As published in the Silicon Valley Business Journal Friday, May 27, 2016.
Incidental taxes threaten California businesses
by Tom Scott, NFIB California State Executive Director
Small businesses in California already face some of the toughest tax and regulatory burdens in the nation. But a recent move by the State Air Resources Board threatens to change the game entirely.
Until this point, businesses could count on a safeguard in the California Constitution which requires a ‘yes’ vote from two-thirds of the Legislature or the voters to impose new taxes. Since its enactment in 1978, this rule has prevented untold numbers of additional tax burdens which would have invariably stifled California’s small businesses. In addition, voters reaffirmed their desire for these protections as recent as 2010 by passing Proposition 26, which extends this 2/3 vote requirement to fees passed by the Legislature.
However, the unelected Air Resources Board is now saying it doesn’t need that two-thirds approval to extract billions of dollars from businesses, as long as it decides the revenue is “incidental to regulation.”
This would set a radical precedent allowing any unelected regulator to levy new taxes on a business or private citizen, without clearing the two-thirds hurdle, if it deems the taxes “incidental” to its regulatory objectives.
The Air Resources Board has already taxed businesses over $3 billion under a law that passed with less than a two-thirds majority – Assembly Bill 32, the Global Warming Solutions Act. This illegal tax impacts not only the businesses being regulated under AB 32, but also their small-business vendors and consumers in the form of higher prices on fuel, food, electricity, and other essentials.
When the Legislature passed AB 32 ten years ago, it charged the Air Resources Board with cutting California’s greenhouse gases down to 1990 levels by the year 2020. A narrow majority vote was sufficient to pass AB 32 because the measure does not authorize new taxes.
But when the Air Resources Board adopted regulations to meet the 2020 goal, evidently the regulations “incidentally” extracted billions of dollars from businesses. These increased costs are now negatively impacting workers, consumers, and various small businesses.
The Board claims it’s not a tax because the billions are merely a “byproduct” of its cap-and-trade regulation which includes auctioning off the right to emit greenhouse gases to the highest bidders. But for small businesses paying more for gas, electricity, and other essentials, it sure feels like a tax.
To make matters worse, the money being collected isn’t even being spent to meet the goals of AB 32. Instead, it’s bankrolling bureaucracy-as-usual government programs and special interests with zero accountability to actually reducing greenhouse gases to 1990 levels by 2020.
Some of the expenditures would take nearly a century to reduce greenhouse gases. Others probably won’t reduce greenhouse gases at all. And most can’t be quantified or measured.
For instance, 25 percent of the “incidental” revenue is earmarked for the High-Speed Rail project, whose own governing authority says it won’t put a dent in AB 32’s 2020 goal. The same is true for another 20 percent earmarked for “sustainable communities.”
It’s time we recognize this unlawful tax and spending spree for what it is.
The Air Resources Board claims it will continue collecting these taxes beyond the AB 32 deadline of 2020. Last month, Legislature’s chief attorney had to step in and clarify that all AB 32 programs must legally come to an end in 2020. Naturally, the Air Board disagrees. They see the multi-billion-dollar “incidental” cash flow continuing indefinitely.
But what’s even more troubling is the Air Board’s method of brazenly skirting taxation safeguards built into the state Constitution, exposing virtually every regulated business in California to further arbitrary taxation by unelected bureaucrats.
The nonpartisan Legislative Analyst has repeatedly advised the Legislature to make the “incidental revenue” legitimate by finally calling for a two-thirds majority vote before spending another dime. Unfortunately, the Governor revised his budget proposal last week to spend the latest $3.1 billion – mostly on pet projects – without a mention of needing the Constitutionally-required two-thirds vote.
Lawmakers need to settle this serious legal ambiguity once and for all. Otherwise, this illegal tax will erode not only the credibility of California’s climate policies, but also one of the last vestiges of taxpayer protections that small businesses and all taxpayers can rely upon.
Tom Scott is the California State Executive Director of the National Federation of Independent Business.
