Capitol Alert: Prospects already dim for Jerry Brown's corporate tax plan

By David Siders and Torey Van Oot
dsiders@sacbee.com

The tax and jobs plan Gov. Jerry Brown proposed this morning was immediately assailed by Republicans as "creative packaging," and even Senate President Pro Tem Darrell Steinberg -- who stood beside Brown at the podium for the announcement -- said he doesn't expect it to pass.

"I have no expectation that Republicans are going to put up votes for this," said Steinberg, D-Sacramento. "It would be surprising to me. Pleasantly, but surprising nonetheless."

At issue is Brown's proposal to eliminate a tax benefit that allows companies to pick the less expensive of two tax formulas when calculating their tax liability. In a 2009 budget deal, California became one of only two states to let companies make that choice each year.

The Democratic governor said at a Capitol news conference that the allowance is "perverse and outrageous." He proposed using money generated by eliminating the benefit, about $1 billion, to fund a sales tax exemption for purchases of manufacturing equipment.

But changing the corporate tax structure would require at least a two-thirds vote in the Legislature, and Brown is unlikely to find the two Republican votes needed in each house. Republicans blocked a similar proposal in budget talks earlier this year, and the two sides appear no closer than they were then.

"It's creative packaging, but we've had the opportunity to do something on jobs all year," said Sen. Bob Huff, R-Diamond Bar. "So, it's interesting that the biggest overture is packaging a stinky tax increase with things for the business community. Job creation ought to stand on its own, not saddle businesses, and by extension, consumers, with over a billion dollars in taxes."

Though the plan is expected to fail in the Legislature, it provided Democrats a forum to press Republicans on jobs. It also reopened a months-old debate about taxes as Brown considers possible tax increases to propose in an election next year.

"Does the minority party fear Grover Norquist and the bloggers more than they care about creating jobs in California, is really what it is," Steinberg said.

In response, the California Republican Party said Brown was violating his campaign pledge not to raise taxes without voter approval, and Senate Republican leader Bob Dutton, of Rancho Cucamonga, blamed Democrats for California's 12 percent unemployment rate.

"Two million Californians remain out of work," Dutton said in a prepared statement. "What counts are results, not talk."

Brown said his proposal does not violate his tax pledge. Addressing the method by which taxes are calculated, he said, is "quite different than raising the income or sales tax."

Brown proposed a nearly 4 percent state sales tax exemption for startup companies and a 3 percent state sales tax exemption to existing companies on manufacturing equipment purchases.

Brown also proposed expanding an employer tax credit to more companies and increasing the amount per employee to $4,000 from $3,000.

"I know, before, a similar move failed," Brown said. "But I'm going to ask the Republicans this time to join with me, join with the business community, in freeing up money that is encouraging job flight and making it available for job growth."

He said he has had conversations with some Republicans about the plan, but he declined to identify them.