California Election Research: Proposition 39, Tax Increase for Multistate Businesses

Ballotpedia: California Proposition 39, Income Tax Increase for Multistate Businesses (2012)

This measure has far more backers than it has detractors, who all tout it as “closing a loophole” to bring revenue back to California.  Does it?

What It Says

This initiative forces out-of-state businesses to calculate their tax liabilities based on the percentage of their sales in California, and disallows said out-of-state businesses from rearranging and deciding their own tax liabilities to their advantage (whatever that means).

No, What It Actually Says

I . . . am actually not sure.  Some people say it closes a loophole that drastically needs closing and will bring $1 billion in revenue back into California from out-of-state businesses that are currently cheating us out of that money.  Other people say that it will add needless bureaucracy and keep companies from creating jobs in California.  But if the affected companies are already out-of-state businesses, how will this measure lose jobs for Californians that they have no incentive to offer us already?  I mean, I would think that passing 39 would make companies more likely to create jobs for Californians, since these companies would be forced to base in California to give themselves the tax incentives that they’re losing now (and shouldn’t have had in the first place).  This all seems too simple: $1 billion dollars for our state with no downside?  Really??

I feel like I need to know more about economics to get a handle on what’s actually going to happen here.

My Personal Conclusion

As mentioned above, this proposition seems like a no-brainer, except that it’s the sort of thing where I wonder if it could possibly be that simple.

There’s also the added complexity of Is What’s Good for California Good for the Nation?  If tax incentives bring jobs back to CA, presumably that’s taking them from elsewhere in the country.  But California’s in dire straits economically, and it is important for the state to bring in more revenue (and I’d rather that be from taxing large corporations than from taxing citizens).  Also, I know enough economics to know that it’s not a zero sum game; bringing more money into California doesn’t necessarily mean a negative economic impact elsewhere.

I feel like I just don’t know enough economics to know what the actual fallout here will be and whether it will be a good idea in practice.

So I’m going to have to guess.  And considering that CALIFORNIA NEEDS MONEY, is never going to find it the way I would prefer (better financial management, stronger fiscal conservatism), and this way sounds better than hiking all of our individual tax rates (unless it has those hidden costs I fear are lurking somewhere), I’m going to have to vote in favor unless I find out more information.