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http://www.redding.com/news/2009/aug/03/schwarzeneggers-win-californias-loss/?partner=RSS
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Posted August 3, 2009 at midnight
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California has adopted a budget
. It was the usual melodrama, only more so. The process included quick entrances and exits of characters and proposals, bombastic histrionics, perhaps even a few political pratfalls, and finally a winner, Gov. Arnold Schwarzenegger. It is also the usual disaster, with California the loser, in that no problems were solved other than the requirement that the budget be "balanced" even if guile and prestidigitation were required.Schwarzenegger threatened to veto an earlier bill containing both spending cuts and new tax revenues because he opposed any tax increase. The Democrats caved. The $26 billion budget gap was closed by $15 billion in cuts to services too numerous to list, compulsory "borrowing" of $2 billion from local governments, borrowing from taxpayers by withholding income taxes earlier, furloughing state employees, and some accounting tricks.
The usual political calculations prevailed. The politically impotent - the poor - fared the worst, and the politically powerful - the largest corporations - were given money in a quiet budget deal.
Since there was no attempt to fix the budget process itself, many have described this result as "kicking the can on down the road." "Digging the hole deeper" might be a better metaphor since some of the accounting tricks used this year will make it harder to balance the next budget when it comes up in January.Public education took a $6.1 billion hit, and this includes cuts to community colleges. Higher education lost $3 billion, which will sharply increase fees while reducing the number who can enter the CSU system. The $1.3 billion cut to Medi-Cal will have drastic effects on the poor and their children. A large number of state parks will be closed. The prison system will be cut by $1.2 billion, but Democrats and Republicans cannot agree on how these cuts will be made. After all of this the governor used his line-item veto to make further cuts in local programs and services.
Last year's budget battles overlapped this year's battles. A bandage on last year's budget offered lucrative changes in corporate tax law to get these corporations to pay taxes early. These changes were made quietly without public hearings. One change permits corporations suffering an operating loss to file for a return of taxes paid in the previous two years. If you, as an individual, tell the Franchise Tax Board you've lost money this year and would like some of last year's taxes returned, they will laugh out loud.
It's a corporate gift. A second change allows corporations to trade tax credits with related corporations; corporations win, the general fund loses. The third and biggest gift is to multistate and multinational corporations that can now opt for a new way to estimate how much of their income tax should be paid within California.This is not a one-year deal. These tax rules will cost California $2 billion to $2.5 billion annually
. The corporations that reap such benefits are not your mom-and-pop LLCs. Eighty percent of the benefits will go to just nine large corporations, only one-tenth of one percent of all California corporations. This represents a loss to the state of about 25 percent of corporate income tax revenues.Corporate tax sheltering has been a growth industry
across the U.S. since the 1980s. These shelters are used by a small percentage of corporations, but their size makes the tax revenue loss significant. Corporate tax receipts provided 14.6 percent of general fund revenues in 1980-1981 but only 10.6 percent in 2007-2008. In 1980-1981 personal income tax provided 35.4 percent of California's general fund revenues; today that is approximately 54.7 percent. Small wonder that taxpayers are a bit irritable.But we the public have brought some of this on ourselves. We have voted in propositions without regard to their cost. We have put little or no pressure on the governor or the Legislature to fix the corporate property tax loophole instituted after the passage of Proposition 13. This loophole - not a part of Prop. 13 - costs the state somewhere between $3 billion and $10 billion a year.
It is the governor and the Legislature who are elected to lead and to forthrightly address financial problems of the state. The governor must be held accountable for further shifting the burden of state financial problems away from big corporations and onto individual taxpayers and the poor. And legislators must be held accountable for caving in to this.
Bob Williams is a Millville rancher and a retired UCLA professor. His e-mail address is wmsranch@hughes.net.
