Proposition 24 – Threat to Corporate Profits or Minor Irritant?

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There is an interesting twist to the argument against Proposition 24, the initiative that would repeal $1.7 billion in corporate tax breaks awarded by lawmakers last year. The repeal is ironic in itself, given that it took place as the legislature was attempting to close a $40 billion budget gap, but that's another story for another time.

Proposition 24 proponents argue that the state simply can't afford to give huge windfalls to major corporations at a time when government is so desperate for revenue. Corporations and their trade organizations counter that the tax reductions are necessary to keep businesses competitive. Without such benefits they might have to go elsewhere.

It turns out that California corporations are doing just fine, thank you, at least when it comes to paying federal income taxes. Last year California-based Google paid 2.2 percent--far from the 35 percent level for large corporations. Bank of America--which does considerable business in California--paid no federal taxes.

That's right, zero.

With income of $36 billion last year, Walt Disney Corporation paid a whopping 6.6 percent. These companies are not unusual. In fact, last year 65 percent of all U.S.  corporations paid no federal income tax!

Many of these same companies and others have contributed to "Stop 24," the campaign organization dedicated to defeating the proposed repeal of the tax break.

It's important to point out that these companies are doing nothing illegal. They are simply using the law to their advantage in most cases by parking their financial activities off-shore in tax haven countries.

Yet this rampant off-shore movement begs a simple question: if the federal tax bite of major corporations is so small, how can they suffer from the tax structure in California?

Let's face it: Nobody likes paying taxes. But in the end taxes go for schools, oads, police and fire protection, and the panoply of services necessary for a healthy society and its successful businesses.

In the end, it comes down to the fundamental question of who should pay taxes and in what amounts? The outcome of the Proposition 24 battle will provide part of the answer to that question.     

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