Proposition 24:Undoing Arnold’s Backroom Deals

OB Rag Fall Elections – Part 7

As part of a series of back-room deals made by Gov. Schwarzenegger in 2008 & 2009, last year’s budget plan included a series of tax breaks for businesses. They were needed to get the Republican votes necessary to get to the two-thirds vote threshold to pass the budget. These tax breaks had been considered by the legislature in previous sessions but had failed to pass.

These deals, originally scheduled to go into effect in 2011, allow corporations to get refunds for taxes already paid by writing off new losses; obtain tax credits for research and development, and use those credits in to reduce taxes on profits from other branches of the company that have nothing to do with R&D; and a lower sales-based income formula to reduce taxes for companies that trade in other states.

This time around the negotiating was done in secret. Left out of the deal were small California based businesses. The winners were big companies with multi-state operations—they walked away with $1.3 billion in special tax loopholes. The losers (teachers) received 16,000 pink slips.

So it comes as no surprise that this year teachers unions are major supporters of Proposition 24—the “Repeal Corporate Loopholes Act”, which would, as it name suggests, undo the deal that the Govenator made last year. The California Teachers Association and likeminded groups have raised $10 million to support this effort.

Leading the charge against Prop 24 are various Chambers of Commerce, who have dubbed their effort “”Stop the Jobs Tax”. With support from high-tech and entertainment corporations, including San Diego’s own Qualcomm, they have also raised $10 million. Opponents are claiming that passage of this act will cost California 144,000 jobs because businesses who can’t afford the tax will go bankrupt or move to another state. Although there is much contention over this claim, these companies have a proven track record when it comes to laying people off: over the past three years they have already sacked more than 100,000 employees. Of course, they also paid their CEOs more than $8.5 billion in the last few years, and made more than $65 billion in profits last year.

These companies say they are mad as hell about Prop 24. Rumors have been circulating that certain Hollywood based industries are threatening to move to Nevada should they lose this fight. Yet all these angry business people have been strangely silent over the past week, as the latest California Budget deal includes a suspension of these same tax breaks for two years.

One thing that I’ve noticed about all these ballot propositions is that the right side of the aisle is mighty quick to drag out ye olde “job killer” moniker. I wonder, if we added up all the jobs that were supposed to be lost over the past couple of elections, if there would be anybody even left in California? (I also wonder how the GOP can criticize the President for last month’s jobs report, given that the reported job loss was solely attributable to declines in public sector employment, something that should bring joy to the hearts of conservatives everywhere…But I digress…)

Last year’s back room budget deal was a “job saver”. This year’s deal, which undoes last year’s deal, is…[crickets]. So I’m reminded of the fable about the little boy who cried wolf. And I wonder how the impact on employment is different, depending on whether these loopholes are suspended by the Govenator or by the voters.

All of this posturing is a by-product of our deranged budgetary system, courtesy of the folks who slipped us the dark side of Proposition 13. (No, I’m not arguing against the part that protects your grandmother’s house, so don’t write.) A consensus based approach will no longer work a with legislature hamstrung by the need to get two thirds support on anything involving money—meaning that it’s impossible for commercial entities to achieve compromises that can be mutually beneficial for themselves and the State’s economy. (And, yes, this used to happen in the past.)

I’ll vote Yes on Proposition 24.