Tax Incentives won't fix California's Budget

5 Minute Read
Posted by Randy Eickhoff on Dec 5, 2011 2:00:00 AM

Randy-Eickhoff,-President,-Acena-Consulting For those that are taking the time to read my blog on a consistent basis, thank you.

As you know, our focus at Acena Consulting is on tax incentives with a focus on research tax credits and IC-DISCs (aka – export incentives). Today, however, we will be descending into a rant of sorts (I considered apologizing but sometimes it feels right to just let it go). My target today is our golden state of California and lack of any real progress in solving our budget issues. So, while I expect to offend a couple people, it’s time to rant and make change happen.

California's Serious Problem

We have a serious problem in California and we need a better answer. Perhaps a state government that can operate effectively would be a good start; I don’t think that’s asking for a lot.  While I recognize that so much the state does is important to so many people and communities, the reality is that the state has become a problem.

I would hope by now that our state elected officials recognize we cannot continue with our current operating model.  The result of our state government philosophy has left California a bad place for many companies to locate or want to do business.  Our tax structure is strangling both our population and the businesses that remain in our state. 

We have one of the highest state income tax rates, highest state sales tax rates, and highest gasoline tax rates in the country.  On top of the high tax rates, other regulations have strangled many businesses ability to successfully operate in the state. And now they want more? Really?

What if?

What if the social programs operated by the state were forced to compete in the open market with private sector companies? 

Would a current program reevaluate their operating structure and perhaps look at ways to cut costs and become more efficient? 

Would they develop a business plan that focused on providing a higher level of customer service at a low cost? 

What if a private company won the contract to provide a state service rather than the state agency? 

I can almost imagine the response from state officials….Blasphemy!

What if California residents could direct a portion of their tax dollars to private schools rather than public schools? 

Would public schools become more competitive?


Would theny shed some of the top heavy salaries at the administrative levels? 

Would the state bureaucracy that calls itself our education system crumble under its own cost structure? 

Would the teachers union attempt to stop everything in a court of law? 

I mean, I can almost picture the interviews with union officials demanding that California not provide a competitive environment that might benefit students of all ages in order to maintain the status quo.

Call me crazy but if I am paying into a system that supports public schools and I chose to send my children to a private school, why should I be forced to pay for the public school system where I am receiving no benefit.

Competition Can Be a Good Thing

While unfair competition can create an uneven or unfair playing field both in sports and in business, it seems, in my humble opinion that our state government programs could benefit from some competition. 

Yes, there would be losers; there would also be winners. 

Winners might include California residents who might enjoy lower taxes, more jobs because businesses could see a better business climate in California, and in the case of education, our children might get a better education.

THE AUDACITY OF SUCH IDEAS is surely troubling to many that live within the system. But…. Let’s consider teachers for just a moment.

If a system were implemented that allowed parents to direct a portion of their tax dollars to EITHER public or private schools based on the number of students in the program, some schools might close. The students will go elsewhere and the teachers that love to teach, the ones that secretly struggle with the current state mandates and bureaucrats, would find a new school and have the opportunity to bring education in a more open way. They might not be in the teachers union anymore but maybe, just maybe, they would enjoy work a bit more every day, they might even get paid a comparable rate and have an opportunity at a bonus (imagine that!). Tenure might be a thing of the past but the quality and caliber of the teacher might improve in a more competitive environment.Can you picture that?

It seems as though each new news story that comes out of Sacramento involves discussion of raising taxes. Raising taxes on the rich, raising the state sales taxes, raising gasoline taxes; I guess I just don’t understand why we aren’t looking at radical changes to solve serious problems. Small budget cuts won’t solve the systemic problems that have now created an intolerable situation.

What say you friends?

Am I asking too much to look at ideas that are outside the box?

What ideas might you have to change the game in California?

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Randy Eickhoff, CPA is President of Acena Consulting. With more than 20 years of tax and consulting experience, Randy focused on helping companies successfully document and secure tax incentives throughout the US. He has been a long-time speaker nationally as well as conducted numerous training sessions on R&D tax credits and other US tax incentives.


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