One solution to putting California jobs first

Wednesday, January 26, 2011

Imagine you're a large, successful Texas-based corporation and although you have no employees in California, your biggest consumer market, you discover in the fine print of California's tax rules that in spite of our historic unemployment and colossal debt, you'll get a special tax break so long as you don't invest in the state or create jobs here. The Giants may have beaten the Texas Rangers in the World Series, but it's the Texans who are laughing all the way to the bank.

Or imagine you're a large California employer thinking about expanding and creating new jobs and your attorney informs you that the state will give you a special tax break if you expand out of state. In fact, the tax break is even bigger if you move your existing jobs out-of-state.

Do these hypothetical examples sound absurd? Sure they do. But what's even more absurd is that they're not hypothetical - it's a new law and we're about to start paying corporations to ship jobs out-of-state.

In 2009, a so-called tax reform bill was passed as part of the budget deal with former Gov. Arnold Schwarzenegger in the middle of the night with no public hearings, no public comment and no oversight.

This new job-killer tax loophole takes effect this year, rewarding companies for creating out-of-state jobs while punishing California companies seeking to create jobs here by putting them at a competitive disadvantage - all paid for by California taxpayers.

Yes - you read that right. Not only does this loophole give corporations a massive tax windfall if they move jobs out of state, it sticks California taxpayers with the tab. According to the nonpartisan Legislative Analyst's Office, this tax loophole will be paid for by the public at a cost of $1 billion annually.

Moreover, the LAO has determined that if we close the loop-hole, instead of losing jobs, California will create 40,000 new jobs.

We need to be serious about fixing it.

And we need to be serious about fixing it right now.

At a time when we are asking everyone in this state to consider serious solutions for the serious times we are in - we need to show the public that state government is serious about putting jobs first.

It is important to understand how this tax loophole was created if we want to close it.

During the 2009 budget negotiations, California businesses reasonably argued that our old corporate tax system hampered companies from creating jobs here. The formula punished them by factoring in their payroll and property values. Instead, California industries asserted the tax formula should incentivize companies to hire in the state by focusing exclusively on in-state sales - known as the "Single Sales Factor." Given that 23 other states had already adopted a similar change in their corporate tax formulas, this adjustment in California would level the playing field and provide an incentive for out-of-state corporations to invest here. Based on the promise of new jobs, the Legislature made the change.

Yet, despite the best of intentions, lobbyists for out-of-state corporations managed to slip a single sentence into the bill that effectively put the word "killer" after the word "jobs." The provision inserted at the last second, created a loophole allowing corporations to pick their preferred tax calculation formula every year (either the old or new one) thereby guaranteeing large corporations a tax windfall whether they invest in California - or not.

Closing the loophole to save taxpayers a billion dollars, create 40,000 jobs, and make California's businesses more competitive is a no brainer, which is why the LAO is advocating an immediate change.

The head of the Senate, Darrell Steinberg, has made clear he will strongly support the bill that I'm introducing to close this loophole.

However, to take action will require bipartisan support.

Thus, Republicans will face a clear choice on the tax loophole - they can stand for 40,000 jobs, making California businesses more competitive and saving the taxpayers a billion dollars - or they can put the interests of Texas and other states before the people who elected them.