EZ Policy Blog

On Feb. 2 Arizona House of Representatives Speaker Kirk Adams appeared on the national Hugh Hewitt radio show to discuss what Arizona is doing to create jobs. Listen to the audio here:

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The takeaway line is when Rep. Adams says, “We want to take advantage of the problems California is having.”

The Arizona House has just passed sweeping tax cuts for business as described in this article from The Arizona Republic:

Hoping to boost the state’s economic recovery by spurring job creation, House Republicans on Thursday rushed through legislation that cuts taxes and creates other incentives to attract employers.

The vote came over the objections of Democrats, who complained the bill would hike property taxes on residential owners and worsen the state’s budget deficit by cutting taxes without any guarantee of new jobs.

ut House Speaker Kirk Adams, who championed House Bill 2250, said the legislation will broaden Arizona’s tax base and attract manufacturing jobs.

“It is time, it is past time, that we relied only on population growth and housing,” said Adams, R-Mesa.

The bill now heads to the Senate, where President Bob Burns, R-Peoria, said it will wait in the wings while lawmakers tackle the budget.

“It’s second priority,” Burns said of the bill, which he is co-sponsoring. “It is a priority. But our primary problem right now is our budget.”

Burns said he and legislative leaders are working toward a special session, tentatively slated to begin Monday, that would refer a temporary 1-cent sales-tax increase to the May 18 ballot. The three-day session also would include other moves to boost state revenue, such as delaying K-12 and university payments, holding another sale of state buildings to investors and authorizing a new state lottery. The state would then borrow against lottery proceeds.

The Job Recovery Act passed the House on a party line 34-25 vote. Rep. Doug Quelland, R-Phoenix, was the only Republican to break ranks and vote “no” along with the Democrats. He said the bill was too focused on business to the detriment of individual taxpayers.

The wide-ranging legislation includes $250 million in property-tax breaks through the repeal of the state equalization tax and at least $400 million in tax cuts through a 10 percent reduction in the personal income tax as well as a 14 percent cut in the corporate income tax. The reductions would be phased in over four years beginning Jan. 1.

It also contains other incentives, such as tax credits and reductions in the withholding tax, for businesses that meet certain criteria for creating jobs that pay at least a third more than the median wage in a given county. Those incentives would be paid for by the new tax money generated by the jobs.

A “deal-closing fund” would help economic-development officials provide another boost for an employer contemplating a move to Arizona.

Governor Schwarzenegger has been talking about his jobs package and especially his proposal to offer tax credits for “green tech” manufacturing equipment. Yesterday, the Governor held an event at battery manufacturer Quallion to again tout the proposal. The Governor’s website has a transcript of all the speeches, and here is the video of the entire event:

One of the presenters specifically promoted the Enterprise Zone program. Bill Allen, President of the Los Angeles Economic Development Corporation. Here is the video of his remarks:

And I want to thank the Governor in particular for his leadership, unveiling his package of proposals to create more jobs and foster a more business friendly environment for our state. First and foremost, California needs jobs and the Governor well understands it is businesses that create those jobs. In today’s globally competitive economy where businesses can locate anywhere, California must be as welcoming as possible to businesses. The Governor’s package of proposals recognizes that we must establish and promote a business-friendly environment to attract, retain and grow businesses and the jobs and the tax revenue that they bring.

Specifically, this requires that we must not only strengthen our commitment to existing incentive programs in this state, such as our Enterprise Zone Program, which has brought so many jobs throughout the state, particularly to our underserved communities in recent years. But we must build on those incentives to create new tools, such as the Governor’s proposal to eliminate sales taxes on green tech manufacturing equipment as a way to encourage our businesses to locate here, stay here and grow here in California.

On December 9, 2009 the Senate Revenue and Taxation Committee held a hearing to review the findings of the “Tax Commission,” or the “Commission on the 21st Century Economy.” I was able to obtain video of all three and a half hours of the hearing for your viewing pleasure.

The first clip includes an introduction from Committee Chair Lois Wolk and testimony from the Commission Chair, Gerald Parsky:

Senate Rev. & Tax. Hearing 12/9/2009 Clip 1 from Max Shenker on Vimeo.

The second clip features another Commission member, Fred Keeley:

Senate Rev. & Tax. Hearing 12/9/2009 Clip 2 from Max Shenker on Vimeo.

The third clip includes a panel of academic presenters:

Charles McLure, Hoover Institution, Stanford; Kirk Stark, Professor of Law, UCLA Law School; Steven Sheffrin, Professor of Economics, UC Davis; Joe Bankman, Ralph M. Parsons Professor of Law and Business, Stanford Law School; Dan Simmons, Professor of Law, UC Davis School of Law:

Senate Rev. & Tax. Hearing 12/9/2009 Clip 3 from Max Shenker on Vimeo.

The fourth and final clip consists of the public comments:

Senate Rev. & Tax. Hearing 12/9/2009 Clip 4 from Max Shenker on Vimeo.

If you prefer to just have the audio so you can listen on your iPod, right-click the following links and download the MP3 files:

Clip 1
Clip 2
Clip 3
Clip 4

An interesting article on film tax credits from The Sacramento Bee:

Arnold Schwarzenegger accomplished little for Hollywood during his first five years as governor despite industry pleas to stop film and television crews from fleeing to states like Louisiana.

Last year’s publicized defection of the television show “Ugly Betty” to New York may have been the final straw.

Now, as state programs grapple with spending cuts, California has begun dedicating millions of dollars in tax credits toward movie and television productions in an attempt to bolster the industry.

That money was set aside in a February budget deal negotiated behind closed doors, part of an agreement between the movie-star governor and lawmakers to give hundreds of millions of dollars to the film and television companies through the tax credits and a change in how corporate taxes are calculated starting in 2011.

A Bee analysis of Schwarzenegger’s advocacy for Hollywood found that while he has long promoted the industry in official events, he had not delivered significant financial help until that February budget agreement.

Within weeks, two donors that own major Hollywood studios gave Schwarzenegger-affiliated campaign committees their largest contributions toward his efforts since he took office in 2003.

Some question timing

Proponents say the tax benefits are a lifeline for a crucial California industry that has struggled to compete against states and countries that have thrown money at productions in the last decade. The departures threaten thousands of jobs for working-class stagehands, they say.

“In the last five years, it’s become an incentives arms race, and everyone is trying to outdo each other,” said Todd Lindgren, vice president of communications for FilmLA, which coordinates film permits for Los Angeles city and county.

The California Film Commission awarded the first round of tax credits to 25 films and television shows in July, and production began this summer.

The credits are worth $100 million annually over five years, while the tax policy change will save the film industry $58 million each year by 2015-16, according to the Franchise Tax Board. Industry officials dispute those estimates, saying they ignore the economic activity and jobs that would otherwise leave.

But critics charge the tax benefits occur at the wrong time, as California works to overcome deficits and cuts billions of dollars for social services and education.

“It was a huge gift to the industry,” said Lenny Goldberg, executive director of the union-backed California Tax Reform Association. “Not only do they get tax credits for producing in California, but they get to take a lot of income that used to be attributable to California and not count it anymore.”

