It's no secret that California's budget situation is dire. With that in mind, the decision by California policymakers to enact three corporate income tax cuts over the past 9 months, costing the state as much as $2.5 billion annually, is nothing short of appalling. A recent report from the California Budget Project (CBP) explains these cuts, detailing especially how their benefits will be skewed toward a few of the largest corporations in the state.
The largest of the three provisions examined by the CBP allows corporations to use a "single sales factor" to determine how their profits are apportioned among different states for corporate income tax purposes. You can read the ITEP Policy Brief on single sales factor here. The CBP notes that this provision alone would cause $1.5 billion to flow from already depleted state coffers into the hands of large corporations. At least 80% of the benefits would go to big business, defined generously here as corporations with gross receipts over $1 billion annually.
The second provision is an allowance for "net operating loss carrybacks". This new measure could reduce state revenues by up to a half billion dollars annually. California is now among a minority of states offering this type of tax break. For more on this topic, see this recent report from the Center on Budget and Policy Priorities detailing why states with NOL carrybacks should eliminate them.
The final provision examined by CBP allows tax credits earned by one corporation to be given to related corporations. This is eventually expected to result in losses of up to $400 billion for the state. A lucky 0.03% of California corporations will enjoy nearly 90% of the benefits.
It's hard to believe that California policymakers considered these items to be a priority despite their state's current budget nightmare. Repealing these breaks is the obvious next step in trying to restore fiscal sanity to the state -- though it will by no means end the state's problems. For a more comprehensive solution, Californians should look toward the elimination of the supermajority requirement for tax increases, and the elimination of Prop 13. These ideas seem to be gaining increasing attention, as exemplified in this recent LA Times Business column.