BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 235 HEARING: 5/15/13
AUTHOR: Wyland FISCAL: Yes
VERSION: 5/8/13 TAX LEVY: Yes
CONSULTANT: Miller
Includes seven provisions to reduce taxes in the personal
income, corporate and sales and use taxes.
Background, Existing Law and Proposed Law
I. Corporate and Income Tax: general
Existing state and federal laws provide various tax credits
designed to provide tax relief for taxpayers who incur
certain expenses (e.g., child adoption) or to influence
behavior, including business practices and decisions (e.g.,
research credits or economic development area hiring
credits). These credits generally are designed to provide
incentives for taxpayers to perform various actions or
activities that they may not otherwise undertake.
For a ten-year period ending December 31, 2003, California
law provided a partial (General Fund only) sales and use
tax exemption for purchases of equipment and machinery by
new manufacturers, and income and corporation tax credits
for existing manufacturers' investments (MIC) in equipment
(SB 671, Alquist, 1993). The bill provided an exemption to
the state portion of the sales and use tax for sales and
purchases of qualifying property, and the income tax credit
equal to six percent of the amount paid for qualified
property placed in service in California. Qualified
property was depreciable equipment used primarily for
manufacturing, refining, processing, fabricating or
recycling; for research and development; for maintenance,
repair, measurement or testing of qualified property; and
for pollution control meeting state or federal standards.
The MIC had a conditional sunset date which required that
the provisions sunset in any year following a year when
manufacturing employment (as determined by the Employment
SB 235 -- 5/8/13 -- Page 2
Development Department) did not manufacturing employment by
more than 100,000. On January 1, 2003, manufacturing
employment, less aerospace, did not exceed the 1994
employment number by more than 100,000 (it was less than
the 1994 number by over 10,000), and so the MIC and partial
sales tax exemption sunset at the end of 2003.
Since then, over 19 bills have been introduced to
reinstate, expand, or modify the exemption and/or MIC, but
all failed to pass.
II. Sales Tax
Existing law does not currently provide special tax
treatment to firms that purchase equipment and other
supplies; business pay sales and use tax on their purchases
as any consumer would.
The state sales and use tax rate is 7.50% as detailed
below. Cities and Counties may increase the sales and use
tax rate up to 2% for either specific or general purposes
with a vote of the people.
-------------------------------------------------------------
| | | |
| Rate | Jurisdiction | Purpose/Authority |
| | | |
|-------+--------------------+--------------------------------|
| | | |
|3.9375%|State (General |State general purposes |
| |Fund) | |
| | | |
|-------+--------------------+--------------------------------|
| | | |
|1.0625%|Local Revenue Fund |Realignment of local public |
| |2011 |safety services |
| | | |
| | | |
| | | |
|-------+--------------------+--------------------------------|
| | | |
| 0.25% |State (Fiscal |Repayment of the Economic |
| |Recovery Fund) |Recovery Bonds |
| | | |
|-------+--------------------+--------------------------------|
SB 235 -- 5/8/13 -- Page 3
| | | |
| 0.25% |State (Education |Schools and community college |
| |Protection Account) |funding |
| | | |
|-------+--------------------+--------------------------------|
| | | |
| 0.50% |State (Local |Local governments to fund |
| |Revenue Fund) |health and welfare programs |
| | | |
|-------+--------------------+--------------------------------|
| | | |
| 0.50% |State (Local Public |Local governments to fund |
| |Safety Fund) |public safety services |
| | | |
|-------+--------------------+--------------------------------|
| | | |
| 1.00% |Local (City/County) |City and county general |
| | |operations. Dedicated to county |
| | |transportation purposes |
| |0.75% City and | |
| |County | |
| | | |
| |0.25% County | |
|-------+--------------------+--------------------------------|
| | | |
| 7.50% |Total Statewide | |
| |Rate | |
| | | |
-------------------------------------------------------------
Many items are fully exempted from the sales and use tax in
this state (prescription drugs, food, poultry litter) but
only a handful are partially exempted from the sales tax at
the rate of 5.5%; specifically: Farm equipment and
machinery; Diesel fuel used for farming and food
processing; Teleproduction and postproduction equipment;
Timber harvesting equipment and machinery; and Racehorse
breeding stock.
