Growing CA’s education welfare system

May 25, 2012

By Katy Grimes

SACRAMENTO — Democratic Assembly Speaker John Perez, D-Los Angeles, has been pushing unusually hard to get a tax bill passed, but it’s not looking good. There is no getting around the fact that AB 1500, a bill he’s sponsoring, would impose a $1 billion tax increase on businesses which are not headquartered in California, but have significant business operations in the state.

Even in California, some lawmakers recognize that this is just one more attempt to tax businesses for California’s growing education welfare system. And it is important to remember that, because AB 1500 is a $1 billion tax increase, it requires a two-thirds vote of the Legislature, which perhaps explains why Perez is working so hard to get it passed.

But even more insidious than this attempt to increase taxes, this bill is just another banal repackaging of similar bills that have failed to pass the smell test with voters, and even legislators. However, this version is worse because it contains none of the tax credits or other incentives from the 2011 bills, the last attempt to repeal a business tax credit.

There is another hearing on AB 1500 Friday which will undoubtedly prove to be as big a dog-and-pony show as the previous hearings. Perez has trotted out the same college students through each of the hearings to share their stories of hardship and financial woes. Mixed in with the students are union representatives, union employees and well-schooled, well-trained college activists.

But whining to a legislative committee of people who likely worked while going to college doesn’t twang the sympathy strings as much as Perez thought it might.

Middle Class Scholarship

AB 1500 would raise taxes on businesses and employers who operate inside California, but are headquartered out-of-state. Unlike the previous versions of the legislation, this latest bill remodeling now claims that the proceeds will go to creating a “Middle-Class Scholarship” for California’s public college students.

Perez calls the existing tax credit a “loophole.”

AB 1500 restores the level playing field for California businesses,” Perez has said at each of the hearings on AB 1500.

The Loophole

In 2009, state law was agreed to and changed by both Democrats and Republicans  to allow the use of the single sales apportionment factor to be used by businesses. The corporate tax break, imperative for stimulating business in the state, allows businesses to choose whether to have their income tax based on the proportion of their total sales within California — or on a combination of their total sales and operations, which includes payrolls as well as property.

Perez conveniently branded it a “loophole.”

AB 1500 is a very large tax increase on manufacturers, retailers and other businesses that create jobs for California workers. The bill is another $1 billion tax increase on companies that create jobs, pay taxes on their property, sales and payroll receipts, and have employees in California. Many fear that it will only lead to more uncertainty and unpredictability within businesses, and discourage companies from growing, or investing in California.

“Current law allows companies two ways to pay their fair share of taxes. AB 1500 removes one of those options,” the Legislative Analyst’s Office reported. But Perez has a different take on this tax law: “This elective method right now creates a ‘perverse disincentive’ to invest in new plants and jobs in the state. It actually creates an incentive to move payroll and property out of state.”

The leveling of the loophole

Perez claims AB 1500 will only target big corporations. But State Franchise Tax Board records showed that Proposition 24, the 2010 ballot initiative that was another rendition of this tax increase, would have impacted 120,000 businesses, large and small.

Chief Executive magazine recently ranked California the worst state to do business for the eighth year in a row, citing such factors as energy, labor costs, land costs, regulatory burdens, transportation congestion and taxes.  Disincentives for California employers to invest and hire are innumerable and astonishing; a $1.2 billion tax increase is a “perverse disincentive.”

But Perez doesn’t see it this way. At a recent hearing, Perez said, “If an out-of-state firm wants to move operations into California, they will be discouraged because, under the double-weighted sales apportionment rule, every dollar they invest in jobs or infrastructure in California will result in a higher California tax bill.”

AB 1500 tips the playing field by picking winners and losers among certain companies already heavily invested in California.  And AB 1500 inflicts another $1.2 billion tax increase so that the losers lose even more.

Perez said that if AB 1500 is passed, tuition costs for California’s public universities would decrease by two thirds, and California’s Community College system would receive a $150 million infusion of funds. .   “AB 1500 restores opportunity for middle class families,” said Perez.