Middle-class jobs lost

The governor included film tax credits in his budget proposal last fall, receiving support from Democrats such as Assemblyman Paul Krekorian, who represents Burbank. At least 40 states offer incentives for film production.

The proposal came during a year in which the Los Angeles region had 7,043 feature-film production days, the lowest since FilmLA began tracking them in 1993. The group has reported production declines in 11 of the last 13 years.

“People should not assume that the motion picture industry is anchored to the ground in California,” said Steve Nissen, NBC Universal vice president for legal and governmental affairs. “Because of technology advances, the industry has become highly mobile.”

Lindgren said that previously, tax credits were blocked by Capitol disputes, particularly between Northern and Southern California lawmakers. In 2008, 96.6 percent of the state’s film days occurred in Southern California, according to the California Film Commission.

The industry had “a lot of hope” that Schwarzenegger would push through a film tax-credit program when he was elected in 2003, Lindgren said.

Yet despite his own Hollywood past, Schwarzenegger hadn’t done much heavy lifting for the movie industry on tax credits – or other issues – until the February deal.

He kept his distance from the writers’ strike in 2007-08. When asked this month whether he would pardon director Roman Polanski if he had the chance, Schwarzenegger said Polanski “should be treated like everyone else.” His Hollywood appointments have been in line with those of past governors.

Lindgren suggested that Schwarzenegger’s movie ties may even have hindered tax credits in a polarized Capitol.

“Some legislators didn’t understand that it’s about middle-class jobs,” he said. “They thought, ‘We’re not going to let Arnold give away these benefits to his cigar-smoking buddies in the industry. His past association with the industry may have been a negative to those who didn’t understand the jobs component.”

The cast of “Ugly Betty” took out an ad in the trade publication Variety last year asking Schwarzenegger and lawmakers to save California jobs after the television show announced it would move production to New York.

Schwarzenegger responded that he had been trying unsuccessfully to obtain tax incentives for four years.

“The entertainment industry is a large part of our image as a state and as a job creator,” said Schwarzenegger spokesman Aaron McLear.

‘Single-sales factor’

On a separate track during budget talks, Assembly Republicans sought a change allowing companies to pay California taxes based on the proportion of sales they made in the state, known as “single-sales factor.” Previous tax policy required them also to consider their property and payroll.

For California-based companies that earn significant national and international revenues – such as movie studios and biotechnology labs – the single-sales-factor change allows them to disregard sizable property holdings and employees in the state. Starting in 2011, they can pay taxes on a more diluted formula that measures their California sales only against sales elsewhere.

Walt Disney Studios and NBC Universal not only maintain corporate offices in California, but own large theme parks and other properties.

Proponents said the change was needed because at least 20 other states have moved to a similar approach, including Arizona and Oregon, making California less competitive.

“Looking at the California tax code before, if you reduced the number of employees you had, sent them out of state and made the same amount of money, your tax bill went down,” said Assemblyman Nathan Fletcher, R-San Diego. “It’s just illogical that with record unemployment, you would have a tax code that punishes firms for having employees here.”

Break called ‘unprincipled’

Martin Helmke, the longtime legislative tax expert who retired in 2006, said there were legitimate policy reasons why California and other states based taxes on property and personnel, in addition to sales. Taxes on those factors recognize the value a state provides in education, infrastructure and other public services.

Helmke and others took particular issue with the fact that the February change gave companies the option to choose whether they wanted to calculate their taxes under the old system or the new one – a win-win for most companies.

“It’s unprincipled in the best sense of the word, making it elective, because you’re basically saying, ‘How much tax do you want to pay?’ ” Helmke said.

The Franchise Tax Board has estimated the change will cost the state $260 million starting in 2010-11, up to $1.05 billion in 2015-16. An estimated 5.5 percent of those benefits help the film industry.

Fletcher and business proponents dispute such estimates because they believe companies will create more jobs in California, leading to more tax revenues. Studies in other states have had mixed results.

As the budget was finalized, the single-sales-factor change was folded with the film credit into one tax revision bill, Assembly Bill 15xxx. No hearings took place.

“Nobody had to stand up and ask the Legislature for a billion-dollar tax cut at a time when it was cutting health care for children and seniors and cutting education,” said Jean Ross of the California Budget Project, which represents low-income residents.

Political donations rise

Various beneficiaries from the February budget deal donated heavily afterward to Schwarzenegger and measures on a May special election ballot. Voters ultimately rejected five of six proposals, including one to extend temporary tax hikes in exchange for a cap on state spending.

NBC Universal lobbied extensively for AB 15xxx during budget talks. In May, parent company General Electric gave $350,000 to the governor’s ballot-issues committee and $400,000 toward two committees backing his special-election measures, according to state records. The $750,000 exceeded what the company donated to state candidates or campaigns in the previous six years combined.

The Walt Disney Co. also gave $250,000 toward the special-election committee.

Non-entertainment companies that lobbied for the single-sales-factor change donated heavily as well. Cisco Systems gave Schwarzenegger $250,000, while Intel Corp. gave him $100,000.

“They’ve always been supporters of the governor,” McLear said, “and we appreciate their support.”

From today’s New York Times:

The idea of a tax credit for companies that create new jobs, something the federal government has not tried since the 1970s, is gaining support among economists and Washington officials grappling with the highest unemployment in a generation.

The proposal has some bipartisan appeal among politicians eager both to help their unemployed constituents and to encourage small-business development. Legislators on Capitol Hill and President Obama’s economic team have been quietly researching the policy for several weeks.

“There is a lot of traction for this kind of idea,” said Representative Eric Cantor of Virginia, the Republican whip. “If the White House will take the lead on this, I’m fairly positive it would be welcomed in a bipartisan fashion.”

In addition to the economists working on the proposal, some heavyweights support the concept, including the Nobel laureate Edmund S. Phelps, Dani Rodrik of Harvard and former Labor Secretary Robert B. Reich.

One version of the approach, to be unveiled next week by the Economic Policy Institute, a labor-oriented research organization, would give employers a two-year tax credit if they increased the size of their work force or added significant hours of work (for example, making a part-time worker full time). Employers would receive a credit worth twice the first-year payroll tax for each new hire, amounting to several thousand dollars, depending on the new worker’s salary.

“It’s beautiful if it can be timed at a dire moment like this, when unemployment is way too high and appears to be going somewhat higher,” said Mr. Phelps, an economics professor at Columbia, lamenting that the president dropped it from the $787 billion stimulus plan approved in February. “But it’s a pity that this wasn’t done a year ago.”

One of a number of ideas being discussed, the policy is intended to encourage companies to start hiring again by making it cheaper to add new workers. It has raised concerns, though, that employers might try to exploit the system.

States have dabbled with similar tax credits in recent years, with mixed results. The federal government last tried this measure in 1977-78. During that period, employment — which had been soft from the 1973-75 recession — climbed at a record pace. The creation of one out of three jobs that was awarded the credit then was attributed directly to the policy. But the permanence of those jobs was less clear, and some dispute how many of those positions would have been created eventually anyway.

