Well, CTA didn't take on Prop 13, but this isn't a bad start:
On Sunday, delegates for the 325,000 member union voted to back initiatives to rescind corporate tax breaks (see initiatives #1412 and #1375), passed a year ago under cover of darkness, that eventually will cut state revenues by an estimated $1.7 billion. Backing up its vote with dollars, the CTA has committed $587,000 to gather 434,000 signatures needed to put it on the ballot. (Educated Guess)
In a time of economic chaos, why would we start with tax breaks for corporations? Good on CTA for pushing on this issue. It should be a crowd-pleaser for the left, and it seems like it should stand a good shot of passing in November. For now anyway, CTA has taken the safe route.
At the same time, they had prepared initiatives to increase the property tax rate on commercial real estate and to allow real estate values of commercial real estate to float. In other words, they were trying to split the tax roles. That measure would be much more expensive to pass, and the Cal Chamber and their cronies would fight that like a dog.
This measure, on the other hand, is a populist measure. It's hard to imagine the advertising campaign that you'd be able to say would surely defeat this one. Possible to defeat, of course. But if we're betting straight up, I'd put my money on Yes.
Keep a look out for the petitions, CTA should have no problem gathering the 700,000 or so signatures they'll need to be safe for this one getting on the ballot.
At first I thought that the headline writer was confused. "California tax reform plan much too bold for Capitol," it said above George Skelton's column today. "Too bold" could maybe have more than one meaning. Surely Skelton wasn't throwing in with the idea that massively shifting the tax burden to the lowest income levels in society was too good an idea. But I think that is, in fact, what he's saying.
"I would sign it immediately" if it were a bill, Schwarzenegger told reporters. "Without any doubt."
Of course, this is a governor who constantly seeks out things new and bold. And the tax proposal was all of that -- much too new and bold for most Capitol denizens, especially those representing special interests.
As Genest told me: "It shouldn't come as any surprise that lobbyists in Sacramento are in favor of maintaining the status quo unless they are confident that the change will serve their interests. That's why they're called 'special interests.' "
Nowhere in Skelton's article does he quote any figures or statistics citing the practical effect of the Parsky Commission's plans. He doesn't mention that, under the plan, taxpayers making over $1 million dollars a year would save $109,000 annually on average, while taxpayers making between $40,000 and $50,000 would save four bucks. He doesn't mention that the proposal would result in a net loss of revenue to the state, causing wider budget deficits. He does manage to mention critiques of the business net receipt tax from the side of business and industry, but offers no critiques from the opposite end, a la Jean Ross' statement that "You could not say, 'We're going to tax child care so we can lower the income tax on millionaires.' But that's what this does." The fact that the BNRT would hit business payrolls and disproportionately tax companies in the knowledge economy rather than the service economy also doesn't make it in. Skelton never mentions that, by taxing all businesses in the state, the BNRT would effectively tax rents.
He just says it's "too bold."
The Parsky Commission was practically designed to shift wealth upward. It should surprise nobody that this is what it ended up doing. That is bold, but not in the way that Skelton means it, I don't think.
He does give voice to where Karen Bass may steer the debate:
Bass was holding her tongue, trying not to express disappointment in the commission. When she first proposed its creation, the speaker envisioned the panel proposing something more practical and simple: reducing the sales tax rate and spreading it to currently untaxed services.
She promised a "thorough and objective public review" of the panel's recommendations.
Good idea, but don't stop there.
"My biggest message to dysfunctional Sacramento is to get something done," Parsky says. "If you've got a better idea, get it done."
There's no question that flattening and broadening the sales tax base is a decent enough idea. Under the constraints of minority rule, it may be the best one lawmakers can get, and it would prove popular if enacted. We'll see if the Parksy Commission report is dumped in favor of that.
If the Capitol Weekly is going to have a right-wing corporate shill on their editorial pages, the least they could do is get a good one. Because I don't know where anyone, even John Kabateck of the National Federation of Independent Business, gets the cajones, after the legislature just passed a cuts-only budget completely on the backs of poor people, to fret about the plight of possible taxes for the business community.
