tax increase in history aimed at corporations, although in reality all businesses will feel the effect. The property tax measure is backed by politicians such as the mayors of Los Angeles and San Francisco, as well as the largest public employee unions in the state. 

How long will businesses put up with this treatment? Texas chamber of commerce officials say that every time California or municipalities talk about raising business taxes, phone call inquiries increase. Just over a month ago, business location expert Joseph Vranich wrote on this page, “For many years I’ve witnessed corporate leaders and business owners giving up on California because of its harsh regulatory, tax and political environments. Some of the language they used in private can’t be published here.” 

Vranich reported that approximately over the last decade 17,000 businesses left California in full or in part diverting an estimated $99 billion in capital, “a conservative number,” he writes. 

The Oakland proposal would lower tax rates for small businesses and raise rates on large businesses, enough to make up for the lost revenue of the tax rate cuts and still add $40 million to the Oakland city treasury. In San Francisco, a number of tax proposals are aimed at businesses to raise hundreds of millions also cloaked in the language that the big businesses can afford the change. 

The same tactic is being employed by the supporters of the split roll property tax proposal that is destined for the November ballot. While proponents claim that only a handful of corporations will pay the lion’s share of the tax, it is a false argument. Since many of the property owners lease to small businesses, it is the small businesses that will pay a large share of the tax increase through pass-through agreements. Ultimately, the tax burden will fall on consumers. 

This attack on big business and essentially on all business comes at an odd time. The economic devastation and lost jobs due to the pandemic is obvious to all. Adding additional tax burdens on the job creators and the businesses will only hinder a recovery. 

This week a UCLA Anderson school study said the California economic rebound would be slow taking years to rebuild to where the state was economically at the end of last year.  Study authors suggested that was an optimistic view because it assumes that the coronavirus threat will subside by summer’s end, which is no given. Employers won’t be quick to add jobs, with unemployment by year’s end still projected to be in double figures. A Chapman University study declared that there would be 800,000 fewer jobs at the end of the year compared to the first quarter of this year. 

And, these predictions don’t take into account oppressive tax increases either on the local level or across the state if the split roll passes.

While tax raisers think corporations are an inviting target to pursue increased revenue, they forget that these businesses have the ability—and they are getting the incentive from government actions– to move.

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