Steyer defends Prop. 39 to raise taxes on business

Sept. 13, 2012

By Katy Grimes

Most of us would think that wealthy people would be more interested in sponsoring ballot initiatives to cut taxes, not to increase them. But of the three tax-increase ballot initiatives on the November ballot to significantly raise taxes, two were sponsored by very wealthy individuals, Proposition 38 by attorney Molly Munger and Proposition 39 by hedge-fund manager Tom Steyer.

The third is the Gov. Jerry Brown’s Proposition 30 tax increase.

Prop. 39 is getting noticed. But it’s is just another retread of the 2010 Proposition 24, which voters killed. “The goal of Prop 24 was to stop several corporate tax breaks that were slated to go into effect in 2010 and 2012,” Ballotpedia reported.

Prop. 39 would require businesses headquartered out of the state to use the “single sales factor method,” in which their tax liability is based solely on their amount of sales in the state.

They would no longer be allowed to use the other option, known as the “three-factor method,” which bases tax liability on a combination of the sales, property and number of employees a business has in the state.

In 2009 the Single Sales Factor was added as an option – the “three factor” formula was left alone, and was not, and still is not, a tax cut. It was the standard way of doing taxes since 1966.

The tax cut in 2009 was for companies that paid less under Single Sales Factor, once they got the option. The deal was negotiated between then-Gov. Arnold Schwarzenegger and the Legislature.

So while tech companies Genentech, Viacom, Amgen, Cisco, and Qualcomm got the tax cut in 2009, now Prop 39 will raise taxes on the rest of the large, out-of-state businesses, like Kimberly Clark, International Paper, Chrysler and General Motors, which did not receive the tax break in 2009.

On Wednesday, Assembly Speaker John Pérez announced that he will endorse the Prop. 39. During the last legislative session, he failed to pass his identical legislation, AB 1500. So a legislative decision has now been turned over to the voters.

Steyer has spent $21.9 million to back Prop. 39,  According to MapLight.org. While Prop. 39 seeks to change the way corporations calculate their taxes, it appears that the estimates of $1 billion in tax revenue is the real prize.

Steyer at the Press Club

Steyer appeared Wednesday before the Sacramento Press Club. Club President Brian Joseph introduced Steyer, saying that each of the tax-increase initiative sponsors was invited to speak to the press club, but only Steyer was brave enough to do it.

Steyer may have plenty of bravery in his sporran, but he was light on details about the initiative.

Steyer said that Prop. 39 is not a tax increase, and “it will not cost Californians a single penny more. Instead, it will correct an expensive mistake made in a shady deal under the cover of night that is costing California $1 billion.”

He added, “In making a move for tax fairness, this will give us a more stable tax base, and a more solvent California. This is a loophole that shouldn’t be there–it’s a disaster for every person in California. In closing the loophole, we will get back to something fairer.”

The word “loophole” to describe the tax deal has been bandied about rather loosly by supporters of Prop. 39 and AB 1500.

Lenny Goldberg is the executive director of the California Tax Reform Association, which generally favors higher taxes. He wrote in a legal document filed with the state Superior Court about Prop. 39:

“I have worked closely with the Yes on Proposition 39 campaign and with the authors of the Argument in Favor and the Rebuttal to the Argument Against. Those ballot materials use the word ‘loophole’ as a reference to the ability of multistate businesses to make a yearly election. The word ‘loophole’ does not refer to potential formulas themselves. An apportionment formula is not a loophole, as that is simply a methodology by which income of multistate corporations is ascribed to a state.

“The loophole is the yearly election between apportionment formulas, which has never been justified from a policy perspective, nor can it be.”

Steyer referred to the 2009 legislative deal as a “gimme,” and said that “a lot of money had been given away.”

Steyer’s interests

But Steyer may have some of his own interests in mind. While the state stands to collect about $1 billion in added revenues each year, half of that money must be used on the Clean Energy Job Creation Fund for the first five years. After five years, all of the additional tax revenue would go to the state’s General Fund.

Steyer is the co-chairman of the Clean Energy Job Creation Fund, and is heavily invested in clean-tech businesses, which many have said potentially stand to benefit somewhat from the $1 billion of additional tax money.

Steyer said that the fund will go to retrofitting state buildings, schools and private sector buildings for energy efficiency. “This will create tens of thousands of jobs,” Steyer said. “This is investing money.”

Steyer quoted from a Legislative Analyst’s Office report, and said that an estimated 40,000 jobs will be created.

He said that after the retrofits, the energy costs for the buildings will be lower, and building owners “should make money back.”

Dorothy Rothrock, vice president of the California Manufacturers and Technology Association, challenged Steyer. She asked, “You cite the LAO report that says 40,000 jobs would be created by a mandatory Single Sales Factor. But the study did not assume that Single Sales Factor was already an option for companies who want to grow in the state. Isn’t that misleading to voters?”

Steyer said that the existing taxing system encourages companies to fire their employees and take their business out of California. But he did not answer Rothrock’s question.

I asked Steyer, “There have been many news stories of your own investments into green tech companies, and green businesses. How many of your businesses would benefit from an infusion of this money?”

Steyer looked incredulous and said that he had no idea that people were saying that about him, but that his businesses will not benefit.

Steyer added: “I don’t think Prop 39 is going to change many lives.”

For more information read, “Prop. 39 and AB 1500: A taxing alliance”