Ad Blitz Conceals the Real Stakes in Clean Elections

Santa Monica, CA — Ads funded by oil and insurance companies are pounding on Proposition 89 for its supposed “Welfare for Politicians,” their deceptive moniker for public financing of elections. What voters ought to be seeing are ads about “Corporate Welfare” and the $3 billion a year that taxpayers could recoup for better uses if politicians weren’t indebted to corporate contributors, said the Foundation for Taxpayer and Consumer Rights.

“Prop 89 will save California taxpayers billions of dollars by taking away politicians’ motive to provide big donors with tax breaks,” said Jamie Court, president of FTCR. “That’s why those donors, the beneficiaries of corporate welfare, are spending millions on deceptive TV ads to confuse Californians into voting against Prop 89.”

Public election funding, which would allow candidates to run for office without making promises to anyone except voters, would cost a maximum of $200 million per two-year election cycle, paid for by a small corporate tax.

FTCR has identified nearly $3 billion a year in obvious savings* from corporate welfare that could be enacted by the Legislature and governor, if they were unleashed from corporate special interests. Most of these reforms were actually proposed in the Legislature, only to be buried in committee, never called to a vote, or vetoed by Gov. Arnold Schwarzenegger. All were opposed by major corporate interests.

Corporate Welfare Elimination List:

Business Property Tax:

Tighten Change of Ownership Laws (estimated taxpayer savings: $1 billion/yr.)
This can be done by statute, as proposed in SB 17 (Sen. Martha Escutia), to ensure that cumulative and partial transfers of business investment property are reassessed and loopholes are closed. This would not disturb the protections of Proposition 13.
Fate of SB17: “Died on file” in Assembly, 2004

Corporation Tax:

– Use Book Income as the Measure of Corporate Income (est. savings: $1 billion/yr.)
Corporations report higher earnings to their shareholders than they report to tax authorities. Using a business’ book income, as opposed to the federal taxable income base calculation, would reduce the potential for sheltering income from state taxation. Revenue estimate based on reported taxable income of less than 80% of book income overall for corporations. AB675 (Assemblymember Johan Klehs) would have taken a strong step in this direction.
Fate of AB675: Passed by Legislature, vetoed by Gov. Arnold Schwarzenegger in September.

– Limit Excessive Use of Corporate Tax Credits (est. savings: $300-$400 million/yr.)
Prohibit businesses from using tax credits to erase more than 50% of their tax liability in a given year. Credits could be carried forward and used in future tax years but companies could not eliminate more than 50% of their taxable income with these credits.
Fate of AB675: Passed by Legislature, vetoed by Gov. Arnold Schwarzenegger in September.

– Prohibit Use of “S” Corporation Tax Break for Large Businesses (est. savings: $300 million/yr.)
Restrict the “S” Corporation tax election, intended for small businesses, to companies with total receipts of less than $20 million in a given tax year. SB 516 (Sen. Jackie Speier), proposed in the 2004-05 legislative session, would have made this change.
Fate of SB516: Buried in Senate Committee on Revenue and Taxation, 2004

– Prevent Corporations from Parking Income in Tax Haven Countries (est. savings: $50-$100 million/yr.)
Treat income attributed to tax haven countries such as Bermuda and the Cayman Islands as though it were U.S. income (in the “water’s edge”) for tax purposes. Introduced as AB 34 (Assemblymember Ira Ruskin) in the recently ended legislative session.
Fate of AB34: Died in Assembly, Jan. 2006

Enterprise Zones:

– Overhaul the State’s Enterprise Zone Program (est. savings: $50-100 million/yr.): Zone boundaries should be limited to truly economically depressed areas. Eligibility criteria for the payroll credit should specify credits only for qualified individuals, with stronger controls to prevent abuse. AB1766 (Assemblymember Mervin Dymally) would have done most of these things.
Fate of AB1766: Passed by Assembly in 2005, never called to Senate vote

R&D Credit Abuse:

– Narrow the State’s Research and Development Credit (est. savings: $100-200 million-plus/yr.)
This often wasteful and unproductive credit could be narrowed or phased out in a number of different ways, per 2004 recommendations of the state’s nonpartisan Legislative Analyst’s Office.

*Savings estimates from Aug. 2006 study by the California Tax Reform Association.

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