However, the bill is light on details about this scholarship fund.

Tax business = fewer jobs

The California Manufacturers and Technology Association 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.”

The irony of this bill is that it will likely lead to fewer middle-class jobs for those middle-class students when they graduate.  A $1.2 billion tax increase on California employers already struggling to compete against businesses in other states, will have fewer employment opportunities for the middle class.

“AB 1500 continues the effort . . . in a revenue neutral manner by using revenues generated . . . to cut college fees,” Perez explained at a recent hearing. However, California employers don’t pay college tuition.  The bill imposes a huge tax increase on employers and then uses that revenue somewhere else.  This is the definition of a tax increase, not revenue neutrality.

“Single-sales factor is a methodology of assessing what is a previously existing corporate tax,” said Gov. Jerry Brown. “It’s not a new tax. It’s a way of calculating the tax….And so I think changing this, which is an obvious loophole — a dumb idea to begin with — I think it equitable, it’s logical, and I would say, in every sense of the word, it’s a changing of how corporations calculate their tax in a way that brings things into line. I think it’s certainly consistent with what I believe and what I promised in my campaign.”

“We as individuals can’t choose between two methods of how to calculate our tax,” Brown added. “We only got one method.”

That a taxpayer’s liability should be somewhat tied to their presence and corresponding demand for government services is not an unusual concept.  The more than 40-year history of payroll-property-sales methods, recognize this and measure business economic presence accordingly.

The Middle Class Scholarship Fund cannot ensure job creation and investment in California as its supporters claim.  A California-based company could decide after AB 1500 is enacted to pocket their Single Sales Factor tax cut and move every employee and piece of equipment to Arizona, New Mexico or Texas, and join the growing club of out-of-state companies that fled California.

38 comments

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  1. Hondo
    Hondo 25 May, 2012, 10:03

    Why bother with educating people if there are no jobs. Collage grads are taking those degrees and going to other states where they can actually get a job. Kalifornia is taxing its job producing businesses out of the state and the collage grads are going with the jobs. That’s a double drop kick to the crotch of Kalifornia’s economy.
    Hondo

    Reply this comment
  2. Hondo
    Hondo 25 May, 2012, 10:07

    By the way Katy, I love the pictures you post with your articles. That vision of Bluto is classic.
    Hondo

    Reply this comment
  3. CalWatchdog
    CalWatchdog Author 25 May, 2012, 10:13

    California is graduating too many ‘Bluto’s’ from its public colleges and universities. The pic fits!

    Katy

    Reply this comment
  4. Beelzebub
    Beelzebub 25 May, 2012, 10:30

    Well, they failed with the dotcom bubble, they failed with the debt bubble, they failed with the real estate bubble – and now they are marching forward with the education bubble….heh….let’s see how that one works out!

    If a company must pay higher taxes that added cost is always passed along to the consumer. Have you noticed the increase in prices of goods and services in your local area? That is a direct result of money printing and higher taxation that are incorporated into practically everything you purchase. Compare today’s prices at Costco, for instance, compared with what you paid there 5 years ago. Yet the government tells you that prices are stable??? Pull my other thumb while you’re at it!!!! It’s not just at Costco either. IT’S EVERYWHERE!

    Look at some of the college grads who post on these very boards and ask yourselves if our college system is producing intelligent end products! 😀

    It has become a scam – just like practically everything else in American society.

    Reply this comment
  5. CalWatchdog
    CalWatchdog Author 25 May, 2012, 12:06

    Higher taxes are only passed on to the consumer if a business can justify the higher price. However, usually a business has to absorb the cost. How many costs can California contimue to ask businesses to pay before they either close, or get fed up and leave the state.

    Democratic legislators are tone deaf, and completely ignorant of the costs businesses are faced with.

    Katy

    Reply this comment
  6. Beelzebub
    Beelzebub 25 May, 2012, 12:22

    “However, usually a business has to absorb the cost”

    No they don’t. It doesn’t take much to compensate for a single tax increase. And most of these big companies have built up consumer loyalty. Most people don’t shop around to squabble over pennies when they’ve done business with a certain company in the past and are happy with it’s service or products.

