Taxes and jobs in California

Lawmakers often try to create jobs by offering tax breaks to employers, but it’s hard to tell whether those breaks actually lead to more hiring or whether they merely reward companies that were going to hire anyway. That’s one of the challenges facing Gov. Jerry Brown, who’s calling for $1 billion worth of broad new tax breaks for businesses, and for advocates of more subsidies for film production. In both cases, the goals are commendable but the methods are open to question.

Brown’s tax proposal starts by eliminating an ill-conceived corporate tax break that gives multi-state businesses two options for calculating how much they owe California: one that favors companies with little investment but high sales here, and one that favors companies with extensive investment but low sales. Following other states’ lead, Brown would require most businesses to use the latter formula, which would give them more incentive to hire and invest here.

That’s a sensible move, but GOP lawmakers rejected it when Brown proposed to use the billion dollars it would raise to narrow the budget gap. Now Brown is backing a bill (SB 116) by Sen. Kevin de Leon (D-Los Angeles) to use much of that revenue to finance other tax breaks: one that expands a tax credit for small businesses that add employees, and another that slashes the sales taxes on manufacturing equipment.

The proposed $4,000 tax credit, which would expire at the end of 2014, may not be large or durable enough to persuade a small business to add workers for the long run. But a bigger problem with the bill is that the credits would be available to any small business that adds full-time workers, including those that were going to expand without the state’s help. If a company is succeeding and growing on its own, why should the state subsidize it?

A similar question surrounds the $100 million in annual tax credits the state offers low- and moderate-budget film and television production. Supporters of the subsidies want lawmakers to extend them until July 2015, one year after they’re due to expire. There’s little doubt that filmmakers have been leaving California in droves , and that the program has kept some itinerant productions from being lured away by the dozens of other states with film subsidies. But with the state’s film office providing the credits on a first-come, first-served basis rather than giving them to productions that had subsidy offers from other states, there’s no telling how many of those shoots would have happened here anyway.

One drawback to targeted tax breaks in general is that they push dollars in the direction favored by government, rather than leaving those decisions to investors and markets — the forces that will ultimately pick winners and losers anyway. If lawmakers want to try to make the state more competitive and attractive to employers, they should find a way to lower the corporate income tax rate — one of the highest in the nation — for all of them.