Saturday, April 23, 2011

Are California Businesses Not Paying Their "Fair Share" of Taxes?

We're still shaking our heads at this piece in the Orange County Register; we don't know if reading something this stupid can actually destroy brain cells, but we really hope not.

Broke corporations not writing enough of these.
In just a few short paragraphs, Brian Joseph reminds us once again why journalists shouldn't try to be economists. He looks at data indicating that personal income taxes have constituted a greater and greater share of Sacramento's total tax take over time, and wonders at the implication that businesses have paid a decreasing share of taxes over the same time. How can this be, he asks, at a time when California companies like Google and Apple are posting record profits? Unsurprisingly (because he's a journalist), Joseph points to the influence of the business lobby in securing special favors from Sacramento. Quoting an economist from the Franchise Tax Board, he points to a number of key breaks pushed through the Legislature by lobbyists: changes allowing California corporations to report less taxable income to the state; a 1997 drop in the corporate income tax rate; and a series of tax credits granted to specific types of businesses.

There's so much stupidity in this piece we hardly know where to start. For one, Joseph seems to think there's something uniquely inequitable about this: "Unlike corporations, taxpayers as a group aren't particularly well organized. While corporations are constantly pressing for tax breaks, few groups are doing the same for individual taxpayers." Um, how is this different from what unions or environmental groups do? For another, many companies have maintained profitability in recent years not by growing larger, but by cutting costs, which wouldn't suggest they should pay greater taxes. But the biggest problem with the analysis is that it ignores the economic troubles in the state in recent decades. Part of why corporate tax receipts have gone down is that California is a horrible place to do business, and all too many corporations have either closed up shop or moved on to other states. And with new environmental regulations on the way, this is only going to get worse. Moreover, you can't really discuss the increasing share of personal income tax receipts without mentioning that, you know, those tax rates have been raised over time.

We don't really think that businesses aren't paying enough in taxes. If anything, private citizens are paying too much.


  1. JustinApr 23, 2011 09:59 AM
    Has there ever been a term more open to interpretation than "fair share?" A history professor - the only one I ever had in college whom I liked - once told me that whenever you hear the phrase "fair share" you can be sure of one thing: there will be nothing fair about it.
  2. GSLApr 24, 2011 05:26 PM
    I only wish I'd had an econ professor as smart as your history professor.

    Actually I believe the definition of "fair share" is: "No one I like has to pay more than I think is fair, and everyone I don't like has to pay more than they want to".