    “How many costs can California contimue to ask businesses to pay before they either close, or get fed up and leave the state”

    I fully agree that businesses are moving out or refusing to locate in California due to the bad business climate. I agree with you here. And I laugh at it. And I hope it continues and causes huge problems for the Sactown Clowns. I really do.

    But a company will pass along it’s costs to the customer for as long as it can. Prices vary significantly in some industries. Yet the higher priced companies manage to survive. This could be due to value-added services too. There are many ways around cost when running a business (up to a certain point).

    Reply this comment
  7. CalWatchdog
    CalWatchdog Author 25 May, 2012, 12:52

    Beelz – ask any manufacturer how tight their profit margins are, if they are even operating with a profit. Every tax increase impacts their bottom line, and yes they do have to eat most of the tax and fee increases.

    These days, it seems that only banks, utilities, cellular phone companies, cable TV, and airlines can pass on additional costs.

    Even food producers can’t pass on all costs. At some point this will break the backs of too many businesses.

    Katy

    Reply this comment
  8. Beelzebub
    Beelzebub 25 May, 2012, 13:22

    “Beelz – ask any manufacturer how tight their profit margins are, if they are even operating with a profit”

    Their margins are in trouble because of the price pressures coming from their suppliers who are forced to deal with inflationary pressures due to money printing and Federal Reserve policy. That is the PRIMARY reason. A higher tax will will increase the pressure to a very limited extent. But it all adds up.

    “These days, it seems that only banks, utilities, cellular phone companies, cable TV, and airlines can pass on additional costs”

    Yes, because most of them are either in cahoots with the government or have been given oligopoly powers.

    “Even food producers can’t pass on all costs. At some point this will break the backs of too many businesses”

    Do you shop for your own food, Katy??? You haven’t noticed the HUGE increase in food prices (or the shrinkage of portions with no price reductions) at your local stores??? Can’t you remember what you paid 3-5 years ago for food items and what you pay today for that same portion???

    If you shop at an inflation protected store – please let the rest of us know where it is!!! 😀

    Reply this comment
  9. Bob
    Bob 26 May, 2012, 01:55

    I’d like to pass a donut tax on Porky Perez.

    Reply this comment
  10. Beelzebub
    Beelzebub 26 May, 2012, 09:46

    If blubber butt ever cut back on donuts half the donut producers in Ca would go under. They’d all be crying for bailouts. I wonder if his doctor has the heuvos to tell him to lose about 200 pounds or to find another medical office for treatment? Since he’s got a little bit of power in Sactown the medical professionals probably stroke him and tell him what a great guy he is. I have never met someone that overweight who did not have a boatload of emotional problems to go along with it. It’s scary as hell to have him in such a high office with tremendous influence over the direction of our State.

    Reply this comment
  11. The Ted Steele System
    The Ted Steele System 26 May, 2012, 15:50

    Beezyboob….Making fun of someones weight? Kind of childish, isn’t it?

    Reply this comment
  12. Bob
    Bob 26 May, 2012, 17:36

    Stealy, it’s true Perez devours every tax dollar in sight and then some.

    Would you prefer Bub make fun of the rotund one for that?

    Reply this comment
  13. Beelzebub
    Beelzebub 26 May, 2012, 19:30

    Getting a little too close to home, Teddy boy??? 😀

    Reply this comment
  14. Beelzebub
    Beelzebub 26 May, 2012, 19:39

    Btw, Teddy. I consider Perez a ‘long-legged mac daddy’ too.

    How’d that feel?

    Reply this comment
  15. ric822
    ric822 26 May, 2012, 20:45

    How many more of our children does the K-12 system need to fail before we admit it is broken?
    How many undereducated graduates must our Community College/College/University system create before we admit it is broken?