"Get the monkey off your back and relocate to Las Vegas", barks a new ad trying to lure hard-working small businesses away from California. If legislators don't listen, small businesses that have already been hit hard by the effects of a fragile economy and the billions in taxes that were passed earlier this year will go under.
Um, right, this "rich people and businesses are leaving California" Galt-ism is not true and has never been true. But do go on.
The Legislature is back and up to its old tricks. The budget that was passed in February and revised in July will need to be "fixed" again this fall. If history is our guide, we all know that it will be an uphill battle and an unpleasant environment for small businesses. There are currently $2 billion in tax hikes being proposed, including taxes on everything from gas, internet purchases and vehicle license fees.
Oh noes! Oil companies might have to pay for the natural resources they take out of California's ground for the first time in a century of drilling! Get the smelling salts! The vehicle license fee might return to still-well-below-the-average-percentage relative to every state in the nation! This is terrible!
You'll notice that Kabateck fails to mention the $2.5 billion annually in corporate tax cuts passed in the previous two budget agreements, which miraculously exceed the tax hikes - beaten back by the Yacht Party and the Governor in July - about which he is fretting so. These massive corporate tax cuts do nothing to keep the largest corporations in America doing business in California - they would hardly abandon a market of 38 million people. It's nothing more than a kickback for services rendered. And if that's a transaction of prostitution, then John Kabateck is the guy who cleans up the courtesan's antechamber afterward, eager to grab a buck for himself for the privilege of working for whores.
It's amazing how little the California office of the National Federation of Independent Business speaks for independent business. He could have written a nice little article about how corporate behemoths are screwing small businesses when it comes to state purchasing, which currently favors out-of-state multinationals. Instead, he offers the party line that the structural revenue gap is fine and leaving citizens out on the street to die is a small price to pay for protecting oil and cigarette companies. Kabateck doesn't seem to understand that this mentality is destroying the California economy, and with it all of those small businesses he claims to represent.
Hacktackular job, CapWeekly! With any luck, you'll get Jon Coupal or Joel Fox to offer a rebuttal.
Judy Chu was sworn into office today as the first Chinese-American woman to serve in Congress. Her departure opens a whole at the Board of Equalization, a little-known four-member board that collects taxes and determines a lot of corporate tax policy. The four districts are gerrymandered to produce two Democrats and two Republicans, with the state Controller making up the swing vote. Today the Governor announced his choice to replace Chu, and boy are the richest companies doing business in California happy:
Gov. Arnold Schwarzenegger today will appoint Jerome Horton, a business-friendly former Democratic lawmaker, to the state's tax board, an administration official said.
The pick probably will shift the balance of power on the tax panel, which, despite its low public profile, holds broad influence over corporate taxes [...]
Reliably liberal Democrats have formed a solid three-person majority on the five-member tax panel in recent years. But the moderate Horton, who was known during his tenure in Sacramento for abstaining from votes to keep himself in the political center, is expected to change that dynamic.
Well, good for the business lobby, right? It's not like they have had multiple victories in the past year, what with getting all sorts of permanent corporate tax breaks in the past two budget agreements and pushing the Parsky Commission in an effort to eliminate corporate taxes altogether. They needed a leg up.
Horton needs both houses of the Legislature to sign off on the appointment, but much like with Supreme Court appointments, I fail to see how rejecting him would somehow yield a better result.
Rumors ran rampant yesterday that state employees, pushed too far by yet another salary cut (totaling 20% over the course of the year), would potentially strike.
Doug Crooks, Director of Communications with the Service Employees International Union's local 1000, which represents more than 95,000 state employees, declined to confirm the rumor but said any decision would be made by the employees through an authorization vote.
