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WSJ editorial criticizes California tax break bill that benefits SpaceX

Earlier this month, the California Senate approved AB 777, legislation that would exempt space companies from paying taxes on certain property related to spaceflight, including an “orbital space facility, space propulsion system, space vehicle, launch vehicle, satellite, or space station of any kind,” as well as components of such systems.

The bill is slightly different from what the California Assembly passed in January. The Senate version deleted a provision that extended the tax break to equipment that would be placed in those spaceflight systems, and also added a provision stating that an “inference shall not be drawn from this act” regarding whether such property qualifies as “business inventories” in the state tax code. Those amendments mean the bill is back in the Assembly to be passed again as amended.

One would normally think that a bill that provides a tax break to companies would be warmly received by the Wall Street Journal, but AB 777 is an exception. In an editorial published in Monday’s paper, the Journal criticized the bill; the company that reportedly instigated the bill, SpaceX; and its founder, Elon Musk. “Upon his request, Democrats who dominate the legislature are moving to exempt SpaceX and other space-travel companies from California’s personal property tax,” the editorial states. SpaceX could have sought an appeal of a property tax bill it received last year for engines it built, but instead “jumped the queue and petitioned the legislature for a tax reprieve.”

The Journal’s argument is that the legislature is providing special treatment to SpaceX because of the wealth and influence of Musk. “The current legislation would specifically benefit SpaceX and a handful of smaller space firms like Aerojet Rocketdyne,” the editorial states. Of course, Aerojet Rocketdyne, with more than 5,000 employees prior to laying off about 250 earlier this year, still has more employees company-wide than SpaceX, which has close to 4,000 employees. In addition, companies like Boeing and Space Systems/Loral, who build satellites in the state, may also qualify for the tax break.

The editorial notes that other exceptions to state property taxes have been made, such as household furnishings and pets. “But, ahem, taxing a rocket and Fido aren’t equivalent,” it argues. “For one, it’s hard to put a price on a dog.” (Clip that editorial out and take it with you the next time you go to a pet store.) The Journal would rather see the state repeal the entire personal property tax rather than grant individual exceptions, something that the California Legislature seems unlikely to take up soon.

The lead sponsor of the bill, Assemblyman Al Muratsuchi (D-Torrance), hasn’t hid the fact that AB 777 will benefit SpaceX. “Private companies like Space X [sic] are building rocket ships and creating thousands of good paying manufacturing jobs right here in Southern California. We want these companies to invest and grow in our state,” he wrote in an op-ed published last week in his local newspaper, the Daily Breeze. “Passage of AB 777 will be one giant leap forward for this exciting new industry and for California.”

41 comments to WSJ editorial criticizes California tax break bill that benefits SpaceX

  • Elon Musk is a corrupt democrat crony who has chiseled billions from the American taxpayer in form of subsidies and tax breaks.

    • Jim Nobles

      Christ, windy, get a grip.

    • numbers_guy101

      Subsidies and tax breaks? And what do you call an Orion project and Lockheed Martin that will have spent $23.6B by it’s first crewed flight in 2021? What would you call the non-competed EELV launches and ULA? Or SLS?

      Compare this to a program like commercial cargo to the ISS which saw real, true competition, with the winners of the service contracts chosen on the merits of demonstrated milestones and progress, including price performance. Compare a few hundred million spent on a cargo spacecraft, and likely less than a billion spent on a crew version, to over 20 times that on Orion.

      But hey, putting aside the facts, delusions work, right?

      • Malmesbury

        LockMart and Boeing have each received more in tax breaks than has been spent on the entire Commercial Cargo and Crew programs during the same time frame.

        Twas ever thus – politicians pretend to tax everything, so that they can grant the favor of not taxing.

        So the tax code grows and receipts fall.

  • Jim Nobles

    Since I am a space cadet I am in favor of tax breaks (or almost any other types of incentives) for companies doing work that makes our development of space easier or speedier. I don’t know what the WSJ’s problem is.

  • Andrew Swallow

    California was certainly taking a big political risk trying to tax spacestations in orbit – they are as far out of the state as you can get. Particularly when launched from Texas or Florida.

    The equivalent of a reusable rocket is a sea ship used to carry goods to a different country.

    • Hiram

      Let’s be honest. California has a large raft of property tax exemptions. A long list. One exemption is “vessels”, as in “Full exemptions include vessels having a low value, vessels considered business inventory (including those under construction), vessels of more than 50 tons burden engaged in the transportation of freight or passengers, and certain vessels with a historical value. In addition to these property tax exemptions, certain documented vessels (see Revenue and Taxation Code section 227) are granted the right to be assessed at 4 percent of their full cash value.”

