Sunday, August 28, 2011

Shocking News: State With Worst Business Climate Collects Fewer Corporate Taxes Than Expected

File this one under "News That Will Be Misinterpreted For the Worse": the Sacramento Bee reports that revenues from corporate taxes are 10% lower than expected through the first seven months of 2011, creating a shortfall of over $700 million dollars. No accompanying review of corporate tax records has been performed, but "experts" are already pushing their preferred explanation: tax breaks to businesses have proven more generous than expected.

The news, of course, comes on the heels of Jerry Brown's renewed appeal to eliminate one of these credits by calling for firms to use only sales in California to estimate their tax liabilities, rather than allowing them the option of using their California property holdings and employees in calculating taxes. Since 2009, the Golden State has allowed companies to choose which formula they apply. According to the Governor's office, this would raise $1 billion in tax revenues every year, primarily from out-of-state firms.

Of course, no one seems to be asking whether the government's original projection was ridiculous to begin with, even though it hasn't exactly distinguished itself by the recent guesstimate of $4 billion in tax revenues that were expected to balance the budget. They're also not asking whether there might be a simpler explanation for the drop in revenues than the tax code: California's business climate. Readers of this blog may recall that thousands of Golden State businesses died in 2010, and dozens of firms have fled for more hospitable regulatory environments. Is it so hard to believe that California's corporate tax revenues are shrinking because there are a lot fewer businesses here than Sacramento expected?


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