Bay Area Democrat takes The Fresno Bee to task for recent editorial on tax plan

The Fresno Bee’s cheerleading for tax giveaways to wealthy corporations is a disappointing abandonment of the newspaper’s longstanding progressive ideals.

I can only conclude it is based on a misunderstanding of the way online retailers are taking advantage of perverse incentives built into California’s sales tax system.

The estimated $1 billion in annual payments from local governments to these corporations are not “rebates” – as the companies call them and The Bee parrots in its editorial. They are gifts of public funds.

A rebate is a full or partial refund of money a person or company has paid. But online retailers do not pay sales tax. Their customers do. The companies merely collect that money and then, by law, pass it on to the state and to local governments.

When a customer buys a product from a brick-and-mortar store, a portion of the sales tax they pay — a penny on every dollar of the purchase — goes to the local government in which the sale takes place. That money supports police and fire services, roads, parks and other local programs.

But when a Californian buys something over the Internet, the law currently allows the retailer to decide where that purchase took place. The company can then direct the sales tax revenue it collects to that jurisdiction rather than the location where the buyer lives.

The retailers use that power to create a competition among local governments.

Here’s how: They offer to funnel all the sales tax they collect in the entire state to one city, but only if that city agrees to gift the retailer annual payments equivalent to a portion of that tax revenue, typically about half.

The city that makes the deal wins because it collects more sales tax than it would have otherwise. The retailer wins, because it gets potentially millions of dollars in public funds.

But every Californian who lives outside that city loses, because money that they pay in taxes that should be spent in their community instead goes to another city and to the private corporation.

This is especially outrageous because the sales tax is our most regressive tax. Low-income people pay a much larger share of their income in sales taxes than wealthy people do. So the money that Fresno and a handful of other cities are gifting to these corporations is coming disproportionately from our poorest residents.

The Bee justifies these giveaways by falling for the phony argument that the subsidies are needed to promote economic development and job growth. But every credible study of these deals has concluded that this is not true. Even when the deals are tied to the construction of a distribution warehouse, it is almost always the case that the retailer would have built the warehouse somewhere in that region in order to facilitate the quick deliveries that consumers now expect. The tax giveaways simply shift the location of the warehouse from one town to another.

It is also not true that these gifts are helping the struggling cities of the Central Valley. Fresno Mayor Lee Brand boasts that promising millions of dollars to private retailers has helped reduce the city’s unemployment rate to 6.6 percent.

But Visalia, 45 minutes to the south, has a jobless rate of nearly 10 percent – and that city’s struggling residents lose tax revenue to Fresno and the retailers on every purchase they make at one of those companies.

Visalia and every other Central Valley city — including Fresno — will also lose when San Jose, whose unemployment rate is under 3%, gives eBay 30 percent of all the sales tax Californians pay on purchases from the company’s online auction platform, a deal that could net the firm $150 million over 15 years.

Senate Bill 531, which Gov. Gavin Newsom vetoed earlier this month, would have ended these deals in the future without harming any city that already has one. It also would have allowed Fresno and any other city to give away its own tax dollars — just not dollars it siphons from other communities.

Perhaps the city of Fresno can’t be blamed for taking advantage of our flawed tax code. But shame on The Fresno Bee for supporting these schemes that take money from the poor and give it to wealthy private corporations.

This story was originally published October 25, 2019 at 12:09 PM with the headline "Bay Area Democrat takes The Fresno Bee to task for recent editorial on tax plan."