      So it isn’t a big stretch to extend sea ships to spaceflight. Kind of a laughable stretch, but most of these exemptions are pretty laughable.

  • numbers_guy101

    Ahh more irrational posturing over at the WSJ. When you have any industry that is potentially profitable and important to growth in an economy, it has always been a government function to try and offer some incentives to speed up that growth. But since one name here (Musk) is perceived as leaning democrat, the WSJ conveniently forgets this!

  • Malmesbury

    The sad truth is this is how the game is designed to be played.

    Taxation on company assets and inventory is idiotic according to most economists. Unless you like less economic activity.

    So Our Glorious Leaders enact foolish taxes. In order to survive, you must buy from them exemptions.

    The entire California aerospace industry is just about tax exempt. Same with much of hi tech.

  • Nothing wrong with rich guys and rich companies trying to influence the government in their favor. The little guys and gals out there should learn from that– and not feel guilty to do the same!

    The working Jane and Joe should– get out and vote– for candidates and legislation that favors us: legislation that reduces taxes on the workers but increases them on Wall Street and the wealthy; legislation that ends unemployment by reducing the work week down to 32 hours while Federally guaranteeing us up to six weeks of payed vacation like they have in Germany.

    Once we stop listening to rich guys like Elon and Trump and corporations that want to ship our jobs over to fascist states like China and we start doing what’s in your own best interest then America and the world will be a much much better place!

    A government of the people, by the people, and for people is actually– a really good thing– and we need to use it to our advantage!

    Marcel

    • Coastal Ron

      Marcel F. Williams said:

      …that want to ship our jobs over to fascist states like China…

      It would be interesting to do an audit of the William’s household to see how many “Made In China” stickers there are, because it’s demand for products made in China that lead companies to outsource their production.

      SpaceX manufacturers and builds the vast majority of their products here in the U.S., so they promote “Made In USA”. Should they get a tax break? Maybe, maybe not, but it is normal business practice to seek one out, and if state politicians want to provide one it’s more a matter of whether the state of California’s tax system needs amending. We know the national tax system is tangle of corporate tax breaks, and it’s the big companies that benefit the most from them. This hardly a issue about SpaceX.

      As to the 99% of us, now that the Supreme Court has removed any monetary limits on political donations the 1% can pretty much do far more than us 99% in the political world. And that won’t change until the playing field is evened out again.

      • There was no public demand for products from China. The corporations simply made them there to increase their profits. Businesses in America have a long history of wanting cheap labor and even slave labor. And the American people have a long history of trying to fight against it!

        Private companies don’t care about American workers, they care about making money. And they have every right to do what’s in their own best interest– just as the American people have every right to do what’s in their own best interest!

        Nothing wrong with political donations from the wealthy and wealthy corporations, IMO, as long as they’re fully documented. In fact, I think– taxing political contributions and political ads– is a great way to provide revenue for matching funds for donations from citizens who contribute $100 or less to political candidates. That’s the best way, IMO, to empower the people’s political influence.

        Of course, when 50% or more of Americans simply don’t vote then they’re asking to be ruled by the wealthy and to suffer the full economic consequences of failing to participate in our Democratic Republic.

        Marcel F. Williams

        • Coastal Ron

          Marcel F. Williams said:

          Businesses in America have a long history of wanting cheap labor and even slave labor. And the American people have a long history of trying to fight against it!

          The Tariff Act of 1930 mandated imported items must be conspicuously and indelibly marked in English to indicate to the “ultimate purchaser” its country of origin.

          Because of that consumers – not manufacturers – have the ultimate say over where products should be made. All they have to do is NOT buy products made outside the U.S. It’s that simple.

          Of course, when 50% or more of Americans simply don’t vote then they’re asking to be ruled by the wealthy and to suffer the full economic consequences of failing to participate in our Democratic Republic.

          If it doesn’t matter who they vote in, because of the influence of the wealthy and corporations, then why should people care to vote?

          That will conclude my OT comments on this.

          • The wealthy have influence because most Americans allow them too.

            But the wealthy never thought that Americans would rise up the way they did during the Great Depression by endorsing the New Deal. And, of course, once World War 2 began, companies had to bend to the will of the American people in order to stop the Axis powers.

            The American voter is the ‘sleeping giant’ that the wealthy always fear waking up! But the wealthy never seem to learn that the best way to create wealth– even for the wealthy– is not by perpetuating poverty through slave labor but by enriching the American workers.

