Thursday, June 04, 2009

Why California & the Newspaper biz is bankrupt

This is a perfect example of why both the state of California and the news media are failing. This buried story should have been on the front page of every newspaper in California, but instead it was hidden deep inside the paper. The story was printed on page 7 of the Oakland Tribune, owned by MediaNews Group, (ie: Dean Singleton who is also CEO of Associated Press) one of the largest consolidated newspaper groups in America.

While Programs For Poor Get The Knife,
Corporations Prepare For Tax Windfall

By Steven Harmon, MediaNews Sacramento Bureau
Posted: 06/03/2009 01:02:05 PM PDT, Updated: 06/04/2009 05:55:55 AM PDT

SACRAMENTO — Corporate tax giveaways from dead-of-night budget agreements in September and February will cost the state as much as $2.5 billion in revenues at a time when lawmakers are contemplating eliminating programs for the poor, a budget analyst said Wednesday.

The tax loopholes made it through the Legislature with no public hearings and little analysis of the effect, said Jean Ross, executive director for the California Budget Project, a research group that studies the effects of policies on the poor.

"The problem with dark-of-night deals is that you never get a chance to get a debate over value choices," she said. "These three tax breaks represent a reduction of one-third the income taxes paid by California corporations.... They really represent a stark contrast in values and what kind of future we want to see for Californians."

The tax breaks will cost the state $640 million for the rest of this fiscal year and for the 2010-11 budget year as lawmakers search for ways to close a $24.3 billion deficit, according to Ross's report, "To Have and Have Not." By the time they are fully implemented in 2014-15, the tax breaks could cost nearly $2.5 billion a year, she said.

In marathon, private negotiations in February, Democratic leaders seeking support for a broad tax increase reached an agreement with Republican leaders to approve the single sales factor tax break, which allows multistate corporations to choose whether they want to be taxed solely for their sales in California rather than have their taxes based on property, payroll and sales in the state.

Schwarzenegger touts the single sales factor as a policy that will strengthen small businesses and keep jobs in California.

"There's never been a more important time to create an attractive employment climate in California so that businesses stay home and create jobs," said Aaron McLear, the governor's spokesman.

In a memo supporting the tax change, California Competes, a coalition of business, technology and education leaders, said that under the old three-factor formula, California created a "competitive disadvantage for companies with a significant presence in the state, burdening them with higher income taxes because of their property and payroll investments here."

The single sales factor, the memo said, spurs job creation by eliminating the tax penalty for increasing the number of employees on payroll.

A 2005 study contradicted those arguments. The Center on Budget and Policy Priorities, a nonprofit research institute in Washington, D.C., found that while most states have lost manufacturing jobs since 1995, states that went to the single sales tax formula did not fare much better.

Ross said the benefits are overwhelmingly concentrated among "a very few, very large corporations."

According to estimates prepared by the Franchise Tax Board, nine corporations will receive tax cuts averaging $33.1 million each in 2013-14 under the single sales factor. And 80 percent of the benefits will go to the largest corporations — those with gross receipts of more than $1 billion.

"One of the things so striking about the provisions is the benefits are overwhelmingly concentrated among a very few, very large corporations," she said.

Another tax loophole allows corporations that have maxed out on their tax credits to share them with a family of related corporations. Six corporations will receive tax cuts averaging $23.5 million each in 2013-14 under the credit sharing loophole.

The third loophole, called net operating loss carrybacks, allows corporations to claim refunds on taxes already paid.

Ross said these tax breaks at full implementation would be enough to pay for the entire cost of three programs Gov. Arnold Schwarzenegger is proposing to eliminate: CalWORKS, the welfare-to-work program; Healthy Families, the health insurance program for poor children; and cash assistance payments to low-income elderly and those with severe disabilities.

"The dollars we're talking about are significant," she said. "So, when we're talking two, three, five years from now about why California has budget problems, it'll be important to look at the revenues that have been given away by the Legislature at the depth of our budget crisis."

The report, which is based on analysis prepared by the California Franchise Tax Board completed in May, was handed over Wednesday to Democratic leaders of the legislative conference committee on budgets.

While the Franchise Tax Board is not authorized to release the names of taxpayers, Ross noted that a handful have aggressively pushed the single sales factor legislation in previous efforts, including Apple, Genentech, Paramount Theaters, Disney, Intel and Warner Brothers.

Repealing the loopholes would require a two-thirds vote because it would be considered a tax increase.

Reach Steven Harmon at 916-441-2101 or sharmon@bayareanewsgroup.com.

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