SB 235, beginning January 1, 2014, provides a 3.9375% state
sales and use tax exemption for a "qualified person's"
purchase of manufacturing, research and development, and
construction. The bill defines a qualified person pursuant
to the North American Industry Classification System
(NAICS) to include a trade, business or affiliate primarily
engaged in manufacturing.
SB 235 -- 5/8/13 -- Page 4
SB 235 defines "fabricating," "manufacturing," "primarily,"
"process," "processing," "refining," "research and
development," and "useful life." The bill also specifies
the tangible personal property included or excluded from
the partial exemption.
III. Research and Development Credit
Existing federal law allows taxpayers a research credit
that is combined with several other credits to form the
general business credit designed to encourage companies to
increase these activities.
The research credit is determined as the sum of:
1. 20 percent of the qualified research expenses
incurred during the taxable year that exceeds the base
amount, and
2. 20 percent of the amount paid or incurred during
the taxable year on research undertaken by an energy
research consortium.
Corporate taxpayers, in addition to the two components
listed above, are allowed to include 20 percent of expenses
paid to fund basic research at universities and certain
nonprofit scientific research organizations.
For taxable years beginning before January 1, 2008, instead
of determining the credit based on 20 percent of qualified
research expenses in excess of a base amount, a taxpayer
could elect to calculate the credit using a different
method, known as the "Alternative Incremental Credit"
(AIC). Taxpayers claiming the AIC instead use graduated
percentages of 3 percent, 4 percent, and 5 percent, as
applied to a percentage of expenses in excess of a
specified percentage of average annual gross receipts.
This method is no longer available for federal purposes.
To qualify for the credit, research expenses must be
conducted in the US, be experimental or laboratory research
and pass a three-part test:
1. Research must be undertaken to discover information
SB 235 -- 5/8/13 -- Page 5
that is technological in nature and relate to
biological, engineering, or computer sciences.
2. Substantially all of the research activities must
involve experimentation relating to quality or to a
new or improved function or performance.
3. The application of the research must be intended
for developing a new business component such as a
product, process, technique, formula, or invention.
Ineligible expenses include: seasonal design factors;
efficiency surveys; management studies; market research;
routine data control; routine quality control testing or
inspection; expenses incurred after production; development
of any plant, process, machinery, or technique for the
commercial production of a business component unless the
process is technologically new or improved.
California conforms to the federal credit with the
following modifications:
The state credit is not combined with other
business credits.
Research must be conducted in California.
The credit percentage for qualified research in
California is 15 percent versus the 20 percent for the
federal credit.
The credit percentage for basic research in
California is limited to corporations (other than S
Corporations, personal holding companies, and service
organizations) and is 24 percent versus the 20 percent
federal credit.
Gross receipts is modified to take into account
only those gross receipts from the sale of property
held primarily for sale to customers in the ordinary
course of the taxpayer's trade or business that is
delivered or shipped to a purchaser within this state,
regardless of freight on board point or any other
condition of sale.
SB 235 -- 5/8/13 -- Page 6
The AIC is available for taxable years beginning on
or after January 1, 2008, but the percentages of 3
percent, 4 percent, and 5 percent are reduced to 1.49
percent, 1.98 percent, and 2.48 percent, respectively.
SB 235 increases the Research & Development credit for tax
years beginning on or after January 1, 2014 to:
Increase the credit rate to 20 percent for
qualified research.
Continue to allow the election of the AIC.
For taxable years beginning on or after January 1, 2010, SB
235 modifies the California rates to use the federal
percentages rules for the AIC.
IV. Jobs Credits
California allows two hiring credits: (1) The New Jobs
Credit and (2) The Enterprise Zone Hiring Credit.
