The California Budget: Consumers lose, Big Business Wins

by Richard Holober, Executive Director, Consumer Federation of California

The budget deal approved today is painful for all Californians except the big businesses who won new tax breaks.

Californians have been hearing for months that at a time of fiscal crisis, we have no choice but to cut services and raise taxes to close the $42 billion budget gap.

The deal reported today does not call on all California taxpayers to share in the sacrifice. Working Californians will face billions in higher sales tax and income tax rates. But businesses win about one billion dollars in new tax breaks.  $700 million in corporate tax cuts result from a recalculation of how California taxes the profits of big multinational corporations.   According to the Senate Analysis, the windfall to multinational corporations, and the revenue loss to California will eventually grow to $1.5 billion.

This corporate tax break at a time of fiscal disaster and big tax increases on average working families is proof that we must reform our budget approval process. Our state requires a two-thirds super-majority to OK a budget. This empowered a small minority of lawmakers to hold the state hostage to their corporate giveaway demands.

The Consumer Federation of California had called on lawmakers to join every other oil producing state in imposing a severance fee on oil extracted from our state. The oil severance fee would have produced $800 million to $1 billion a year in needed revenues. It would have been targeted at big oil companies including Exxon Mobil and Chevron. These companies reported record profits in 2008. This proposal, called for by Governor Schwarzenegger and legislative Democrats was turned down by the Republican minority. In its place, a new tax break was granted to many of California’s largest businesses.

Similar proposals to change the tax calculations for multinational corporations have repeatedly failed in the legislative process. This year, without the benefit of public hearings and public scrutiny, a massive big business tax cut was jammed through as part of a budget deal. This is not tax fairness. It is redistribution of income away from workers and consumers and into the pockets of big corporations.