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The Tax Increases Have Begun: AB 1178

From the Sacramento Bee:

In a showdown over generating new tax revenue, the Assembly today passed by a razor-thin margin legislation touted as closing a tax loophole benefiting multinational corporations.

Assembly Bill 1178 targets an exemption for corporations that benefit financially from doing business in California but are able to avoid paying some state income taxes by locating an office outside U.S. boundaries.

Today’s heated floor debate over the bill is likely to be the first of many skirmishes over how best to create, and spend, new revenue at a time when the states faces a potential $20 billion shortfall by July 2011.

To avoid having to pass AB 1178 by a two-thirds supermajority, the bill’s author, Democratic Assemblyman Marty Block of San Diego, offset the measure’s projected tax revenue of about $120 million per with an identical cut in sales taxes for college books and supplies.

Republicans painted AB 1178 as a new burden on businesses, a blow to job creation at a time of economic recession, and an ill-advised attempt by Democrats to sidestep the supermajority requirement for raising taxes.

“What we’re going to do today is live up to our reputation of being hostile to business,” Republican Assemblyman Dan Logue of Linda said in scolding the Democratic-controlled house.

Democratic supporters of AB 1178 countered that it would not raise taxes but simply keep corporations from evading their “fair share” of taxes.

Proponents also characterized AB 1178 as a fair way to pump new money into a cash-strapped college system that is depended upon to train California’s future workforce.

“This is a no-brainer,” said Assemblyman Charles Calderon, D-Whittier.

Because of a split within the Assembly’s Democratic Caucus, AB 1178 failed passage on the floor Wednesday and was approved today by the bare-minimum number of votes, 41-28, after an initial roll call fell three votes short.

Some Democrats objected to tying any revenues earned from the bill specifically to higher education, rather than to medical care for low-income families or to in-home support services for people with disabilities.

Assemblyman Felipe Fuentes, D-Sylmar, said he cast one of the deciding votes for passage only after receiving a commitment that AB 1178 will be amended in the Senate to link its revenues to another high-priority need.

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