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Susan Kennedy: "Our revenue stream is way too progressive."

by: Robert Cruickshank

Sat May 30, 2009 at 08:15:22 AM PDT

As the shock doctrine attack on California unfolds, members of the Schwarzenegger Administration are signaling their long-term plan to radically remake California as a Randian paradise for the rich and a desperate hellhole for the poor and the middle-class. Arnold's budget plans are all designed with one purpose in mind - to make rich pay less and everyone else pay more.

We've been over his completely insane budget cuts proposals, which are all focused on taking away the safety net for the poor and the middle class and making them spend more money on vital services.

Now, in an interview with Carla Marinucci, Susan Kennedy reveals the other half of the "screw the poor" strategy - an overt call for an even more regressive tax structure:

She appeared particularly upbeat on the prospects and potential impact of the bipartisan Commission on the 21st Century Economy  headed by Gerry Parsky, the former assistant Treasury Secretary and current UC Regent who is a partner in the Los Angeles-based Aurora Capital Group.

The Parsky commission, made up of a dozen individuals, has been charged with studying ways to remove the volatility from California's tax system.

"If they're bold and fearless..it could tackle one of the most significant issues we face..the volatility of our revenue stream,'' she said. "I'm actually really excited (about the outcome)''.."I haven't seen this level of willingness and urgency" in a long time on that issue.

Asked what she'd like to see from the tax commission, Kennedy didn't hestitate. "Flatness,'' she said. "Our revenue stream is way too progressive.'' But no matter how you slice it, she said, changes that come out of it may be seen as "a tax increase to the middle of the structure.''

There you have it - Arnold's plan is to cut the services the middle-class needs while raising their taxes in order to give the wealthy and even bigger tax break. In that sense his higher ed funding plans are perfectly sensible - by planning to eliminate Cal Grants and jack up fees even further, he's foreshadowing California's future, where the dream of prosperity and economic security is enjoyed only by the top 5%. It's a recipe for the Brazilification of California.

The Parsky commission, as I have explained before, is rigged to produce this very outcome. They are part of a concerted effort to use "volatility" as a kind of concern trolling to suggest that wealth taxes, a proven and effective method of taxation, are bad - and that we need to sock it to the poor and the middle class, even though numerous examples from history prove that when you shift the tax burden onto those least able to pay, social collapse follows.

In that vein it's worth noting some pushback against the "volatility is bad" nonsense that Kennedy and Parsky are pushing. Bob McIntyre of Citizens for Tax Justice, in his testimony before the commission, slammed the idea as making the system more regressive and doing nothing to promote economic growth:

Over any reasonable time period, a progressive income tax, including taxes on capital gains, has been by far the most stable, most growing source of revenues for states. One reason why this is true is that at least since the late 1970s, the rich have been getting much richer, although not by the same amount every year. In addition, even without changes in the
distribution of income, a progressive income tax, even one indexed for inflation, rather naturally keeps up with the economy....

So if the income tax, and particularly the capital gains tax, is the one bright spot in California's long-term tax picture, why would anyone want to cut it? I have no doubt that for many who favor eliminating or sharply reducing California's income tax on capital gains, the real motivation is that they simply favor lower taxes on the rich - even if that means higher taxes on everyone else.

And that's the real issue here. The concerns about "volatility" are really just neoliberal economics phrased in another way. The belief that if we cut taxes and regulations on the rich, everyone else will benefit. We're experiencing an economic crisis that is directly caused by, and proves the failure of, those asinine policies.

McIntyre explains that the "volatility" of taxing the wealthy is overstated, especially in the longterm. But is "volatility" even a problem? As the California Budget Project notes quoting Board of Equalization chair Betty Yee, "tax volatility is a good thing":

As Yee mentions, if Californians want to avoid exacerbating the income gap between high- and low-income Californians, any discussion of tax fairness must also include a consideration of another kind of volatility: the daily uncertainty many low- and middle-income Californians are experiencing about their jobs, their houses, or the choice to put food on the table or pay the energy bill.

"Volatility is what they're experiencing day-to-day," Yee said.

As far as I can tell, this whole concern trolling over "volatile" revenues is merely an excuse to produce a more regressive tax policy and worsen the actual volatility problems, which is the boom-and-bust cycles of economic security and public services for the working Californians who should be the focus of our tax and spending policies.

Robert Cruickshank :: Susan Kennedy: "Our revenue stream is way too progressive."
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i have not forgotten (0.00 / 0)
that the fact that kennedy is a democrat was held up as proof of arnold's moderation and post-partisan approach to state government.

it remains to be seen whether that line was in fact correct, and if elected democrats are generally in agreement with kennedy and her boss (and her plutocratic beneficiaries), or whether they stand with the vast majority of their constituents.

this budget will sort the sheep from the goats, no doubt about it. kennedy is correct that this is a huge opportunity to make serious structural reform.

so what side you on, democrats, what side you on?

