Promote -- don't revoke -- economic recovery policies set for 2011

Posted by Gino DiCaro, Vice President, Communications on June 10, 2009

Senate Pro Tem Darrell Steinberg mentions eliminating "corporate tax breaks approved in past budget negotiations" in today's Sacramento Bee article, Senate Dems push to raid budget reserve. With that statement it can be concluded that the Net Operating Loss (NOL) carry-back and the elective Single Sales Apportionment Factor are being debated for elimination -- both will help drive California's economy (and state revenue) with high wage job growth and retention in the future.

Those "breaks" were intended to remove barriers to California’s economic growth and neutralize a portion of the more than $9 billion in tax hikes and revenue accelerations on the business community. Certainty and predictability are primary tipping points for businesses looking to grow, stay or site in a location. Revoking economic stimulus policies 6 months after they were passed sets a dangerous precedent and sends signals to high wage employers that the state can't be trusted.

The NOL and the single sales factor provisions do not apply until January of 2011 and their elimination would do nothing to infuse cash to the 2009-10 budget.

Watch how the Legislature treats and delineates these important job growth provisions in the budget debate.

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The capitol should be teeming with economists

Posted by Jack Stewart, President on Dec. 15, 2008

Is any Californian alarmed that snap judgments without the benefit of professional economic analysis are being made to negotiate the state's budget and economic recovery?

Economic impacts must always take precedent in a state that leads the nation in bold government programs. The unintended consequences of previous policies and budget solutions have exacerbated the current emergency and still we see almost no economists in the Capitol laying out the long and short term effects for the myriad policy debates that make up our budget negotiations.

Today, CMTA and 25 other employer groups sent a joint letter to the Legislature insisting that economic stimulus must be the third leg of budget negotiations.

With this letter a consortium of employer groups are urging lawmakers to negotiate in good faith to resolve the budget crisis for the good of all Californians. A crucial part of the solution is understanding and building the foundation for a healthy economic recovery -- a dynamic we do not currently enjoy.

Lawmakers must understand that, in the coming months and years, this state will only thrive by growing the industries that create both wealth and high paying jobs -- such as manufacturing. That will in turn produce robust economic activity and new state revenue.

The state has already lost 25,000 manufacturing jobs through the first ten months of 2008 rounding out an unbelievable loss of a quarter of its industrial workforce since 2001.

California has reached an economic tipping point where current economic activity can no longer produce the revenues needed to sustain state spending. It is important that legislators focus on how spending cut and tax increases impact jobs and future economic growth. For example, a sales tax increase would further discourage manufacturing investments. Because, unlike 47 other states, California applies full sales tax on the purchase of capital equipment. Our state's tax burden on business is already 20 percent higher than the rest of the country, along with overall costs that are 23 percent higher.

The coalition is simply asking that economic recovery guide budget decisions and that negotiators fully account for jobs and revenue lost or gained as a result of budget outcomes.

Abbreviated principles are as follows:

Sufficient business activity and a growing tax base is critical to reach California's public funding goals.
State policy and regulatory regimes for the future must be assessed in terms of their impact on overall economic development.
California must become more cost-competitive to retain and grow high wage jobs.

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Dispatch to incoming freshmen legislators: Ask 'Why not California?'

Posted by Gino DiCaro, Vice President, Communications on Dec. 3, 2008

Freshmen: Welcome to the hub of policy for the 7th largest country in the world. We don't envy your position, given the mess that has been left to you by so many previous classes, but you have an opportunity to make economic growth a catalyst of your tenure in the State Capitol. Specifically, your determination can make California a beacon for the high wage and middle class jobs that produce goods in today's exceedingly competitive marketplace. As you proceed in your new endeavor, think of long term empowerment for California so this state will never again have to consider the deep cuts and other revenue enhancements that, undoubtedly, you'll be forced to ponder for short term fixes.

