Tax hike for California college scholarships: It’s a false hope

In its April 23 editorial, “A college bargain for Californians,” The Times ponders what the state might do with “an extra billion dollars a year.” After considering various possibilities, the editorial acquiesces to a proposal from Sacramento that even it admits is flawed.
But before you spend this money, you have to collect it. To reap the extra billion dollars, The Times believes it “makes sense” to ignore the will of California voters and punish companies whose only apparent crime is being headquartered outside California.
The proposal, by Assembly Speaker John Perez (D-Los Angeles), is AB 1500, which he calls the California Middle Class Scholarship Act. It would impose a $1 billion tax hike on “out-of-state” businesses to provide college financial aid for families earning between $80,000 and $150,000 a year.
The plan targets a 2009 tax formula change, which only became effective last year -- after California voters rejected a November 2010 ballot measure aimed at repealing it.
The speaker claims that “we’re closing that loophole that only benefits out-of-state corporations at the expense of the rest of us.” More accurately, Perez’s bill would eliminate the primary tax formula companies used for many decades before 2009, regardless of whether they were based in California. 

In other words, there is no “loophole” to close. The Legislature added a second method in 2009 for companies to use to offset California’s growing unemployment rate. But rather than give this new plan a chance to work and provide a degree of tax certainty for California job creators, our legislators seem to have collective amnesia.
I was a member of the Legislature in 2009, and I remember very clearly that many Democrats joined with Republicans in support of targeted tax relief for job creators. California was facing a massive budget crisis and historically high unemployment rates. What’s now being called a tax loophole was actually a common-sense, bipartisan solution to incentivize companies to grow and add desperately needed jobs.
The reality is that many “out-of-state” companies, including manufacturers, retailers and others, have significant investments in California and employ millions of Californians. Like it or not, imposing a billion dollars in new taxes -- without offsetting tax cuts -- would tempt these companies to downsize their California presence, costing many jobs.
The speaker’s plan attempts to solve a problem created by unwise state budgeting. When Californians lack jobs, revenue falls. When revenue falls, college fees go up and politicians cut higher education funds. Imposing new taxes on struggling job creators would only make this cycle worse, increasing college fees further.
As if this wasn’t bad enough, remember there is no guarantee the speaker’s plan would generate the money he claims.  Tax increases rarely return the amounts promised; when companies lay off workers or shut down facilities, state revenue declines.
Many college students could embark on a higher education based on the speaker’s promise only to learn an important lesson: They’ve been duped.
Don’t get me wrong -- education is vital to the future of our state, and a degree significantly improves one’s chances of finding a job. But California’s problem, which stems from our high-tax and onerous regulatory climate, is that there simply aren’t enough jobs.
Rising college fees are a symptom, not the source, of California’s problems. To solve the real problem, we need to attract middle-class jobs back to California rather than drive them away. Raising taxes -- even on the “out-of-state” companies -- won’t help.
The bottom line is that the speaker’s proposal would create more problems than it attempts to solve. It wouldn’t create middle-class jobs in California; instead, his tax hike would educate the future workforces of Arizona, Oregon and Texas. California’s hostile business climate means college graduates must leave our state to find quality jobs, and that’s not good for anyone.


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George Runner represents District 2 on the California Board of Equalization. For more information, visit

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