"In the first place, that decision hasn't been made yet," said Crooks about the plan to strike. "That decision hasn't been made yet. We are definitely going to strongly oppose and do everything we can to prevent the governor from imposing a fourth furlough day. But check back with me Monday."
"The bottom line is we negotiated with this governor in good faith and we agreed on a contract that would save $340 million dollars immediately, and if applied to all state employees it would save the state a billion dollars. That's billion with a 'B.' And for the governor to undermine that contract now is beyond irresponsible. He's made the state employee a pawn" in the state budget negotiations.
"Well actually, it's a five percent cut on top of those three furlough days," explained Alicia Trost, a spokesperson for Senate leader Darrell Steinberg. "It's simply a scare tactic by the governor, yet another, and we feel the state workforce has already paid their fair share. What's worse is that it would have a horrible effect on the economy if state workers were to lose up to 20 percent of their buying power."
By the way, Mr. Stogie just lost a furlough case, with a judge tentatively ruling that he cannot furlough the legal staff of the State Compensation Insurance Fund, which has emboldened the larger pool of workers in SEIU. But more to the point, in the world of Arnold Antionette and the Yacht Party, workers making a median income getting 20% salary cuts while the largest corporations doing business in the state get a massive corporate tax break is considered "everyone paying their fair share."
Speaking of which, Lenny Goldberg offers the text of an initiative to repeal the negotiated-in-secret corporate tax cuts and save the state $2.5 billion dollars a year. Opponents typically respond with race-to-the-bottom rhetoric about businesses leaving the state, which isn't true, by the way.
UPDATE: Here's a study out TODAY from the PPIC confirming that the whole "the rich are leaving California" line is a flat-out lie.
Finally, a federal appeals court ruled that California cannot cut Medi-Cal reimbursements, in an opinion written by a George W. Bush appointee. The familiar pattern of breaking the law to cut the budget often runs up against judicial review, and so the criminals in Sacramento - considering what they're attempting, I don't consider that hyperbole - will have to try something else to achieve their long-sought destruction of the social safety net.
It's sad that one comment can mean more to a debate than years of attacking public employees and public works and months of attempting to destroy the California dream. That should be disqualifying enough. But Governor Hot Tubs and Stogies' "let them eat cake" comment in the New York Times has gained some traction. Apparently this was a target big enough for everyone in Sacramento to hit. The Assembly Democrats included it in a video showing the Governor's hypocrisy during recent budget talks.
And that's great. Narrative-setting can be powerful and important. That's what's behind the Governor's idiotic crusade to criticize legislators for legislating while he stamps his little feet. At least for today, I think the Democrats are getting the better of ol' Hot Tubs and Stogies.
Labor groups file initiative to repeal corporate tax breaks included in recent budget deals.
These are the massive corporate tax breaks, which could cost the state up to $2.5 billion dollars a year, agreed to in secret by the Governor and the Legislature during the February budget agreement. In a time of recession, the state's political leadership, hijacked by the 2/3 requirement, gave away billions of dollars to the largest corporations in America while crying poor about social services for the indigent and the needy. And those corporate tax breaks are the ONLY permanent tax changes made in the budget this year.
Damn right they should be repealed. They offend the conscience, cost the state needless cash, and do nothing to help the vast majority of businesses (80-90% of the proceeds of these tax breaks will go to just 200 corporations).
Bottom line: Budgets are about values, and they are about priorities. Before lawmakers take health coverage away from children whose parents are struggling to make ends meet, eliminate financial aid for students who understand that hard work and a college education provide the best promise of future success, or shutter state parks that protect California's natural environment and provide affordable recreational opportunities, they should reverse these permanent and massive giveaways that will compromise the state's long-term financial security.
With newfound spunk from Democrats, at least in the Assembly, and serious moves by progressive advocates to reverse the horrible decisions made in past budget years, I think the ground is being prepared for a legitimate reform of the broken structure that has brought us to this point.
