Commentary

10/28/2010 by California Forward

Proposition 24:  Repeals recent legislation that would allow businesses to lower taxable income

California Forward is dedicated to offering nonpartisan, informative, straightforward information about the propositions that will appear on the Nov. 2 ballot. We will post informational articles on each ballot measure, to help you as you make your voting decisions.

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NOTE: California Forward’s work on governance reform may be affected by several of these measures, although we have not taken a position on them – with one exception. CA Fwd opposes Prop 27. Prop 27 would reverse the landmark redistricting reform plan that was enacted by voters in 2008 as Prop 11. CA Fwd endorsed Prop 11 and has been deeply involved -- with many other groups -- in supporting successful implementation of the reform since enactment. The opportunity to serve California through the new redistricting commission inspired tens of thousands of highly qualified Californians to apply for the job, which we applaud. We look forward to the new, independent commission taking control of state redistricting in 2011.

Over the past two years, lawmakers have made changes to certain tax laws, which have led to a decrease in the amount some businesses pay in income tax. Proposition 24 would repeal these changes and reinstate business tax laws as they existed in 2008.

The legislation addressed by Prop 24 allows businesses to shift operating losses to prior tax years and extend the period permitted to shift operating losses to future tax years. In addition, it allows corporations to share tax credits with affiliated corporations, and multistate businesses to use a sales-based income calculation, rather than a combination property, payroll, and sales.

The California Legislative Analyst and Director of Finance say, if Prop 24 passes, the state could see an increase in business tax revenue, totaling about $1.3 billion, beginning in 2012.

Supporters Say

Supporters of Prop 24 call the measure a solution to California’s ongoing budget problems. The campaign’s website says big corporations would be asked to “pay their fair share.”

Referred to as the Tax Fairness Act, Prop 24 would stop $1.3 billion a year in special corporate tax loopholes. Supporters also say the initiative can be put in place without raising taxes or costing California jobs.

Opponents Say

Opponents of Prop 24 cite a Claremont McKenna College study warning that the measure would cost 140,000 to 322,000 jobs and more than $1 billion in tax revenue. Calling Prop 24 a roadblock and a reversal of previous tax reform efforts, opponents believe state government should “encourage job growth rather than penalizing it.”

Recently, the Los Angeles Business Journal asked a local manufacturer, Ben Nielsen, how Prop 24 would impact his business.

“We’re barely surviving now as it is, with the economy as tough as it is and the foreign competition,” Nielsen said. “Those tax breaks were our hope for the future. If they hadn’t been enacted, I would already have closed my doors. Take them away, and I’ll probably have to shut down and throw 27 people out of work.”

However, Peter Fisher, professor-emeritus from the University of Iowa, tells the San Bernadino Sun, “tax breaks hurt, don’t help.”

“When you see claims for very substantial job gains from tax cuts at the state and local level, there’s reason to be skeptical,” says Fisher. “State and local taxes on business are a very small share of the total cost of business operations. It’s unlikely that could have a very large effect on jobs.”

For more information on this and all propositions on the Nov. 2 ballot, visit the California Secretary of State website, SmartVoter.org, or EasyVoterGuide.org.

Categories: Elections, Tax Reform

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