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Richard Rider

How the CA press UNVERSALLY botched a tax increase story

This article is my analysis of how a casual misstatement regarding a proposed corporate state tax increase by a clueless CA state Democratic Party legislator became an accepted truth by all California media — and indeed national media — including Fox News.  The error is bad, but my forensic analysis of how it came to be so widely accepted is the real story.  It’s a cautionary tale for our MSM — one they doubtless will not learn from.

Apparently the error can be traced back to a press release and news conference featuring the bill’s two primary authors — Democrat State Assemblymen Kevin McCarty and Phil Ting.  The gist of the presentation was that their proposed bill — the “Middle Class Fiscal Relief Act” — would confiscate “half” of the federal corporate tax savings of any corporation making over $1,000,000 — pouring this windfall revenue into the gaping maw that constitutes the California general fund.

The key misrepresentation was “half.”

Consider: The tax reform law dropped federal corporate tax rate dropped from 35% to 21% — a 14% drop.  Naturally the press (math geniuses that they are) surmised that the state bill would confiscate 7% (half) of that 14% federal tax reduction.  I doubt any press at the media event bothered to ask the sponsors specifically what the amount of the tax would be.  Indeed I’m sure of it.

More important, apparently no reporters looked at the ACTUAL bill.  It’s a short bill — available online and easy to comprehend.  The specific proposed percent increase is clearly presented in the 3rd paragraph.  It states that the corporate income tax would be raised an astonishing TEN percent — not SEVEN percent.  That’s not “half” (50%) of the federal reduction.  It’s 71.4%.  That increase would raise the CA already high California corporate income tax from 8.84% to a crushing 18.84% — 57% higher than the 2nd highest state (Iowa) — a 113% increase in the CA tax rate.

Typical of the press reports was this SAC BEE article which talks about a new 7% CA corporate income tax. As is common, once one major paper or news service puts out such an assertion, the others assume it is true — repeating the error without attribution.  The LA TIMES was one of the lemmings (or the leaders — which is not clear). In a word, the press is lazy.  AND gullible.

I was immediately puzzled by the press reports, as the numbers didn’t add up.  The sponsors were claiming that they’d raise $15 to $17 billion annually — substantially more than a 7% tax increase would provide (let’s ignore the “static analysis” error — the silly assumption that massive tax increases won’t cause any additional corporations to flee the state.)

To be fair, I don’t think this “half” claim was an intentional misrepresentation by the sponsoring politicians. It’s just the sloppy thinking in Sacramento by politicians suffering from severe innumeracy.  Sadly such unsupported statements seldom draw press scrutiny — IF such statements are made by Democrats!

If a Republican made such a quantitative assertion, a skeptical press would immediately delve into the fact. They’d seek contrary input from liberal academic and political opponents.  They’d look at the underlying bill to verify the accuracy of the GOP numbers.  And that’s a GOOD thing!  It’s what the press is SUPPOSED to do.

The problem is that the skepticism of the press disappears when a prominent Democrat makes assertions.  MSM skepticism is replaced by gullibility. WILLFUL gullibility, coupled with good old fashioned laziness.

Some in the press have since caught the error (usually without admitting their mistake).  Here’s an excellent editorial from the liberal SAC BEE that gets the numbers right while sensibly castigating the bill.

But it’s likely this error will be around for weeks or even longer, as the Internet “chain letter” effect carries this “fact” from place to place like a windborne disease.

Is this 7% tax “fake news”?  Not intentionally.  It is INCORRECT news.  It is yet another example of why people SHOULD be circumspect about MSM news. There’s a “herd effect” in media that can take a simple error and make it a “well known fact.”

ADDITIONAL COMMENT:  Oddly enough, I’m not concerned that this bill will become law.  It won’t get 2/3 majority votes in both state legislatures. If it does, Brown WILL veto it.  If it does go to the voters, they will vote against it . . . wait, forget that last sentence.

MY PREDICTION:  This bill will die a quick death.  The liberal Silicon Valley corporate cash cows will provide the legislators with some badly needed adult supervision.  These firms will patiently but firmly explain to these juvenile politicos that under no circumstances is confiscating 10 ADDITIONAL percent of their corporate profits acceptable.  Boom!  The bill’s death will be stunningly quick.

ONE OTHER POINT:  Even if/WHEN this bill fails, it will still damage California’s economy.  Any sane CEO has got to view this bill as a serious attempt by California to gouge businesses big-time. What fails this legislative session may pass in the next one (Democrats likely will pick up more seats in 2018).  Only a fool would move his or her business to California, and a wise California CEO will get the message — it’s time to seriously consider moving their Golden State business to a friendlier climate (and I’m not talking about the weather).