Dan Walters has an apology piece for Prop 13 this morning. Apology piece is being a bit generous, as it is more of a "LEAVE PROP 13 ALONE" kind of thing. He notes that its critics demand piece-meal reform because a complete repeal won't pass. Well, yes, Dan, we DFHs are pretty crazy that way, we aren't into tilting at windmills and have a strange compulsion to go where victories are easiest. Shocking!
By the way, I don't think you will find many liberals who would say that a complete repeal of Prop 13 would be a bad thing. I support a full repeal myself, anyway.
But once you get beyond tactics, Dan has fun with numbers, citing the large increase of property taxes since 1978. He notes that:
Since then, property taxes have risen 800 percent to more than $50 billion, according to data from the state Board of Equalization - far faster than other revenues, thanks to new construction and transfers.
Of course, he doesn't note whether this is in inflation adjusted dollars or not, so I'll assume it isn't. So, knock off a big chunk right there. Further than that, this is a more meaningless statistic. Yes, property taxes have gone up a lot, because there is a lot more valuable property in California today than there was 30 years ago. THere are more homes, more office buildings, lots more strip malls, and even a few more gas stations. So, yes the property taxes have gone up substantially because there are many new properties. In other words, this is a completely irrelevant statistic.
A more useful statistic would be the share of the income tax of state revenue. It's way up (PDF). But instead of useful statistics, we get talking points from the California Taxpayers' Association. The fact is that if we split the rolls for commercial properties and merely taxed them at their current assessment, the state would get an additional $7 Billion in revenue for the next fiscal year. Not raising the tax rate, nothing that new properties do not face, just taxing properties based upon what they are actually worth today. It is a move that would actually increase fairness and the business climate for new businesses.
But guess what, you know what has really risen in the past 30 years in California? Well, that would be people. People in California who need schools, who need police, who need firefighters, who need streets and who need all sorts of services the state provides. With many properties taxed like it's 1978, they do not provide for their fair share of services.
While Mr. Walters really enjoys the status quo and pinning blame on the "Capitol political culture that's utterly incapable of acting responsibly", he ignores the facts that the system does not allow for anybody to behave responsibly. Let the majority govern, and see if the public supports it. Instead, the supermajority binds the hands of the legislators.
What he means is that Proposition 13 allows the state to reach deep into the pockets of people and businesses that buy property at market value. But it does precious little to get a piece of the action from those with long-held properties that have soared in value over the years.
Prop 13 is not only a bad governing principle, it is a bad economic rule. Whether or not Mr. Walters chooses to ignore reality, the fact is that Prop 13 needs to go.
I wanted to add a little more about this "loophole" I discussed earlier. For starters, let's look at how residential properties are transferred. It's a relatively simple transaction, leaving the banks out of it, as the mortgage is a deal between the purchaser and the bank, it really is a two parties, simple transfer. The purchaser pays the seller for the parcel. It's easy to see that there was a transfer there.
But commercial properties are far more difficult. There are several scenarios where it becomes difficult to answer what seems like an easy question: Was the property transferred? The transfer triggers a reassesment, and usually higher revenue for that county. Let's consider a couple of those situations, but these are not the only tough questions on when to reassess:
1) Purchase of a Corporate (or other legal) Entity
Here, the question is what was sold? Did the acquiring company merely purchase stock? Or should the property be considered as having sold since there is a new owner? Take the sale of the Equity Office Group. I used to work in one of the Equity Office buildings in fact. In 2007, the Company was sold to the Blackstone Group, a private equity firm. Yet, Equity Office (EO) was a vast company, and sold for $39 Billion. So, was the purchase of EO a transfer of the properties in California? Did Blackstone simply purchase stock in EO, or did they purchase a bunch of properties? If so, what is the value of the properties? How do they attribute money for each of the buildings that EO owns?
This question is still open for debate. Blackstone made some of this a bit easier by selling off some of the properties, but a complete resolution on these kinds of cases is really tough for the affected assessors.