    Those who say the problem is simply that more money is needed are like those who are still putting money into their 85 Yugo. Sure it does not run well and needs to be replaced, but it is a car built by experts in their field.

    Time to get real and state the facts. Education has become the quest for a diploma or degree instead of the quest for knowledge and intellectual growth.

    Reply this comment
  16. the Ted Steele System
    the Ted Steele System 26 May, 2012, 22:01

    beezyboob is a child and argues like one.

    Reply this comment
  17. Bob
    Bob 26 May, 2012, 23:19

    Steeley, Johnny Perez is eating the taxpayers out of house and home, and it’s A OK to mock him for that alone in my book. He is a thief and deserves all the ridicule he gets.

    Reply this comment
  18. Bob
    Bob 26 May, 2012, 23:21

    Ric822, education is one of the biggest rip-offs in this society.

    With the advances in communications and computer technology the cost of educations should have fallen dramatically.

    Instead it has gone up dramatically. This is what happens when government blows bubbles.

    Reply this comment
  19. Ted Steele, Associate Prof.
    Ted Steele, Associate Prof. 27 May, 2012, 06:53

    mocking is one thing,,,beezy posts more than anyone out here and every post is the sam…childish, mean, inappropriate and dim witted…. you don’t do that.

    Reply this comment
  20. Beelzebub
    Beelzebub 27 May, 2012, 07:21

    “mocking is one thing,,,beezy posts more than anyone out here and every post is the sam…childish, mean, inappropriate and dim witted…. you don’t do that”

    Disrespecting political officials is as American as baseball and Ford pickup trucks. If you don’t like it move to Zimbawve, chump. The truth is that fatboy Perez is probably 200 pounds overweight and it’s absolutely disgusting for such a physical specimen to hold one of the highest positions in State government. It embarrasses me. And it’s a reflection on all of us. You target me because I happen to be on opposite sides from you on practically every news topic posted on CWD. I have no idea why you even come here. Are you a masochist? Everytime you read a CWD article your blood pressure must shoot up 30 points. Also, I prove you wrong in our little on-line debates all the time – and no doubt it makes you livid. Tough. And remember, you were the one who drew first blood. I have copies of your previous posts to prove it. From the start I wanted only to debate the news of the day – and you came after me for it. You still do by editing my moniker and disrespecting me. So if you dish it out – be prepared to get some in return, chump. That’s the way the game is played. You little sissy.

    Reply this comment
  21. Ted Steele, Associate Prof.
    Ted Steele, Associate Prof. 27 May, 2012, 10:12

    fat boy…sissy…chump…once again you prove my point…you argue like a child. lol

    Reply this comment
  22. Beelzebub
    Beelzebub 27 May, 2012, 10:52

    “fat boy…sissy…chump…once again you prove my point…you argue like a child. lol”

    “beezyboob”??? You prove my point, chump!!!

    Due to your apparent subpar intelligence you can’t keep up with me. I point out contradictions in every comment you make. You aren’t smart enough to think before you write. And that’s what really irks you. I mop the CWD floor with you. But that’s what happens when you draw first blood on me. You should have kept your original derogatory posts to yourself. You fire first and people fire back. That’s the way of the world, chump. 😀

    Reply this comment
  23. Ted Steele, Associate Prof.
    Ted Steele, Associate Prof. 27 May, 2012, 11:31

    Beezyboob– a name you’ve earned.

    I post one line, you 20. YOUR bp is waaaaaaay up little fella. lol….

    I hope you have not hurt your arm patting yourself on the back! “mopped the floor with me”….bwahahahlol

    Reply this comment
  24. Beelzebub
    Beelzebub 27 May, 2012, 13:40

    Were you a cop in your past life, chump???

    If so, I bet you were a prototypical Muldoon with a badge. heh. Or better yet, a Barney Fife. heh. I can generally gauge the courage of people who post on-line by the style of their writing. That’s why I called you ‘a sissy’. And I have excellent instincts, btw. 🙂

    Reply this comment
  25. Ted
    Ted 27 May, 2012, 17:26

    So now I am so “in your head” that you are reduced to guessing about old jobs you think I may have had and then ridiculing how you think I may have done on them?

