California Tax Reform Association, Budget Advocates File Initiative To Repeal $2.5 Billion in Corpor
California Desk
July 09, 2009
SACRAMENO, CA - The California Tax Reform Association and a series of budget advocacy groups including the American Federation of State, County and Municipal Employees California, AFL-CIO (AFSCME) and California Federation of Teachers, filed an initiative with the California Attorney General´s Office that would repeal permanent corporate tax loopholes, which are estimated to cost $2.5 billion annually, that were passed as part of the September 2008 and February 2009 budget agreements.
"In May, California voters rejected other parts of the February budget agreement. We believe that voters should be given a choice to decide if they want to keep $2.5 billion in corporate tax loopholes that were passed in secret by the Legislature as part of their failed budget deals," said Lenny Goldberg, executive director of the California Tax Reform Association.
"California schools have been cut $11 billion in the past year, with more cuts proposed by the Governor. Meanwhile, corporations were given tax breaks," said Marty Hittelman, president of the California Federation of Teachers. "Educating our kids is investing in our future. Closing corporate tax loopholes that benefit only a handful of the largest corporations is a common-sense step to take. California can´t afford tax breaks for big corporations while our kids are neglected," Hittelman said.
"The State of California and AFSCME are very supportive of a favorable business climate in this state. But it is unconscionable that during this fiscal crisis the Legislature, for a few votes on the budget, gave out billions of dollars in new corporate tax breaks," said Willie Pelote, the political and legislative director for AFSCME California.
"I believe the voters are not aware of these tax breaks and when they are made aware of them, they will reject them. The California tax code will continue to support businesses in this state but this is a crisis in which we are dismantling programs and need to ensure that every scarce tax dollar is collected," Pelote said, noting that there was no public cry from corporations that there was a need for these tax breaks or documentation provided that these tax breaks were necessary.
"These permanent loopholes were passed in secret, with no discussion or public testimony, and require no review for effectiveness or economic benefit. The tax breaks contain no requirement that they create a single job in California despite costing billions of dollars in taxpayer money every year," Goldberg said.
The initiative would: 1) repeal the "elective single sales factor" provisions contained in AB 3X 15 of 2009, 2) repeal the "loss carry forward" provisions in AB 1452 of 2008, and 3) repeal the "credit-sharing" provisions in AB 1452 of 2008.
The repeal of these three tax breaks would provide $2.5 billion annually toward closing California´s long term structural budget deficit. These corporate tax breaks are scheduled to take effect in 2010 and 2011, which gives California voters the opportunity to reject them before they can cause an even worse budget mess than the state is already in.
"The Legislature imposed taxes on ordinary Californians while cutting them for multi-national corporations. California small businesses, the engine of job creation get no benefits at all from these new loopholes. A handful of the largest multi-national corporations get the lion´s share of the benefits, at great cost to taxpayers and vital state programs," Goldberg said.
One loophole—"single-sales factor"---gives large corporations the choice of how much income they want to report to California. When they have losses they will report more, when they have profits to be taxed they will report less—heads they win, tails the state and taxpayers lose. The shift to elective single sales factor apportionment will cost the state an estimated $260 million in 2010-11, increasing to $1 billion per year in 2014-15. Some forecasts suggest that when fully implemented, this tax break will cost the state $1.5 billion per year in lost revenues.
According to an analysis by the California Budget Project, nine corporations will receive a tax break which averages $33.1 million each in 2013-14 due to the adoption of elective single sales factor apportionment. Some 80% of the benefits will go to the 0.1 percent of California corporations with over $1 billion in gross income.
A second loophole—"loss carry-backs"—allow companies with losses to get refunds for taxes paid two years previously. California has until now permitted losses to roll forward against future earnings, but now, the state will have to give back tax money that was already collected and spent—requiring additional cuts in vital state programs. This tax break is estimated to cost the state $30 million in 2010-11, with the cost rising to $505 million in 2011-12 and similar amounts thereafter.
The third loophole—"credit-sharing"—allows companies with more tax credits than they can use to share these credits with affiliate companies. An estimated 87% of the benefits of this tax break will go to corporations with income over $1 billion. This provision is estimated to cost the state $80 million in lost revenues in 2009-10, $270 million in 2010-11, increasing to an estimated $385 million in 2015-16.
