It happened again last week.
Gov. Jerry Brown was forced to propose yet another round of deep cuts to education, public safety and the health care safety net because tax revenues came in far lower than expected. The drop was so great that our state budget deficit nearly doubled to $16 billion. Despite being one of the richest states in the world, home to Hollywood and Silicon Valley, California just can’t seem to make ends meet.
The average resident understands, in the gut, that our tax system is broken — and that it’s not working for most of us.
It turns out that our instincts are correct. Our tax system is not clear, it’s not rational, and it does not support the services our residents expect. It also is riddled with exceptions that favor special interests over the needs of average Californians. Here’s just one example: Our state’s tax structure actually favors out-of-state companies and puts California businesses and California-based employees at a disadvantage.
There is a loophole in California tax law that allows corporations to make a choice: They can pay taxes based on the amount of business they do in our state, or they can pay taxes based on the number of buildings and employees they have here.
It is a foolish option because it means companies that employ few people here but have plenty of sales do well by our tax system, and companies with significant operations and large workforces in California are handicapped. The homegrown Ciscos, Disneys and Apples pay more, while the Philip Morrises, General Motors and Bristol-Myers Squibbs pay little in comparison.
In this current system, companies have an incentive to move their headquarters to other states, and fewer jobs are created in California. The state’s nonpartisan Legislative Analyst says closing this tax loophole for out-of-state businesses will increase economic activity and produce jobs in California, in addition to bringing in more revenue that can be used to fix the state’s chronic budget problems.
A broad coalition of business, health and environmental advocates is working to close this tax loophole. Our ballot measure, which is awaiting signature verification, will help solve the state’s budget problem while also creating tens of thousands of quality clean-energy jobs throughout the state. We’ll eliminate the tax option that benefits only out-of-state companies, and by doing so we will put California companies back on a level playing field.
This change also will bring in $1.1 billion annually to fund services including public safety and higher education. Our initiative will put half that money — $550 million each of the next five years — into a job-creation fund. We’ll put Californians to work improving the energy efficiency of schools and public buildings, retrofitting college campuses, participating in public-private partnerships, and learning in workforce development programs for veterans and disadvantaged young people. These will be jobs for Californians, in California, beginning in just seven months.
This is a simple fix to our tax code, and a popular one. Recent polling shows nearly 70 percent of our state’s voters support closing this unfair loophole. They want a balanced, transparent tax code. And if they had it, they would be more than willing to pay their fair share.
An initiative to correct the sales factor and treat California-based businesses fairly will go a long way toward helping families understand where their tax dollars are going. If we pass this ballot measure, those dollars may very well go toward their jobs and their paychecks.
Tom Steyer is founder and co-senior managing partner of Farallon Capital Management, LLC, and chairman of Californians to Close the Out-of-State Corporate Tax Loophole. He wrote this for this newspaper.
