Bamboozled by Business Tax Breaks : Economy: Across-the-board corporate relief is the wrong response to threats to move jobs out of California.

Last year, Intel Corp. decided to locate a manufacturing facility near Albuquerque, N.M., after being wooed with lavish public benefits. Intel claimed that high California taxes drove them to New Mexico, starting a legislative stampede that led California to open gaping new loopholes in the corporate tax.

So, after the Legislature enacted a half-billion-dollar-per-year investment tax credit, Intel located another manufacturing facility outside California--this time in Arizona. Tax considerations, said the company, had nothing to do with the location decision.

Are California’s lawmakers the least bit angry with such a betrayal? Did the Wilson Administration express dismay that, after we gave away the store, Intel went to another state anyway? Not at all. In fact, Speaker Willie Brown is in the process of pushing yet another break, this time for CEOs and managers, based on the threat that Taco Bell might move its headquarters to Texas. Call it the “run for the border” tax break.

Who lost Intel? Why might Taco Bell move from Laguna Beach to Plano, Tex.? The facts of the issue are beside the point, because they demonstrate that California is highly competitive with regard to taxes.

The Utah State Tax Commission does a regular study of Western states’ business-tax burdens. California comes out lowest among these states, slightly below Idaho. Washington and Arizona are the highest, yet both continue to be held up as examples of a healthy growth environment.

Does Taco Bell need a tax break for its headquarters? The Washington, D.C., Board of Trade studied combined state and local business tax burdens in major cities across the country. The tax burden for a business-services corporation in San Francisco and Los Angeles is--surprise--at the bottom of 14 cities, at less than half that of Chicago, New York and Phoenix, and well below other Western cities including Seattle, Dallas, Houston and Denver. And, as Los Angeles’ post-civil-disorder Revitalization Zone tax benefits kick in, the numbers will plummet even lower.

If taxes matter, California should be doing well in this interstate competition.

But, as Intel told us by choosing Arizona, taxes are at best a very minor consideration in location decisions. A study done by Peat, Marwick showed that state and local taxes, combined, represent less than 2%, and often closer to 1%, of total costs of doing business. So tax differences--and tax breaks--make a highly marginal impact on location decisions.

Most of these breaks give tax relief for activity that would take place anyway. The revenue impact of last year’s investment tax credit is a perfect example. We know for certain that the oil industry plans $6 billion to $8 billion in new investment over the next few years for their refineries, not only because they said so, but also because they are required to do so by state and federal law to produce reformulated gasoline. That $8 billion will generate several hundred-million dollars in tax breaks for multinational oil companies--a major share of the expected revenue losses from the new tax break--and will not generate one new job that would not otherwise be forthcoming.

In the case of Speaker Brown’s Taco Bell bill, not one but three “headquarters” in California would qualify for lavish tax breaks on executive salaries and lease payments--a measure so broad that virtually any major corporate office would receive a break. That’s wherethe argument that the state will gain revenue, put forward by business proponents as well as the Los Angeles Times, is completely flawed. If California gives tax breaks to every regional corporate office in the state, as the bill would require, the costs will greatly overwhelm the ostensible benefits.

Taco Bell has apparently been offered a significant package to relocate to Texas. Faced with clearly predatory attempts by other states, California may need some tools to respond.

While proposals to provide targeted breaks have been offered in the Legislature, California’s business leaders have sought instead across-the-board tax relief--a scattershot approach that is least likely to have any impact.

If we really care about revenue, it’s far better to be in a position to help one targeted company than to gut the entire corporate tax in the process. Instead, it’s been a one-directional stampede to blow big loopholes in the tax system whenever there’s a corporate threat to move.