USC Marsh School of Business

Charles Swenson, professor, USC Marsh School of Business

A controversial academic at the University of Southern California is speaking out against Gov. Jerry Brown's proposal to scrap Enterprise Zones as part of a strategy to close California's more than $25 billion budget deficit.

Brown's finance department estimates that eliminating tax breaks that go to companies that operate in the state's 42 enterprise zones could generate $343 million this year and $581 million next year.

But Charles Swenson, a professor at USC Marsh School of Business, disagrees.

In an op-ed published today on the political blogsite Fox and Hounds, Swenson argues that if the business tax breaks are cut, many companies will simply leave the state, undercutting any budget benefit gained by eliminating the breaks.

"If a worker loses her job, she can collect up to $23,000 in unemployment benefits in California," he writes. "On average, a company operating in one of the state's 42 enterprise zones receives a tax break of about $15,000 per qualified employee hired or retained. What possible economic sense is there in risking the loss of her $2,000 in annual taxes while gaining the burden of paying her $23,000 in jobless benefits for the sake of ending a $15,000 tax benefit?"

That Swenson is defending business tax breaks is hardly surprising.

Before the November elections, the non-partistan California Budget Project took the unusual step of holding a conference call with reporters specifically to trash another report by Swenson that said repealing a different set of corporate tax breaks would increase the budget deficit. (That measure, Proposition 24, failed at the ballot box.)

Back then, Robert Tannenwald, senior fellow at the Center on Budget and Policy Priorities in Washington, D.C., said Swenson’s findings “fly in the face of empirical evidence and economic theory.”

“State and local taxes are a tiny percentage of the cost of doing business,” he said.

Even if the state eliminated all corporate taxes it would have limited effect on job creation, he said.

Last week, the California Budget Project released a report released arguing the state's Enterprise Zones suck hundreds of millions of dollars out of the state treasury every year but fail “to create jobs or new businesses – key goals of the program."