1. New Jobs credit enacted in 2009 to qualified employers
equal to $3000 for each net increase in qualified full-time
employees hired during the taxable year. The credit is
limited to small businesses with 20 or fewer employees. As
of April 6, 2013, the total number of Personal Income Tax
and Business Entity returns claiming the New Jobs Tax
Credit was 27,417 and the amount of credits claimed totaled
$155.5 million. The cut-off date will be the last day of
the calendar quarter within which the FTB estimates it will
have received timely filed original returns claiming the
credit that cumulatively total $400 million.
2. Enterprise zone hiring credit . Employers inside an
enterprise zone may claim a tax credit of 50% of the wages
paid to a qualified employee in the first year, 40% in the
second year, 30% in the third year, 20% in the fourth year,
and 10% in the fifth year, up to 150% of the minimum wage.
Businesses or consultants submit applications to qualify
employees to zone managers, who grant the firm or
consultant a voucher certifying eligibility if the employee
qualifies. The firm then claims the credit on its tax
SB 235 -- 5/8/13 -- Page 7
return. Qualified employees include individuals:
Eligible for job training programs
Eligible for most social welfare programs
Economically disadvantaged
A "dislocated worker," as defined.
A disabled individual who is eligible or
enrolled in a state rehabilitation plan
Service connected veteran
Ex-offender
Member of a federally recognized Indian
tribe
Employers may also claim the hiring credit for residents of
Targeted Employment Areas (TEAs), in addition to the
criteria listed above. Cities and counties managing
enterprise zones may draw TEAs to contain census tracts
where 51% or more of the individuals are low or moderate
income, meaning 80% of the area wide, or countywide,
median. In other words, local agencies draw TEAs to
include communities where only half of the residents are
actually or somewhat low-income, but anyone living in one
qualifies his or her employers for the hiring credit
regardless of their own economic status or employability.
TEAs need not be contiguous to, or drawn within the borders
of the Enterprise Zone.
Taxpayers can also receive a certification qualifying an
employee for an enterprise zone hiring credit at any time.
Taxpayers may certify employees who worked for them in past
years, then submit claims for refunds for previous taxes
paid to FTB based on those certifications under
California's general four year statute of limitations for
amending past returns, a practice known as
"retro-vouchering." In general, tax law allows taxpayers
to amend their returns for four years. SB 974 (Steinberg,
2010) and AB 1139 (Perez, 2009) proposed to repeal the TEA
criterion and "retro vouchering," although neither bill
advanced to the Governor's Desk.
SB 235 grants a tax credit for the first $6,000 of wages as
follows:
25 percent for each employee that is employed for
at least 120 hours, but less than 400 hours.
SB 235 -- 5/8/13 -- Page 8
40 percent for an employee that is employed for at
least 400 hours.
Wages included in the calculation of any other deduction or
credits otherwise allowed are excluded from the calculation
of this credit. SB 235 defines its terms including
"Qualified employee" to mean any of the following, to be
documented by the Employment Development Department (EDD):
o A recipient of CalWORKs benefits.
o A parolee.
o A veteran, as defined in Section 980 of
the Military and Veterans Code.
o An eligible recipient of unemployment
insurance benefits or currently receiving
unemployment insurance benefits.
o A person on probation.
SB 235 specifies the functionality of the credit including
the voucher provisions.
SB 235 also revises the New Jobs Credit from 2009 by
eliminating the following:
The requirement that the employer have 20 or fewer
employees
The specified cap of $400 million and all
provisions related to tracking the cap
FTBs obligation to post utilization data on its
website
The requirement that the credit may only be filed
on the original timely filed return
SB 235 -- 5/8/13 -- Page 9
V. Net Operating Losses (NOL)
Federal law generally defines an NOL as the excess of
deductions allowed over the gross income. When a taxpayer
has an operating loss for a taxable year, the operating
loss that may be deducted in subsequent years is called an
NOL. An operating loss occurs when a taxpayer's allowed
deductions exceed their gross income for that year.