2) Partial Transfers
There are a few partial sales in residential property, but it is far more common in commercial property. Real estate investment trusts (REITs) allow several owners to own a building or a group of properties. What if one of the large participants in the REITs leave? You might have a new majority owner of the property, yet is there a transfer?
These cases end up in court frequently, and often the owners of teh property can vastly change without triggering a transfer and a reassessment of the property. Homeowners generally can't avoid these reassessments, and besides the fact that commercial properties sell less often, this slight of hand is why commercial properties pay so much less today in comparison to residential properties.
30 years ago in San Francisco, commercial property owners contributed the majority of property taxes, 59%, and residential property owners contributed 41%. Today, we see the reverse: commercial property owners contributed just 43% of property taxes in 2008 while residential property owners contributed 57%. (SF Chronicle 5/21/09)
That statistic should be somewhat shocking to voters who were around to remember the 1978 vote. Looking back at the information from that vote, you'll see the advertising and ballot argument focused on keeping poor granny in her house. Yet Prop 13 was always a project of the corporations and the landlords. Howard Jarvis was whiling away his time as the lobbyist for Los Angeles Apartment Owners Association, incidentally where the Yes on Prop 13 HQ was located, when he emerged from obscurity. The Apartment Owners funded Prop 13, and commercial property owners will be sure to protect it from attack.
If Prop 13 is to be reformed, it must come from homeowners and renters that are being slagged with higher taxes. It should come from those who use services, like our K-12 education system, higher education, and the state parks. It needs to come from a well-informed populace that sees Prop 13 for what it is: A Corporate Power Grab.
This discussion is not to say that the "loophole" is necessarily the biggest issue relating to split roll. It isn't, it is just one way that the corporations have found to use the system that Prop 13 put in place to avoid paying their fair share.
With Juan Arambula apparently leaving the Democratic Party, a day before both chambers were scheduled to vote on the Democratic alternative budget, it's striking how little difference this will make. Because the legislature will not vote to enact a budget but to revise it, on everything but tax increases they need only a majority vote. And the way that the Democrats structured their version, less than 10% of the bill include solutions requiring a 2/3 vote. And Assembly Democrats still hold a 49-29-1 advantage even if Arambula becomes an independent. What's more, the leadership structured a fallback option should those oil and tobacco taxes go down, along with a couple repeals of corporate tax breaks passed in February. Presumably they would simply shrink the budget reserve and pass the same budget, and that could also be done on a majority-vote basis - actually they could pass the oil and cigarette taxes through a majority-vote fee swap, if they really wanted to, although I reluctantly agree with this article that Democrats are probably posturing, knowing they don't have the votes and hoping to at least fork some Republicans on "voting with Big Tobacco and Big Oil. It's simply good politics to do so, but that's a small consolation to those who may see their services cut as a result.
There is a cost to passing these revisions by majority vote, however, because anything done in this fashion will take effect 90 days out, while a 2/3 vote for any revision would take effect immediately. Obviously, with a 90-day lag the savings will not be as robust on the cuts, requiring yet another go-round of this at the end of the year, which was probably inevitable anyway given the lack of revenue filling state coffers. And of course, that will be on the heads of those Republicans who don't vote for these solutions, those "fiscally responsible" types who will cost the state money by failing to fast-track these revisions. Let's hope, beyond hope, that actually reaches the headlines.
The point to all this is that the Democrats' budget will provide a significant amount of pain, which is why they don't have to put up too much of a fight to get it passed. The side-by-side comparison of the two budgets shows pretty clearly that Democrats accepted a substantial amount of the cuts, and also some of the gimmicks that the Governor had in his plan. They added a couple tax increases but not the broad restructuring of government necessary to protect the most vulnerable. They repealed a couple corporate tax breaks for CEOs but not as many as they could have. If you're going to engage in what George Skelton calls Kabuki theater, since you're delivered a fallback plan, don't compromise the Kabuki and instead create the real vision for the state that you desire, something that the grassroots, just getting their feet wet in this fight, can rally behind. Or maybe, the Democratic caucus DID, a somewhat terrifying thought.