The initiative is available at www.caltaxreform.org
For additional information on the tax loopholes reference a report by the California Budget Project which is available at: http://www.cbp.org/pdfs/2009/0906_bb_To_Have_and_Have_Not.pdf
"In May, California voters rejected other parts of the February budget agreement. We believe that voters should be given a choice to decide if they want to keep $2.5 billion in corporate tax loopholes that were passed in secret by the Legislature as part of their failed budget deals," said Lenny Goldberg, executive director of the California Tax Reform Association.
"California schools have been cut $11 billion in the past year, with more cuts proposed by the Governor. Meanwhile, corporations were given tax breaks," said Marty Hittelman, president of the California Federation of Teachers. "Educating our kids is investing in our future. Closing corporate tax loopholes that benefit only a handful of the largest corporations is a common-sense step to take. California can´t afford tax breaks for big corporations while our kids are neglected," Hittelman said.
"The State of California and AFSCME are very supportive of a favorable business climate in this state. But it is unconscionable that during this fiscal crisis the Legislature, for a few votes on the budget, gave out billions of dollars in new corporate tax breaks," said Willie Pelote, the political and legislative director for AFSCME California.
"I believe the voters are not aware of these tax breaks and when they are made aware of them, they will reject them. The California tax code will continue to support businesses in this state but this is a crisis in which we are dismantling programs and need to ensure that every scarce tax dollar is collected," Pelote said, noting that there was no public cry from corporations that there was a need for these tax breaks or documentation provided that these tax breaks were necessary.
"These permanent loopholes were passed in secret, with no discussion or public testimony, and require no review for effectiveness or economic benefit. The tax breaks contain no requirement that they create a single job in California despite costing billions of dollars in taxpayer money every year," Goldberg said.
The initiative would: 1) repeal the "elective single sales factor" provisions contained in AB 3X 15 of 2009, 2) repeal the "loss carry forward" provisions in AB 1452 of 2008, and 3) repeal the "credit-sharing" provisions in AB 1452 of 2008.
The repeal of these three tax breaks would provide $2.5 billion annually toward closing California´s long term structural budget deficit. These corporate tax breaks are scheduled to take effect in 2010 and 2011, which gives California voters the opportunity to reject them before they can cause an even worse budget mess than the state is already in.
"The Legislature imposed taxes on ordinary Californians while cutting them for multi-national corporations. California small businesses, the engine of job creation get no benefits at all from these new loopholes. A handful of the largest multi-national corporations get the lion´s share of the benefits, at great cost to taxpayers and vital state programs," Goldberg said.
One loophole—"single-sales factor"---gives large corporations the choice of how much income they want to report to California. When they have losses they will report more, when they have profits to be taxed they will report less—heads they win, tails the state and taxpayers lose. The shift to elective single sales factor apportionment will cost the state an estimated $260 million in 2010-11, increasing to $1 billion per year in 2014-15. Some forecasts suggest that when fully implemented, this tax break will cost the state $1.5 billion per year in lost revenues.
According to an analysis by the California Budget Project, nine corporations will receive a tax break which averages $33.1 million each in 2013-14 due to the adoption of elective single sales factor apportionment. Some 80% of the benefits will go to the 0.1 percent of California corporations with over $1 billion in gross income.
A second loophole—"loss carry-backs"—allow companies with losses to get refunds for taxes paid two years previously. California has until now permitted losses to roll forward against future earnings, but now, the state will have to give back tax money that was already collected and spent—requiring additional cuts in vital state programs. This tax break is estimated to cost the state $30 million in 2010-11, with the cost rising to $505 million in 2011-12 and similar amounts thereafter.
The third loophole—"credit-sharing"—allows companies with more tax credits than they can use to share these credits with affiliate companies. An estimated 87% of the benefits of this tax break will go to corporations with income over $1 billion. This provision is estimated to cost the state $80 million in lost revenues in 2009-10, $270 million in 2010-11, increasing to an estimated $385 million in 2015-16.
The initiative is available at www.caltaxreform.org
For additional information on the tax loopholes reference a report by the California Budget Project which is available at: http://www.cbp.org/pdfs/2009/0906_bb_To_Have_and_Have_Not.pdf