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Kevin Klowden
Executive Director, Center for Regional Economics and California Center
California and Entertainment & Sports and Global Economy and Regional Economics and Technology
Kevin Klowden is the executive director of the Milken Institute’s Center for Regional Economics and California Center. He specializes in the study of key factors that underlie the development of competitive regional economies (clusters of innovation, patterns of trade and investment, and concentration of skilled labor), and how these are...
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Prop 24 well intended, but wide of the mark
By: Kevin Klowden
October 29, 2010
   
   
Over the past few years, two questions about the California budget have become of great significance: "Where does the revenue come from, and why do we suddenly not have enough of it?" Unfortunately, many lobbyists, interest groups and politicians are mostly concerned about the lack of funds rather than where the money comes from. There is no greater example of this lack of perspective and wisdom than Proposition 24 on the November ballot.

When the initiators of Proposition 24 saw that the Legislature would be giving tax breaks to businesses in the middle of a recession, they immediately focused on the short-term loss of revenue instead of the long-term benefit to the economy. This ballot initiative would roll back two of the few significant pieces of pro-business legislation the Legislature has passed in recent memory.

One aspect of the legislation, scheduled to take effect next year, makes California more competitive with other states in terms of corporate tax burden. Numerous corporations, including some already based in the state, have publicly stated they would like to expand here but can't due to the cost. Because of the upcoming tax changes, several have been actively exploring investments in the state. Revoking the provisions would not only discourage such investments but would also cement in the minds of many more CEOs that California doesn't care about businesses or the jobs they create.

Another aspect allows businesses to write off losses against a company's state tax burden. This is something that has been done successfully on the national level and is geared toward small to mid-size businesses -- the ones California needs to help the most. Attempting to revoke this provision shows clearly that Proposition 24's authors do not understand the ramifications of their initiative. In a time of tightening credit, eliminating tax relief from the sector hit hardest by the recession genuinely threatens the state's ability to recover.

The backers of Proposition 24 mean well. But they don't understand that California, with an unemployment rate nearly three percentage points higher than the national average, can't afford to discourage job growth.