State lawmakers have so far refused to correct the mistake they made in 2009 when, in a late-night budget session, they created a tax incentive for companies to locate outside California. Voters will be able to fix it for them Nov. 6 by voting yes on Proposition 39.
Venture capitalist Tom Steyer is funding the initiative, which would repeal the absurd law that allows companies to choose the cheaper of two methods of calculating their tax liability. According to the nonpartisan Legislative Analyst’s Office, the deal costs California about $1 billion a year in desperately needed revenue — and here’s the real travesty: None of that tax saving goes to California companies. It’s all for out-of-state firms.
Proposition 39 would require every company to use the so-called “single-sales factor” method to calculate their taxes, based solely on their sales within California. Companies could no longer choose the “triple factor” method, in which half the tax bill is based on California sales and half is based on property and employees here, allowing firms headquartered elsewhere to pay less. The beneficiaries of the current system are big companies — GM, Philip Morris — with lots of sales but few workers or offices here.
Gov. Jerry Brown has been pushing for this change. Genentech executive Andrea Jackson told reporters last year that her company decided to build a $450 million plant in Oregon partly because it would lower its California tax bill. “It’s bad policy,” Jackson said of the existing system. “It incentivizes building out of state.”
Despite support among California businesses, Brown has failed to persuade enough GOP lawmakers to change the law. Yet every other large state, including Texas, requires companies to use the single-sales factor method.
Voters need to fix this. As Steyer recently put it, “There is no California worker, business person or citizen whom (Proposition 39) doesn’t benefit. None.”
For the first five years, half the additional revenue would go to clean energy projects, such as improving efficiency in schools and other government buildings. That would create thousands of jobs while reducing taxpayers’ energy bills and improving public health through cleaner air, which in turn will lower private and public health costs.
The rest of the savings — $500 million or so a year for the first five years, and $1 billion a year after that — would go to the general fund. Schools would benefit the most.
There are other good ideas for the revenue. Brown wanted all of it to go to business tax breaks. Assembly leader John Perez has a strong bill to do the same thing as Proposition 39 but put all the money toward college scholarships for middle-class kids. (Steyer reportedly will stop campaigning for his initiative if this bill passes.)
We’d prefer to see all the money go to the general fund, but it almost doesn’t matter. The important thing is to change a tax policy that now encourages firms to leave California or to expand in other states. Proposition 39 does that. Vote yes.