Major paper fingers state favors for insiders
Corporate welfare and California's budget deficit
While the tax code, handcrafted by lobbyists, does favor business, the real problem is not that the state forgoes taxing success but that it forgoes taxing sites. This 2010 is from the Los Angeles Times, Jun 18. The writer's column appears there Sundays and Wednesdays.
By Michael HiltzikI believe we can all agree on the root cause of the state's $20-billion budget gap.
It's welfare: all those millions of taxpayer dollars going to recipients who line up for their government handouts instead of competing in the marketplace on a level playing field like the rest of us, who don't pay their fair share of taxes, and who get protected by a politically powerful lobby.
Yes, I'm talking about the business community.
For all the hand-wringing by Gov. Arnold Schwarzenegger about how there's almost nothing left to cut in the state budget except services to children, the aged and the destitute, hundreds of millions of dollars are spent every year on handouts to business. That's despite the lack of evidence that some of these programs are cost-effective in any general way.
The governor is asking the Legislature to take such draconian steps as eliminating CalWORKS, the state's principal family welfare program (serving 1.1 million children), and downsizing childcare and mental health programs.
Meanwhile, Schwarzenegger has proposed delaying some new corporate tax breaks.
The state budget is rife with industry goodies. For example, there's the Hollywood subsidy, currently pegged at $100 million a year in tax credits.
The rationale for this welfare program is to keep productions from fleeing to other states. Would they? If so, would paying them to stay be worth it?
New Mexico, which had aggressively courted producers with $40 million in tax rebates, concluded in 2008 that for every dollar it spent, it received 14.4 cents in return.
And California's program is hardly aimed at companies on the financial edge -- as my colleague Richard Verrier reported recently, $20 million is going to pictures being shot here this year by Warner Bros. The money isn't allocated according to need but on a first-come, first-served basis among qualified productions. In other words, it's more a windfall for the nimblest applicants than a program targeted at productions most likely to leave without it.
The biggest state incentives are attached to enterprise zones, which cost as much as $500 million a year in forgone taxes. Businesses locating within any of 42 designated zones across the state can apply for tax credits and other bounties for hiring unemployed or low-income workers.
The late Ted K. Bradshaw of UC Davis, who had received funding for some of his work from the California Assn. of Enterprise Zones, found that two-thirds of the growth in the zones would have occurred anyway, and no "definitive study" had been conducted to nail down the "impact of the zones on local economic development."
Another 2006 study found that for households within enterprise zones, poverty rates were lower and incomes higher than in the rest of the state. But that measure applies to households within the zones, not employees of zone-based companies, which are by no means the same thing.
Other states rely far more on business taxes than we do. According to a survey by the accounting firm Ernst & Young, California ranked 35th in terms of business' share of state and local taxes in 2007. (That is, in 33 other states and the District of Columbia, business carried a higher burden relative to individual taxpayers than in California.) Measured by business taxes as a percentage of gross state product, California ranked 32nd.
Some industries whacked hard by other states are untouched by California -- this is the only major oil-producing state that doesn't levy a severance tax on oil taken from the ground, even though such a tax could yield billions of dollars a year.
What could we do with all that money? The $100 million spent on Hollywood could maintain any of several Medi-Cal benefits the governor proposes to cut. The $500 million spent on enterprise zones could save half of CalWORKS, and $1 billion from a severance tax could save all of it, benefiting a billion children. Eliminate some of these questionable programs, and more could be spent on the schools and the universities.
So why is welfare for the poor expendable and for the rich a sacred cow?
JJS: He adds that in California the income tax ranks high as a percentage of total business taxation because the property tax is so low, accounting for a lower percentage of total taxation than in 44 other states. Thatís the key problem. Government could eliminate most taxes and tax breaks altogether were it to recover the socially-generated value of land and resources.
Government should recover the rental value of locations and oil in the ground not because theyíre worth a lot but because nobody made Earth and all of us make Earth valuable.
Thatís the problem with tolerating taxes and targeting successful businesses and individuals -- it loses sight of the commonwealth, of value that already belongs to everyone. If we were to share natural values, then the elite would not have them, and we would not have to envy them for them. And this geonomic recipe would spare us this endless debate over taking from the rich to give to the poor.
Editor Jeffery J. Smith runs the Forum on Geonomics.
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