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Some Good News for California: Use for Business

by Susannah Kopecky, published

It’s been a rough year for California. Between a massive budgetary shortfall, student protests at the university level and a continued exodus of business from the state, things haven’t been quite as rosy as they should have.

The budget remains a mess and college fees are rising for students, but there is hope. If state leaders are able to wrap their minds around the idea that business leaders can be tapped as powerful partners, rather than entities to be taxed, good times may yet be around the corner for California.

On Tuesday, November 24, the Office of the Governor announced that $174,589,024 had been awarded to California from the American Recovery and Reinvestment Act, courtesy of the Department of Energy, for the purpose of fashioning energy efficient “Smart Grid” systems.

It’s not as though private industry has entirely abandoned the Golden State, despite the fact that lawmakers continue to tax business and wealthy individuals, to obtain funding for, well, everything. The Smart Grid project has attracted quite a bit of attention, both statewide and nationally, and may be the perfect example by which to bring business back to the state. According to the Governor’s Office statement, the Smart Grid is notable for the way in which it “delivers electricity from suppliers to consumers using digital technology to save energy, reduce cost and increase reliability and can support more renewable resources,” among other attributes. The Governor’s Office points out that in addition to the federal funding to governmental affiliates (including the LADWP), money was awarded for research for such businesses as Pacific Gas & Electric in San Francisco, Seeo Inc. and Southern California Edison in Rosemead.

According to the Tax Foundation, California’s 2010 Business Tax climate is ranked 48 out of 50; that’s pretty awful. Few will disagree that the state tax form for businesses is convoluted and ridiculous. Just try going through all 53 pages of the “Tax Guide for Small Business,” as offered through the IRS online. Condense the tax code for businesses by the amount of profit. Set a minimum value, under which business are not taxed if they make no profit, and if they earn over the minimum value, tax at half the current rate (whether that is 8.8% or some other seemingly random but lovely percentage, depending on the exact form of business being taxed). State leaders can encourage increased business investment in California by dropping tax bracket percentages for business and by creating a much simpler tax code. This way, businesses which are not profitable in one year, need not worry about getting through the next year, at least tax-wise. This would encourage businesses to stay long-term in California, and would encourage businesses nationwide to come to the Golden State to seek true adventure and success.

Follow the San Francisco-Hollywood model: realizing that Hollywood’s prohibitively high taxation rates were hindering directors, San Francisco recently began to consider ways in which to cut directors breaks and offer tax incentives, to drive more film and television filming to the Bay Area. To drive more businesses back to California, significant perks must be thrown in to sweeten the deal, perhaps including guarantees of government contracts or government-brokered private contracts, if a business reaches successful benchmarks within two years of relocating to California. For every successful contract completed, that business could earn additional tax incentives or tax breaks. Each success would encourage said business to innovate, in order to maximize profits and minimize income loss to taxes.

There is no question that California is an inspirational land with bountiful resources and no paucity of willing, intelligent and talented workers. With the news this Tuesday of the federal funding for Smart Grid and alternative energy funding, it is clear that a drive still exists in California for innovation and the envisioning of a better future. If the governor is truly as serious about encouraging business in California as his commercial suggests, then the tax code must be simplified and businesses must be given true incentives. Sometimes it takes a show of faith, a significant gesture, to reap the greatest rewards. It’s high time California reaped the benefits its citizens are so capable of obtaining.

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