Editorials

Trump could force a California tax discussion; that could be good

Tesla workers cheer on the first Tesla Model S cars sold during a rally at the Tesla factory in Fremont. The company has been the biggest beneficiary of a state tax break to exempt sales taxes on manufacturing equipment in the green technology sector.
Tesla workers cheer on the first Tesla Model S cars sold during a rally at the Tesla factory in Fremont. The company has been the biggest beneficiary of a state tax break to exempt sales taxes on manufacturing equipment in the green technology sector. Associated Press file

Donald Trump and the Republican-controlled Congress will start the new year by trying to make good on their promise to cut taxes – and that should prompt Gov. Jerry Brown and legislators to contemplate the state tax system to ensure Californians aren’t on the hook for more than their fair share.

The task won’t be simple. Voters approved Proposition 55, which locks in a state income tax rate of 13.3 percent for the wealthiest Californians, the nation’s highest. That and other voter-approved tax measures could limit legislators’ ability to answer whatever the new administration does.

Sen. Bob Hertzberg, a Los Angeles Democrat, has been working on the notion of lowering sales and income tax rates while expanding taxes on consumption of legal services, accounting and entertainment, among other services. California’s economy increasingly is based on services, giving the idea, which would require voter approval, some appeal.

As part of any tax discussion, state policymakers should look for ways that assist Californians who work for low pay, and people who aspire to be working in good, high-wage jobs.

Brown signed legislation two years ago creating an earned-income tax credit for low-wage workers. California’s version is similar to a federal earned-income tax credit, though less generous. Under the state credit, people who earn $13,800 or less can get rebates of hundreds or thousands of dollars, depending on the size of their families.

Almost 400,000 workers claimed the credit in 2016. But to qualify, they need to be employed. At a minimum, lawmakers should expand the state credit to include people who are self-employed, an acknowledgment that people who go from one gig to the next make up an ever larger segment of the workforce.

Another tax break worth expanding – assuming there’s money – is one that exempts green technology manufacturers from having to pay sales taxes on manufacturing equipment. The credit is intended to help green entrepreneurs start their businesses, and hire workers. For now, it’s capped at $100 million. Assemblyman Kevin Mullin, a Democrat from the Peninsula, introduced a bill last year to lift that cap, but it stalled. He plans to reintroduce it in 2017.

Tesla, the high-end Palo Alto-based electric car manufacturer, has been the biggest beneficiary, receiving $120 million so far, and a board overseen by Treasurer John Chiang awarded it another $47 million last week.

The state bases the awards on a formula that considers benefits to the environment, overall taxes that would be paid, and number of workers who would be employed. By the state’s calculation, the $47 million sales tax exemption on Tesla’s nearly $1.2 billion in equipment purchases will result in nearly $7 million in net benefits.

Chiang’s aides say they work to ensure upstart companies have a fair shot at their share. And that’s important. Tesla is able to hire sophisticated consultants and lobbyists. But it’s hardly General Motors or Toyota. And Elon Musk’s company wasn’t always the player it is now. Few people had heard of Telsa in 2010 when it moved into the NUMMI auto factory in Fremont that was abandoned by GM and Toyota.

It employs 6,000 people in Fremont and plans to hire 3,249 more workers, thanks in part to the sales tax exemption on robots and other equipment needed to produce Tesla’s new, less expensive Model 3.

Brown and other Democrats who control Sacramento make much of their war against climate change. They need to do more to help ensure Californians get their piece of the green economy. This state should be the center of green manufacturing and the jobs that come with it. And the state should use its tax code, wisely, to help make that happen.

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