California Democrats Seek Tax Boost as Battle Looms

From Bloomberg.com:

Democrats who control California’s Legislature said tax increases are needed to help close a $24 billion deficit, setting up a battle with Republicans that may leave the state short of cash next month.

Speaker of the Assembly Karen Bass, a Los Angeles Democrat, said higher taxes and fees are needed instead of all $16 billion in cuts proposed by Republican Governor Arnold Schwarzenegger. His proposed reductions would eliminate entire welfare programs and leave 1 million children without health insurance. Democrats yesterday proposed a $15 automobile license fee and said they may consider a 9.9 percent per-barrel levy on oil produced in the state.

The Democrats’ stance sets the stage for a confrontation with Republican lawmakers because California law requires a two- thirds vote to approve tax increases. While Democrats control both chambers, they are six votes short of a supermajority. State Controller John Chiang has warned lawmakers since May that they had until June 15 to fill the gap or the state will find itself unable to pay all its July bills.

“The budget that we will be voting for on the floor will be a balanced approach and it will be a combination of cuts and new revenues,” Bass told reporters in her office yesterday.

The state’s projected cash shortage absent a fix to next year’s budget led Standard & Poor’s late yesterday to place California’s credit rating, already the lowest among U.S. states, under review for a possible cut.

“Although we continue to believe the state retains a fundamental capacity to meet its debt service, insufficient or untimely adoption of budget reforms serve to increase the risk of missed payments in our view,” S&P analysts led by Gabriel Petek in San Francisco said in a news release.

Fitch Ratings on May 29 revised California’s credit-rating outlook to negative, indicating a longer-term likelihood of reduction if lawmakers don’t act quickly to solve the latest budget problems. California’s full faith and credit pledge is rated A by S&P and Fitch and a comparable A2 by Moody’s Investors Service, five steps below the top investment grade.

California taxable 30-year Build America Bonds paying 7.55 percent traded at about 93 cents on the dollar today to yield 8.18 percent, down from 94.7 cents and 8.02 percent yesterday, according to Municipal Securities Rulemaking Board trade data.

The Democrats’ new $15 vehicle registration fee would raise about $300 million a year that would be used to finance the operation of California’s 275 state parks. Anyone driving a vehicle with California license plates would be allowed to enter state parks without paying an entrance fee. Schwarzenegger wants to eliminate all funding for parks.

The latest tax proposal comes after six Republicans broke ranks with their party in February and approved $14 billion in tax increases to end a four-month impasse over how to close what was then a record $42 billion deficit. To fill that gap, lawmakers also agreed to cut $15 billion in spending.

NC Legislature Approves Tax Law Change For Apple

From BusinessWeek.com:

The General Assembly on Monday approved changing the state's tax law with hopes it will result in Apple Inc. announcing a $1 billion investment within days.

The Senate voted 40-8 to go along with conditions including that the company invest in a rural area. The final round of debate lasted less than a minute.

Sen. Tom Apodaca, R-Henderson, urged rejection. He had previously lambasted business recruiters and lawmakers for focusing on high profile, big companies and ignoring small businesses. Sen. David Hoyle, R-Gaston, said small companies near the site of a promised data center would benefit by providing services.

"There is a lot in this for small businesses," Hoyle said.

The legislation was sent to Gov. Beverly Perdue, who was expected to sign the bill into law quickly.

An Apple spokeswoman said the company had no comment.

The bill would give the qualifying company a break on state corporate income taxes. The tax break could be worth about $46 million in the next decade, assuming the lone, unnamed company projected to qualify reaches its $1 billion investment target within nine years of starting, according to a memo by legislative fiscal staffers.

The Associated Press reported last month that the unidentified company being targeted by the tax break is Apple, which is seeking a site for its East Coast data warehouse. These facilities, also called server farms, are huge, climate-controlled computer warehouses that can process vast flows of data needed as business functions and everyday life increasingly depend on Internet traffic.

Data centers are heavy users of power and water and are usually spread over large spaces. Google Inc. opened one last year near Lenoir in the western North Carolina foothills. In 2007, state and local governments offered Google an incentives package worth up to $260 million over 30 years, one of the largest in state history, to land the $600 million data complex.

