Opinion: More on Mayor Villaraigosa and the state tax code

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Los Angeles Mayor Antonio Villaraigosa grabbed headlines this week with his call for repealing part of Proposition 13. But his speech was really about a comprehensive overhaul of the state tax code, not just exposing commercial property again to the risk of rapidly escalating assessments. (And does anybody think property values are going to skyrocket again in our lifetime? Really?)

In Villaraigosa’s broader vision, there was much for corporate California to like. Consider this passage from the mayor’s speech:

[W]e know that employment tax credits are the most effective way to stimulate private sector job growth in a down economy. Let’s put tax credits for business on the table.

Even further, let’s recognize that our corporate tax has become a Swiss cheese of loopholes and exemptions. Let’s put eliminating the corporation tax on the table.

Read that one again: Villaraigosa says the state should consider eliminating corporate franchise and income taxes.

Here’s why the idea makes sense. Much of the revenue generated by corporations isn’t taxed at the corporate level because it’s spent on employees or invested in equipment. But while those expenses are written off at the corporate level, they still get taxed through individual income and sales taxes.

A company’s profits, meanwhile, may be subject to taxes twice -- for example, at the corporate level if they’re paid to shareholders as dividends, and again at the individual level as dividend income. Corporations may also be taxed twice on the revenue used to pay taxes.

Eliminating corporate taxes would wipe out the double taxation, and it would make California a more attractive place for businesses to locate or expand in. That means more jobs and a more vibrant economy. Granted, the regulatory climate here would remain less inviting than in some other no-income-tax states, such as Texas. But wiping out the corporate tax, whose rates are among the highest in the nation, would certainly help.

Now here’s why the idea doesn’t make sense. Corporations have at least as much interest as individuals do in many of the services the state provides. Services such as public education, law enforcement and environmental protection are funded in part by sales and property taxes, but also in part by income taxes. Every beneficiary of those services ought to contribute to their costs.

This argument shouldn’t stop lawmakers from thinking boldly about corporate tax reform. The goal should be to spur growth, albeit in a way that doesn’t bankrupt the state. Given the panoply of other taxes that corporations and their employees pay, it’s worth it for Sacramento to consider ending corporate franchise and income taxes as part of an overhaul of the code.

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-- Jon Healey