Supporters say that improvements upon the 1970s policy would increase its potency. These include better publicizing the credit; making it available even to concerns that are not making money, in the form of a direct payout to nonprofits and companies in the red; and distributing the credit quarterly so that companies see it sooner.

Timothy J. Bartik, a senior economist at the Upjohn Institute for Employment Research who is working on the draft with John H. Bishop of Cornell, estimates that it would cost about $20,000 for each job created.

But some dismiss the idea as corporate welfare.

“Some bad ideas never go away,” said Howard Gleckman, a senior research associate at the Urban Institute. “It’s just providing incentives to lots of companies that probably aren’t going to make it in the end anyway.”

Under the proposal from Mr. Bartik and Mr. Bishop, the credit in the first year would equal 15.3 percent of the cost of adding an employee. In the second year, it would fall to about 10.2 percent.

For example, hiring a worker might cost a small business $50,000 annually. But with the tax credit, the cost would fall to $42,350 in the first year, and then be $44,900 the next year. After that, the cost would return to $50,000.

The credit would apply only to the portion of an employee’s salary under $106,800. Lowering the cap further, however, could provide an even greater benefit to low-wage, unskilled workers.

The authors estimate their proposal could create more than two million jobs in the first year.

“Businesses like those provisions that reduce the hurdle rate that you have to surmount in order to make an investment — like an employee — a profitable investment,” said Robert Willens, president of a tax and accounting advisory firm in New York.

Of course, even in recessionary times, some companies are hiring without tax breaks. So a subsidy could merely benefit those businesses that already would have added new workers.

An American Economic Review study has suggested that the 1970s policy was responsible for adding about 700,000 of the 2.1 million jobs that were awarded the credit. This may sound modest, but if accurate, economists say it would make this proposal a successful and relatively cheap way of creating jobs.

Advocates argue that such incentives would be more effective this time around not only because of design, but also because of timing. In 1977, hiring was already on the upswing, whereas economists expect today’s job market to decline a bit more and then stagnate for months.

“Now is a better time than ’77 was because we’re closer to the bottom of a recession,” said Daniel S. Hamermesh, an economics professor at the University of Texas, Austin, who helped create the 1970s plan. “This could help an uptick proceed more rapidly.”

But critics of the idea argue that businesses hire based on actual demand for their products, and a minor subsidy for adding an employee will not make up for the collapse in demand across the broader economy.

“Why would a business hire a new worker?” Bill Rys, tax counsel to the National Federation of Independent Business, a small-business industry group, said. “They’re hiring because they need to do work. Unless you have work to do, it’s still an expense.”

Barack Obama — like Senator John Kerry before him — proposed a job creation tax credit during his presidential campaign, and then in discussions for the stimulus package. The proposal was eventually killed because of concerns that employers would exploit the tax credit. For example, companies might close and reopen, claiming credit for all their “new” employees.

Even advocates acknowledge that, as with any tax incentive, employers and their accountants will take advantage of loopholes. But they argue that with strong rules — possibly by reducing the credit for “new” companies, or by requiring a company’s overall wage bill to rise along with its work force — the proposal could minimize such abuse.

Deficit hawks still worry about the cost of the proposal, and whether it would be politically feasible for Congress to phase it out once businesses have grown used to it.

The biggest fear among some, though, is that the proposal might unintentionally reduce job opportunities if it sits in Washington too long without passing.

“Particularly for big employers, if they think a job creation tax credit is in the offing, it could certainly be an incentive to delay hiring,” said Lee E. Ohanian, an economics professor at the University of California, Los Angeles. “That means it could have the perverse effect of actually prolonging the recession.”

Here is BNA’s Laura Mahoney’s report on the final meeting of the “Tax Commission” which took place in Berkeley on September 14. Her report on the September 10 meeting is here.

Reproduced with permission from Daily Tax Report, 177 DTR H-1 (September 16, 2009). Copyright 2009 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com.

Plan to Overhaul California Tax System May Get Lukewarm Commission Support

SACRAMENTO, Calif.—An appointed commission will recommend that lawmakers consider a vast overhaul of the state taxation system, but with at least three commissioners saying Sept. 14 they will not endorse the plan, it is unclear how strong a message of change the report will send to lawmakers and the public.

At its final meeting in Berkeley, the 14-member Commission on the 21st Century Economy fine-tuned its core proposal to enact a new tax on business net receipts of no more than 4 percent as a way to cut the state’s reliance on volatile receipts from personal income taxes and capital gains.

In exchange for a new business tax, which is modeled on a value-added tax, the commission will call for elimination of the corporate income tax, complete or near elimination of the state portion of the sales and use tax, and a reduction and flattening of the personal income tax to only two brackets.

Also in the core proposal are a call for a strong “rainy day fund” to capture revenue in strong years to be used during economic downturns, and creation of a new tribunal, such as a tax court, to adjudicate disputes between taxpayers and state tax authorities.

Chair Gerald Parsky said at the end of a six-hour meeting Sept. 14 that he will circulate the report among members in the next few days, and he hopes at least 10 commissioners will sign it. Only Parsky and two or three other commissioners have clearly stated they back the proposals in recent weeks, and another three have said they will not sign on.

Difficult Task, Parsky Says

Parsky acknowledged the difficultly of the commission’s task — to recommend revenue-neutral ways to reduce the volatility of the state’s tax system that promote economic prosperity and ensure the system is sound, fair, and equitable.

“It’s like pushing Jell-O,” he said.

Parsky also acknowledged that lawmakers may not embrace the complex proposals. He said he will craft an introduction to the final report, to be presented to Gov. Arnold Schwarzenegger (R) and lawmakers by Sept. 20, that asks them to “seriously consider” the recommendations for further study and eventual adoption.

“We recognize as well as anyone that we didn’t have the time nor capacity to explore all elements, but we have had enough time to say that the overlying problems that exist within California require thinking outside the box,” Parsky said.

“Inherent in this proposal is a signal to the entire populous and certainly the Legislature to please hold your fire.”

The core package has the backing of commissioners John Cogan, a senior fellow at the Hoover Institution and public policy professor at Stanford University; and Christopher Edley, dean of the University of California, Berkeley Boalt Hall School of Law. They support the package because they believe it would reduce revenue volatility and overall tax rates, expand the tax base, and be more reflective of the modern economy.

Several other members appeared to support general principles in the plan, but did not say during the meeting whether they would sign on to the final report.

Parsky and several other commissioners defended the proposal from criticism that it reduces the progressivity of the current tax system, especially with its changes to the personal income tax, because it would mean a significant tax cut for taxpayers earning more than $100,000 a year.

“It is unfair to characterize what is being suggested as turning a progressive system into a regressive system,” Parsky said.

Perception Could Be Problem, Halvorson Says

Commissioner George Halvorson, chief executive officer of Kaiser Foundation Health Plan, pointed out that even if it is not a regressive plan, “it could be perceived as that and be dead on arrival” at the Legislature.

The three commissioners who said they will not endorse the proposals had differing ideological reasons for their decision, but each of them pointed out that the commission heard scant evidence to justify or validate the dramatic change in the state’s tax system.