If the Apple project also remained active for 30 years, its server farm could save more than $300 million on its corporate taxes, based on legislative staffers' estimates.

Sites in western North Carolina also are under consideration for the Apple facility, including in Catawba and Cleveland counties. Both counties posted April unemployment rates of about 15 percent.

Construction of the Apple site would be expected to employ hundreds of workers for more than a year, but the initial full-time work force of the data center would total fewer than 100, lawmakers said last week.

If ultimately approved by the General Assembly, the change would mean a significant tax break only to the rare company that meets all the conditions. The conditions are a sign the Legislature remembers a bad decision 21 years ago when the formula for calculating corporate income tax was changed to attract a single big company.

Qualifying companies would have to invest $1 billion within nine years, locate in one of North Carolina's poorest counties, provide health insurance, meet a wage standard, and forego other state grants or tax breaks. If a company met those criteria, it would benefit from the change if it had a relatively large share of its nationwide property and payroll in the North Carolina, but a small share of U.S. sales in the state.

The last time North Carolina changed how it calculates corporate income taxes was in 1988, and it was done to satisfy RJR Nabisco's plans to build a large cookie plant in Wake County and create 600 high-paying factory jobs.

Nabisco never built the plant. But the revised calculation meant a tax break that wasn't targeted, but primarily helped manufacturers, said Greg Radford, director of the state Revenue Department's corporate tax division. He said he could not estimate how much companies have saved as a result of the 1988 revision, which remains in effect.

Climate Change Legislation To Generate $624 Billion In Tax Revenue

Earlier today I came across this interesting article on Examiner.com discussing the revenue Barack Obama’s climate change legislation could bring to the US in the next 10 years. I’ve included a snippet of their post below, but the full text can be found here.

The climate change legislation proposed by the Obama administration would generate $624 billion in revenue for the federal government over the next 10 years according to the administration's 2010 budget proposal. The cap-and-trade plan – or cap-and-tax plan as some call it – would place additional tax burdens on industry in the form of carbon emission fees.

Proponents see the measure as a way to help reduce carbon dioxide and greenhouse gasses which they view as the primary cause of global warming. Opponents on the other hand argue that those increased taxes will simply be passed on to consumers and result in a loss of jobs at a critical time in our weak economy.

According to the White House the bulk of the revenue would be returned to consumers by making permanent the tax credit Congress enacted earlier this year as part of the stimulus package. That credit resulted in a savings of $8 per week for the average American taxpayer. Other parts of the revenue would fund research and development of clean energy and climate science.

President Obama is hoping to have a deal in place on the climate change legislation before the Intergovernmental Panel on Climate Change’s (IPCC) meeting in Copenhagen in December. However, the measure is receiving no backing from Republican lawmakers and many Democrats are no longer in support of the legislation. John Dingell, a Democratic Michigan Congressman said, “Nobody in this country realizes that cap-and-trade is a tax – and it’s a great big one.”

Those opposed are concerned about the cost to consumers as industry will almost certainly pass on the cost of meeting the requirements of the cap-and-tax. The U.S. Chamber of Commerce recently studied the measure and determined it would cost each household $1,400 per year and result in 1.9 million in job losses. Other estimates have ranged to as high as $3,000 per household and all far exceed the $8 per week tax credit the legislation would give consumers.

CBPP Criticizes New Legislation

The Center on Budget and Policy Priorities recently criticized legislation that the United States Senate is currently considering. Below is a snippet from the article, you can read the full text at CBPP.org.

Legislation that the Senate is considering in response to the ongoing foreclosure crisis (H.R. 3221) includes a provision that would allow non-itemizers to deduct property taxes up to an amount of $500 for an individual and $1,000 for a couple. It would deny the deduction, however, to residents of any locality that raises its property tax rate between the time of the enactment of the legislation and December 31 of this year. An exemption from this denial is granted to residents of some — but not all — localities that raise property tax rates, depending on how and why the rates are raised.

By preventing localities from raising tax rates to help compensate for shrinking property tax revenues resulting from declining home values, the provision could force many localities to cut police, schools, and other vital public services. It also would improperly interfere with local taxing powers and set a precedent of discriminating among localities on the basis of their method of enacting local property tax changes. Finally, it likely would be impossible for IRS to administer this complex provision.