Corporate Tax Increase Would Stifle Economic Progress in California

Shortly after Governor Jerry Brown proposed a state budget that includes record reserves, the state controller reported that revenue is beating projections by a healthy margin, and state officials announced that California’s unemployment rate is at its lowest level since the current record-keeping format was adopted 42 years ago.

In short, this is the best fiscal shape that California has been in for many years.

The revenue boom is particularly good news, as it provides funding to improve critical programs and services without increasing tax rates.

The state government’s total revenue for January was $2.37 billion (15.8 percent) more than estimated in the governor’s 2018-19 budget proposal. Personal income tax revenue in January was $2.25 billion (16.9 percent) higher than projected, and corporate income tax revenue was $211.3 million (62.1 percent) higher than projected.

Unfortunately, several state lawmakers have come forward with proposals that would throw a wet blanket on this progress by discouraging businesses from hiring and making investments in California.

taxesOne of the worst offenders is Assembly Constitutional Amendment 22, which proposes one of the largest tax increases in state history – a plan that would hit California employers with the highest effective corporate tax rate in the United States. The measure would impose a 10 percent tax on many employers, in addition to the existing state corporate tax rate of 8.84 percent, in effect imposing an 18.84 percent tax on employers. California already has the highest corporate tax rate among the Western states, but ACA 22 would give California the highest rate in the entire country, thereby increasing the incentive for our businesses to take their jobs and operations to other states.

Why would anyone consider a tax increase that would put the jobs of more Californians at risk? Why would anyone propose a tax increase when tax revenue already exceeds expectations?

Supporters of the tax hike say it’s no big deal because California businesses will benefit from federal tax reductions, so a tax increase would be “revenue-neutral.” This political spin fails under even the most cursory examination. If California negates the benefits of federal changes, and the other 49 states don’t, businesses will move to the states that aren’t trying to neutralize them.

Even without the tax hike, our tax structure places California at a significant disadvantage in the worldwide competition for jobs. Many businesses have left, and others are packing up the moving trucks.

For example, as the Golden State promotes the use of electric vehicles, a major manufacturer of lithium batteries is in the process of leaving Riverside and taking its work to the Appalachian region of Kentucky. The Associated Press reported in December: “EnerBlu Inc. announced it will invest $372 million and create 875 full-time jobs in eastern Kentucky with the production facility in Pikeville. The company also will move its headquarters from Riverside, California, bringing another $40 million investment and 110 administrative, research-and-development and executive jobs to Lexington, Kentucky’s second-largest city.” The plant will manufacture rechargeable batteries used in transit buses, trucks and other vehicles.

California workers losing green jobs to Kentucky? There couldn’t be a clearer sign that California needs to improve its business climate. At the very least, we should be wary of anything – like a massive tax increase targeted directly at California employers – that would jeopardize our recent economic improvements.

CalTax Legislative Advocate.

This article was originally published by Fox and Hounds Daily