    Really?

    Reply this comment
  26. Bob
    Bob 27 May, 2012, 22:22

    Hey Bub, looks like ya get to pay even more for our good friends the Israelies…

    Philip Giraldi, the former CIA counter-terrorism analyst, slammed the secretive bill for “provid[ing] Israel with a blank check drawn on the U.S. taxpayer”

    http://lewrockwell.com/orig13/azhar2.1.1.html

    I bet Teddy can’t wait to pay his fair share.

    Reply this comment
  27. Beelzebub
    Beelzebub 27 May, 2012, 22:52

    We gave them about 2 dozen nuclear warheads. Why not our taxdollars too? I expect the next generation to have to sign over their first born males as collateral that the foreign aid will continue to flow.

    I am happy as hell that I am as old as I am. If I had a tail I’d wag it.

    Reply this comment
  28. Bob
    Bob 28 May, 2012, 01:18

    I expect the next generation to have to sign over their first born males as collateral that the foreign aid will continue to flow.

    Maybe we can just give ’em Teddy. Teddy would fit in real well over there. He’d love it.

    Reply this comment
  29. Beelzebub
    Beelzebub 28 May, 2012, 07:46

    “Maybe we can just give ‘em Teddy. Teddy would fit in real well over there. He’d love it”

    Israel would turn him back at the border. They’re smarter than that.

    Reply this comment
  30. Teddy S.
    Teddy S. 28 May, 2012, 08:50

    mmmmm thanks for thinking of me beezyboob…….mmmmmmmmmmmmmmmmmmm it’s soooo cozy up here in your tiny head……mmmmmmmmmmmmmm

    Way to stay on topic boys!

    Reply this comment
  31. Edward Rasen
    Edward Rasen 28 May, 2012, 09:24

    John Perez is a Socialist who simply wants to tax everyone except illegal immigrants. This is just another attempt by Socialist Perez to provide free remedial education to millions of illegal immigrants. California’s education system is broken because it is supporting millions of illegal immigrants through free education, free babysitting, free school lunches, free community college classes in English and free remedial education to all the high-school drop-outs. California’s colleges and universities do not need more money they simply need to eliminate education welfare.

    Reply this comment
  32. Teddy S.
    Teddy S. 28 May, 2012, 09:45

    I agree about the aliens Ed— Why are both parties so afraid of tackling this and losing the hispanic vote? A conundrum.

    Reply this comment
  33. Beelzebub
    Beelzebub 28 May, 2012, 11:00

    “I agree about the aliens Ed— Why are both parties so afraid of tackling this and losing the hispanic vote?”

    Same reason they’re afraid to tackle the pensions, moron.

    They’re owned.

    It’s hard for you to connect dots, isn’t it??? 🙂

    Reply this comment
  34. Bob
    Bob 28 May, 2012, 23:23

    Hey Bub, what’s the deal with them youngens not tucking in their shirts?

    I started noticing it a couple years ago and now seems like all of ’em don’t do it.

    Heck, I’m even seeing old farts with their shirts haning out.

    Reply this comment
  35. Teddy S.
    Teddy S. 29 May, 2012, 06:43

    LOL poor beezyboob ™– he thinks the pensions issue is like the aliens issue!

    He’s doing the best he can.

    Post now troll!

    Reply this comment
  36. Beelzebub
    Beelzebub 29 May, 2012, 07:08

    “Hey Bub, what’s the deal with them youngens not tucking in their shirts?”

    That stuff never bothered me, bob. Fashion fads come and go. I remember when the older generation went into a rage over Beatle haircuts too. When I was a kid I promised that I would never be that way. If they want to dye their hair orange, pierce their ears, get tatooted from head to toe and walk around with half their butt hanging out, more power to them.

    But when they start spraying grafitti on walls, coming into the country illegally or ripping off our welfare system – that’s the time to come down on them like a ton of brick.

    Reply this comment

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