California cities have given away billions of dollars in tax revenue over the past decade to some of the world’s richest private corporations. These bad deals are robbing residents of the resources they need to pay for police, firefighting, parks and other local services. It’s time to end them.
The deals in question are part of a race to the bottom prompted by a provision in our tax law that allows online retailers to direct all the sales tax they collect in California to a single jurisdiction of their choice.
The online retailers have leveraged this power to extract subsidies from cities desperate for tax revenue. Those cities have agreed to give the retailers half or more of the sales tax paid through the retailer not just by their own residents but by people in every city in the state. Online retailers are reaping as much as $1 billion a year in taxpayer dollars through these kickbacks.
Cities that have agreed to these schemes say they must do them to attract the jobs created in the warehouses used by online retailers. But this is foolhardy. Most of the deals come with no guarantee that jobs will follow. And even when they do, the jobs generally have low pay, few if any benefits, and poor working conditions.
The deals have also prompted cities and counties to rezone land from housing to commercial, and allow the construction of massive warehouses just a few hundred feet from existing homes. That’s the last thing in the world we should be subsidizing with our tax dollars.
That’s why the California Labor Federation supports my bill, Senate Bill 531, to prohibit cities from using new sales tax deals to lure warehouses or online “sales offices” to their jurisdiction.
The League of California Cities, which fiercely defends the prerogatives of local government, has endorsed this bill and said it would be good for cities and their residents across California.
A handful of cities have opposed SB 531 by arguing that their budgets rely on the sales tax revenue collected from other jurisdictions and sent their way by the online retailers.
But my bill would not affect those existing agreements or the distribution of that revenue. It simply prohibits any future giveaways to private corporations in exchange for their business when the money given to the corporations is generated on purchases from outside the city’s boundaries.
Others have said the cities need the tax revenue the warehouses generate to compensate for the truck traffic and pollution these businesses bring. If that is true, then SB 531 is even better for the cities than current law. Under this bill, all the revenue a warehouse generates would go to the host city, rather than just the portion left over after a city rebates a share of it to the retailer.
Economists from across the ideological spectrum agree that giving away the public’s money to a private corporation is a terrible way to try to generate economic growth or jobs. Subsidies do not create economic activity but merely move it from one jurisdiction to another while providing a gift of public money to the corporations for doing something they would have done anyway.
Our cities shouldn’t be gifting money to massively profitable online retailers at the expense of our residents and our neighborhood brick and mortar stores. And our tax laws shouldn’t allow a handful of cities to make these deals at the expense of every other city in the state.
For every city that thinks of itself as a winner in these deals, there are hundreds of losers, including financially stressed cities that can least afford to lose the revenue their residents pay in taxes when they purchase products online.
SB 531 would end this especially insidious form of corporate welfare.