Prop Zero
The Starting Point for Commentary and Coverage of California Politics

When Fiorina's HP Was Excused From State Taxes

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Today's LA Times includes a must-read story about how the computer giant HP, while U.S. Senate candidate Carly Fiorina was its CEO, received millions in tax refunds in 2005 even though it had already received research-and-development credits to offset its income taxes.

The Times story suggests there's hypocrisy here. Fiorina has been saying the state's tax system makes it hostile to business, even though her company got what amounted to a $13 million gift (described as a sales tax refund) in a year that the company made $2.5 billion in net earnings and that the state government made cuts to public service.

But the real importance of the story is to remind people that California isn't nearly as hostile to corporate taxpayers as is commonly believed. The state is in the middle of the pack among states, with moderate corporate taxes and some of the country's lowest property taxes.

So why do business leaders constantly complain about California being hostile to business? It's not that such complaints are insincere. But the business community and its political supporters, such as Fiorina, have gotten lazy about how they describe the situation. Their complaint about "taxes" is a way of describing a Calfiornia political and regulatory culture that can feel like an extra burden among all the headaches of running a country. California also has stronger labor laws, and enforces them. And I've even heard business leaders describe the state's cutbacks in schools and infrastructure as a "tax" -- because state cuts can mean more costs for them (employees want bigger salaries to join a California company because they intend to send children to public schools; delivery trucks have to be repaired more often because they run on roads that need repair, etc.)

The other factor is comparative. Corporate executives have become accustomed to being constantly wooed by states and countries offering not just low taxes or no taxes but big subsidies. Many of the state's competitors look the other way on regulations. California does some of this too -- as the big tax refund to HP shows. But it's hard for a state like California -- relatively low on state government revenues and high in self-respect -- to win this particular race to the bottom.

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