Vote No on Proposition 39: Multistate Business Taxes

This is the tenth part of a series of posts analyzing California’s propositions:

More Ballot-Box Budgeting

Proposition 39 is a typical example of ballot-box budgeting. Tax X, spend on Y. In this case, X equals multistate businesses and Y equals clean energy.

The proposition raises taxes on multistate businesses in California through a subtle method. Right now those businesses can choose between two ways of calculating their taxes. They can be taxed based on the number of sales, property, or employees the business has in California (the “three-factor method”). Or they can be taxed based only on the number of sales (the “single sales factor method.”)

Proposition 39 changes it so that multistate businesses can only be taxed through the latter method. This would raise their taxes.

Of the money raised, $550 million is given to green energy for five years. In the post on Proposition 34, this blog argued:

This is the type of terrible policy which the proposition system is famous for. One hundred million in spending by Proposition 34, ten billion in spending by a proposition here, five billion in tax cuts by a proposition there – it’s no wonder California has trouble balancing its budget. Ballot-box budgeting like this is disgraceful.

The same logic holds here. This blog would be more inclined to support the proposition if the revenue raised was left for the legislature to direct as it willed. As it is, the proposition’s micromanagement of its funding is just another reason to vote against the proposition.

An Easy No

Fundamentally, California voters don’t have enough information to know whether or not this proposition is a good idea. Is it a good idea to make it so that multistate businesses pay taxes based on the “single sales factor method” rather than being able to choose between the “single sales factor method” and the “three-factor method”? Beats me.

The logic against Proposition 39 is similar to that against Proposition 31, and it’s worth repeating that logic here. If this policy change were proposed in the legislature lawmakers and their staff would probably have access to studies, surveys, and analyses on whether or not it would be better for the general welfare if multistate businesses paid taxes only based on the “single sales factor method” or if they paid taxes based on a choice between the “single sales factor method” and the “three-factor method”. Those studies and analyses would probably run up into the dozens of pages.

But voters just have two pages of all-caps arguments for or against this change (the legislative analysis makes no judgement on which policy is wiser). For such a major change, it’s not enough.

The legislature should be setting tax policy, not the proposition system.

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