Press Release, For Immediate Release
New study shows tax breaks are equivalent to “corporate welfare”
Sacramento — A new study released today by the Reason Foundation and the Howard Jarvis Taxpayers Foundation shows why many California tax breaks given to corporations constitute corporate welfare and demonstrates how they actually impede economic growth and contribute to the state’s poisonous political environment.
The study examined numerous corporate tax, sales and use tax credits, tax deductions and exemptions in order to evaluate whether California tax breaks serve their intended purpose. The argument offered in support of such tax breaks is usually that they will boost the economy by improving the livelihoods of certain classes of individuals, businesses or industries. But their true costs are frequently ignored. While tax credits may encourage business activity in certain sectors of the economy, the research shows that they limit business activity that would otherwise have taken place in other sectors of the economy by bestowing benefits upon politically favored industries and companies.
“The state’s maze of tax credits props up select groups, blocks competition and lacks accountability,” said Adrian Moore, vice president of policy at the Reason Foundation. “This research shows special interests disproportionately benefit from these tax breaks at the expense of the overall economy and the rest of the state.”
The Reason Foundation-Howard Jarvis Taxpayers Foundation study reveals that while tax breaks may be intended to serve as an economic engine, they often become wasteful corporate handouts with the government attempting to pick winners and losers, often at a steep price tag to other businesses in the marketplace or ultimately, taxpayers. From farm machinery to motion pictures to computer programs to the timber industry, the study highlights how a long list of inefficient tax breaks fail to deliver the economic benefits promised to the state’s economy and taxpayers. Solyndra, the notorious California solar cell company that stuck federal taxpayers with over $500 billion in debt, also received $25 million in California corporate tax breaks . The study shows why Solyndra is a textbook example of “government using – and losing – taxpayer dollars to play favorites and advance a political agenda by interfering in the market.”
“Our study reveals what we have long suspected,” said Jon Coupal, Chairman of the Howard Jarvis Taxpayers Foundation. “Special interests in Sacramento get special favors in the form of tax loopholes, usually at the expense of citizen taxpayers, small businesses and working class Californians. Many of these corporate rent seekers are the same ones who finance initiatives and support legislation imposing broad-based tax hikes on everyone as long as they get to preserve their special tax treatment.”
Coupal also said, “Let’s be clear. This is not a call for higher taxes – just a smarter tax system which removes unjustified tax breaks and reduces the overall tax rates for everyone. Doing this would also lessen the ‘pay to play’ atmosphere in the Capitol.”
Even with billions of dollars in tax breaks purportedly intended to encourage economic activity, California maintains one of the worst business climates in the nation. The study suggests one way to improve the state’s business climate would be to lower and simplify the state’s tax code by eliminating tax credits altogether. The Franchise Tax Board (FTB) estimates that the overall corporate tax rate could be reduced by 14 percent simply if the Research and Development Credit alone were eliminated. The study shows that if other tax breaks were eliminated, California could likely reduce its overall corporate tax rate by more than 20 percent.
For more information or a copy of the study, visit http://www.HJTA.org and click on “Hot Topics” or visit the Reason Foundation’s website at http://www.Reason.org.
About the Reason Foundation
Reason Foundation’s mission is to advance a free society by developing, applying and promoting libertarian principles, including individual liberty, free markets and the rule of law. Reason Foundation’s nonpartisan public policy research promotes choice, competition and a dynamic market economy as the foundation for human dignity and progress. Reason produces rigorous, peer-reviewed research and directly engages the policy process, seeking strategies that emphasize cooperation, flexibility, local knowledge and results. Through practical and innovative approaches to complex problems, Reason seeks to change the way people think about issues, and promote policies that allow and encourage individuals and voluntary institutions to flourish. Reason Foundation is a tax-exempt research and education organization as defined under IRS code 501(c)(3).
About the Howard Jarvis Taxpayers Foundation
The Howard Jarvis Taxpayers Foundation (HJTF) is the research, education and legal arm of the Jarvis organization. Given the high cost of litigation, an ordinary taxpayer is rarely in a position to challenge the validity of an illegal tax levy. In appropriate cases, HJTF provides legal representation without cost to other taxpayer advocacy organizations, homeowners and individual taxpayers where the precedence established confers a broad public benefit to other citizens. In addition to its valuable legal work, the Foundation funds studies on tax and economic issues and works to provide constructive alternatives to the tax-and-spend proposals from our state legislators. Information gathered by the Foundation is available to the Howard Jarvis Taxpayers Association and other groups to assist in developing taxpayer-protecting legislation and in preparing initiative measures.