LOS ANGELES — Retailers and fashion firms are being stoic about Gov. Jerry Brown’s proposed budget, which aims to extend temporary tax increases and make deep cuts to social services.
Brown, who took over in the new year from former Gov. Arnold Schwarzenegger, must close a $25 billion deficit, and most of the retail and fashion industry recognizes the recession has left California confronting difficult choices. The proposed budget relies on a ballot measure to retain increases to the state sales tax, vehicle license fees and state income tax surcharges for five years, and $12.5 billion in state spending reductions that impact everything from higher education to health care for the poor.
Allen Schwartz, founder of Los Angeles-based contemporary dress label A.B.S. by Allen Schwartz, viewed Brown’s policy as a positive way to stabilize the business environment, particularly for small companies. In regards to the governor’s recommendation to keep the personal income and sales taxes the same, Schwartz said, “It’s nice to know that there are no more changes for the next five years.”
Lonnie Kane, president of women’s apparel company Karen Kane Inc. in Vernon, Calif., also supported Brown’s moves.
“For one, I’m already paying [the taxes],” said Kane, who oversees 150 employees. “If it’s what it takes to balance out the cuts, then it’s a fair trade-off.”
On the other hand, Kane urged Brown to offer more incentives to companies to grow their businesses in California. For instance, Kane would like to see tax credits for machinery that was purchased and used in state, as well as for additional employees hired here.
“The more they can do to motivate business, grow in the state of California and put people to work, is a benefit,” Kane said. “It obviously means additional revenues in the way of income tax and sales tax. People get a paycheck, they spend money.”
Although pretax profits for California-based companies rose more than 19 percent to $154.8 billion last year from the year before, Brown noted that businesses have opted to use the profits to build their cash reserves rather than to hire new workers.
Gloria Brandes, chief executive officer of young contemporary label BB Dakota in Costa Mesa, Calif., suggested that reducing corporate taxes would spur entrepreneurs to increase their staff.
“If they were to reduce corporate taxes in California, that might be an impetus to spend money and create jobs,” she said.
“I appreciated that there was an equal split between cuts and taxes,” said Scott Hauge, president of the San Francisco-based education and advocacy organization Small Business California. “He [Brown] made significant cuts, so that was, in my mind, favorable. The other aspect as far as the taxes were concerned was: Nobody likes taxes, but if you are going to do a tax, the plus of what they did is that it is a broad-based tax. It wasn’t just a tax on business.”
Still, not all actions were welcomed by California businesses. Brown would like to phase out funding for redevelopment agencies and enterprise zones that are intended to help revitalize blighted areas. “I do think in those areas there needs to be help and encouragement to get people to hire,” said Hauge.