Prop 39 Takes Aim At State Tax Code
Friday, October 12, 2012
Proposition 39 aims to change state tax law to raise money for green jobs and the general fund. Critics call it a tax hike.
Proposition 39’s main supporter has a simple message. A yes vote raises more than a billion dollars in new tax money from out-of-state companies, and half of that will help create green jobs over the next five years.
The San Francisco-based hedge fund manager want voters to approve rewriting the state’s corporate tax rates. Tom Steyer is putting millions into the effort.
“I want to participate like everybody else in seeing California becoming a better place to live,” said Steyer.
Steyer has already fought and won a battle at California’s ballot box. In 2010, he helped defeat proposition 23. That measure would have rolled back California’s landmark global warming law. Now he’s putting $20 million of his own money into passing proposition 39.
“It's about tax fairness,” said Steyer. “Closing a loophole. All we are asking out of state companies to do is to pay taxes on their income, exactly the way we do. And what that will do, is bring into the state of California, a billion dollars a year. And all from companies from out of state.”
California voters are getting a chance to do what California lawmakers failed to do in 2009. As part of the state budget deal, the legislature gave companies a choice of how to pay their corporate taxes.
“For years and years and years, we had a long tradition of using a three factor apportionment formula, which meant we look at three different factors that are economic drivers of income. Sales, Property and Payroll,” said Steve Gill, San Diego State University Business Professor.
California lawmakers changed the rules so corporate taxes could be based on sales only. Many California companies adopted the sales only rule because it was cheaper for them. But the state failed to get rid of the old tax formula. And some out of state companies find the old formula cheaper.
“Large multi-state companies that don’t have a lot of payroll and property in California, but probably have a lot of sales, are disadvantaged by a single sales factor and would prefer to keep the old three factor formula,” said Gill.
Proposition 39 would eliminate the choice and base corporate taxes on sales only. GM, Chrysler, Kimberly Clark and International Paper all spoke out against the idea when the measure qualified for the ballot prompting the Proposition 39 camp to take out ads attacking that opposition.
“These four companies are stepping all over California. They’re fighting to keep a billion-dollar corporate loophole that gives tax breaks to companies for shipping jobs out of state,” the ad said.
But those large companies didn’t have the stomach for an expensive ballot box fight in California. Co-sponsor Tom Steyer pulled the ad campaign when the companies dropped their opposition.
“Some huge major American corporations have sent us letters, who we thought might be in opposition and who we were prepared to try and debate, sent us letters saying, you know what. It is tax fairness,” said Steyer. “We recognize what you’re doing is correct. We have no intention of opposing you.”
That allows the proposition 39 campaign to focus on the positives and fixing two long running California problems, tax revenue and jobs, according to Steyer. The measure will generate a billion dollars in more tax revenue for a cash starved state and it earmarks half that money for the creation of green jobs over five years.
Both of those solutions make Richard Rider shudder. The Chair of San Diego Tax Fighters said Proposition 39 is a tax hike, plain and simple, and he thinks voters will see that.
“The last eight tax increases that have been on the ballot, statewide tax increases, each of which could have passed with a simple majority vote, a lot of people think it takes two thirds, no a simple majority vote,” said Rider. “The last eight tax increases statewide have failed. Six of the tax increases failed by double digits.”
A tax hike won’t dig the state out of its fiscal hole, according to Rider. California needs fiscal discipline, not more money. And Rider said he is not ready to let politicians steer a half-billion dollars a year into green energy projects.
“It's not like there’s a bunch of wise, pipe smoking genius’s up there making those distributions,” said Rider. “It is going to be, people who respond to pressures in Sacramento. It is going to be people who respond to political contributions.”
But critics like Rider don’t have the deep pockets to publicly oppose Proposition 39. There will be no slick ad campaign to influence voters. Rider said he’ll have to rely on voters seeing the measure for what it is.
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