Corporations in California:
Higher Profits, Lower Taxes

May 26, 2003

The state budget in California is recording a record deficit, which politicians say is getting bigger every month. Democratic and Republican politicians claim that this is a "full-fledged crisis." To meet it, they are proposing to raise taxes that fall mainly on the working class, such as the sales tax and vehicle licence fees; to take away health care from millions of low-income working parents and their children; to slash education spending, laying off countless thousands of teachers and staff and shoe-horning students into ever more dilapidated and overcrowded schools and classrooms.

Crisis? Then why have the Democrats, the majority party in the state, introduced no fewer than 30 bills that would lower taxes paid by assorted businesses, including pharmaceuticals, NFL franchises, start-up companies, oil and gas companies, etc.–as well as wealthy individuals? The Republicans–not to be outdone by the Democrats–introduced no fewer than 50 bills lowering business taxes?

Of course, not all these bills will make it into law. But the political experts in Sacramento all agree that in any final budget package, there will certainly be a good number of business tax reductions tucked away.

This is why there’s a so-called budget crisis. The politicians are creating it.

Over the past 20 years, business taxes have been cut drastically. Companies are actually paying fewer total dollars in taxes than they did 20 years ago, despite the fact that business profits have officially more than tripled during the same period.

These tax cuts have come in two forms. Politicians pushed down the official tax rate on profits. At the same time, they put through a blizzard of what politicians and businessmen politely call "tax incentives," but which actually are tax loopholes and tax breaks for particular companies or industries.

Companies now get tax breaks for anything and everything. Tax credits for so-called "research and development" reduced corporate state taxes by 500 million dollars. Some of the biggest companies get their own private "manufacturing investment credit," worth 340 million dollars in lower state taxes every year. Oil companies get tax breaks for pumping oil–the state oil depletion allowance is 100 million dollars. Multi-national companies get tax breaks by reporting much of their income outside the U.S. (another 360 million dollars in lost taxes). Businesses that own property are given tax breaks simply for holding onto the property. Big farmers get tax breaks–for not selling their property to developers. What the state calls small companies get tax breaks for being small, tax breaks worth almost two billion dollars. And the state will often cut state taxes to zero for 5 or 10 years to a company for simply opening a new factory or office building, or to a sports team for opening a new stadium.

Of course, this is only a partial list of the kind of tax breaks companies get. The real list goes on and on. And that is not to speak of the billions of dollars in subsidies–through which the state government gives these companies the tax money we’ve paid in.

If there really is a budget crisis, then there’s a simple solution to it: Tax those with the deepest pockets, the biggest and richest companies in the world who took all this money.