Election Section

It’s Time to Re-Think Taxation By GAR SMITH

Friday May 13, 2005

In the afterglow of April 15, it may be timely to consider adopting the Willy Sutton approach to tax-collection. As the wily bank-robber once observed: If you want to prosper in your chosen career, you have to go “where the money is.” 

In 2004, with California foundering in red ink, Gov. Schwarzenegger squared his already rectilinear jaw and proclaimed: “Everyone has got to come out and help!” The Governor then proposed a $15-billion bank loan to buy some fiscal breathing room.  

This “Debt before Dishonor” approach didn’t appeal to State Assembly Majority Leader Wilma Chan (D-Oakland). She had a better idea.  

Picking up Arnold’s cry, “Everyone has to help,” Chan and her Democratic colleagues fashioned “a fair and modest way to raise revenues”—a bill to tax the wealthiest two percent of the state’s residents. Under California’s progressive tax rate, someone with a taxable income of $80,000 pays a 6.8 percent tax rate. Under the Chan Plan, Californians with more than $130,000 in taxable income would pay a 10 percent tax while folks with more than $520,000 taxable bucks would pay 11 percent. 

Chan projected that this modest tax-the-very-rich scheme would generate “approximately $3 billion a year and would be in effect for five years,” offsetting the state’s $15-billion budget shortfall without incurring the whopping costs of bank-loan interest. 

Critics snorted that no Republican governor would consent to such a plan, but Chan had a ready response: “The state has adopted this very solution before. During the fiscal crisis of the early 1990s, Governor Pete Wilson signed legislation to enact this same proposal.” And Republican Gov. Ronald Reagan signed not one but two top-bracket tax increases. 

Unfortunately, the Chan Plan never got traction, as an epidemic of cold-feet swept through the Senate. But all is not lost. If we’re not ready to tax the rich, maybe it’s time to get tough on corporations. 

In 2001, the California Budget Project discovered that 52 percent of the 519,000 corporations doing business in California (including 46 big-name, billion-dollar firms) paid only the token $800 franchise tax. Some paid no taxes at all while others received million-dollar refunds from the state.  

Would you like know the names of these corporate tax-dodgers? Sorry, you’re out of luck. By law, state officials are prohibited from revealing which corporations are tax-avoiders. But the resourceful sleuths at the California Budget Project managed to compile a short-list of these tax scofflaws. Among the more familiar names: Walt Disney, Fluor, Health Net, Hewlett-Packard, and Cypress Semiconductor. And then there’s Computer Sciences, which made $1.29 million in profits in 2001, paid no taxes, and received a $31 million rebate check from Sacramento. 

California isn’t alone. A 2003 study by Citizens for Tax Justice (CTJ) found that between 2001 and 2003, 232 of America’s largest corporations routinely under-reported their earnings to avoid paying state taxes. In 71 percent of the cases CTJ studied, these mega-corps managed to avoid state taxes entirely “despite telling their shareholders they made $86 billion in pre-tax U.S. profits.” The top California state-tax avoiders fingered by CTJ included Toys ‘R’ Us, AT&T, Boeing, Eli Lilly, Merrill Lynch and ITT Industries. 

The Institute on Taxation and Economic Policy estimated that, had these companies paid the average 6.8 percent corporate state tax, America’s towns and cities would have had an additional $67 billion to lavish on fire-fighters, police, teachers and hospitals over the three-year period. Instead, in state after state, corporate taxes have steadily declined over the past 30 years. 

Everybody who reads the business section knows that U.S. banks and oil companies are having banner years. But where are the stories on how much of their record profits these corporations contribute to the upkeep of the Golden State? In tough financial times, there is no excuse for protecting the identities of corporate tax-scofflaws. There should be public disclosure on which corporations are paying their fair share and which ones are shirking their public duty. It’s time for a full, public accounting. 


Gar Smith is editor emeritus of Earth Island Journal and associate editor of Common Ground magazine.?