Massive Cuts While A Permanent Corporate Tax Break Stands?

by on May 27, 2009 · 0 comments

in California, Civil Rights, Economy, Health, Labor

by David Dayen / Calitics / May 27, 2009

Despite his admission that California is ungovernable, the Governor soldiered on today, announcing the full slate of revised budget cuts to replace his proposed borrowing, since scrapped, and to fill the even larger deficit estimated by the Legislative Analyst.  As expected, the Governor called for eliminating the CalWORKS program for the poor, eliminating Healthy Families to provide health insurance to poor children, and phasing out the Cal Grants program which provides financial aid to California students.  But that’s not all. As Noreen Evans says, the Governor’s cuts “dismantle the New Deal.”  Here are some of the lowlights in these 25 distinct cuts:

• Add another furlough day to an already-negotiated contract between the Governor and SEIU Local 1000.
• Cuts $1 billion dollars over 3 years to UC and CSU budgets.
• Eliminates CalFIRE equipment repair and replacement for one year.
• Eliminates all General Fund support for state parks, forcing them to become self-sustaining to survive.
• Cuts Medi-Cal coverage for breast and cervical cancer treatment and dialysis.
• Eliminates funding for Indian Health Services, Rural Health Services, and Seasonal Agricultural Workers.
• Reduces funding for the AIDS Drug Assistance Program.

California legislature.

All in all, we’re talking about $6 billion or so in further cuts, most of them, as you can see, to the most vulnerable members of society.  More than 1.9 million Californians could lose health coverage as a result.  About the only positive here is that the Governor follows through in commuting the sentences of nonviolent, non-serious, non-sex offenders, for one year only, in 2009-10.  Of course, he won’t invest the time or money in treatment and rehabilitation that would save the state billions in the long run by completely revamping our corrections system.

Now, we’re told that, since the citizens won’t accept any new taxes (the truth, of course, is that the special interests won’t accept them), because they supposedly let their voices be heard (in record-low numbers) in the special election, this is the best we can do.  Let’s set aside the fact that public opinions on this front are contradictory at best and the very opposite of what the Governor suggests at worst.  The truth is that anyone who tells you we must cut, cut, cut because there’s no other option is lying to you.

The only permanent tax measure in the entire February 2009 budget was a giant tax cut for the largest corporations in America.  At a time when revenues are scarce and no money can be found for poor children or student grants-in-aid, every large corporation will be allowed to decide for themselves how they choose to be taxed by the state of California.

At issue is the new “elective sales factor,” a system for determining how much tax a company should pay in the state. Up to now, California’s tax system taxed corporations using a formula based on employment, property and sales in the state, sometimes know as a “triple factor” system.Many companies have long argued that this traditional way of calculating taxes punishes companies that invest in the state and create jobs, but critics disagree. Under the new elective system, set to go into place for the 2011 tax year, companies can choose to pay under either the triple factor formula or via the  “single sales factor” system, based entirely on their sales in California.

“The policy behind a single sales factor formula is you reward the companies that heavily invest property and payroll in the state,” said lobbyist Chris Micheli, who represents numerous corporate clients with his firm, Aprea & Micheli. He said he did not personally lobby on the elective sales factor provisions.

The most vocal critic of these changes is Lenny Goldberg, executive director of the California Tax Reform Association. He said he is opposed to single sales in the first place-but that allowing companies to choose which system they use is even worse. He said companies will now be able to report more revenue to the state in good years and move losses into the state in bad ones.

“Tax policy should be consistently applied,” Goldberg said. “But we’ve given this elective that provides for infinite manipulation.”

The changes were part of a budget trailer bill, ABX3 15, authored by Assemblyman Paul Krekorian, D-Burbank, and a related bill from the Senate, SBX3 15 by Senator Ron Calderon, D-Montabello. Goldberg said these bills negotiated behind closed doors, without hearings, during rushed budget negotiations-leading to a very bad deal for the state.

“This is the gutting of the state corporate tax,” said “In fact, they did it so badly that lawyers are chuckling about the opportunities for tax avoidance.”

This would make California the only state in the nation to give corporations a choice on how they would like to be taxed.  It will make the state’s finances more volatile forever, because as Lenny Goldberg says companies can use California as almost a kind of tax haven.

By the way, such a tax evasion was pushed as much as anyone by Democrats in areas with high-tech sectors.  They have been clamoring for this shift in corporate tax policy for a generation, and they slid this into the budget at the last minute.  And… wait for it… reversing it will require a 2/3 vote.

You can argue about whether or not this would spur local investment or just provide a giveaway – although the facts point to the latter.  You cannot argue at all that, in the midst of an historic recession and a dearth of revenue, now was the best possible time to hand out what could be $1.5 billion dollars a year in a huge corporate tax break.  Supposedly, we’re told by the Governor and political leaders that now is a time for sacrifice and to “live within our means.”  Surely the corporations ought to be held to that same standard.  We are in a situation where we have no money for parks, no money for the poorest in society, but enough to give a huge corporate tax cut.  Surely they feel the civic responsibility to contribute their fair share.  Surely they understand the dangers of a less-educated, less-healthy workforce on their personal bottom lines.  Surely they aren’t all about the MONEY.

It shouldn’t stand.  The Democratic leaders in the legislature, who allowed this to go forward with nary a peep in February, should not be allowed to get away with such complete double-talk this time.  That $1.5 billion would save almost every program I bullet-pointed above.  If they want to cut their way to glory, at the very least they can repeal this massive, unjustified corporate tax cut.  The reason the next Governor will inherit a mess is mostly process, but also the failure of the Democrats in the leadership to look out for the best interests of the state and allow far more hijacking than is reasonable.  15 Democrats in the Senate and 27 in the Assembly could actually DEFY that leadership and demand a repeal to this tax giveaway.

Otherwise, they have absolutely no standing to argue that the cuts-only nightmare we will soon face represented “the best they can do.”

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