Illustration by A. Babar
California Businesses Are Wimps on High Taxes
If you listen to the union-financed advertising campaigns, you would think that corporate interests control California’s capital and are bulldozing the interests of “working-class” taxpayers to promote conservative causes. In the minds of union activists, billionaires are conspiring to turn deep-blue California into a red zone.
In particular, opponents of a state ballot initiative that would ban unions’ use of automatic payroll deductions to finance their political activities claim that it is the creation of “retired CEOs and millionaires” associated with “an extreme right-wing” group based in Orange County.
While the proposition’s Lincoln Club backers are conservative, most corporate political players in California have hardly been associated with conservative causes, even on the tax, regulatory and economic issues where one would expect them to tilt right. Instead, business leaders have tried to play ball with the Democrats, who control every constitutional office and have an ironclad grip on the state Legislature.
The game seems rigged, and the calls go against the capitalist cause. Yet the private sector keeps on playing. While this dynamic is common in some other states as well, business interests in California seem less willing to put up a spirited fight than in most other places.
The biggest battle on the Nov. 6 ballot is over Proposition 30, which would increase income taxes on Californians earning more than $250,000 a year and sales taxes on everybody.
If passed, California’s income taxes will soar above the rates of the next highest states (Hawaii and Oregon), and will imperil an economic recovery as businesses and taxpayers continue to flee for lower-tax states -- a migration most recently documented by a Manhattan Institute study.
But as the San Francisco Chronicle reported, “Disney (DIS), Sony, CBS, NBC, Viacom (VIAB), Warner Bros. and other entertainment businesses have given Prop. 30 a total of nearly $1 million. Pacific Gas and Electric Co., Occidental Petroleum (OXY) and other energy companies have thrown in roughly $1 million between them. Soft-drink companies -- which are spending millions to try to defeat soda taxes in Richmond and El Monte (Los Angeles County) -- have dipped into their campaign coffers to give a half-a- million dollars to Brown’s effort to temporarily raise state sales and income taxes.”
The initiative has also gained support from casino owners, Hollywood millionaires and the health-care industry, which is more interested in gaining government subsidies and favorable regulatory decisions than in keeping taxes within reason.
Even prominent business groups couldn’t muster the courage to oppose the governor’s huge tax increase. For instance, the California Chamber of Commerce took no position, despite its much-publicized efforts to fight “job killer” legislation.
A San Francisco-based group, the Bay Area Council, which includes influential companies such as Google Inc. (GOOG), Hewlett- Packard Co., Wells Fargo & Co. and Chevron Corp., has taken a “yes” stance on Proposition 30, arguing that the state’s fiscal health demands the tax increases.
The council had previously championed Repair California, a failed call for a new constitutional convention -- something that frightened conservatives given that it could throw many of the state’s taxpayer protections to the wind.
A couple of the ideas moderate business interests pitched heavily -- redistricting changes, an open primary and a simple- majority budget vote -- have become law after initiative campaigns. Yet the results of those reforms are spotty at best.
The new “nonpartisan” redistricting commission was quickly co-opted by left-wing activists and resulted in new district lines that will help Democrats grab even more power. The elimination of the supermajority budget rule has made the minority Republicans irrelevant to the budget process, given that their only power had been to hold up budgets as they sought taxpayer-friendly reforms. And the new top-two primary system is leading to an unprecedented number of general-election races between members of the same party, thus reducing political choice and debate.
Basically, the state’s business groups often push changes intended to elect more “moderates” and fewer ideologues from the left or right. But instead of tempering the influence of unions and special interests, these efforts mainly enhance the business-hostile status quo.
What explains the willingness of otherwise smart people to continually take this counterproductive approach?
“Most big business in California is now intellectual, the high-tech guys and Hollywood types,” said Steven B. Frates, director of research at the Davenport Institute at Pepperdine University. “The manufacturers are gone. We used to have refineries and aerospace. The impact of the agricultural business is much less than it used to be.”
For these dominant industries and companies, Frates argues, “taxes are less significant because their profits are more a function of their innovation rather than their manufacturing margins. They can afford to be more sensitive to, say, environmental issues because it doesn’t impact them in California.”
Jon Coupal, president of the Howard Jarvis Taxpayers Association, has a much simpler explanation: “It’s hard to be aggressive when your opponent has you by the throat.” He calls the money that private-sector leaders are giving to the Proposition 30 campaign “protection money,” saying that Democratic Governor Jerry Brown’s campaign team is filled with “seasoned players who play the Chicago school of politics” by pressuring businesses and leaving them too frightened to fight back.
As the state’s economic situation worsens, however, Coupal sees a newfound boldness. He points to a growing backlash against Brown’s high-speed-rail plan and efforts by business to finance charter schools over the opposition of the teachers’ unions. If companies have a lobbying presence in Sacramento, he said, “they already are a lost cause” because they are committed to the inside game of trying to manipulate laws for their own specific benefit.
Still, he finds that “high-dollar donors and independent manufacturers are getting more aggressive” in fighting for lower taxes. Orange County Republican Party Chairman Scott Baugh concurs: “Eventually you run out of other people’s money, and businesses start to come home.” He sees stepped-up private- sector efforts to fight the tax-increase proposition and to support the measure that would limit unions’ power on payroll deductions. “It’s still a fight,” he said, “but there’s more of a willingness to do that.”
Even Democratic officials in lefty San Francisco understand the link between high taxes and job creation. Mayor Ed Lee is pushing a ballot initiative there that would ease the city’s crushing business taxes. If San Francisco officials get it, it’s only a matter of time before California’s weak-kneed business leaders join the fight for a better economic climate.
(Steven Greenhut is vice president of journalism at the Franklin Center for Government and Public Integrity. The opinions expressed are his own.)
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