I truly hate to be this way, but I am starting to feel (0.00 / 0)
that we need to know that 27 in the Assembly and/or 14 in the Senate are reliable votes against whatever sort of hogswaddle the Governor and his facilitators are going to try to push.

So, can we count noses?  Do we have enough votes to block a budget?  If so, can we notify Bass and Steinberg?  If we need a "third party" within our first party, so be it.

[ Parent ]
Where does Karen Bass stand on this? (0.00 / 0)
In a March 13, 2009, speech to the Liberty Hill Foundation, Speaker Karen Bass listed as one of her top priorities:  "We need to change a tax structure in which 144,000 tax payers pay 50 percent of taxes."  Really?  How?  On its face, that seems to be a call for making the system less progressive -- but I haven't been able to find a statement where Bass clarifies her intent.  


What's yer gut say.... (0.00 / 0)

[ Parent ]
Or (4.50 / 2)
By broadening the tax base, while still remaining progressive. An example would be having an oil excise tax, or fixing the way that Prop 13 undertaxes commercial property.

I think the point was more regarding an over-reliance on income taxes as opposed to other forms of progressive taxation.  

[ Parent ]
It could also be (5.00 / 1)
a call to broaden the tax base, or add more brackets in between $47,500 and $1,000,000, where there are none.  But the "x taxpayers pay x% of the taxes" is a right-wing frame, and a function of extreme income inequality rather than taxation.

[ Parent ]
Exacerbation cycle (0.00 / 0)
  Interesting.  Tax policy is changed to the benefit of the rich.  This puts more money in their hands, and so taxes become "volatile", and thus their tax burden must be reduced, so tax policy is changed to their benefit, which makes taxes even more volatile, etc.

 Progressives should just propose a flat tax on income, since the poor/middle class are paying 11%+ of their income, and the well-off 7%+.

$ for private contractors (0.00 / 0)
Is there any way of finding out how much money is spent on private contracts, and the $ per hour for these 'experts?'

I'm curious if Arnold can immediately implement a 15% cut to all private contracts currently in place. After all, most of these companies are receiving a lot more money per hour than even the highest paid state employee.

No. (0.00 / 0)
Might be a good way to seek future savings (I agree, cheaper to pay state employees, who trade a lower wage than private work in exchange for better benefits and ostensibly stability), but the State doesn't operate outside basic contract law.

[ Parent ]
That ship has saled, and sank. (0.00 / 0)
Back in the late 1980s, you had an argument.  Then, there were opportunities to privatize particular functions of government, and get improvements of efficiency and cost.

Mostly now, in contrast, private contractors have become an interest group, and things now get privatized to make these people richer.  I don't think there's much of any proof now that anyone saves money by bidding things out to private contractors.  What we're getting instead are sweetheart deals with some very rich and very corrupt companies.

On the whole, we're better off keeping services in-house, and I suspect, some services that have been privatized over the last 10 or 15 years should be de-privatized as well.

[ Parent ]
I meant "sailed", but "saled" works as well (0.00 / 0)
It's a spelling error that might actually work for the post, but wasn't deliberate.

[ Parent ]
Fixing Prop 13 would help volatility (5.00 / 2)
Don't throw out your proverbial baby with that proverbial recyclable water.  Part of our problem is indeed volatility over the business cycle.  Income taxes do rise too fast during booms and fall too fast during a downturn.

But it's not really about progressivity, even if incomes at the very top turn out to be more variable over the cycle (which may well be true, BTW).  The big problem is that we are under taxing property generally, and corporate property in particular.  Over time, property taxes are a lot more stable over the business cycle.

So don't call volatility a canard.  Embrace the frame.  And use it as an argument to reform Prop 13 to tax corporate property holdings.  

However (0.00 / 0)
having high property taxes is extremely painful when your business has negative income, or for your residence if you lose your job, and there's no relief in that situation.

I would far rather have a GOOD rainy day fund arrangement, and pay taxes solely on my income rather than on the value of my property. I don't control the value of my property and it can gain in value even if my income is cut dramatically.

Fry, don't be a hero! It's not covered by our health plan!

[ Parent ]
Having negative income is painful, period (0.00 / 0)
The rainy-day fund is kind of a silly idea anyway.  As to finding a "GOOD rainy day fund arrangement" -- there's the only line about a "GOOD 10 cent cigar" -- yeah, there are people who'd like that too.

There are a number of good economic arguments against what you're saying, not the least of which that while you may not control the cost of your property, you can borrow against the increased value.  The tax is just another business expense.  And to the extent that those taxes go to cover the various costs your business imposes on the community -- and it does, since all businesses impose some amount of external costs in the welfare economics/general equilibrium point of view -- it's a good tax, as well.

[ Parent ]
Taxation (5.00 / 1)
Its funny but Ronald Reagan's 2 big personal issues that got him into politics were opposition to Progressive Income Taxes and the minimum wage....  2 facts to remember

1) California has the highest state tax rates because it does not allow localities to impose their own except under very stringent circumstances- usually voter approved .25% sales tax levies for special services. In New York on the other hand while the state Income Tax rate is lower than CA New York City also imposes a hefty income tax on it;s own.So in CA a million dollar income in a million dollar house means you pay no more than $12,000 on your house (including some school bonds) and some what less than $93,000  in income taxes for a total of less than $105000. And then about a third is offset by Federal tax savings for an effective local rate of 7%.

