Showdown at the CA Corral on Taxes and Promises

When one political party controls both the legislative and executive branches of government disputes are usually fought behind closed doors and the battles rarely see the light of day. But that’s not happening in Sacramento where legislative Democrats are on a collision course with Governor Jerry Brown’s promise not to raise taxes without a vote of the people. Those were his exact words face directly into the camera in campaign ads that ran throughout California and still ring in the ears of the state’s electorate.

Speaker John A. Perez seems determined to test the Governor’s promise in a very public way by promoting a $1 billion tax increase on businesses that hire tens of thousands of workers in California. His bill AB 1500 would change the way companies particularly those that manufacture goods used by the middle class (toilet paper diapers tissue toothpaste etc.) are taxed. The proceeds would not be used to lower the multi-billion dollar budget deficit or reduce taxes elsewhere but to subsidize CSU and UC tuition payments.

The Speaker and his allies claim the tax increase is merely closing a “loophole” on out-of-state corporations something that was no doubt poll tested in the school of class warfare and the Occupy movement. However the truth is that his bill changes the way businesses have been paying taxes for the last 40 years.

The complexities of business taxation aside if it walks like a tax increase and quacks like a tax increase then it’s a tax increase. That’s why the state’s non-partisan Legislative Analyst rejected the suggestion that it was a loophole and called it a tax increase.

That’s where things get sticky for the Governor. If somehow Republicans shoot themselves in the foot and vote for AB 1500 — thankfully tax hikes still require a two-thirds vote of each house — the bill will test the Governor’s promise. It will be Jerry Brown’s “Read my lips” moment.

More importantly for Californians it will be a huge moment determining the future of our state. There are already three multi-billion dollar taxes headed for the November ballot. If the Governor breaks his promise and signs one into law as well he will lose even more credibility with voters than he has already lost due to his failure to right the ship of California. Moreover another tax hike on businesses will increase unemployment decrease opportunity for private sector economic growth and result in even more deficits and budget cuts far into the future. Finally in a bit of irony the higher taxes which lead to greater unemployment will hurt the very students Perez professes he wants to help. Graduating is one thing. Finding employment is another.

So will Jerry break his promise? If the bill never clears the Legislature he can avoid being put to the test. For him that might be the best possible outcome.

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.