The Golden State Gives Out the Gold

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California traditionally avoided the lavish subsidy packages that other states offer to large corporations to attract investment. In the Good Jobs First Megadeals report last year, there were only two California entries, and they both involved local rather than state money.

In a dramatic reversal, the Golden State is now giving out big pots of gold. The California legislature recently awarded cash-flow
special corporate tax breaks
worth more than $420 million each to two of the country’s largest military contractors.

The state also boosted the pot of money available for film tax credits from $100 million to $400 million. And it may put up a substantial amount to try to win the contest for the huge battery plant planned by Tesla.

The first of the defense megadeals went to Lockheed Martin in connection with its role as a major subcontractor for Boeing on a $55 billion contract the Air Force will award for next-generation stealth bombers.

When the legislature approved the subsidy deal in July, Northrop Grumman, the only known competitor for the bomber contract, cried foul play because the tax break gave Lockheed an unfair advantage.  To appease the company the legislature passed a similar subsidy bill for Northrop last week that was then signed by Gov. Jerry Brown.

Like other defense contractors, Lockheed and Northrop know that to attract political support for their projects, they need to spread their operations around. And in doing so, they manage to get state and local subsidies as well. The Good Jobs First Subsidy Tracker shows that Lockheed has received $134,349,564 in subsidies in 18 states.  Northrop Grumman has received $499,567,863 in subsidies in 9 different states.  Northrop’s most recent subsidy is a $471 million package from Florida. (This megadeal is included in the total and will be added to our database in a forthcoming update.)

Until now Lockheed and Northrop received only modest subsidies in California, mostly in the form of training assistance. California clearly wants to revive its shrinking aerospace industry, but it is unclear that the big giveaways are the way to go.

Defense contracting is a particularly risky bet these days.  With calls for cuts in the military budget coming from both the left and the right, the future of the new stealth bomber program is anything but certain.  If the program goes on the chopping block, California will have nothing to show for its new embrace of megadeals.

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2 Responses to “The Golden State Gives Out the Gold”

  1. Brent Pittman Says:

    The IBD editorial (8/18/14) “The GOP Needs New ‘Contract” states that “We’re all ears” to “other worthy initiatives (that) could be added to a 21st Century Contract with America”. Other more worthy initiatives should include creating good paying American jobs with good benefits for American citizens by repealing all sales/consumption taxes & replace the lost revenue with an import tax/tariff on imported labor (India & the Philippines) & manufactured goods (Mexico & Communist China, North Korea & Vietnam). Burn both the federal & state individual income tax codes & give each income receiving American citizen a $50000 standard deduction while keeping current dependent exemptions. Then tax the next $50000 at 2%, the next $50000 at 4%, the next $50000 at 6%, etc. until the federal & state budgets are balanced. Collect impact fees. NO corporate welfare. NO illegal aliens. Increase the minimum wage. Burn USA business & corporate income tax codes & place a
    “fair tax”
    (with a standard deduction of $10 Million) on ALL USA business & corporate sales/revenue including foreign after deducting compensation and benefits for American citizens’ labor; except for CEO’s and their immediate subordinates. Tax the second $10 Million at 1%, the third $10 Million at 2%, etc. All standard deductions & exemptions should be adjusted for inflation. Collect an export tax on natural resources/commodities such as oil, natural gas & grains. These strategies will reduce inflation, income inequality, declining real median family income and increase demand for “Made in America”.

    Brent Pittman Brownsburg, IN 46112

  2. Jeff Smith Says:

    This is how the real world works. People with so much money they don’t need anymore have so much power they can still take what’s not theirs and almost everyone treats it as normal. But the well-connected insiders feeding at the public trough is why either your taxes are too high, or do not return enough service, or both.

    It’s also why people invest in weaponeers, since government shields them from market pressures, instead of into useful new ideas like solar power or rapid mass transit.

    If you want to put a stop to such wasteful favoritism, you have to put a stop to government subsidies in general. Make government become a good steward and do hardly anything more than recover our common wealth and disburse the funds equitably to us all.

    What’s our common wealth, the source of our dividend? It’s the value of land and resources. It’s all our spending for locations and natural goods like oil and timber. Those natural assets have a rental value (apart from their downstream value to consumers).

    It’s that rental value we should be sharing — not taxed income or sales or buildings. Weaponeers, too, would get their share, but no more than anyone else. More at Progress.org.

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