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Prop. 24 study says repeal of corporate tax breaks will save jobs

California will lose jobs if a trio of corporate tax breaks are allowed to go into effect, according to an economic analysis released by the Proposition 24 campaign on Wednesday.

This finding is sharply at odds with figures from the No side, which released a study two weeks ago saying the repeal of these tax breaks could cost the state hundreds of thousands of jobs.

The newer study goes against the conventional wisdom that tax breaks create jobs. The report was done by Peter Fisher, a professor emeritus of Urban and Regional Planning at the University of Iowa and Research Director of the Iowa Policy Project. It acknowledges that if the tax breaks are allowed to stay in effect, they would create 4,300 private sector jobs. But these jobs would come at the cost of 22,000 public sector jobs, creating a major net drain on the economy.

“There is no indication that it would do absolutely anything for the state economy,” said Jean Ross, director of the liberal-leaning California Budget Project, during a conference call on the report on Wednesday morning. “We’re seeing a lot of small businesses used in the No campaign, but a very small percentage of the dollars would go there.”

The No side released their own study on Sept. 15. Led by Joshua Rosett, an economics professor at Claremont McKenna College and a senior fellowat the school’s Rose Institute, the study found that eliminating these tax breaks would cost between 146,000 and 322,000 jobs in the 2011-12 fiscal year.

The tax breaks in question were passed as part of budget deals in late 2008 and early 2009. They were needed to get the Republican votes necessary to get to a two-thirds vote threshold. According to the ballot language of Prop. 24, if it passes: “(1) a business will be less able to deduct losses in one year against income in other years, (2) a multistate business will have its California income determined by a calculation using three factors, and (3) a business will not be able to share tax credits with related businesses.”

These seemingly obscure changes would cut $1.27 billion in tax revenues during the first year alone if allowed to stand, according to the Yes side’s study. The changes have been attacked by critics for mainly benefitting large corporations and offering little incentive to keep jobs in California. The most outspoken critic of the changes has been Lenny Goldberg, executive director of the California Tax Reform Association, who said the changes were passed “in the dead of night” without a proper legislative review.

The pair of economists have also taken shots at each other. In his report, Fisher calls Rosett’s job claims in the hundreds of thousands “outlandish.” He also makes the point that state taxes make up a mere 1.8 percent of the cost of doing business in the state.

For his part, Rosett said Fisher fails to compare states that have the types of tax policies that would be in place after the changes with those that don’t. He also said Fisher fails to account for the number of jobs that would have been saved in the economic downturn if companies in California had been able to “carry back” losses in 2008 and 2009 back to 2007, allowing them to get a refund on taxes already paid.

“His numbers are based on broad averages, inaccurately applied,” Rosett said.

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