Friday, August 13, 2010

Historical Debt and Tax Cuts: A Final Word - Targeted Tax Cuts aka Tax Expenditure Programs (TEPs) (continued)

Meg Says…Establish Academic Enterprise Zones

“…take advantage of the academic excellence at our universities and create economic opportunity zones to encourage businesses to locate within a specified zone around these institutions. Tax incentives offered within these zones would be focused on hiring workers, promoting research and development, increasing access to state funds and loans and encouraging a close collaboration with the universities.” p. 12

But Meg…

Establishing Academic Enterprise Zones Near Universities Would Expand the State’s Already Inefficient and Wasteful Enterprise Zone (EZ) Program ($50 to $100 million/yr. annual revenue loss): The state’s current $300 million EZ program, which provides tax benefits in targeted zones throughout the state, is fraught with waste, fraud, and abuse as well documented by the California Budget Project and others (seeCalifornia’s Enterprise Zones Miss the Mark). Unfortunately, all reform attempts have failed in the Legislature thus far. Expanding a current program that is widely regarded as wasteful, inefficient, and loophole-ridden, is not a smart idea. Companies, largely specializing in R & D, are already congregated around the state’s premier university campuses. Most of these firms already take advantage of the state’s generous R & D tax credit. It makes no economic sense to reward these companies for locating in areas where it already makes economic sense for them to be located. 

California Budget Project, “California’s Enterprise Zones Miss the Mark”
http://www.cbp.org/pdfs/2006/0604_ezreport.pdf



Meg Also Says...

“…the University of California, San Diego and the biotech region of San Diego are closely linked and provide leverage points for significant economic growth and job creation. The same is true in communities where other UC campuses are located.” p.12

But Meg...

“....why technology firms need new incentives to locate near Berkeley, Stanford, UC San Diego and UC Irvine, neighborhoods already bristling with them, isn't too clear.”
http://www.latimes.com/business/la-fi-hiltzik-20100725,0,1228882.column


Meg Says…Accelerate Depreciation of New Business Equipment

"…provide a more favorable depreciation schedule to encourage farmers, manufacturers and other companies to invest in new equipment and technology that will make them mire competitive and better able to hire Californians.” p. 12.

But Meg…

The effects of accelerated depreciation, or rapid amortization, under AB 1404 were evaluated by the Legislative Analyst’s Office in 1985 which found:

“In short, there is no empirical evidence indicating that AB 1404 has, in fact, had much of an effect on either the level of investment in cogeneration equipment or the level of economic activity generally. Rather, the available evidence suggests that the measure's primary effect has been simply to redistribute income between taxpayers, investors in cogeneration equipment, the state government, and the federal government…p. 27

In order for tax incentives such as shortened amortization periods to have significant positive economic effects, they must increase the level of investment in cogeneration equipment and facilities above what it would be otherwise. If they do not do so, the primary effect of these incentives is simply to redistribute income--to those investors who do not change their behavior but nevertheless qualify for the incentives, and to the federal government. These “windfall” benefits come at the expense of the State Treasury and California taxpayers who must directly or indirectly pay for them.” p. 25

Legislative Analyst's Office: “Cogeneration Equipment Investments: The Effects of Rapid Amortization”, 1985.
http://www.lao.ca.gov/reports/1985/476_0685_cogeneration_equipment_investments_the_effects_of_rapid_amortization.pdf

And...

“It is also possible for the government to provide too large an R & D incentive. If this happens, investment will be diverted from other more productive uses to relatively inefficient R & D activities. This could hurt overall economic performance.”…p.84

Franchise Tax Board, “California Income Tax Expenditures: Compendium of Individual Provisions”, updated December 2008.
http://www.ftb.ca.gov/aboutftb/taxExp08.pdf


Meg Says…Provide a $10,000 Tax Credit for Home Purchases

“To encourage homeownership and lessen the economic damage of last year’s mortgage crisis, Meg will provide a $10,000 tax credit to the buyers of new and existing homes. This will boost California’s real estate industry and improve the values of existing homes.” p. 12

But Meg…

“…Schwarzenegger signed AB 183 allowing first time homebuyers a tax credit equal to the lesser of 5 percent of a home’s purchase price or $10,000....The measure is an extension of a similar credit that expired last year....The credits are capped at $200 million – half for buyers of new homes, half for first time buyers of existing homes...
Whitman says she would provide the same thing but makes no mention of limiting it to first-time homebuyers.”
http://californiascapitol.com/blog/?p=2259


Meg Says…Provide a Tax Credit for Green Tech Job Creation

“…create incentives for employers to create green tech jobs by offsetting part of the cost of hiring new workers through a tax credit. These credits will apply only to permanent jobs directly involved in the development of alternative energy and other environmentally friendly technologies” p. 12

But Meg…

“…On March 24, Schwarzenegger signed into law SB 71 allowing the state to grant a sales tax exemption for manufacturing equipment purchased by so-called green technology companies.

The law defines green as cogeneration technology, energy conservation, solar, biomass, wind, geothermal, specified hydro-electric, or any other energy efficient technologies that reduce the use of fossil and nuclear fuels.” Also included, “advanced electric distributive generation technology and energy storage technology.”

The law requires the Legislature be notified when the total of the exemptions hits $100 million. No further exemptions can be granted without legislative approval.”
http://californiascapitol.com/blog/?p=2259


Meg Says…A Final Word: California’s Debt Crisis

“We can’t continue to use gimmicks to patch up the structural problems with the General Fund, while billions get added on top of the state’s debt”. pp. 12-13.












Meg 2010 Building A New California, p.13

But Meg….A Final Fact Check

There appears to be a direct correlation between California’s rising debt and increases in tax cuts.



Corporate Budget Project, “California’s Tax System” p.11
http://www.cbp.org/pdfs/2009/0902_Californias_Tax_System.pdf

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