2) We need to stand up for a Progressive Tax structure which then leads to a prosperous vibrant economy and society. There is no doubt that Obama will be raising top tax rates in the future. First by letting Bush Reductions expire in 2010. What many in the political arena don't understand about taxes is that all the payers at the top(at least the top 10%) itemize their deductions. One of those deductions is for state income taxes paid. If your state taxes are raised $10,000 you then deduct that amount on your Federal taxes and the net result is you actually pay only $6500 more. The other $3500 is effectively paid by the Feds in taxes not collected. If Dbama raises the top rate higher than the savings become even better. Of course Republicans hate the idea and one of the tax breaks that no income tax State Conservatives want to do is eliminate State and local tax detectability.

Calif does NOT have highest state tax rates (0.00 / 0)
Calif taxes rank at least 17th in the country (not highest). But California per-student school funding is now 50th among all states!!

Local areas can and do raise taxes--just not income taxes -- they do have parcel taxes, bond issues, sales taxes etc.

Because Prop 13 restricted property taxes, taxation throughout the state has become more regressive, including sales taxes, etc., costing poor people a far higher percent of income than the rich.

I read recently that the lower tax brackets pay 3x the real tax rate in California as the higher tax brackets.

The biggest Prop 13 beneficiaries are not Granny, they are corporations -- particularly the freight rail industry which benefitted from lots of free land for building railways that never got built and does not appreciate in 'tax value.' Corporations pay a far lower percentage of the tax bill than they did in 1977 before Prop 13 (was 60% of the tax rolls then, is 40% now)

[ Parent ]
My man on the street interview.... (0.00 / 0)
...an women too. As we can see 'wimmin' kin be just as big assholes as the guys.

Starts with, 'Yo! Dude, or dudette.'

Or whatever appellation seems appropriate to the person's style and demeanor.

"Have ya heard the Guv's plans to 'fix the budget mess?'"

'Er, no....' is the usual reply.

'Well, he's gonna start by closing the parks...'


'S what happens when yah put yer Republicans in chage, dude.'


Only one person was enthusiastic about it. His comment was, 'Man, I know some spots where we could put in a million bucks worth of pot! Yeah...yeah, this could be big!' He was mutterin' somethin' about 'drip irrigation...' as he hustled off a man who had suddenly acquired a mission.

So the 'entrepreneurs' are already laying their plans. We'll soon have millions of more elbows of 'da chronic' floodin' the streets. Give those kids whose schools have closed sometin' to do.


Others were thinkin' along the lines of squattin' in some abandoned State Forest Service buildings.

I wonder if you could file a Federal Mining Claim and get some choice building spots before Ahunld's pals get to 'em?

too progressive? (0.00 / 0)
Almost makes me miss Gray Davis. Oh, wait...

Twitter: @BobBrigham

KENNEDY limo to Sacramento daily? (0.00 / 0)
I recall reading somewhere that this princess of the gov's actually DOES NOT LIVE in the capitol --where she is supposed to be working -- but in her Marin County mansion. And she is limoed to work (daily?) by a state worker? Can someone verify that?

Exactly WHAT is she paid? WHAT is her budget? Let's put HER on the table. Seems like the gov's office should get the 60% cut he did for the lt gov earlier this year.

AND, WHY do we have a DUPLICATE Education Dept under the GOV??? We HAVE an elected Superintendent of Schools. Arnold's so-called education gurus are more appropriately called his crony circle of corporate public education destroyers.

Read Dr. Kathy Emery's excellent book on "Why Corporate America is Bashing Public Schools" for a real eyeopener. She spoke at UTLA's conference earlier this year and lives in San Francisco.////

What to do NOW? (0.00 / 0)
So what are we to do now, as we watch California sink below Mississippi and Arkansas in taxation and services?

Our child will lose her Cal Grant (and we must borrow $7K and regret she did not choose the private college that would have offered that $7K grant to her). Our local high school will lose 7th period electives; the elementary schools lose music.

A California Constitutional Convention seems a long-shot and faraway possibility. As I understand it, the legislature must authorize, or a work-around could authorize a vote on a convention for 2010! Then a Convention to be after that.


In the meantime, are all Californians SCREWED?

the answer is we're screwed (8.00 / 1)
because Sacramento Democrats are scared shitless to advocate for anything different.

[ Parent ]
And Hearst Castle and many Calif State Parks will close! (0.00 / 0)
So much for summer in California vacations

The Governator's budget will close Hearst Castle, and many state parks. Wonder that Yosemite still remains open.

Yosemite is a National Park (0.00 / 0)
And I imagine it will see an unhealthy increase in visitorship because of people having state park options being drastically limited.

Need a contact # for a CA Legislator? Check here

[ Parent ]
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