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  • "We have a loophole," says Tom Steyer."It is worth over $1 billion a year. We should close the loophole."

  • Dan Morain

Dan Morain: Tax campaign targets Capitol's inside game

Published: Sunday, Jan. 29, 2012 - 12:00 am | Page 1E
Last Modified: Sunday, Jan. 29, 2012 - 11:20 am

More often than not, big money players with high-priced lobbyists win the inside game, especially when the stakes reach $1 billion.

Lobbyists for New York-based tobacco giant Altria, Detroit-based General Motors and New York pharmaceutical behemoth Bristol-Myers Squibb converged in the California Capitol in September on the final night of the legislative session.

By midnight when the gavel fell ending the Legislature's work, a bill to close a corporate tax loophole worth more than $1 billion a year to out-of-state corporations was dead.

"It's unbelievable that so many politicians in Sacramento would choose to protect cigarette makers and out-of-state corporations to the detriment of California jobs," Gov. Jerry Brown, who had pushed for the legislation, said in a statement that night.

Outside the Capitol, the rules are not quite the same. At least, that's the bet Tom Steyer is making. He intends to ask voters to do what legislators would not. Starting this weekend, signature-gathers will be asking you to sign a petition to, as they will say, close the out-of-state corporate tax loophole.

"We have a loophole," Steyer told me. "It is worth over $1 billion a year. We should close the loophole, and that is what we are doing."

In or out of the Capitol, one rule applies. Money is vital to political success. That's where Steyer comes in. He founded Farallon Capital Management, a San Francisco hedge fund. Forbes magazine estimates his fortune at $1.3 billion.

He and his wife, Kat Taylor, are part of that select group of 1 percenters who have joined Warren Buffet and Bill Gates by promising half of their fortune to charity.

In addition to funding various environmental projects, Steyer donated $5 million to defeat Proposition 23, the 2010 oil industry-funded initiative that sought to roll back AB 32, the 2006 California law that seeks to force reductions in greenhouse gases.

In his latest endeavor, Steyer intends to help fund the initiative to repeal the corporate tax break. If voters agree, the measure would generate about $1.1 billion in taxes each year from out-of-state corporations that do business in California.

Half the money would go into the state's general fund for various programs. The other half, $550 million a year, would be earmarked for energy conservation efforts at schools and other public buildings. The point is to help provide jobs in a down economy, while meeting energy saving goals contemplated by AB 32. At the end of five years, the entire amount would go into the state general fund.

This is a year when public disgust with tax breaks for the rich runs high. President Barack Obama is making tax fairness central to his re-election effort, while Republican Mitt Romney explains why he paid taxes at a rate of 13.9 percent on income in excess of $21 million in 2010.

A poll by the Public Policy Institute of California showed 68 percent of likely voters support Gov. Jerry Brown's proposed initiative to raise sales and income taxes by $6 billion a year for five years.

In this climate, Steyer's initiative might seem like a winner. But as it stands today, the ballot could be crowded with as many as four measures to raise taxes.

If they all are on the November ballot, "they all die," Allan Zaremberg, head of the California Chamber of Commerce, said, reflecting the wisdom that voters, faced with too many choices, could reject all the measures.

Wealthy Los Angeles civil rights attorney Molly Munger has contributed $800,000 to her initiative, which would raise income taxes primarily on high earners, but also on middle-income people to fund schools.

"We are going forward," Munger told me. Underscoring her seriousness, Munger hired Larry Grisolano to run the campaign. Grisolano is partners with David Axelrod, Obama's senior campaign strategist.

Another initiative would raise the tax rate on people earning $1 million or more per year. A tiny fraction of all Californians, about 13,000 people, would be affected. But those high earners would pay an additional $6 billion a year in taxes.

"We're full steam ahead," said Rick Jacobs, head of Courage Campaign, which is part of a coalition that includes the California Federation of Teachers pushing the initiative. Jacobs said the teachers donated $500,000 on Friday.

Steyer and his consultants, the team that killed Proposition 23, are convinced they will be able to explain to voters that their proposed initiative is different from the others. And it would be.

Of all that ails California, one tax break is not a big deal. But this is one that makes little sense. Whether they knew it or not when they approved the tax break in 2009, lawmakers authorized corporations to choose the method of taxation that would lower their bills the most.

Worse, the deal placed California companies at a disadvantage to out-of-state competitors, and gave them an incentive to locate jobs and factories outside the state.

Ever since it was approved, California companies such as Qualcomm, Cisco, Disney and Amgen pushed to repeal the law. Out-of-state companies such as Philip Morris, General Motors and Bristol-Myers Squibb sought to protect it. For three years running, Kevin de Leon, a Los Angeles Democrat, carried bills to roll it back, without success.

"There is a reason that stuff doesn't get done that is in the interest of citizens," Steyer said.

That reason has to do with the insiders' game. But it's one thing for corporations to send their lobbyists into the Capitol. It's very different to mount a public campaign. Campaigns are messy, nasty and generally don't reflect well on corporations.

California's initiative system is deeply flawed. The vast majority of initiatives deserve to die. But at least the campaigns take place in the light of day.

© Copyright The Sacramento Bee. All rights reserved.

Read more articles by Dan Morain, Senior editor



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