Federal law provides, in general, that an NOL can be
carried back 2 years and forward 20 years and deducted.
Special rules are provided for the carryback of NOLs
relating to issues such as specified liability losses,
casualty or theft losses, disaster losses of a small
business, and farming losses.
In general, a California taxpayer calculates its NOL in
accordance with federal rules. NOLs attributable to
taxable years beginning on or after January 1, 2008, may be
carried forward 20 years. For NOLs attributable to taxable
years beginning before January 1, 2013, NOL carrybacks are
unavailable. California conforms to the federal NOL
carryback rules for NOLs attributable to taxable years
beginning on or after January 1, 2013, with the following
modifications:
1. An NOL may be carried back only 2 years. (Federal
law has special rules that in some cases allow an NOL
to be carried back for a longer period).
2. The amount of an NOL carryback attributable to
taxable year 2013 is limited to 50 percent of the NOL.
3. The amount of an NOL carryback attributable to
taxable year 2014 is limited to 75 percent of the NOL.
4. The amount of an NOL carryback attributable to
taxable year 2015 and thereafter is 100 percent of the
NOL.
NOL deductions were suspended for taxable years 2008
through 2011. For taxable years 2010 and 2011, the
suspension applied to taxpayers with modified adjusted
gross income of $300,000 or more.
SB 235 -- 5/8/13 -- Page 10
SB 235 increases the allowable carryback percentage from 75
percent to 100 percent for NOLs attributable to taxable
year 2014.
VI. Capital Gains
The Internal Revenue Code provide the rules governing the
tax treatment of capital gains and losses, identifying
holding periods, and determining the gain or loss from the
sale or exchange of a capital asset. In general, property
held for personal use or investment purposes is a capital
asset. Examples of capital assets include
held-for-investment stocks and securities as well as an
owner-occupied personal residence. Property used in a
taxpayer's trade or business is not a capital asset. When a
capital asset is sold or exchanged, the difference between
the selling price and the asset's adjusted basis, which is
usually what was paid for the asset, is a capital gain or
loss.
Under federal law, there are circumstances when a
percentage of a capital gain may be excluded from a
taxpayer's gross income. For example, federal law allows a
capital gain exclusion from the sale of a personal
residence. An individual may exclude up to $250,000 of
gain, while a married couple filing a joint return may
exclude up to $500,000.
Complex rules allow non-corporate taxpayers to apply
maximum tax rates from 0 percent to 28 percent to the
taxation of a net capital gain, whereas for corporate
taxpayers, capital gains are taxed as ordinary income tax
rates.
Generally, capital gains and losses are classified as
long-term or short-term, depending on how long the property
was held before it was sold. Current federal law provides
that property held more than one year will result in
long-term capital gain or loss. If the property is held
less than a year, the capital gain or loss is short-term.
These distinctions are essential to arrive at the correct
amount of net capital gain or loss.
"Net capital gain" means the excess of the net long-term
capital gain for the taxable year over the net short-term
capital loss for such year. When calculating the net
SB 235 -- 5/8/13 -- Page 11
capital gain.
California law generally follows the federal rules for
defining capital assets, identifying holding periods, and
determining the gain or loss from the sale or exchange of a
capital asset. Capital gains are taxed as ordinary income
tax rates under personal income tax law.
SB 235 excludes any gain from the sale of an asset from
gross income.
VII. Depreciation
"Depreciation" is the term generally used to describe any
method of recovering (commonly referred to as "expensing")
the cost of an asset, across its useful life, roughly
corresponding to normal wear and tear. For tax purposes,
"depreciation" is an income tax deduction that allows a
taxpayer to recover (i.e., "expense") the cost or other
basis of certain property that is used in a business or
used in an income-producing activity. Most types of
tangible property other than land are depreciable, such as
buildings, machinery, vehicles, furniture, and equipment.
