Your eyes on California Government

AUG. 26, 2011

By JOHN SEILER

California’s jobs picture is so bleak even politicians finally have taken notice. Unemployment in the state, after dropping a little earlier this year, jumped in July to 12 percent from 11.8 percent in June.

The national economic picture also is bleak, meaning there will be no hope coming from that quarter. The U.S. Commerce Department, in a new estimate, just reported the national economy grew at a 1.0 percent rate in the second quarter of this year; that’s down from the previous estimate of 1.3 percent for that period, itself pathetic.

That means the dog-eat-dog competition among the 50 American states for the bare bones of economic growth will intensify.

Enter Gov. Jerry Brown and his new California Jobs First plan. It’s just a passel of gimmicks. It includes no comprehensive reform.

“Boosting job growth in California is a top priority, and this proposal is a critical step in making sure the state does everything it can to support local job creation,” he announced. Notice he  said “a top priority,” not “the top priority.” From his actions, it’s clear that his real top priorities are: raising taxes, imposing heavy-handed environmental regulations such as AB 32 and electing a two-thirds Democratic supermajority to the Legislature next year.

The jobs of the suffering working people of California? That’s like a gnat buzzing around his head — something to swat away, but not anything really important.

The only jobs he really cares about are those of the government-sector union workers that put him into office last year.

The Plan’s Three Parts

According to the governor’s Web site, his plan has three parts:

The first part of the California Jobs First plan reforms and expands an underutilized tax credit for small businesses worth hundreds of millions of dollars. To date, much of this funding has been left on the table because too many small businesses were excluded from the credit. The Governor’s plan expands eligibility to small businesses with up to 50 employees (up from 20) and the credit for each new hire will jump from $3,000 to $4,000. These changes will encourage small businesses to hire immediately, as the credit will expire at the end of 2013. 

At best, this would cause only minor jobs creation. The problem is that it’s limited and will expire in just over two years — assuming it’s enacted now. Brown always has been in the government sector, which has short-term priorities: get elected next year.

But in the private sector, businesses plan for at least five years into the future, and often 10 years or longer. So a business knows that, if expansion will be needed in 2014, no help will come from the governor and the state of California.

“These changes will encourage small businesses to hire immediately, as the credit will expire at the end of 2013,” the governor believes. Actually, these changes will be further proof that California isn’t serious about jobs creation, and will encourage businesses to flee for states or countries where jobs-creation incentives are permanent.

Next:

The second part of the California Jobs First plan will give California’s economy an immediate shot in the arm by providing over $1 billion in tax relief to businesses that purchase new manufacturing equipment. The plan exempts start-ups in their first three years from the state portion of sales tax (3.9375 percent) — and provides an exemption of 3 percent for all other firms — on manufacturing equipment purchases. The exemptions will drive innovation, investment and growth by targeting many of California’s most dynamic industries, including manufacturing, biopharmaceuticals, clean energy and software. 

It’s another short-term gimmick. How about, instead, cutting business taxes $1 billion, across-the-board — permanently. Nahhh. That money is needed to fund over-generous pay, perks and pensions for the government-union workers.

Third:

The backbone of the California Jobs First plan is the application of the Mandatory Single Sales Factor (SSF) to all businesses in California. This change levels the playing field by eliminating what Governor Brown called “an outrageous and perverse tax incentive that encourages multi-state businesses to create jobs outside of the state.” This places California-based businesses at a competitive disadvantage and is a disincentive for out-of-state businesses to locate jobs here. 

The revenues produced by closing this loophole will fund the expansion of the small business tax credits for new hires and the sales tax exemption for manufacturing equipment.

It’s a tax increase of $1 billion. Supposedly, it would fund the first two parts of his jobs scheme. Which means there would be no overall tax cut, just a shifting of the tax burden.

It’s also inter-state protectionism. Supposedly, it would hit out-of-state companies to benefit California companies. But that would be just poaching on other states’ turf, provoking retaliation.

It also violates at least the spirit of the Interstate Commerce Clause in the U.S. Constitution, which gives Congress, not any state, complete control over interstate commerce. That clause is a key to American prosperity because it makes our country of 310 million people a vast free-trade zone. Lawsuits would be likely.

In sum, Brown’s California Jobs First plan, if imposed, probably would kill more jobs than it created.

Gov. Sad Sack

Brown’s jobs-scheme announcement even included this endorsement from Assembly Speaker John Perez, D-Los Angeles:

Democrats in the Legislature fought hard all Spring and Summer to enact the Governor’s budget proposals to close the Single Sales Factor loophole and to generate in-state jobs — but the efforts fell short when no Republicans would step forward to support a compromise that would help California businesses.

They’re just obsessed with tax increases. And it shows how out of touch these politicians are that they really believe increasing taxes would create jobs. But as I wrote yesterday, the tax increase earlier this year in Illinois clearly killed jobs.

In his second go-around as governor, Jerry Brown has turned into a sad case. He once advanced such great ideas as a flat tax. The idea of hitting up other states for tax revenue would have been laughed at as ridiculous.

But in 2011, beholden to the government unions, jobs fleeing his misrule, he is reduced to signing a gimmicky budget and, now, proposing a gimmicky jobs plan.

California won’t increase jobs again until it has real, permanent tax cuts and begins repealing anti-business legislation, beginning with AB 32.

Meanwhile, the U-Hauls will continue riding eastward.

Tags: California unemployment, Jerry Brown, jobs, John Seiler, unemployment, unions