“I am not convinced it’s the direction California should go,” said Commissioner William Hauck, president of the California Business Roundtable. “I think this is an idea that is nowhere near cooked.”

The business net receipts tax proposal is based on assumptions that he said he has not been able to verify, and may or may not turn out to be true. Still unknown is the potential impact on a range of businesses, from sole proprietors to major corporations, he said.

Hauck said not enough information about the consequences of the proposal are available “for us to have the kind of confidence in this tax that seems to be imbedded in the discussion we’ve been having.”

Commissioner Fred Keeley, a former member of the Assembly and current treasurer of Santa Cruz County, also said he would not endorse the report, partially because no other commissioners supported his proposal to impose a new, indexed tax on gasoline and diesel fuel purchases that would begin at 18 cents a gallon. That proposal, which Keeley presented to the commission in draft legislative form, was dropped completely from the final report.

But Keeley also said the core plan lacks evidence that it would be a positive move for California. He also raised concerns about the impact of the proposal on low- and middle-income taxpayers, some of whom would see a slight increase in their overall tax burden at the same time that wealthy taxpayers would benefit from a large tax overall tax cut.
“I don’t think that at this time, in this state, that any regressivity makes sense,” Keeley said. “It has been difficult during the last two and a half months to identify any of the support for this. There is a stunning lack of any visible organized or unorganized support.”

‘Wrong Direction,’ Pomp Asserts

Commissioner Richard Pomp, a law professor at the University of Connecticut, could not attend the meeting but submitted a 21-page memo Sept. 14 titled, “Why I think We Are Heading in the Wrong Direction.”

In the memo, Pomp restated misgivings he aired in previous meetings about the untested business net receipts tax, and its multiple complications from the question of nexus to the disadvantage it would create for California-based companies.

He continued to press for retaining the corporate income tax, but revitalizing it by examining and eliminating tax currently available tax credits and deductions if they are not effective, and eliminating several major corporate tax breaks enacted in recent months. Key among those breaks is a new elective single-sales factor formula for multistate corporations.

“I am at a loss to explain why we would replace a tried and true tax, the corporate income tax, one that can be rehabilitated, with an unknown tax,” Pomp said.

The final report will contain three sections: one that lists recommended statutory changes that can be enacted by the Legislature, a second that lists recommended constitutional or other changes that would need approval from voters, and a third that lists other ideas worth further study. The core package will be contained in sections one and two. The third section will contain other ideas raised by commissioners over the past nine months, including a suggestion that the state allow oil drilling in offshore waters and raise revenue from oil royalty payments. The third section might contain a suggestion that the state charge a minimum tax to low-income individuals and businesses to promote a direct stake in the state.
Schwarzenegger has said he will call a special session of the Legislature to weigh the commission’s report in the next few months.

Thanks once again to Laura Mahoney of BNA for her great reporting. The latest is on the progress of the “Tax Commission.” See my earlier post on their proposals here. Video of the September 10th meeting is available here.

Reproduced with permission from Daily Tax Report, 175 DTR H-2 (September 14, 2009). Copyright 2009 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com.

Commissioners May Endorse Tax Overhaul For California if Specific Elements Included

LOS ANGELES—Some members of a special commission appear ready to endorse a vast overhaul of the California tax system at a final meeting Sept. 14, but said Sept. 10 they must first be satisfied that their fellow members will address specific reservations they each have about the broad plan.

Members of the Commission on the 21st Century Economy also backed off their original plan to ask lawmakers and Gov. Arnold Schwarzenegger (R) to take up their recommendations immediately in the form of proposed legislative language and enact them as soon as possible. Instead, commissioners agreed that the changes require more study.

At a lengthy meeting Sept. 10, Chairman Gerald Parsky suggested the commission introduce its final report to the governor and Legislature with an explanation that members believe the package, which centers around a new net receipts tax on businesses, is promising enough to warrant further study. Commissioners are likely to say that lawmakers and the governor should “proceed with a public process” to fully evaluate the proposals, and enact them upon completion of a more thorough review.

The 14-member commission will meet for a final time Sept. 14 in Berkeley to decide what recommendations will appear in the report, and what form they will take. Parsky has been calling for unanimity, or at least a strong consensus, from members on their final recommendations in the nine months they have been meeting. But with disagreements among members on key elements of the proposals still on the table, it is unclear how many will endorse the final recommendations.

Core Elements of Package

At the core of the package are proposals to eliminate the corporate income tax, mostly or completely eliminate the state portion of the sales and use tax, reduce and partially flatten the personal income tax, and impose a new business net receipts tax.

Members Christopher Edley, dean of the University of California, Berkeley Boalt Hall School of Law; and John Cogan, a senior fellow at the Hoover Institution and public policy professor at Stanford University; spearheaded a more detailed review of the core package in recent weeks. Edley, Cogan, and Parsky led the discussion at the Sept. 10 meeting.

Under the proposal, they explained, the changes would be phased in over five years, beginning in 2012 with elimination of the corporate income tax and partial imposition of the new business net receipts tax at a rate of about 1.6 percent. At the same time, the state portion of the sales and use tax would be reduced by 1 cent in the first year. For each of the next two years, the BNRT would increase incrementally while the sales and use tax would be reduced by another 1 percent.

In the third year of the phase-in, the personal income tax (PIT) would be modified to have only two tax brackets, eliminate credits and most deductions, and include a much larger standard deduction. The PIT rates would be 2.75 percent for income up to $56,000 for joint filers and $28,000 for single filers, and 6.50 percent for incomes above those amounts. Itemized deductions would be limited to mortgage interest, property taxes, and charitable contributions, while the standard deduction would increase to $45,000 for joint filers and $22,500 for single filers.

Midstream Review of BNRT

In the third or fourth year of the phase-in, the commission is likely to call for a formal review of the changes, to determine if the new BNRT is bringing in adequate revenue. Based on that review, the final BNRT rate would be set. To give the state room to make adjustments, the plan calls for further reductions in the state sales tax to be contingent on the revenue generated by BNRT. If the new business tax is not bringing in enough revenue, the sales tax may not be reduced further.

Edley and Cogan explained to members that certain elements of the current corporate income tax would be retained under a BNRT. The current research and development credit would remain available in some modified form, under the belief that the credit is important to encourage start-up companies and is “substantive and politically useful,” Edley said.
In addition, companies that have accrued net operating losses under the corporate income tax could carry them forward for 20 years to be used to offset up to 5 percent of BNRT liability each year.

Edley said the commission heard comments from many business people about the importance of NOLs to start-up companies; he also considered the fact that NOLs are available on the federal return as a reason to retain them.

The commission is likely to call for enactment of the package as long as it also includes a stronger “rainy day fund” that captures revenue in strong economic times to be used during downturns. By broadening the tax base to create more of a tax on consumption and less of a tax on income, and creating a stronger reserve fund mechanism, the state would reduce revenue volatility by 42 percent, Cogan said.

Lawmakers and budget writers would more easily be able to predict future revenues, making spending plans more reliable. Several other commissioners said they support many of the ideas in the core package, but have some reservations.