Likewise, certain intangible property, such as patents,
copyrights, and computer software, are also depreciable.
Taxpayers may also depreciate capital improvements to
property that they lease.
Depreciation begins when a taxpayer places property in
service for use in a trade or business or for the
production of income. The property ceases to be
depreciable when the taxpayer has fully recovered the
property's cost or other basis or when the taxpayer retires
it from service, whichever happens first. There are
complex state and federal rules on expensing and
depreciation.
SB 235 requires all California taxpayers to depreciate
property using the following recovery periods:
For property placed in service on or after January
1, 2014, the applicable recovery period is one-half of
the recovery period otherwise allowable under state
law, or one-half- of the recovery period allowable
under federal law as in effect on January 1, 2009
SB 235 -- 5/8/13 -- Page 12
For property placed in service before January 1,
2014, taxpayers are allowed either to use the
remaining recovery period to depreciate that property
under the recovery period already being used, or elect
to use a recovery period of one-half of the recovery
period otherwise allowable under state law, or
one-half of any recovery period allowable under
federal law as in effect on January 1, 2009, for the
remaining depreciable costs of such property.
State Revenue Impact
The FTB and BOE provide the following estimates:
--------------------------------------------------------------------
| ($ in Millions) |
--------------------------------------------------------------------
|----------+-----------+-----------+------------+------------+---------|
| Fiscal | 2013-14 | 2014-15 | 2015-16 | 2016-17 | 2017-18 |
| Year| | | | | |
|----------+-----------+-----------+------------+------------+---------|
|Sales & | -302 | -642 | -686 | | |
|Use Tax | | | | | |
|----------+-----------+-----------+------------+------------+---------|
|Research | - $150 | - $90 | - $180 | - $190 | - $190 |
|Credit | | | | | |
|----------+-----------+-----------+------------+------------+---------|
|New Jobs | - $900 | - $3,600 | - $5,000 | - $4,600 |- |
|and | | | | | $4,800|
|Targeted | | | | | |
|Employees | | | | | |
|Credit | | | | | |
|----------+-----------+-----------+------------+------------+---------|
|NOL | $0 | - $1 | - $13 | + $4 | + $4 |
|Carryback | | | | | |
|----------+-----------+-----------+------------+------------+---------|
|Accelerate| - $1,000 | - $2,200 | - $2,000 | - $1,500 |- |
|d | | | | |$1,300 |
|Depreciati| | | | | |
|on | | | | | |
|----------+-----------+-----------+------------+------------+---------|
|Capital | - $4,500 | - $3,500 | - $5,500 | - $5,500 |- $6,000 |
|Gains | | | | | |
|Exclusion | | | | | |
SB 235 -- 5/8/13 -- Page 13
|----------+-----------+-----------+------------+------------+---------|
|Total | - $6,802 | - $10,142 | - $13,686 | - $12,000 |- |
|Impact | | | | |$12,000 |
|(Rounded)*| | | | | |
| | | | | | |
----------------------------------------------------------------------
*May not add due to rounding.
Comments
1. Purpose of the bill . The author provides the following
statement in support of the bill: "There are nearly two
million Californians out of work, and California's
unemployment rate is among the highest in the nation. In
addition, California has a struggling economy and a
business environment that discourages economic growth. As
such, California needs bold reforms. The Legislature must
enact policies that provide incentives for job creation
that entices businesses to hire new employees. SB 235 will
encourage job creation and investment here in California by
enacting a sales and use tax exemption for manufacturing
equipment, eliminating the state tax on capital gains,
establishing hiring credits for new employees, increasing
the research and development credit, shortening
depreciation schedules, and expanding the current net
operating loss deduction rules."
2. Where's the proof ? The author's intent is to spur
economic development and increase the productivity in the
state under the assumption that lower taxes create jobs and
increase the state's economic output. Most economists
agree that the best tax policy is to lower the rates and
broaden the base thereby creating a more equitable system
in general. They also agree that targeted tax credits
rarely work and are a poor substitute for direct subsidies
that create a multiplier effect for the disadvantaged.
