(The Center Square) – Republicans expressed their opposition to a new bill introduced earlier this month that would eliminate California’s biggest corporate tax break, called the Waters Edge tax break.
The bill, Assembly Bill 1790, was announced in a press conference Feb. 10 by the bill’s author, Assemblymember Damon Connolly, D-San Rafael.
“One problem is if that bill passes, we will be the only state in the union that gets rid of that Waters Edge feature,” Sen. Roger Niello, R-Fair Oaks, told The Center Square in an exclusive interview on Thursday morning. “This isn’t exactly a way to try to overcome our business-unfriendly environment. I think it would be very unwise.”
Niello added that the implementation of the Waters Edge tax break bill, if it were to pass, would tax international companies that do business in California at double the amount for earnings outside of the state.
“The interesting thing is that to tax an international company’s earnings for their earnings overseas is really the equivalent of a tariff,” Niello added. “So I have to believe then that Assemblyman Connelly and his co-authors agree with President Trump’s tariff policy because it is essentially an equivalent of that.”
Other Democratic lawmakers spoke in support of the bill this month, calling the legislation a resource to help backfill some of the state’s most essential services that normally rely on federal dollars that are now no longer coming into the state. Those programs include the Supplemental Nutrition Assistance Program, known as CalFresh in California; Medi-Cal and other essential services, according to previous reporting by The Center Square.
“For the past 40 years, California has given multi-national corporations the opportunity to choose what tax scheme they would like to use to ensure they pay as little taxes as possible in our state,” Connolly previously said of the bill. “They do this through the use of the Waters Edge tax election, which allows a corporation to only pay taxes on revenue they decide is earned through the ‘waters edge’ boundaries of California.”
Niello also told The Center Square that if Connolly’s bill passes, he thinks it stands to reason that individual tax rates would be lower as higher corporate taxes go up.
“I don’t think they have that plan,” Niello added.
Advocates of Connolly’s bill earlier said the additional revenue generated from higher corporate income taxes because of the prospective end of the Waters Edge tax break could produce as much as $3 billion for California’s schools, health care system, green energy generation and climate programs. How to pay for those services has come under scrutiny in recent weeks as the state deals with an $18 billion budget deficit, as projected by the nonpartisan Legislative Analyst’s Office.
“That brings up the issue of increasing taxes generally,” Niello said. “We have increasing revenue, so it’s not a revenue problem. It is a spending problem.”
Assembly Republicans also commented on the possible ramifications of the Waters Edge tax break bill, criticizing California Democrats for pushing forward efforts to impose new taxes.
“They built a spending model that keeps growing, even when revenues do not,” George Andrews, communications director for the Assembly Republican Caucus, wrote to The Center Square in an email.
Andrews added that for decades, the Democratic Party controlled both the Legislature and the budget process. That has resulted in ever-increasing state spending in California, according to Andrews.
“We are still facing a multi-billion-dollar structural deficit,” Andrews said. “Californians are already stretched thin, and another volatile revenue proposal will not fix spending that Sacramento refuses to control.”
The Waters Edge tax break bill will now go to the Assembly Revenue and Taxation Committee for a bill hearing in March, according to the state’s bill tracker.