Over the past few years, this state has seen incremental declines in California manufacturing investments. A little here, a little there has amounted to the loss of over 440,000 high wage jobs since 2001. Why didn't Intel keep their wafer fabrication plant in California? Why did Exxel Outdoors go to Alabama when it decided to move back to the US from China? Why did Buck Knives move an entire operation to Idaho from California? Why did a Toyota car seat supplier site a facility in Indiana over California? Why did Tesla initially decide to build in New Mexico? Notice it's not only about companies moving out of California but also of ones that never got here.   And these are only the big ones. There are many more smaller undocumented shifts of capital and salary to other less expensive regions.

In other words, "Why not California?" We'll attempt to answer these questions in the coming sessions by sending you periodic pieces to your offices (and blogging here at MPowered). We'll highlight these companies' decisions, their economic footprints and their vast supplier networks that California could have profited from. While these missives will be important, they are only meant to prove a point and not to dwell on the past.   The bigger point is what California should look like in five years. Will we lose another 440,000 manufacturing jobs? Will we gain the same amount? A large part of that question lies in your hands over the next two years. We understand you'll have requests from all directions. But every single Californian benefits from manufacturing growth because of massive investments, large job multipliers, premium benefits, increased revenue to the state, and more.

Let's do this. Let's make things. Let's make green things. Let's train our workforce. Let's research, develop, manufacture and fix things. Let's lead the world.   And with a beacon of open arms in our policy decisions, we can empower our state and our workforce to blaze a double-lane trail of innovative products made with our hands and economic activity created by our ambition.

A while back, our Board of Directors congregated to discuss what affects them most, and the words "stay true" were part of one empassioned plea to regain California's manufacturing leadership. But too many company representatives said their most expensive facilities were here in the state. That trend must change.

We hope you'll count on us in 2009 for the support to make informed decisions on policies that send signals to the world that this state's economy, government and working families want manufacturing to prosper.

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Paying Your 'Fair Share' & the Tiger Woods Effect

Posted by Greg Hines, Legislative Director, Tax & Corporate Counsel on Nov. 22, 2008

As members of the California State Assembly Budget Committee discussed the merits of the Legislative Analyst and Governor’s Administration’s budget proposals, a handful of members on the committee repeatedly called for certain California taxpayer’s that need to "pay their fair share." Of course, most people around the Capitol know this terminology is usually code for raising taxes on high-income wage earners and the business community, but given the dire circumstances facing the State’s revenue picture, it begs a deeper dive. What is your "fair share" of taxes?

The state's personal income tax is the largest single revenue source, representing almost 55% of all General Fund revenues. Here's how it breaks down:

1% of Californians pay 50% of income tax. Income tax represents approximately 55% the entire General Fund, meaning that out of a state of over 34 million, less than 150,000 contribute approximately 27.5% of the state’s entire general fund.
Corporate and Franchise taxes account for another 11% of the General Fund.
All total, California depends on the upper middle and high wage earning individuals and the business community to contribute over 56% of the state’s revenues.

That is a lot of numbers, but breaking it down to basic terms, that means that a large majority of Californian’s pay very little for their California residency status and the services and entitlements afforded to them by that right. That makes sense to an extent.

The problem is that we have slowly sent signals to businesses and individuals that California will tax success more than any other State. Why would any business leader operating in today’s global marketplace make a decision to expand or invest in California? Ask Intel why they no longer manufacture in the state they were founded, or try to talk to Tiger Woods, the Southern California native golfer, about moving to Florida after turning pro.   Simple answers: Less taxes for the former and $9.6 million less taxes for the latter.

Here's where the disconnect really starts. Every change in tax law has some affect on the overall position of the state’s economy.   Without a strong economy -- of which high wage manufacturing plays a crucial role -- we can't pay for quality government programs.   Moreover, in a weak economy, more citizens need these entitlements.   I know, that concept is not exactly groundbreaking news. But it is almost impossible to get the Legislature to acknowledge that in their decision making.

So, as we proceed in these difficult times, we must recognize the consequences of new revenue policies in terms of their short and long term effects on the economy and wealth creators that fund our programs. California has learned the hard way that leading the country with bold programs is visionary, but expensive.   For this reason, every tax policy coming out of the State Legislature should come with an answer to the question: Is this policy "fair" to our economy.   In other words who will stay and who will go as a result?   We owe that to all 34 million of us who need the State's government funded programs.

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