Since at least 1936, when Cambridge University economists
Arthur Pigou and Nicholas Kaldor debated the use of wage
subsidies to alleviate unemployment, academics and policy
analysts have been arguing over the idea. In 1977,
Congress enacted the New Jobs Tax Credit, offering a tax
benefit to any company that increased its payroll by more
than 2 percent. One study said that it worked and
increased employment at some firms by almost 3% but all
SB 235 -- 5/8/13 -- Page 14
others said it didn't work and in some cases reduced
employment because "demand wasn't there." The conclusions
on state only tax credits are even gloomier and less likely
to have any tangible result. A report by the Pew Center in
April, 2012 on the states that have tax credits say that it
is impossible to know if they work because half the states
that have incentives have not taken the basic steps needed
to know whether their incentives are effective. The
Committee may wish to consider whether SB 235's provisions
are clearly thought through in terms of their long term
impact, efficacy and outcomes.
3. The economist speaks . Again, most economists agree
that the best tax policy for any state is to reduce rates
and broaden the base and not to target tax credits. While
still a costly provision, the idea is that a product is
only taxed once, when sold, instead of taxing all inputs
and outputs as well. The only provision of SB 235 that is
commensurate with economic theory is the sales and use tax
exemption for manufacturing (with amendments). On April
24th, this Committee passed SB 394 (Correa), which exempted
manufacturing equipment from the state share of the sales
tax. The Committee may wish to amend that bill to delete
all other provisions and only include the sales and use tax
exemption for manufacturing.
4. The sun also sets . Some bills granting tax benefits
set forth an economic indicator or series of economic
indicators that its author expects will improve as a result
of a tax credit. For example, bills heard by the Committee
exempting manufacturing equipment from the sales tax have
used:
Increased employment for manufacturing, research
and development, and associated industries,
Siting for new and expanded manufacturing and
research and development facilities in this state,
Capital investment in manufacturing equipment and
all other tangible personal property.
As the Pew Foundation points out, it's impossible to know
if tax credits work because states do not collect data.
The Committee may wish to amend SB 235 to include both
performance measurers and a modest sunset.
5. Hindsight is 20/20 . The Research and Development
SB 235 -- 5/8/13 -- Page 15
provisions of SB 235 increase the AIC rates, retroactively,
to January 1, 2010. This could result in numerous
taxpayers filing amended returns to claim the higher rates
for returns with open statutes of limitation. Taxpayers
argue that tax agencies retroactively send notices of
proposed assessments but do not argue that a retroactive
tax break is inappropriate.
6. Mean what you say . SB 235 leaves many terms undefined
including:
"Wages" and "qualified wages" are not defined which
will lead to disputes with taxpayers and complicate
its administration.
The jobs credit does not specify the length of time
the taxpayer may take the credit for the employee
which could lead to an indefinite credit for each
employee.
The depreciation provisions are silent on how and
when an election would be made to change the remaining
recovery period. The provision is also silent on
whether the election would be irrevocable. The
absence of guidance could lead to disputes with
taxpayers and would complicate the administration of
this provision.
The term "property" should be clarified to mean
"tangible personal property"
The bill goes beyond manufacturing for the sales
and use tax exemption and should be restricted to
business primarily engaged in manufacturing.
The bill does not define "affiliates" which could
lead to abuse and more taxpayers than intended
receiving credits.
