Dan Walters

Dan Walters: Corporate subsidies get a look

If nothing else, it was an interesting juxtaposition of political statements.

On Aug. 18, Senate President Pro Tem Kevin de León issued a statement praising the state’s recently expanded tax credit subsidy for film and television production as a second round of recipients was being announced.

“The new film and TV tax credit 2.0 ensures the well-being of one of our signature industries while boosting California’s economy,” de León declared. “Because its focus is on job creation and the resulting economic benefits, it is a great investment for taxpayers that is already showing dividends as productions from other states are relocating here.”

Exactly one week later, de León’s close friend and political ally, Sen. Ricardo Lara, D-Bell Gardens, asked the Legislature’s Joint Legislative Audit Committee to authorize an assessment of corporate subsidies, particularly tax credits aimed at propping up particular industries.

Lara noted that the tax subsidies amount to more than $5 billion each year and questioned their usefulness.

“California law allows tax credits, deductions, sales and use tax exemptions to provide incentives to taxpayers, or to influence business behavior, but are these credits effective?” he asked. “It is vital that we evaluate existing tax credits and incentives to ensure that they are successfully meeting outlined goals and that California is receiving the highest return on its investment.”

While these tax loophole-based subsidies have been around in one form or another for decades, they appear to have proliferated in recent years.

The film tax credit expansion is one recent example. Another benefits a couple of aerospace companies seeking a big government contract in Southern California. A sales tax exemption for purchases of certain kinds of manufacturing and research and development equipment went into effect last year.

Gov. Jerry Brown has been a champion of such subsidies and has been given modest authority to hand out tax credits on his own, without further action by the Legislature.

These and other subsidies are sought by particular industries, as well as business umbrella groups, on assertions that they would stimulate enough economic activity, including jobs, to justify their cost. Their rationales are similar to those for subsidies in so-called “enterprise zones” or from city redevelopment agencies – until Brown signed legislation to abolish them.

Subsidy recipients and their political enablers always claim big benefits, but the Legislature has been reluctant to put them to the test and repeal those found to be lacking, perhaps because politicians never want to admit they make mistakes.

Given that history, Lara’s request for an audit of the six largest corporate tax subsidies, which the audit committee approved, is long overdue.

In fact, however, it’s just a baby step and should be extended beyond those six biggies to examine all “tax expenditures.”

It should be a precursor to the top-to-bottom reform of California’s tax system it so sorely needs.

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