Payoffs for Layoffs: The Sequel

November 17, 2010

A Massachusetts lawmaker christened that state’s single sales factor apportionment bill “payoffs for layoffs” after the bill’s major backer – Raytheon – announced major job reductions in the state. It now appears that California may be home to Payoffs for Layoffs: The Sequel.

The Swiss owners of Genentech – one of the advocates for California’s single sales factor law, which will reduce corporate tax collections by approximately $1 billion per year at full implementation – have announced a significant reduction in that firm’s California employment. Genentech contributed more than $1 million towards the defeat of Proposition 24, which would have repealed single sales factor apportionment and two other business tax breaks. The firm is presumably one of the handful of companies that will enjoy tax cuts in the tens of millions of dollars each year from Proposition 24’s defeat. Company officials no doubt knew of the potential layoffs when they stumped the state arguing against Proposition 24­, implying that rejection of the measure would keep jobs in California. As it turns out, California may face the worst of both worlds: loss of jobs and loss of over a billion dollars a year in tax revenues that could have gone to support schools, health care, and other public structures essential to the state’s future.

As the law now stands, Genentech can qualify for the tax break and eliminate the jobs of ­California workers because the lawmakers who drafted the state’s law gave large and extraordinarily profitable corporations a “no strings attached” tax break: firms are not required to add jobs in California or even maintain current employment to qualify for a substantial reduction in their tax bill to the state.

Genentech’s announcement offers an important lesson for those who support corporate tax breaks in the name of jobs. In the meantime, there’s one thing we can all agree on: this is one sequel that shouldn’t be filmed in California.

–Jean Ross


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