February 4 2014
Vicki E. Alger
Not all taxes tax businesses equally. The type of tax matters, says San Diego Union Tribune’s Chris Reed. He’s right.
But in the case of California’s infamous Proposition 39 or the California Clean Energy Jobs Act, hundreds of millions of dollars from the anticipated annual windfall will never materialize. As Cabinet Report’s Kimberly Beltran explains:
According to figures released...by Gov. Jerry Brown’s Department of Finance, the state is expecting to receive about $700 million annually from the Proposition 39 initiative – far less than the $1 billion-a-year anticipated when the measure was sold to voters last November. …
Proposition 39 or the California Clean Energy Jobs Act changed a corporate tax law to require multi-state or out-of-state businesses to source their sales of services and intangibles to the state where they were sold, rather than the state where the majority of work to produce them was performed. As a result, supporters of the plan expected that
California – the nation’s biggest consumer – would see a big uptick in revenues.
The initiative directed that half the expected windfall go into the state’s general fund and that half be used to fund a program helping mostly K-12 school districts pay for energy-saving facilities upgrades and construction [which, in turn, would produce more “green” jobs].
It’s bad enough that California led the nation last year in terms of businesses losses, 5.2 percent or 73,000 businesses. The state also regularly ranks as one of the worst places in the country to do business. Obviously going after out-of-state businesses isn’t a winning strategy either.
Along with promised tax revenues, Proposition 39’s green jobs never materialized, nor did some $70 million in funding that was supposed to help fund school construction projects. But California’s taxing troubles are far from over.
As it is, the mandatory minimum wage is already helping force out businesses that, unlike government, can’t simply raise taxes to improve their balance sheet projections.
Thanks as well to Proposition 30 passed by voters in 2012, California now has the highest top personal income tax rate of just over 13 percent or more depending on one’s income.
California native and pro golfer Phil Mickelson made headlines last summer for suggesting he’d have to make some changes—perhaps like his fellow California native Tiger Woods, who has already taken up residence in Florida. But pro athletes, Hollywood moguls, and Silicon Valley tycoons aren’t the only ones affected by punitive tax policy.
Because most small businesses are taxed at the individual rate, they’re getting clobbered too. Budding entrepreneurs are taking note and heading across the state border to friendlier climates.
All this means that California is left with fewer producers and a more consumers who’ll likely break under their own weight unless they start tightening their belts.