Wednesday, June 17, 2009

One tax for them...and another tax for us.

Folks may remember from the last California budget deal worked out by the Governor and the Legislature that they had crafted a couple regressive tax increases (income and sales taxes) that tended to hit working Californians a lot harder than say, taxes on corporations and the rich. Well don't worry, they didn't forget about them either. Here's some choice snippets from Lenny Goldberg's article from the LA Times
The last two budget agreements worked out by the Legislature and signed by the governor include provisions that permanently cut billions in revenue from the corporation tax — with the state getting next to nothing in return.

Here's how it works. Each state typically figures out what percentage of a large company's business is done in the state, and then taxes that percentage of income. Historically, if 10% of a multistate company's payroll, property and sales are located in the state, then 10% of its nationwide or worldwide income is subject to tax. In the budget deal, California changed the formula to allow companies to choose to make that percentage based only on sales in California.

But here's the worst part of the secret budget deal: The state provides multistate and multinational companies with a choice yearly of which formula they want to use when they file their taxes. So, depending on whether companies have losses or gains in a given year, they can choose to either attribute more losses or fewer profits to California, to minimize their taxes. The Legislative Analyst's Office said this tax change will potentially cost billions per year, despite the lower projections given when it was enacted.

None of this manipulation helps smaller businesses and start-ups that operate only in California, and therefore pay tax on all of their income. But wait! If they invest outside the state, they too get to play the same games with their income reporting -- hardly an incentive to do business in California.

On top of all this, the previous budget deal last September put two other permanent loopholes in place, again without hearings or public examination. One allows corporations to get refunds for taxes already paid for losses in previous years -- so-called carry-backs. So they can now manipulate the formula to take larger losses in California and can get refunds based on that manipulation -- at a cost to every struggling program and taxpayer in California.

Another permanent loophole allows firms that receive generous tax credits but can't use them all to share them with affiliated corporations, to shelter the income of their affiliate. After that, they can recalculate their taxes and decide how much income to attribute to California.
Let's picture California as the Titanic: and while the Titanic is sinking and the riff raff and common folk are being held back from getting onto the lifeboats, guess who's being escorted onto them, along with all their luggage? You guessed it, the rich.

So while California's economy is going down the tank, and the Governor and legislature are scratching their heads trying to figure out how to cut even more (or eliminate altogether) K-12, higher education, healthcare, senior services, etc., guess who's getting off the hook? That's right--their corporate masters.

So it's worth noting that there's a few folks out there who seem to think that the lifeboats should be going to someone other than the already rich: