Why California Is Broke, and What We Can Do About It

Last week, I wrote an article arguing that Governor Jerry Brown should push for a progressive tax that would raise enough revenue to prevent any cuts to needed social programs. I stressed that California has a $1.9 trillion economy, but its current state budget is less than $86 billion. The main reason why that state has so few resources is that its tax system is plagued with loopholes and corporate tax breaks.

To understand how the wealthiest corporations in the world avoid paying taxes, we can look at a recent list of Fortune 500 businesses paying little or no taxes:

  1. Exxon Mobil made19 billion in profits in 2009. Exxon not only paid no federal income taxes, it actually received a $156 million rebate from the IRS, according to its SEC filings.

  • Bank of America received a $1.9 billion tax refund from the IRS last year, although it made $4.4 billion in profits and received a bailout from the Federal Reserve and the Treasury Department of nearly $1 trillion.
  • Over the past five years, while General Electric made $26 billion in profits in the United States, it received a $4.1 billion refund from the IRS.
  • Chevron received a $19 million refund from the IRS last year after it made $10 billion in profits in 2009.
  • Boeing, which received a $30 billion contract from the Pentagon to build 179 airborne tankers, got a $124 million refund from the IRS last year.
  • Valero Energy, the 25th largest company in America with $68 billion in sales last year received a $157 million tax refund check from the IRS and, over the past three years, it received a $134 million tax break from the oil and gas manufacturing tax deduction.
  • Goldman Sachs in 2008 only paid 1.1 percent of its income in taxes even though it earned a profit of $2.3 billion and received an almost $800 billion from the Federal Reserve and U.S. Treasury Department.
  • Citigroup last year made more than4 billion in profits but paid no federal income taxes. It received a $2.5 trillion bailout from the Federal Reserve and U.S. Treasury.
  • Conoco Phillips, the fifth largest oil company in the United States, made $16 billion in profits from 2007 through 2009, but received $451 million in tax breaks through the oil and gas manufacturing deduction.
  • Over the past five years, Carnival Cruise Lines made more than $11 billion in profits, but its federal income tax rate during those years was just 1.1 percent.
  • 57 Fortune 500 corporations have their home headquarters in California, and they all do business in this state, yet it is unclear if any are paying their full taxes here. For instance, Apple computer avoided paying most of its state taxes to California by moving its investment wing to Nevada, and Intel has done the same by locating its finance department (Intel Capital) in the Cayman Islands. Thus, as California has led the way in the high-tech global economy, its corporations have used new technologies to simply avoid paying state and federal taxes. In fact, many of these corporations use a loophole in our tax code to declare their profits in countries that charge a low tax rate. So even if companies stay in California and use the schools, police, and roads of the Golden State, they claim that their revenue was generated in another country.

    While the Republicans want to argue that the real issue is excessive governmental spending, it should be clear that the main problem is that wealthy individuals and corporations are simply not paying their fair share. The solution then for California and the rest of the country is to get rid of corporate and millionaire welfare. Of course, people will argue that companies will simply move to places charging lower taxes, but many studies have shown that corporations like to be located in places with good schools and infrastructure, they simply don't want to pay for anything. A progressive tax in California would make everyone pay their fair share.