Gas Tax Still on the Table

Commissioner Fred Keeley, a former Democratic assemblyman and current treasurer of Santa Cruz County, said he likely would support the package if it also includes his proposal to levy a new tax on purchases of gasoline and diesel fuel.

The tax would start at 18 cents a gallon, and would be indexed each year to end up at about 90 cents a gallon in 10 years. The intent of his proposed tax is to reduce use of fossil fuels and provide a new source of revenue.

Commissioner Michael Boskin, a senior fellow at the Hoover Institution and economics professor at Stanford University, said he likely would support the package only if it also includes some form of minimum tax for low-income earners.

Boskin said he is troubled that the PIT proposals outlined in the plan appear to exempt about 50 percent of income earners from paying any tax at all. Without any contribution, even a nominal one, citizens lose the link between taxes paid and delivery of government services, he said. All wage earners should pay a minimum tax of at least $100, he said.

Commissioner Becky Morgan, a former Republican assemblywoman and current president of the Morgan Family Foundation, also raised the issue of a minimum tax.
“Everyone should have a stake,” she said.

Boskin also called on the commission to endorse his proposal to open the state waters in the outer continental shelf to oil drilling, subject to strict environmental protections.
Royalty proceeds would be placed in a reserve fund that could be used for limited purposes. With the state facing chronic budget deficits, Californians should recognize the offshore oil reserves as a reliable source of revenue just waiting to be tapped, he said.

“It is the height of folly for the state to not even explore this as an option,” Boskin said.

Richard Pomp, a law professor at the University of Connecticut, did not say whether he would endorse the core package or not, but his list of concerns was lengthy.

Elimination of PIT Deductions Questioned

Pomp questioned the proposal’s elimination of personal income tax deductions for medical costs, as well as elimination of the child care credit, at the same time that it would retain the research and development credit for corporations. No evidence exists to suggest that the R&D credit pays for itself, yet the health care and child care provisions are crucial, he said.
The package would skew distribution of the overall tax burden by reducing the burden on the wealthy and corporations, Pomp said.

Meanwhile, the BNRT is untested and raises huge questions, especially the issue of economic nexus, which Pomp called “the 900-pound gorilla in the room.” He pressed the commission to accept his own proposals, such as a new severance tax to be levied on oil extracted in the state, which he said is similar to Boskin’s offshore oil drilling and royalties proposal.

Several commissioners also said they want to craft a more detailed midstream review of the BNRT as it is being phased in. Recommendations for a “safety-valve” to address unintended consequences of the tax, and to set or adjust the tax rate, are likely to include formation of some type of public group to undertake a review, and a maximum rate above which the BNRT should not go. If it appears the tax would need to go above the recommended maximum to bring in enough revenue, the entire system should be reconsidered at that point, several commissioners said.

Agenda for Final Meeting

Parsky said he expects to discuss in more detail at the final meeting Sept. 14 a safety valve mechanism, as well as the tax burden distribution of the overall package. So far, commission staff has provided detailed information about the distribution of the PIT changes, but has not fully analyzed the distribution when all the elements are put together.
The final report is likely to contain three sections: one that lists recommended statutory changes that can be enacted by the Legislature, a second that lists recommended constitutional or other changes that would need approval from voters, and a third that lists other ideas worth further study.

It is unclear whether the commissioners will cast votes on the package, or more informally endorse the final report before sending it to the governor and lawmakers.

The “Tax Commission” has released details of a plan to completely overhaul California’s tax system.

According to their summary description, there are five major components of the plan:

Description of Tax Plan –

1. A substantial reduction to the Personal Income Tax rates to just to brackets, 2.75% for joint filers earning $56,000 or less and 6.5% for everyone else. As part of this change, all credits and many deductions would be eliminated. The following is proposed legislative language:

Section 17039.3 is added to the Revenue and Taxation Code to read:

17039.3. Notwithstanding any provision of this part or Part 10.2 (commencing with Section 18401) to the contrary, for each taxable year beginning on or after January 1, 2014, any credit otherwise allowable under any provision of Chapter 2 (commencing with Section 17041) or Section 17063, including the carryover of any credit under any provision of Chapter 2 (commencing with Section 17041) from a prior taxable year, any former provision of that chapter, or Section 17063, shall not be allowed against the “net tax” (as defined in Section 17039).

2. Elimination of the Corporation Tax.

3. A gradual phasing out of the Sales or Use Tax.

4. The creation of a Business Net Receipts Tax to replace the other taxes:

A business net receipts tax (BNRT) would be imposed on all businesses deemed to be doing business in the state. Doing business would constitute not only physical presence in the state but also economic presence. The tax would be based on net receipts, calculated by subtracting purchases from the gross receipts of the firm. It would apply to all forms of business including C corporations, pass-through entities and sole proprietorships. The BNRT would apply all sectors of the economy. The tax would be phased-in over a five year period as other taxes were eliminated and phased-out.

5. Increase of the “Rainy Day Fund.”

See also “Tax panel plan includes value-added tax, lower income tax” in the Sacramento Bee Capitol Report.

CalChamber has posted a press release and a copy of a letter sent to the Commission on the 21st Century Economy. They are not happy with the direction the Commission has taken: “Major business organizations, including the California Chamber of Commerce, have expressed strong concern and opposition to several items included as part of the latest “tax package” being considered by a special state tax commission.”

Remember the Commission on the 21st Century Economy?  On its website, the COTCE explains that, “Governor Schwarzenegger’s Executive Order S-03-09 mandated the bipartisan Commission on the 21st Century Economy to re-examine and modernize California’s out-of-date revenue laws that contribute to feast-or-famine state budget cycles.”  But apparently the commissioners misunderstood “bipartisan” to mean “two different parties.”

Dan Walters explains how things are going in the Sacramento Bee:

As they struggle – so far in vain – to balance the state budget, Gov. Arnold Schwarzenegger and legislative leaders have hoped that a bipartisan, blue-ribbon commission on taxation would show them how to mitigate future budget crises.

However, the commission, chaired by Southern California businessman Gerald Parsky, is developing a deep ideological schism that could doom agreement on a broad overhaul of the state taxation system.

The Governor’s Commission on the 21st Century Economy, whose members are appointed by both Schwarzenegger and legislative leaders, has already postponed its report once, from April 15 to July 31, and a liberal faction’s decision to develop an alternative tax plan could delay action even further.

Parsky and other Schwarzenegger appointees had been on the verge of recommending a massive overhaul of the tax system that would move toward a flat tax on incomes, rather than the state’s multi-bracket income tax, replacing the sales tax with a “net receipts tax” similar to a European-style value-added tax, and perhaps eliminating the corporate income tax.

It was aimed at broadening the tax base, moving away from reliance on income taxes from high-income Californians, and thus creating less volatility and more predictability in revenues to soften the state’s boom-and-bust budget pattern.

But reducing taxes on the wealthy and increasing them on middle- and low-income Californians is a hard sell for liberals. Fred Keeley, the Santa Cruz County treasurer and a former state assemblyman, has emerged as the leader of a liberal faction that wants to preserve the personal income tax, perhaps add a “carbon tax” to discourage use of petroleum, and, if it could, modify Proposition 13, the 1978 property tax limit.

