Free college tax bill would cost CA businesses

May 2, 2012

By Katy Grimes

SACRAMENTO — Faced with a growing state deficit, instead of cutting the size of California’s government programs, lawmakers have squeezed higher education. With dramatically higher tuition in just a few years, it’s the the middle class which has suffered the most. Low-income college students qualify for aid programs, and the wealthy can afford the higher tuition costs. But middle class students have been forced to pay the higher fees, most of which have been done through sizable student loans.

Assembly Speaker John Pérez, D-Los Angeles, authored AB 1500 and AB 1501 to help pay college tuition for middle class students, but his funding solution is higher taxes. Perez’s claims that AB 1500 and AB 1501, which will “end tax loopholes for billionaires,” will fund a “two-thirds savings” on college tuition for middle-class students.

Someone has to pay for the college tuition scholarships.

At a hearing in the Assembly Higher Education Committee Tuesday, Perez presented AB 1501, which would establish the Middle Class Scholarship Program under the administration of the Student Aid Commission.

AB 1501 would provide a grant for students at the University of California and California State University with family incomes below $160,000. “Students currently take out debt or parents forgo other expenses,” Perez said at the hearing.

Perez said a tax loophole which benefits out-of-state corporations needs to be closed in order to fund the middle-class scholarship for earners making less than $150,000.

Perez had five college students with him who testified about the hardships they suffer under the current college system.

“I work two jobs. This bill would help people like me. I deserve to go to college,” said Kevin Feliciano, a community college student. Feliciano said AB 1500 would help him go to a university while adding little debt.

Each of the other students testified about working two to four jobs. “I’d like to be able to party and study in the same day,” Tatianna Bush said. Bush, who works four jobs, said she used to be on honor roll, but was unable to stay on honor roll once she added the third and fourth jobs. “We are underworked and underpaid,” Bush said.

After a 10 minute lineup of community college and state university college students, as well as many labor unions in support of the bill, the only opposition came from the California Manufacturers and Technology Association.

“We do not oppose the bill, but disagree with the characterization of the funding mechanism of the bill,” said Dorothy Rothrock, with the CMTA. Rothrock challenged the notion of “out-of-state businesses” in California, and said many of these businesses run large distribution centers, and have large payrolls in the state.”It’s not a loophole,” Rothrock said.

AB 1500 would fund the scholarship “through increased taxes by requiring most corporate tax filers to use the Single Sales Apportionment Factor to calculate their tax liability,” the CMTA explains in its opposition to AB 1500. “In 2009, as part of the budget deal at the time, the Legislature adopted an elective Single Sales Factor that went into effect last January and provides corporations the option to pay state taxes based solely on the amount of sales they have in California — rather than a percentage of business conducted within the state.”

The CMTA opposes AB 1500 and calls the funding scheme “an unjustified $1 billion tax increase on companies that create jobs, pay taxes on their property, sales and payroll receipts, and have employees in California.”

Assemblyman Marty Block, D-San Diego, the committee chairman, told the committee to disregard Rothrock’s comments. “This is just the policy portion of the bill,” Block said. However, it cannot be ignored that AB 1500 is the funding mechanism for AB 1501.

It Is A Tax Increase

“The Middle Class Scholarship will be paid for entirely by closing a wasteful out-of-state corporate loophole. This win-win opportunity for middle class families and California’s future economy needs your help to make it a reality,” the website Perez set up to promote the bills states (bold emphasis in original).

According to Perez, eliminating the option and thus forcing companies to use Single Sales Factor would generate an estimated $1 billion. But the funding for AB 1500 and AB 1501 would come on the backs of businesses already struggling under California’s heavy regulatory burden and near-record high taxes.

The Legislature is responsible for the out-of-control tuition hikes, which they have imposed knowing that students would instead just turn to student loans, financial aid and grants to fund higher education.

No Academic Requirements

Assemblywoman Kristen Olsen, R-Modesto, asked Perez if there were any academic requirements in the scholarship program as there are with Cal Grants. Perez said there were not, that just the entrance requirements imposed by the UC and CSU schools were enough.

However, more than 50 percent of California college students not only do not pay for school at the state’s public colleges and universities. And the dropout rate is also about 50 percent. This is because, along with all of the free money for school, there are very few academic requirements.

Low and middle-low income students receive state-funded grants and fee waivers to cover education fees. It’s not difficult to imagine the Middle Class Scholarship Program also turning into just another free money program, with no accountability.

“One of the companies affected by this in my district provides hundreds of really good paying jobs,” Olsen said. “This would pit college students against job creators.”