Statement: Jean Ross on Tax Deal Announced by Governor Brown

September 8, 2011

The California Budget Project, a nonpartisan public policy research group, released the following statement from Executive Director Jean Ross today in response to the tax deal announced by Governor Jerry Brown today:

“The California Budget Project strongly opposes the last-minute tax deal announced by the Governor today. This agreement not only makes major changes to the state’s tax system in the final hours of the legislative session without an opportunity for public review and comment, but it also provides costly new tax breaks at a time when the Governor’s Department of Finance projects budget deficits into the foreseeable future.

“The Governor’s proposal suffers from what the California State Senate’s Office of Oversight and Outcomes called the ‘blank check effect,’ in a report issued this morning. This report noted: ‘Tax expenditures, unlike direct spending, can balloon far beyond initial expectations with little notice or control.’ While recent corporate income tax collections suggest that the cost of elective single sales factor apportionment, also enacted as part of a last-minute deal, will far exceed the initial February 2009 estimates, the proposal announced today replaces one flawed policy with another. Although the proposed tax deal strives for revenue neutrality, last-minute drafting and the lack of public review could very well result in policies that will cost the state far more than initial estimates suggest.

“The fact is, California cannot afford the kind of ‘no strings attached’ policy that this tax deal represents. The proposal announced today provides costly tax breaks to businesses at a time when corporate profits are at record levels. Moreover, it does so without requiring recipients of the tax cuts to create a single new job or invest even one additional dollar in California.

“Lawmakers should balance the deep cuts made as part of this year’s budget agreement with meaningful new revenues raised by closing ineffective tax loopholes, such as elective single sales factor apportionment, rather than divert those resources to risky new tax cuts. Tax cuts enacted over the past two decades will cost the state $13 billion in 2011-12. These tax cuts are one of the reasons why California faces significant budget crises on an annual basis.

“We agree with the Governor that California should require all corporations to use the single sales factor method of allocating income, but the dollars that would be gained by doing so should be invested in the public structures and systems that have made California great: our public schools, colleges and universities, and other quality services.”

Beware of Papers Bearing Complex Equations and Faulty Conclusions

October 12, 2010

Opponents of Proposition 24, which would repeal three business tax cuts enacted as part of the September 2008 and February 2009 budget agreements, frequently cite a deeply flawed study by Professor Charles Swenson of USC. The Swenson study argues that there is such a thing as a “free lunch” and that one of the three tax breaks – single sales factor (SSF) apportionment – that would be repealed by Proposition 24 would both increase jobs and state revenues. Regular Budget Bites readers know credible economic research shows that there is no such thing as a free lunch.

The Swenson report is so deeply and fundamentally flawed that it took Center on Budget and Policy Priorities researchers Michael Mazerov and Robert Tannenwald twenty pages to begin to inventory the study’s faults. Key among them are the facts that Swenson:

  • Cites employment data that diverge dramatically from official government statistics;
  • Misstates the dates that the states he compares to California adopted SSF apportionment;
  • Misidentifies the number of firms that benefited from SSF apportionment in the comparison states. In Georgia, for example, Swenson concludes that 3,109 firms in Georgia benefited from SSF, while the state’s own study found that the actual number was 12,426, almost four times as high; and
  • Fails to look at national employment trends during the period covered by the report.

And if that weren’t enough, the Swenson paper is riddled with mathematical and typographical errors. As we’ve noted before, not all research is created equal. Prudent consumers would be wise to do a “reality check” on studies that make claims that appear too good to be true.

– Jean Ross


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