Corporate Tax Loopholes: The REAL Waste, Fraud and Abuse in California’s Budget

Posted on 08 May 2012

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By Rebecca Band
California Labor Federation

One BILLION Dollars. That’s how much California gives away every year to big corporations, thanks to a wasteful tax loophole that actually incentivizes companies to close up shop in California and move those jobs elsewhere.

According to LA Times columnist George Skelton:

You might think a tax law that rewards companies for killing California jobs and resurrecting them in another state would be dumped. Very quickly. Especially if it also rewards them for selling off property here and rebuilding elsewhere. Or, put another way, if the law provides a tax incentive not to hire or invest in California in the first place. You'd repeal it. A no-brainer.

Makes no sense, except for the companies using the loophole while profiting from selling their products here in the nation's largest consumer market. You wouldn't even have voted to pass such a mind-boggling law. But then you aren't a member of the California Legislature — especially a Republican who believes that any corporate tax loophole is good, any loophole closure is an evil tax increase.

Well, yes, closing the loophole would raise taxes for some out-of-state outfits — but only to the level already paid by California companies that hire and invest here heavily, and contribute substantially to our economy.

As if a billion-dollar giveaway to out-of-state corporations isn’t bad enough, the “single sales factor” loophole is just one of several corporate tax breaks California is wasting big money on, while at the same time slashing funding for schools, health care, public safety, vital services, assistance for the poor, roads, bridges, parks and just about everything else that makes California a great place to live and work.

While the rest of us are struggling in the face of high unemployment and draconian budget cuts, corporations are actually being paid to shed California jobs, and it’s all thanks to their high-powered corporate lobbyists in Sacramento who know just how to sneak these loopholes into budget negotiations. In addition to the “single sales factor” loophole, corporations also benefit hugely from the “enterprise zone” tax loophole, which doles out $37k to employers for every worker they fire and replace in a “targeted” part of the state.  According to the California Budget Project, enterprise zones have cost the state $3.6 billion since the program began – that’s money that could have gone to funding schools, rebuilding our crumbling infrastructure, keeping firefighters and cops on the job… it’s almost overwhelming to think about the cuts that could have been avoided if not for these excessive and abusive tax breaks.

With California unemployment hovering around 11 percent, we ought to be investing in creating jobs, not rewarding companies that lay off hard-working Californians for no other reason except to boost their bottom line. That’s why Governor Jerry Brown has voiced his strong opposition to enterprise zones and other wasteful tax breaks for corporations.

The Governor isn’t alone on this. Economists, legislators, labor unions and working families have been fighting for years to expose the waste, fraud and abuse in our state’s corporate tax loopholes. Even some members of the 1% recognize the need to close these loopholes. Investor and philanthropist Thomas Steyer told the LA Times:

How is it possible we could have this kind of tax loophole that's so bad for the state and for the people? It's just crazy. It's so nuts that I got exasperated.

We’re exasperated too Mr. Steyer. That’s why closing these tax loopholes is a top priority and integral part of the “Invest in California” jobs plan. Because that’s where the waste, fraud and abuse in our budget really lies, and it’s time to put a stop to it.


Rebecca Band works for the California Labor Federation. This article originally appeared on the California Labor Federation's blog Labor's Edge.

the day the California LAbor Federation addresses the waste and abuse in our public pension system is the day I'll begin to take them seriously when they start talking budget fixes.

How ironic you say that...because no one takes "dude"'re the knuckle dragging mascot of this embarrassing, ill informed "comment" after another...the FACTS of this article should concern you...but then, that's what makes you, you...

and Jesus Wept...

So there's no waste fraud or abuse in public pensions? No unfunded mandate...nothing to see here move along people and lets shake the orporations some more so that we can take money from them and stick it straight into the pockets of public retirees on $250,000 a year while we cut schools and services.

CA is fooked.

It is unfortunate that your position is to say that the Enterprise Zone program does not create and retain jobs in California with no evidence. The EZ program created over 20,000 new jobs in California in 2011 and 2010. In addition, over 95,000 jobs were also retained in each year. These jobs represent people who were on unemployment insurance, Cal-Works, Veterans, and economically disadvantaged.

In Calexico and Imperial County, we have over 30% unemployment. We compete with Arizona and Mexico for jobs for our residents. The Enterprise Zone program gives us an edge in recruiting companies. Also, the Enterprise Zone helps small, locally-owned businesses retain their employees and expand, purchasing goods locally.

I invite Ms. Brand or any other member of the CLF to come to Imperial County and Calexico. I will gladly take you around and show what an Enterprise Zone does for this community. Sadly, I doubt you will take me up on my invitation. You would rather write hyperbole than really see why the Enterprise Zone program exists.

Daniel Fitzgerald
Calexico-Imperial County EZ Manager

One other reminder is how the Enterprise Zone program saved good union jobs in Berkeley.