Editorial: Christmas will come early for favored industries in the form of tax breaks
08/04/2014 12:00 AM
08/05/2014 1:44 PM
Upon their return this week, legislators will be doing something they relish, especially in an election year: Handing out goodies to big business in the form of tax breaks.
Hollywood, Silicon Valley and the aerospace industry all stand to benefit.
The question is whether the breaks should go to a few favored industries and businesses, iconic though they are, or whether all corporations could use a break. The answer is easy, though not particularly satisfying.
Politics being what they are, the Legislature won’t take the time, nor will it have the inclination, to tackle broad tax overhaul. The reality is that lawmakers will choose among their favored few.
Some are easier calls than others, though each measure will help ensure lobbyists and consultants win, too.
When last they were in town, lawmakers bestowed potential tax breaks on Boeing Co. and Lockheed Martin Corp. worth as much as $420 million over the next 15 years.
The credits and breaks kick in only if the contractors win the Defense Department contract to build the next generation of stealth bombers, a prized contract estimated to be worth $55 billion.
Boeing and Lockheed form a team that is competing with Northrop Grumman Corp. Like Lockheed, Northrop Grumman has a rich history in California, employing 25,000 people here. If it were to win the contract, Northrop Grumman would add high-paying manufacturing jobs at its Palmdale facility.
To help ensure that it can compete on price in Washington, D.C., lawmakers should make sure that Northrop Grumman would get the same tax package as Boeing and Lockheed, dollar for dollar. What’s good for one contractor clearly is good for the other.
Another beneficiary of lawmakers’ largess likely will be Tesla and its billionaire owner Elon Musk, who is promising to build a battery factory that would employ 6,500 workers. The question is where.
Shrewd businessman that he is, Musk is toying with California, Texas, Arizona, New Mexico and Nevada, playing them against one another and trying to extract the best deal.
California already gives Tesla plenty, including liberal rules that allow Musk to sell his electric vehicles directly to consumers, something he cannot do in Texas, Arizona and many other states because of exclusionary laws written to benefit new-car dealers.
This state’s incentives range from rebates to consumers who buy Teslas, to $43 million from a program administered by the California Public Utilities Commission.
Lawmakers already passed a bill this year granting another Musk company, SpaceX, an exemption from Los Angeles County property taxes. Musk will want more, and lawmakers will seek to provide it.
Another proposal that almost certainly will win legislative approval is an extension of the $100 million-a-year tax credit designed to keep film production in California.
The Legislative Analyst’s Office is skeptical of the wisdom of the film tax credit, saying in a report earlier this year there is no conclusive evidence that the credit delivers what it promises.
The report warns that if California increases its subsidy, “competitors in other states and abroad would further increase theirs as well. This sort of competition can be characterized as a race to the bottom. It is unclear how these sorts of competitions end.”
The LAO also seemed resigned: “California’s motion picture industry is not going to disappear overnight because of other jurisdictions’ subsidies, but there may be a long-term risk that California could lose a significant share of this flagship industry. It is reasonable for the Legislature to want to take action to prevent this.”
California made advances two years ago by killing enterprise zones, a $750 million-a-year program that prompted counties to poach one another’s jobs, and resulted in jobs with lower hourly wages.
Much more could be done. California’s corporate tax rate remains high, and too many breaks benefit some industries without ensuring that they result in jobs. Assuming he wins re-election, Gov. Jerry Brown and legislators should focus on a tax overhaul that would benefit all Californians, not just a favored few.
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