Keeping It Real About Tax Subsidies

Tuesday, May 6, 2014

Page 7

IN MY OPINION (Column)

Keeping It Real About Tax Subsidies

By JON COUPAL

Just two months ago this column criticized Sacramento for subsidizing those politically connected companies that are part of the “in” crowd with millions in tax credits while maintaining high taxes on less glamorous industries. Auto maker Tesla has recently been “gifted” $35 million in this fashion and both Democratic and Republican lawmakers are lining up to ingratiate themselves with movie moguls while bearing offerings of hundreds of millions in tax subsidies.

Now we have a new high profile recipient of state largess. The Legislature has passed a bill by Democrat Al Muratsuchi to give space firms a property tax break. One of the principal beneficiaries would be billionaire Elon Musk’s company, Space X, that builds rockets and spacecraft in California. That the bill would give his and other firms an exemption from property tax bills on launch vehicles, fuel and satellites, seems ironic in that many in Muratsuchi’ s own party argue that businesses are not paying their fair share in property taxes.

Looks like we can now add space firms to the card-carrying members of the Sacramento “in” crowd.

It is ironic that while the politicians scramble to entice favored business to remain in California, more ordinary companies like Toyota, which has just announced that it is moving its North American headquarters along with 3,000 jobs to Texas, are leaving with not so much as an “Hasta la vista, baby.” Toyota obviously lacks the cachet of Tesla and, from Sacramento’s perspective, the workers that will lose their jobs will hardly be noticed when added to the nearly two million Californians that are already out of work.

But it is not just large firms like Toyota that are disenchanted with California. The suffering of small businesses continues to be beneath the consideration of the Sacramento political class. A newly released report by the Small Business & Entrepreneurship Council confirms what numerous other studies and reports have indicated, that California’s small-business tax environment is the worst in the nation.

Human nature being what it is, it may be understandable that, given a choice, the political class would rather rub elbows with the manufacturers of exotic sports cars, space craft and the producers of hit movies and television programs, than they would with the owners of barbershops or bakeries. And it is not surprising that they justify their favoritism with arguments that the industries getting the subsidies will return benefits to the state that outweigh the cost to other taxpayers.

But here is the rub. Their self-serving, economic arguments have no connection to reality. A just-released report from the non-partisan Legislative Analyst’s Office says that the state’s subsidies to the Hollywood producers may not stem job losses to other states. And for every $1 of subsidy, the state gets back only about 65 cents.

Legislative Analyst Mac Taylor adds that other states can just increase their own movie industry subsidies, while cautioning, “This sort of competition can be characterized as a race to the bottom.”

The “race to the bottom” of course is not the only problem with such narrowly focused tax favors. For every new tax deal struck, other industries and interests will notice and, pretty soon, they will be hiring their own army of suits to lobby for their specific corporation or interest. The danger here for corruption is self-evident. At a time when three California senators have been convicted or indicted for wrong-doing, maybe the Legislature should say no to a system which will, like fresh donuts in the break room, offer temptations hard to resist.

As the expression goes, let’s keep it real. It’s time for California to lower the tax burden on everyone, not just the favored few. Not only is that better tax policy, but it might also help to keep our elected officials on the straight and narrow. Lord knows they could use the help.