Keeley and several like-minded members met with Democratic legislative staffers and others on the liberal side of the political scale last week and agreed to develop a “blue plan,” so named for its left-of-center approach.

Keeley and Boalt Hall School of Law Dean Christopher Edley Jr. are drafting the blue plan for presentation to the commission next week in a direct challenge to Parsky, who has been pushing his vision of tax reform very hard. “I don’t think you get a consensus product by driving a stake on one side,” Keeley said.

Next week’s meeting in San Francisco was supposed to be when commissioners would nearly finalize their recommendations. Schwarzenegger has indicated that he wants a plan that could be quickly presented to the Legislature for an up-or-down vote without modification, in hopes of avoiding a protracted legislative process in which the plan could be pecked to death by lobbyists.

The emergence of a blue plan, however, makes it unlikely that the commission will finish its work this month and, without major concessions by the rival factions, makes it less likely that the commission will ever agree on a major overhaul of California’s convoluted tax system.

A recent study, “Economic Development: The Local Perspective,” conducted by the Public Policy Institute of California (PPIC) illustrates how local governments and state programs influence the economic environment in California. The study shows that local development has increased in recent years, with varying rates of success due to social, political, and geographical factors in the respective communities. Most cities believe that their efforts to improve their local economy have worked to some extent, although most feel that there is no approach in place to addresses their individual opportunities as they arise. The PPIC believes that, although there is positive feedback from local governments on the effectiveness of economic policies, there needs to be more formal evaluation of each program’s value. In general, local officials complain that state policies encourage development in retail activity, while granting less support to employment growth and manufacturing. Local officials feel that the retention of old business is more important than fostering and creating new business and that office and retail development are much favored by the state over affordable housing developments or heavy industrial projects.

Enterprise zones were placed under the category of “Economic Support,” which is defined as “undertakings that do not involve the condemnation or purchase and direct transformation of land, but would seem to complement, inform, and even reinforce redeveloped policies.” Many state-sponsored initiatives to encourage environmentally-friendly business strategies and industrial development- such as enterprise zones- are often overlooked by local businesses, “who are unaware of their existence or find applying for them too onerous.” More transparent and widely disseminated information of state programs was a key request from local officials.

When polled on a scale of 1 to 5, with 1 being “not very important” and 5 being “very important,” local respondents ranked the establishment of enterprise zones with an average of 1.8. Unlike the other activities in the Economic Support column, enterprise zones do focus on land uses. However, the authors note that enterprise zones rarely exist in a vacuum. Usually, there is a key redevelopment strategy for the particular area such as government assembly of land and writing it down for private use.

AB 1550, enacted in 2006, requires applicants in targeted areas (i.e., enterprise zones) to set up a comprehensive development program linking various local issues such as housing, transportation, redevelopment, and workforce training. In turn, the state would grant more favorable assistance in these areas and cut through some of the red tape. This and other initiatives to improve communication between state and local government would remove obstacles that prevent cities from attaining full economic development.

The PPIC is also getting ready to re-release a study specifically about the Enterprise Zone program which has already been published by National Bureau of Economic Research last December. I wrote about that report here as well as some of the responses to it, for example, here.

As Dan Walters reports in the Sacramento Bee, a new report co-authored by the famous economist Arthur Laffer, “Rich States, Poor States,” ranks California 43rd out of 50 for “economic outlook.”  The entire study by the American Legislative Exchange Council focuses on California as explained in the Executive Summary:

The Golden State is only our nation’s largest state in most every economic metric, it also has a highly volatile political climate. California can move from Karl Marx to Adam Smith and back again in what seems to be the blink of a political eye. California’s experiences from its radical shifts in policy are the very essence of what we mean when we write “policy matters.”

Walters quotes from the special section that compares California to Texas:

The decline of California is probably the best evidence that we can present as to the impact of poor state policy making on the economic pulse of a state,” the report says. “California continues to increase regulations, raise taxes and spend profligately. Texas, on the other hand, has a pro-growth economic environment with a competitive tax system, sound regulations and spending discipline that will help Texas maintain its superior performance well into the future.

A reminder that the final scheduled meeting of the “Commission on the 21st Century Economy” is this Thursday, April 9 at UC Davis.

In a manner of speaking. Today is the day that the sales tax increases by at least 1% throughout the state. Here is the “Special Notice” from the Board of Equalization explaining the tax increase and listing the new tax rates.

The highest sales tax rate in the state, and therefore the highest EZ sales tax credit, is in the city of South Gate: 10.25%. Hopefully that will encourage some economic growth in a recession.

Here is the 3 hour video of the Assembly Jobs, Economic Development and the Economy Committee hearing held 3/17/2009 to begin discussing what to do with all of the federal stimulus money:

The front page of this morning’s Sacramento Bee, above the fold is the headline “California Republicans put taxes on table for state budget deal.”

And in other tax news “Capitol Alert” has the following interesting, yet troubling story about today’s meeting of the Commission on the 21st Century Economy:

Only 24 hours … and a $100 billion tax system to overhaul.

It sounds like the mandate for some kind of wonkishly perverse reality show. But it’s not. It’s the task of California’s brand-new tax commission, which meets today for the first time in San Diego.

The 12-member panel — officially tagged the Commission on the 21st Century Economy — is supposed to propose an overhaul of the state’s outdated tax codes.

But they better get to work fast, as the commission is scheduled to meet a mere three times (with a fourth meeting scheduled “if needed”) before issuing its report on April 15.

If each meeting lasts a full eight hours, that’s only 24 hours to settle on a fix (and without the help of Jack Bauer).

Because of the state’s open-meeting laws, members of the commission won’t be allowed to gather outside the scheduled gatherings to talk tax policy, either. The limited time allotted has drawn skepticism from both ends of the ideological spectrum.

“We’re not going to pre-judge them before their first meeting, but it definitely is a daunting task,” said David Kline, a spokesman for the California Taxpayers Association, a business-backed taxpayer group.

“It certainly is rushed. I think you would want more time,” said Jean Ross, director of the California Budget Project, a left-leaning advocacy group. “These are incredibility complex issues that touch of every Californian in terms of both the taxes they pay and the public services supported by those taxes that it deserves more attention.”

Ross noted that not all of the commissioners even have a background in tax policy.

The commission, chaired by Gerald Parsky, was supposed to first meet in November, but delays in naming the panel members means today’s hearing will be its first. The meeting will primarily be an informational one, with folks like Mac Taylor, the nonpartisan legislative analyst, making presentations.

Even when the commission was scheduled to begin its work two months ago, Assembly Speaker Karen Bass, who advocated for its formation, admitted the tax overhaul was a “tall order.”

“But we need maximum performance in a minimum period of time,” the Los Angeles Democrat said.

The commission’s charge is not to raise or lower taxes, but rather to “modernize” how the state collects them, hopefully limiting the volatility that has led to large swings in revenue.

“We are basically just looking for one thing and that is to create stability,” Gov. Arnold Schwarzenegger said when he formed the commission last fall, “with the rainy day fund that we have just established, with our budget reform and with living within our means and not spending more money than we have.”

Simple as that.