            Marcel

    • Lars

      > Once we stop listening to rich guys like
      > Elon and Trump and corporations that want
      > to ship our jobs over to fascist states like
      > China and we start doing what’s in your own
      > best interest then America and the world
      > will be a much much better place!

      I agree that the excessive outsourcing is bad… But since when does Elon wants to outsource to China? Since when? I don’t think you’ll find anyone who is fighting harder to keep aerospace jobs in the US.

    • Malmesbury

      “Once we stop listening to rich guys like Elon and Trump and corporations that want to ship our jobs over to fascist states like China”

      A strange comment. Elon is famously the guy who realizes that productivity, not labor costs are important. That is why he puts a very, very high percentage of his manufacturing on-shore in the US – using smaller numbers of workers, paid well, in conjunction with the latest automation and manufacturing technology.

      Note that the Chinese space program guys specifically say that they can’t match his prices.

      In fact, as time goes on, he is bringing more and more on shore – hence the $5 billion battery factory for Tesla.

      Interestingly, a great deal of the anger over the loan to Tesla was that it stopped a sweet deal for the Wall Street crowd. Their plan was to lend Arab oil money to Tesla (the only available liquidity at the bottom of the crash) to Tesla at very high rates of interest, to apparently help them. Using the crippling debt burden, they would leverage control of the company and “correct the mistakes in it’s operations”. That is, shut down the US manufacturing, and sell the technology to existing car manufacturers.

  • josh

    The wsj is a propaganda publication for the parasites of the financial industry. Criticizing productive entrepreneurs like Musk is what they do.

  • Matt

    Good for California. So much aerospace has left the state for Texas or Alabama. Boeing built rockets in Huntington Beach. They moved their Delta rocket production to Alabama. Maybe if California had been more willing to provide tax breaks in the 90s rockets would still be coming out of the facility in Huntington Beach. The Huntington Beach facility also built Space Station modules until that production was also moved to Alabama.

    • Why did they move to Alabama? It couldn’t be California’s uncompetitive business climate. What is it about Musk’s operation that should compel some other California business to pay Musk’s fair share to the California public unions?

      • Coastal Ron

        amightywind said:

        Why did they move to Alabama? It couldn’t be California’s uncompetitive business climate.

        You’re right, it was other factors. Not sure why you think there is a sinister reason behind everything. Must be tough being you… ;-)

        What is it about Musk’s operation that should compel some other California business to pay…

        I notice you don’t complain about Republican Governor Perry of Texas and the tax breaks Texas has been throwing at businesses to move there, including SpaceX.

        Me thinks you are not very consistent.

        • The invisible hand of economics is benevolent, not sinister. Sinister people, like Musk, try to circumvent it by political means.

          • Jim Nobles

            Musk is not sinister, he’s a good example of what makes America better than a lot of other places.

            Grow up. I swear, sometimes you act like a 4th grader.

          • Vladislaw

            If producers are allowed to produce the way they want without government intervention, that is why businesses lobby the government. If they didn’t .. no invisible hand.

            “The exact phrase is used just three times in Smith’s writings, but has come to capture his important claim that individuals’ efforts to maximize their own gains in a free market may benefit society, even if the ambitious have no benevolent intentions.”

            http://en.wikipedia.org/wiki/Invisible_hand

          • Malmesbury

            “Sinister” – as opposed to the other players who can’t wait to outsource everything to other countries and turn their operations into giant hedge funds?

            If you want engineers who are actually designing and building new rocket engines in the US (new as in really new) – who is doing that exactly?

            Or is outsourcing to Russia the non-sinister option?

      • Malmesbury

        The reason that SpaceX is in California is the aerospace industry there, combined with the close proximity of CalTech and MIT and Silicon Valley.

        SpaceX hires a combination of aerospace old timers – the frustrated ones like Tome Mueller who was so annoyed that he could get to actually build rocket engines at TRW that he did it at home – and the sharpest grads they can find.

        That pool simply isn’t available in Texas.

  • common sense

    I think the WSJ is right. Of course! Why oh why would a State help a fledgling NewSpace industry and overall space jobs historically located in California as we go through one of the worst economic crisis ever in terms of employment? No I can’t see why they would. After all NewSpace is creating thousands of jobs and OldSpace – so to speak – needs to preserve ongoing jobs. So no I agree there is no reason to give those guys a break. Especially these are all private companies.