7. Not so fast . SB 235 restricts wages included in the
calculation of the credit to wages paid for services
performed in California. This provision could raise
constitutional concerns under the Commerce Clause of the
United States Constitution because it could appear to
improperly favor in-state activity over out-of-state
activity. On August 28, 2012, (Cutler v. Franchise Tax
Board), the Court of Appeal issued a unanimous opinion
holding that California's Qualified Small Business Stock
statutes were unconstitutional. Specifically, the Court of
Appeal held that the statutory scheme's requirement of a
large California presence in order to qualify for an
investment incentive discriminated against interstate
SB 235 -- 5/8/13 -- Page 16
commerce, and therefore violated the federal dormant
commerce clause. While no court decision has yet
invalidated, as a general matter, state income tax credits
that provide an incentive for in-state activity, i.e.,
property placed in service in the state, employees employed
in the state, etc., targeted tax credits such as the one
proposed by this bill may be subject to constitutional
challenge. The Committee may wish to consider the
Constitutionality of in-state tax credits so as to mitigate
legal challenges in the future.
8. The goose that laid the golden egg & Martin Helmke .
Proponents of capital gains reductions argue that the state
has been entirely too dependent on high income individuals
to fund the state's personal income tax revenue. In 2011,
the top 10-percent of income earners paid more than 78.5%
of the personal income tax revenue. This "boom and bust"
cycle along with the budget requirements for spending has
created volatility in the state's general fund. The
question of volatility, however, is not black and white. A
long-time Revenue & Taxation committee consultant, Martin
Helmke compared the state's volatility to the parable of
the goose that laid the golden egg. Every few years
California's goose would lay a golden egg and we all enjoy
it; when the goose does not lay the golden egg, we speak
about killing it. Does it make more sense to kill the
goose or simply to save the eggs?
9. How high can you go ? California affords taxpayers the
highest Research and Development Credit in the nation
arguably because our competitive advantage lies in advanced
research. Only two other states come close to California's
percentages, Massachusetts and New York but each state has
strict limits and sunsets whereas California has neither
performance measures associated with the credit nor a
sunset.
Massachusetts allows corporate taxpayers to claim an excise
tax credit for qualified expenditures that are used for
increasing research activities in Massachusetts. The
credit is 15 percent of the basic research payments and 10
percent of qualified research expenses conducted in
Massachusetts. The credit sunsets in 2018. New York
allows a credit for qualified emerging technology
companies. The credit is equal to 18 percent of the cost
SB 235 -- 5/8/13 -- Page 17
of research and development property, 9 percent of the
qualified research expenses, and the cost of qualified
high-technology training expenditures, limited to $4,000
per employee, per year. The credit is limited to $250,000
per taxable year. The Committee may wish to consider if it
makes sense to increase the richest tax credit in the state
without evaluating its efficacy for economic development,
job creation and innovation.
10. Which side are you on ? Proponents of measures such as
SB 235 are generally considered "supply side economists"
and claim that if the top income earners invest more into
the business infrastructure and equity markets, it will in
turn lead to more goods at lower prices, and create more
jobs for middle and lower income individuals. Proponents
argue economic growth flows down from the top to the
bottom, indirectly benefiting those who do not directly
benefit from the policy changes. However, others have
argued that "trickle-down" policies generally do not work,
and that the trickle-down effect might be very slim.
Opponents to measures like these are more closely related
to Keynesian economics which often criticize tax cuts for
the wealthy as being "trickle down," arguing that tax cuts
directly targeting those with less income would be more
economically simulative. Keynesians generally argue for
broad fiscal policies that are direct across the entire
economy, not toward one specific group. Supply-siders, on
the other hand, argue that tax cuts for the rich promote
investment, (basically the rich choosing where their money
goes, and then getting dividends in return) which in turn
promotes growth. The Committee may wish to consider-rather
than choosing an economic theory to follow-what tax reform
should look like in California, what principles to pursue,
what data to collect and construct a new system
accordingly.
11. Have we met before ? SB 1239 (Wyland, 2009) was almost
identical to this bill and failed passage in the Senate
Revenue & Taxation Committee.
Support and Opposition (5/9/13)
Support : Arroyo Grande & Grover Beach Chamber of Commerce;
SB 235 -- 5/8/13 -- Page 18
BOE Member George Runner; California Chamber of Commerce;
Vista Chamber of Commerce; .Industry Manufacturer's
Council.
Opposition : California Teachers Association.