Vince Vasquez, the senior policy analyst at the San Diego Institute for Policy Research, recently published a commentary highlighting the success of the San Diego Regional Enterprise Zone. The following was originally printed in La Prensa San Diego on 1/9/2009:

When the City of Chula Vista began reviewing its budget-balancing options last fall, government officials considered cutting the city coordinator for the “enterprise zone” (EZ) program. A new economic analysis released this week finds cutting this position would be a mistake, as Chula Vista’s participation in the San Diego Regional Enterprise Zone has created hundreds of jobs and developed millions of dollars for potential community benefit.

Enterprise Zones are special packages of tax breaks and other incentives designed to increase jobs and investment opportunities within a limited, economically-distressed area. Invented in Great Britain in the 1970’s, and popularized in the United States under the leadership of President Ronald Reagan, EZs have become a major component of urban renewal strategies across the nation. More than 40 states have established EZ programs tailored to their own unique needs and goals, including the Golden State.

California’s Enterprise Zone program offers four key benefits that increase job opportunities and a attract private investment: 1) credits for sales tax paid on certain machinery equipment; 2) a maximum five-year tax credit for hiring qualified employees; 3) lender interest deductions; and 4) an extended carryover of corporate net operating losses. In addition to state benefits, municipal EZ administrators expedite local permits and provide technical assistance for EZ participants. Combined, these incentives have helped retain businesses in some of the state’s most economically distressed areas through two recessions, spurring greater capital expenditures, and expanding workforce opportunities for at-need, disadvantaged and economically challenged Californians. Since 1986, California’s EZ program has been a net gain for San Diego’s economic climate – assisting in the creation and retention of more than 25,000 area jobs, and spurring nearly $1 billion in private investment.

Chula Vista’s participation in the state EZ program has only been a recent development. The “South Bay Zone” was ultimately established in 1992 to include 6,563 acres in Otay Mesa and San Ysidro, and later expanded in 2000 to include 447 acres in Chula Vista’s bay front area. Many large employers were located in the South Bay Enterprise Zone including Delimex, Sony, Honeywell, Howard Light Industries, Panasonic, Martin Furniture, Raytheon, and Sanyo. From 1990-2000, unemployment dropped in the South Bay EZ, which also saw a significant decrease in the poverty rate (22% to 16%) compared to the City of San Diego, which over the same period experienced an increase (from 13% to 15%).

Moreover, EZ program encourages businesses to hire and retain more low skilled employees, which is vital in today’s economic downturn. These jobs may often be the first opportunities for employment these individuals have after reentering society, such as the case may be with an ex-offender or military veteran, and thus it provides a critical first opportunity to learn new skills that will enable them to reach for higher-paying skilled positions.

In 2006, local lawmakers in the City of San Diego, National City and Chula Vista successfully developed a strategic partnership and applied for the approval of a larger, reorganized “Regional Enterprise Zone” (REZ) that stretches across 36,000 acres in more of the communities that need additional investments and job opportunities. The REZ has since been conditionally approved by the state, and businesses within the REZ began qualifying for benefits in late 2007. Today, approximately 6,400 acres of Chula Vista is covered under the REZ, which is more than a fourteen-fold increase from the covered city land under the South Bay EZ. With hundreds of more local businesses now able to tap into the lucrative program benefits, the Regional Enterprise Zone has been a stunning success for economic development efforts on Chula Vista’s west side.

According to government data from the San Diego EZ administrator’s office, Chula Vista’s first full year participating in the Regional EZ has been a positive economic experience. Approved hiring credit vouchers have more than quadrupled (446%) from 2007’s tally, rising from 96 to an estimated 428. More than 650 hiring credit vouchers have been issued throughout Chula Vista’s participation in the California enterprise zone program, a sum worth more than $3.2 million. EZ benefits in 2008 were concentrated to those most at need – small businesses and local residents. 62% of companies receiving hiring credit vouchers employ 50 or fewer workers, and citywide, 90% of vouchers were received by residents of Chula Vista’s west side. The jobs that have been created or retained with the use of hiring vouchers are good paying positions, and field from a diverse number of industries, including retail, heavy industry, and construction. Wages range from the state minimum to as high as $36 dollars an hour, and the average rate fell at $9.80 an hour, 122% above the hourly minimum wage.

Analyzing the industries which receive vouchers, employment numbers, and average earnings, the San Diego Institute for Policy Research estimates that in 2008, Chula Vista’s participation in the San Diego Regional Enterprise Zone produced a total economic impact of $11.57 million.

The San Diego REZ is still only conditionally approved by the state of California, and is at risk of elimination if Chula Vista decides to forfeit its contractual obligations and cuts funding for the EZ program. The original tri-city partnership calls for Chula Vista to commit to marketing the EZ program, and it has a designated “Principal Economic Specialist” employee at City Hall to manage marketing and promotion responsibilities. However, last December this position was up on the government chopping block for elimination, which would have potentially caused Chula Vista to forfeit its participation in the REZ, and jeopardized the entire program.

Chula Vista’s participation in the EZ program is a critical investment in protecting its local economic future and its unique community character. With a broader regional EZ approach, Chula Vista has gained tremendously, creating jobs and protecting small businesses. But these gains are fragile, and can be quickly lost with the elimination of the city’s economic development specialist position and the loss of the EZ marketing budget. With a long term multi-million dollar gap projected in the city government’s budget, the City Council would be wise to find sustainable solutions to meet its fundamental enterprise zone commitments.

From the Tax Foundation’s Tax Policy Blog:

Question of the Day: How Do You Define a “New Job” or a “Saved Job?”

by Gerald Prante

So part of Barack Obama’s stimulus plan is this, as explained in today’s New York Times:

“To encourage businesses to expand their workforces and operations, Mr. Obama wants a tax credit for each new job created. During the campaign, he proposed $3,000 for each new job. Advisers said he is now also trying to figure out a way to give incentives to businesses that resist cutting jobs, as so many have been doing.”

First, let’s set aside the ridiculous idea that the number of jobs is what matters. (If that’s what matters, then why expand unemployment benefits, which discourage prospective employees from finding work?)

How are you going to define a “new job”? Is it net new jobs, or can I fire my entire staff on Friday and then re-hire them on Monday and thereby create a bunch of new jobs? And if it’s net new jobs and it’s temporary for 2009 only, could I hire my entire extended family on Dec. 31, 2009 to come clean out the office, paying them minimum wage for one day and then get $3,000 in tax credits per family member? And if it’s permanent, I assume there would be a floor of zero (i.e. no penalty for layoffs), which could lead to various capital gains-esqe tax maneuvers at the end of each year where every other year on Dec. 31, the entire staff would be fired and then re-hired on Jan. 1.

In a nutshell, this is Obama appealing to the make-work bias that exists among the American public, which Caplan documented in his book The Myth of the Rational Voter. Obama’s economic team is too brilliant to pursue this type of nonsense.

And if he extends this to somehow include “saved jobs,” how do you define that? Every employee in the United States will have been considered on the brink of being laid off, yet saved.

