Why the COTCE Proposals Are Bad News for the Jobs California Needs Most

Shortly after finishing my testimony before the Assembly Revenue and Taxation Committee’s hearing on the recommendations of the Commission on the 21st Century Economy (COTCE) yesterday, I landed on an example for driving home the point that the Commission’s proposed business net receipts tax (BNRT) is bad for the jobs that we can all agree California needs most: Those that pay high wages and provide good benefits to workers and their families.

Take the following example of two hypothetical widget firms. Both employ 100 workers, earned $1.0 million in profits last year, and purchased $1.0 million of raw materials from other firms. Acme Widget paid its workers, on average, $40,000, while Beta Widget paid an average of $80,000 in wages and benefits. Acme’s gross receipts were $6.0 million, with net receipts of $5.0 million. Beta Widget had gross receipts of $10.0 million and net receipts of $9.0 million.

Under the COTCE’s proposed 4 percent BNRT (we’ll leave aside for a moment whether this rate would be sufficient to offset the revenues lost from the COTCE’s proposed elimination of the corporate income tax and most of the state’s sales tax and reduction in the personal income tax), Acme Widget – with its lower paid workforce – would pay $200,000 in tax, while Beta – which paid higher wages and offered full-family health benefits – would pay $360,000. Under the state’s current corporate income tax, both firms would pay an identical $88,400 on their $1.0 million in net income.

We’ve previously blogged a lot on the Commission’s shift of the cost of public services from high- to middle- and low-income households. But there’s something equally, if not more, wrong with a tax system that penalizes businesses that seek to do right by the workers they employ.

— Jean Ross

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