    I am not sure what WSJ stands for nowadays after all WS used to be “Wall Street” as in the Temple of Capitalism Wall Street.

    So California is receptive to the request of a California billionaire? Yeah I know so odd. All other States and even the Federal Government are never influenced by people with this kind of wealth.

    Anyway.

    Oh and by the way who owns WSJ? News Corp owns WSJ. Of course they also own Fox News… Oh and News Corp is the company under investigation by the FBI for hacking the phones of 9/11 victims and others. So yes WSJ belongs to one of the greatest fraud ever and they claim to give lessons to others. What’s new? Right?

    Pathetic.

  • vulture4

    Partisanship is now all that counts. The WSJ is Republican, and it perceives SpaceX as supporting Democrats. Republicans also seem to oppose the Commercial Crew Program as a whole, apparently its association with Obama is more important than the fact that it exemplifies core Republican values of competition, free enterprise and reduced cost. Gentlemen, if we cannot hang together we will most assuredly hang separately.

  • vulture4 wrote:

    Republicans also seem to oppose the Commercial Crew Program as a whole, apparently its association with Obama is more important than the fact that it exemplifies core Republican values of competition, free enterprise and reduced cost.

    The irony is that commercial space is, part and parcel, a Bush-era program that came out of President Bush’s Aldridge Commission in June 2004:

    http://www.nasa.gov/pdf/60736main_M2M_report_small.pdf

    Section III, “Building a Robust Space Industry.”

    All President Obama did is take it seriously.

    The champions of commercial space for decades have been Republicans Dana Rohrabacher, Newt Gingrich and Robert Walker.

  • Rhyolite

    I am a big supporter of SpaceX but, on principle, I oppose industry specific tax breaks like this and the one that Washington State just did for Boeing. Playing favorites with one industry is economically distortionary, unfair to other business and, given the revolving door for legislators, creates the potential for corruption. The WSJ, on the other hand, would probably be falling all over themselves to laud this deal if it gave tax breaks to one of their favored industries like oil and gas. They have no principle but partisanship.

    • common sense

      I believe I agree with your statement but WSJ is just being plain hypocritical and coming from the press, covering Wall Street nonetheless!, it is just annoying to say the least.

    • Vladislaw

      We are smart little monkeys with the ability to reason. Directing capital flows through taxation to maximize economic outcomes and employment is relatively easy to do. We know that the multiplier effect can create a lot of economic activity for small amounts of breaks.

      • Rhyolite

        I agree that tax incentives can direct capital flows and I can see cases where doing so to address a strategic need or market failure can be useful. However, I think those kinds of interventions should be rare and limited in scope and duration.

        The problem is when tax breaks become endemic. The market doing fine at supplying commercial jetliners and Boeing is very profitable, so why is the Sate of Washington and the Federal Government subsidizing them through the tax code? It comes down to the lobbying clout of Boeing rather than the interests of the tax payer. The same applies to the oil and gas industry and a hundred other tax breaks.

        SpaceX is a great company and, given their launch successes and backlog, on the verge of becoming a commercial success. This doesn’t seem like the time and place to be creating yet another industry specific tax break.

        • Vladislaw

          I agree that special interests, through campaign contribuitions, have bastardized the economic system. Take the money out of politics is the answer but the supreme court with it’s most recent decision is turning american into an oligarcy. Politicans are openingly saying now they don’t listen to the voters they only listen to who gives them campaign money. That is no longer democratic capitalism.

  • Robert G Oler

    I am not a fan of tax breaks but the WSJ which has been takenover by nuts is for every tax break possible for established industries…SpaceX is exactly what should be happening in the US…RGO

  • The WALL STREET JOURNAL complains about an advantageous state tax benefit one corporation wrangled out of a local government?

    Stinks, stinks, stinks, of Spacex’ competition guiding the WSJ’s hand. Overpricing on a monopoly leaves a lot of tax dollars leftover to hire writers and buy papers (with huge ad purchases) to defend that monopoly.

    Wait till the DoD starts seriously considering SpaceX and then watch the “oh so unfair” editorials; writers need work too!

  • cynthia curran

    Another thing moving to Alabama for cheaper labor costs since Alabama is a cheaper placed to lived. The problem is Alabama is more full of Tea party types that want to eliminate the import-export bank and Boeing loses out to Airbus. So, they should have stayed in Huntington Beach because states like Alabama that have Tea Party folks will caused Boeing to lose to Airbus. Cheaper labor is not everything Sessions is a big Airbus supporter and wants to get rid of the import-export bank.

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