And finally, is the tax credit refundable? There are going to be a lot of businesses with zero profits this year and thereby not able to see a reduction in their tax bills if this credit is nonrefundable. (Note that his proposals to change carryback provisions could somewhat affect this.) And what about nonprofit workers? Why doesn’t the Tax Foundation get a $3,000 subsidy for each new job it creates in 2009?

CALED is linking to Change.gov and the “The Obama-Biden Stimulus Plan.”

Here are some of the points of interest:

Barack Obama and Joe Biden have a plan to revitalize the economy.

1. Immediate Action to Create Good Jobs in America
2. Immediate Relief for Struggling Families
3. Direct, Immediate Assistance for Homeowners, Not a Bailout for Irresponsible Mortgage Lenders
4. A Rapid, Aggressive Response to Our Financial Crisis, Using All the Tools We Have

Under the first section are a number of items related to tax:

- A New American Jobs Tax Credit: Obama and Biden will provide a new temporary tax credit to companies that add jobs here in the United States. During 2009 and 2010, existing businesses will receive a $3,000 refundable tax credit for each additional full-time employee hired. For example, if a company that currently has 10 U.S. employees increases its domestic full time employment to 20 employees, this company would get a $30,000 tax credit — enough to offset the entire added payroll tax costs to the company for the first $50,000 of income for the new employees. The tax credit will benefit all companies creating net new jobs, even those struggling to make a profit.

- Raise the small business investment expensing limit to $250,000 through the end of 2009: Obama and Biden will give small businesses an additional incentive to make investments and start creating jobs again by providing temporary business tax incentives through 2009. The February 2008 stimulus bill increased maximum Section 179 expenses to $250,000 but this expires in December 2008. This provision will encourage all firms to pursue investment in the coming months, but will particularly benefit small firms which generally have smaller amounts of annual property purchases and so choose to expense the cost of their acquired property.

- Zero capital gains rate for investment in small businesses: Barack Obama and Joe Biden believe that we need to encourage investment in small businesses to help create jobs and turn our economy around. That’s why they will eliminate all capital gains taxes on investments made in small and start-up businesses. They also want to cut taxes for the small businesses that create jobs but are struggling with restricted access to credit on top of skyrocketing health care and energy costs.

Further down, under the heading “Technology, Innovation and Creating Jobs” we find:

Make the Research and Development Tax Credit permanent: Barack Obama and Joe Biden want investments in a skilled research and development workforce and technology infrastructure to be supported here in America so that American workers and communities will benefit. Obama and Biden want to make the Research and Development tax credit permanent so that firms can rely on it when making decisions to invest in domestic R&D over multi-year timeframes.

Under “Small Business:”

Provide tax relief for small businesses and start-up companies: Obama and Biden will eliminate all capital gains taxes on start-up and small businesses to encourage innovation and job creation. Obama and Biden will also support small business owners by providing a $500 “Making Work Pay” tax credit to almost every worker in America. Self-employed small business owners pay both the employee and the employer side of the payroll tax, and this measure will reduce the burdens of this double taxation.

The Sacramento Bee has biographies of the 12 newly named members of the Tax Commission.

Do we know where any of them stand on the subject of Enterprise Zones?  I was not able to find references to all 12 appointees, but here are the results of my research:

As an Assemblyman, Fred Keely voted for AB 356 in 2000 to designate the City of Compton as an Enterprise Zone.  The bill passed, but was vetoed by Governor Davis.

On May 19, 2002 Richard Pomp was quoted in an article appearing in the Albany, NY Times Union, “Economic battle zones Born to bring jobs to depressed urban areas, Empire Zones now include booming Saratoga County:”

Some taxation experts and government watchdogs point to abuses. They say the zones have become political tools, giving away tax revenue to reward businesses for expansions they likely would have undertaken anyway.

“The whole issue of enterprise zones is so controversial to begin with, with the evidence all over the place,” said Richard Pomp, a professor of tax law at the University of Connecticut in Hartford.  “But I think the academics think it’s a waste of money.”

Christopher Edley played a role in crafting the federal Empowerment Zone program under President Clinton.  See, for example, this transcript of a 1995 White House press conference.  He also touted the program while campaigning for Al Gore in 2000.

Curt Pringle is currently the mayor of Anaheim. There have been some indications that Anaheim may apply for one of the four Enterprise Zone slots opening next year. In the Assembly, Pringle was involved in a variety of tax cutting legislation under Governor Pete Wilson which included enhancements to the Enterprise Zone program. There is also a fascinating “back to the future” type reference in the January 5, 1993 Los Angeles Times:

Pringle wants to sponsor laws requiring that all AQMD regulations be ratified by the Legislature and rescind the agency’s controversial trip-reduction requirements for Southland businesses. He also wants to establish “environmental enterprise zones” where businesses with good ecological records could more easily start up without first jumping through all the usual regulatory hoops.

On October 12, 1993 (p. A22) Ruben Barrales was quoted in The San Francisco Chronicle:

Governor Wilson signed a bill yesterday that will allow the state to designate an ”enterprise zone” in East Palo Alto to stimulate business development through reduced taxes and government fees.

The new law will allow the city to ask the state Trade and Commerce Agency to designate the zone before June 30.

California already had designated as many enterprise zones as state law allows. The bill signed by Wilson allows cities with populations of fewer than 25,000 to apply for two new slots.

”This is great news,” said San Mateo County Supervisor Ruben Barrales, whose district includes the 2 1/2-square-mile city. ”This gives incentives to bring more businesses to East Palo Alto. It’s fantastic news.”

On September 2, 1992 (p. B1) then State Senator Becky Morgan was quoted in the Los Angeles Times opposing the creation of the Los Angeles Revitalization Zone (LARZ):

A bill designed to speed up the rebuilding of Los Angeles’ riot-torn neighborhoods resulting from the Rodney G. King verdicts was approved by the Assembly Tuesday and sent to Gov. Pete Wilson’s desk.

The 54-8 vote moved the legislation authored by Assemblywoman Marguerite Archie-Hudson (D-Los Angeles) to the governor for his expected signature.

The Senate previously approved the measure by a 27-2 vote.

Wilson favors creation of the five-year Los Angeles revitalization zone called for in the bill to give tax breaks to businesses that rebuild their facilities and create jobs for residents who live in the riot-torn neighborhoods.

State officials estimate the cost of the tax breaks could run as high as $150 million over the five years.

“We must rebuild Los Angeles or forever it will be a symbol of our inability to live together,” said Sen. Charles Calderon (D-Whittier), who handled the bill on the upper house floor.

Calderon called the measure a direct response to the Los Angeles riots and predicted that it would be the “only major bill to come out of the Legislature to attempt to rebuild the community.”

The Southern California lawmaker contended that the proposed legislation would not cost state taxpayers any money because an expanded economic base in the Los Angeles zone would generate increased state revenues.

…

An opponent of the Archie-Hudson bill, Sen. Becky Morgan (R-Los Altos), told her colleagues, “We are all sympathetic to Los Angeles, and would like to help, but I really think this bill goes too far.”

But Sen. Ralph Dills (D-Gardena) replied, “This bill will give jobs to the people who are living there, and bring money to the state from increased sales and income taxes.”