Another Shot at Tax Break Democrats Love to Hate

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Erasing a 2009' corporate tax break has been a target of Democrats for years. (Photo: KQED/John Myers)

For the last several years, Democrats have been relentless at trying to undo a hotly debated tax incentive for large corporations that was signed into law as part of the 2009 deal. And now they're launching another shot.

The 2012 edition of "Cancel That Corporate Tax Break" at the state Capitol kicks off with a novel, and perhaps politically powerful, proposal from Assembly Speaker John Perez: use the resulting $1 billion in extra tax revenue to dramatically downsize the cost of a college education for middle-class families.

Perez formally introduced his plan Wednesday afternoon, to be contained in two bills -- AB 1500 and AB 1501. One bill will modify the state law allowing national corporations to calculate their tax liability based on their sales revenues inside California; the second bill will create a need-based scholarship for all UC and CSU students whose families make between $70,000 and $150,000 a year... a scholarship paid for with the higher corporate tax revenues.

Perez called it a matter of "tax equity" in a conference call with reporters launching his PR blitz, and even suggested that easing the financial pressures of California college students could itself provide an economic stimulus, given the widely agreed on importance of higher education to the state's economy.

Staffers say that details of the college costs proposal are still a work in progress, but the bills assume a $4000 break per CSU student and a $8100 break per UC student. The goal is for the need-based scholarships (not exactly being called that, but given the application process required, that's what it sounds like) to kick in starting this fall. The proposal would also provide $150 million for community colleges, say Democratic staffers.

But for all of this to happen -- both the fall 2012 implementation and, most importantly, a $1 billion downsizing of the existing corporate tax break -- at least a handful of legislative Republicans have to join Democrats in sending the bills to Governor Jerry Brown. And some GOP stalwarts will undoubtedly remind their party faithful that, in government parlance, the rescinding of a tax incentive is the same as a tax increase.

The single sales factor (SSF) saga began in earnest in 2009, when a particularly corporation-friendly version of the proposal became the price for getting 27 Senate votes and 54 Assembly votes for the budget. The fight then, as it has been ever since, was whether corporations should be given options on how to calculate their state tax liability -- and thus choose the one that's the smallest.

Assembly Speaker John Perez. (Photo: Getty/Justin Sullivan)

Speaker Perez insists that Democrats were "leveraged" by business groups in 2009 in agreeing to the deal. But agree, nonetheless, they did. Ever since, they've been trying to get a second bite at the apple. Whether it was simple bills or outside groups trying to scrap the law via ballot initiative, Democrats have been unsuccessful in getting the "optional" formula in the SSF law removed -- a testament to how tough it is to revise tax law in a state like California.

Governor Brown came the closest of anyone last September, when he found two GOP assemblymembers who agreed to support a cancellation of the tax break with the money used, instead, for other tax breaks promoted as job creators. But the plan died in the state Senate when the upper house's GOP caucus rejected it en masse.

Might 2012's outcome be different? For starters, skyrocketing UC and CSU costs for families have created bipartisan anguish in California -- and there may be intense pressure to find a new salvation for higher ed. In addition, this is an election year -- one in which a number of Republican legislators may find themselves running for new jobs in new districts where college help for the middle class could become a potent political weapon. And, at the risk of being cynical, failure of the measure on a party-line vote could help Democrats in their electoral quest for a larger (if not supermajority) presence in both houses of the Legislature.

Keep your eye on this proposal; it's shaping up to be a fascinating one to watch as budget and election fights grow more heated in the months to come.

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About John Myers

John Myers is senior editor of KQED's new multimedia California Politics & Government Desk.  He has covered California politics for most of the past two decades -- serving previously as Sacramento bureau chief for KQED News and, most recently, as political editor for KXTV News10 (ABC) in Sacramento. He moderated the only gubernatorial debate of 2014, and was named one of the nation's top statehouse reporters by The Washington Post. Follow him on Twitter @johnmyers.
  • Ruthi Corsaw

    So, instead of addressing the real problem that the UC/CSU system spends (& therefore costs) too much, they’re going to try & find another revenue stream to raid to pay for that bloated system? Figures…

  • Mshuchter

    Not only that but create another business disincentive to operate in California as well.

    The term, “tax and spend” leaps immediately to mnd.