Herdt: State opens its checkbook for tax breaks

Among the hundreds of millions of dollars in tax breaks the Legislature seems poised to hand out over the next couple of weeks is a modest proposal from Assemblyman Jeff Gorell.

Gorell, R-Camarillo, wants to see the money that the U.S. Olympic Committee awards its medal winners exempted from California income tax. A gold medalist gets $25,000, a rather modest sum.

One might question whether, say, San Diego native Shaun White, with an estimated $8 million in endorsement contracts spawned by his Olympic success, needs the tax break.

But for Nordic skiers, Greco-Roman wrestlers and other minor-sport champions for whom their medals and cash awards are the only tangible benefits of years of training, the proposed tax break seems like something noble California might do for the Olympic cause.

Analysts estimate the tax exemption could cost the state treasury between $30,000 and $50,000 each even-numbered year.

The fate of Gorell's bill, AB 2323, will likely be decided today by the Senate Appropriations Committee. But it is very small potatoes compared to other proposals that seek to add on to the approximately $45 billion in annual credits, deductions and exemptions California grants its taxpayers.

Among the ideas in the works: at least $300 million a year in credits to movie and television producers, $420 million over the next 15 years to whichever aerospace contractor wins a bid for a new Air Force bomber, a $100 million increase in the sales tax exemption for manufacturing equipment purchases by the aerospace industry, and several more.

The combined amount is such that during a Senate Democratic caucus meeting last week, I'm told, a conspiracy theory of sorts was floated: The reason Gov. Jerry Brown low-balled revenue estimates in this year's budget is that he sought to squirrel away $1 billion that could be awarded in corporate tax breaks.

California's corporate tax code is as riddled with credits and exemptions — some call them loopholes — as is the federal tax code. The actual corporate income tax rate is 8.84 percent, the second-highest in the nation. But to large corporations, the actual rate means little. After accounting for all the loopholes, their effective rate is much lower.

Once tax credits are put on the books, they are hard to remove. They require a simple majority vote to establish, but a two-thirds majority vote to eliminate.

Last year, lawmakers actually eliminated a big one that had long been criticized as inefficient: enterprise zone tax credits. No serious study ever determined that they had any effect on job creation. With the savings, they paid for some smart tax breaks, including exempting the purchase of manufacturing equipment from sales taxes.

They also established a program, one that will grow to $200 million a year, within the Governor's Office of Business Development, and gave administrators the authority to award specific tax credits in cases in which businesses could document that the credits would save or create jobs.

It was, says Sen. Lois Wolk, D-Davis, chairwoman of the Government and Finance Committee and one of the Legislature's biggest skeptics about business tax credits, a smart move.

'In my mind, it meant that when issues come up — a company wants to expand, or a company is thinking of relocating, when they need help — the governor has the authority to step in and do some analysis and take some action,' she told me.

But this year, Wolk says, little has changed. 'We get these one-off, one-at-a-time bills. There is an incredible amount of lobbying. It's not a good way of making decisions with the public tax dollar.'

There are, of course, contrary views. Sen. Steve Knight, R-Palmdale, is the most vocal proponent for awarding tax breaks to the aerospace industry. He insists they will produce a 3-to-1 return. 'There's no industry like aerospace,' he says, 'because if you're working on an airplane, there are probably three to four subcontractors supporting you.'

He feels the same about the film production tax credit: 'It should be jacked up.'

In each case, Knight told me, these are no-nonsense proposals. 'If you hire somebody, you get a tax credit. If you don't hire somebody, you get nothing. It works clean.'

Over the next couple weeks, lawmakers should make certain that any tax credit awarded works exactly as Knight describes - that they be transparent, subject to careful auditing and guarantee a return on investment.

Because, make no mistake: No less than subsidizing child care for a low-income working mother, to award a tax credit is to spend the state's money.

Timm Herdt is a columnist for the Ventura County Star.