Flash Advises GOP: Trade Biz Tax Break for Tax Cuts

Sep1

At a time when California’s structure of governance is badly broken, it is our collective responsibility to find ways to make state politics work again. It is in that spirit that today we present a modest tax policy proposal from our favorite conservative, GOP blogger and apparatchik Jon Fleischman.

Let’s be blunt: Gov. Jerry Brown has had zero, zip, nada success in dealing directly with legislative Republicans; given that the latter consistently take their cues from Fleischman’s Flash Report, we figure, let’s cut out the middle men and let Brown hear directly from the guy who, along with his hero Grover Norquist, seems to be calling the Republican shots in Sacramento anyway.

And so we hope to do our small part to help end dysfunction in the Capitol, by providing this space for Flash and Gandalf to negotiate directly with each other. Calbuzz: California’s last honest broker.

By Jon Fleischman
Special to Calbuzz

Last week Gov. Jerry Brown introduced a so-called “job creation package” — the substance of which was to eliminate a current tax break called the “single sales factor” — which would score around a billion dollars of additional revenue to state coffers, which Brown then proposed be used to provide sales tax exemptions to manufacturers, and to politically attractive types of businesses — biotech, software, and clean energy.

The proposal was more or less declared dead on arrival as it requires a two-thirds vote of each legislative chamber to eliminate the single sales factor tax break (meaning Republican votes would be needed) and there is no appetite among GOPers to cut a major business tax break to redistribute those funds in the form of targeted tax breaks.

What exactly is the “single sales factor” deal?

It has to do with how to determine California taxable income for firms that also operate in other states. Prior to the break in question being enacted, these multi-state firms determined their amount of taxation based on a formula that considered the location of the firms’ sales, property and payroll. Now, starting this year firms will have the option to consider only their sales. Companies can choose either method of calculation, whichever costs them less.

That having been said, when Gov, Brown referred to the single sales factor break, he called it a, “perverse and outrageous tax incentive.”

While I generally favor the break as one that I think helps create economic growth, what I considered to be “perverse and outrageous” was the way about which this tax break become law.

Back in 2009, then Republican Gov. Arnold Schwarzenegger along with the then Republican leaders in the State Senate and Assembly gave their seal of approval on a state budget deal that saddled California families with the largest tax increase in state history — a two-year increase in the state’s income, sales and car taxes — and a reduction in the child tax credit.

It was a terrible deal that placed a terrible financial burden on California taxpayers in the midst of a recession. That’s the outrageous part.

The perverse part is that the same time that taxpayer protection groups like the Howard Jarvis Taxpayers Association and the National Tax Limitation Committee were pushing hard to stop this massive tax increase, many representatives of the “big business” community weighed in with their support of it — because buried in the budget plan was this single sales factor tax break.

To be blunt, these big corporate interests literally supported raising broad-based taxes on the people of the state in order to subsidize their niche tax break. Perverse doesn’t seem to adequately describe this Machiavellian maneuver.

I bring this up because while I agree that the “jobs plan” as proposed by Gov. Brown has not a single Republican vote, perhaps Gov. Brown should be approaching how he ends the “perverse and outrageous tax incentive” a different way.

Speaking for myself, as a conservative, I would be an enthusiastic supporter of a revenue neutral proposal that did away with the single sales factor choice, but replaced it with broad-based tax relief to those who bore the burden in the 2009 deal — so a billion dollar (or so) reduction in either the state sales tax, the income tax or the car tax.

This would undo, in part, the terrible wrong that took place back in 2009. And because it would be revenue neutral, it would not violate anyone’s pledge to oppose tax increases. If I am an enthusiastic supporter of this idea, then I am willing to bet that there are some conservative legislators who might find it attractive as well.

The final weeks of legislative session are known for putting together whiz-bang deals. Certainly this could be one of them. And given the low popularity of the state legislature, could it really hurt to end the session with a message that you provided broad-based tax relief?

Jon Fleischman, whom we have know since he was one of the leaders of Young American for Freedom who burned former Republican Gov. Pete Wilson in effigy for raising taxes, is editor and publisher of the conservative web site Flash Report.


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There are 6 comments for this post

  1. avatar CAMod.org says:

    Generally not a fan of Flash’s hyperpartisan tendencies, but this is a pretty smart compromise.

    Revenue neutrality can be a path toward better tax policy by neutralizing trivial debates about the proper size of government. And broadening the tax base while lowering rates is something that most economists agree needs to be done.

    No reasonable person should be holding their breath for this deal, though.

    • avatar Andy says:

      Except that his plan would further reduce tax revenue directed at local government (vehicle license fees). That isn’t the state’s m,oney to bargain with unless they backfill it (again), which just repeats this cycle of creating deficits at the General Fund level through tax cuts and then blaming the deficit on overspending.

      A far better plan is top baseline our tax rates at the level before the structural deficits began and then negotiate from that starting point.

    • As he suggests you could broaden the PIT or SUT instead of the VLF.

      But your comment proves my point: the only way a compromise like this works is if it’s revenue neutral. Your idea brings with it a whole lot of assumptions upon which you could never find consensus, such as when exactly the structural deficit began and that it’s a fair starting point in the first place.

      Which, of course, is why this will never work.

  2. avatar tegrat says:

    Until we rid ourselves of the Republicans and their blind faith adherence to policies that have no factual basis for being effective ways to increase economic activity (such as reducing corporate taxes, already effectively the lowest in the world, and yet while corporations reap record profits there is zero job creation). There is also zero evidence that taxing wealthy people imposes harm on these fictitious “job creators”. At least Ronald Reagan was able to see his folly and raise taxes after his initial mistake of lowering them. But don’t cound on modern Republicans to have as much sense. Playing the “revenue neutral” shell game almost inevitable shifts the tax burden onto the middle class in the form of increased sales taxes and fees. Let’s stop the nonsense and votes these idiots out.

  3. avatar GeoHagop says:

    Tax on income from labor should be zeroed out, in my opinion. That’s taxing your person and your contribution to the labor force. Tax on other kind of income could multiplied 10 fold or a hundred fold.

    • avatar chrisfinnie says:

      Now that will NEVER happen as long as a Republican draws breath! Haven’t you heard? GOP-controller state legislatures all over the country are actually increasing taxes on working stiffs so they can give bigger corporate tax breaks. It’s going to create lots of jobs. Really. This time it will. Honest.

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