California's Economic Stimulus

In an economic downturn -- in fact, at anytime -- no one disputes that an individual state lacks the capacity of the federal government to stimulate the economy. Not even Jerry Brown, the governor of America's mega-state, whose economy is larger than all but seven nations, disputes that.

"We've got the plan Obama has been looking for -- and if you believe that, I've got a bridge to sell you, too," Brown said recently. Even in a state as large as California, he continued, "we don't have the instruments of massive fiscal capacity that the United States government has."

Whatever the limits of stimulus in one state, Brown today unveiled a plan to help California -- which has the highest unemployment rate of any state except next-door Nevada -- create jobs. He asked the legislature to enact a proposal that would help start-ups and reward businesses that employ Californians. His plan would create an employer tax credit of $4,000 for every new employee hired in state, for which firms with up to 50 employees would qualify. It also calls for a 4 percent states sales tax exemption for startup manufacturers and a 3 percent state sales-tax exemption for existing manufacturers, as well as clean energy, software, and biotech companies that operate in-state facilities. (The current state sales-tax rate is 7.25 percent.)

As California, like 48 other states (all but Vermont), is constitutionally required to balance its budget, Brown is proposing to fund his program by increasing the sales-tax liability of companies that manufacture goods out of state and then sell them in California. Not surprisingly, California's taxophobic Republicans, who were Tea Partyniks before the term was invented, oppose Brown's plan because it hikes taxes on those out-of-state manufacturers. "It takes money from one set of businesses and redistributes it to another set of businesses," said state Senator Bob Huff, the ranking Republican on the Senate Budget Committee, in explaining his opposition.

Huff is right: Brown's proposal takes money from companies that manufacture goods elsewhere and sell them in California and gives it to companies that employ Californians to make those goods. It has a built-in bias toward helping the California economy. A more scandalous policy for California government can scarcely be imagined.

Republicans can block Brown's plan -- it takes a two-third vote in each house of the legislature to raise taxes, and Republicans constitute just over one-third of the delegations in each house. The Republicans may not be able to cling to their one-third toe-holds much longer, however. The state's first-ever nonpartisan redistricting commission last week unveiled the state's new legislative and congressional districts, and it's distinctly possible that the Democrats will win enough legislative seats in 2012 to push the Republicans below the one-third threshold.

This is no small irony: It was the Republicans, chiefly then-Governor Arnold Schwarzenegger, who authored the successful ballot measure that stripped the legislature of its redistricting powers and assigned them to a non-partisan commission. But Republican registration has been dropping like a stone in California during the past decade -- the current numbers have Democrats at 44 percent of registered voters, with Republicans at a bare 30, and this in a state where independent voters tend to favor the Democrats. Hispanics totaled 38 percent of the state's population in last year's census (non-Hispanic whites totaled a mere 40 percent), and the Republicans' hard-line opposition to immigrants has effectively reduced their electoral prospects to levels we customarily associate with Trotskyist parties.

In any event: If Republicans do keep Brown's plan from passing, Democrats will be able to run against GOP members of the state Senate and Assembly next year by noting, correctly, that the Republicans opposed tax policies that rewarded companies for creating jobs in California, and opted instead for tax policies that rewarded companies that made their goods elsewhere. One more reason why the Democrats should clean up in next year's California elections.

POSTSCRIPT: Not to speak ill of Steve Jobs, but one California-based company that won't be able to take advantage of Brown's policy is Apple, which, of course, makes all of its products in China.

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