Calbuzz continues shilling for the California Commission on the 21st Century, or as I've called it the Latvia option, the plan to craete a flat income tax and massively transfer wealth upward from the middle class to the ultra-rich. Apparently,there are two packages on the table, which I'll label CRAP and CRAAAAAP.
The first package to be considered has these key elements:
• Flattening the progressive, steeply-stepped state income tax rate system to a structure with essentially one rate of about six percent.
• Eliminating the state sales tax (local sales tax levies that have been approved for special purposes like transportation would remain in effect).
• Eliminating the corporation tax.
• Imposing the business receipts tax. It would be assessed on nearly every business in the state as a percentage of its gross revenue - minus the cost of goods and services that it purchases from other companies.
• Charging a "carbon tax" on gasoline, diesel and jet fuel, calculated at the refinery at $20 per ton of carbon emissions. This would amount to about 18 cents-per-gallon of gas.
The second scenario would flatten the income tax structure, but not include the receipts tax.
It's comical to hear Calbuzz call our state income tax "steeply stepped." There are NO tax brackets between $47,500 and $1,000,000. That's a ridiculous statement. Progressives may appreciate the carbon tax, but clearly this proposal - especially if the business receipts tax gets excised, which considering the influence of Big Business on the process is almost assured - would make the overall tax structure in California MASSIVELY regressive, probably canceling out the progressivity of the federal tax structure.
We already have a totally regressive tax system in California when you look at the effective tax rate - what people actually pay. The lowest 1/5 pay 11.7% of their income in taxes to the state, while the richest 1/5 pay 7.1%. And recent budget deals have only made the system more regressive. Now we're planning to completely shift the tax burden to the poor and the middle class.
For example, one option would - among other things - establish a 6 percent "flat tax" that would apply to taxpayers whether they had incomes of $10,000 or $10 million. Under this scenario, the share of taxes paid by middle-income Californians - those with incomes between $20,000 and $50,000 - would more than double, while the share paid by taxpayers with incomes of $200,000 or more would drop by almost one-third. Flattening personal income tax rates also would increase the share of income that California's low- and middle-income households would pay in taxes - exacerbating an already regressive tax structure [...]
By increasing the share of taxes paid by low- and middle-income Californians, the tax packages under consideration would widen after-tax income gaps. Yet the level of inequality in California is already large and growing larger. The average taxpayer in the top 1 percent had an adjusted gross income (AGI) - income reported for tax purposes - of $1,832,123 in 2007 - 50.7 times that of the average middle-income taxpayer ($36,115). California's income gap has been widening for years. The latest Franchise Tax Board data show that one-quarter (25.2 percent) of total AGI went to the wealthiest 1 percent of taxpayers in 2007, nearly twice the share (13.8 percent) in 1993, which is the earliest year for which data are available. In contrast, taxpayers with incomes in the middle of the distribution had just 10.0 percent of AGI in 2007, down from 13.0 percent in 1993. This means that the top 1 percent of taxpayers received approximately 25 times their proportionate share of AGI in 2007, while middle-income taxpayers received half their share. These disproportionate gains translate into a substantial concentration of income at the very top of the distribution. If the share of income going to the wealthiest 1 percent of taxpayers had remained the same since 1993, the bottom 99 percent of taxpayers would have an additional $123 billion in income - equal to $8,388 for each taxpayer.
To the extent that ordinary Californians are overtaxed, it's because the system is completely unfair and designed to support the rich getting richer. And Calbuzz thinks that's dandy, calling it a "major accomplishment" for the Governor, which of course it is - for his wealthy pals and contributors.
The May 19 election's intent from the voters is obscure, although I agree with the leading pollsters in the state that "no new taxes" was certainly not the message. But I want to know what majority you can find out there that, as a result of the election, endorsed eliminating the corporate tax rate and delivering a Steve Forbes-style flat tax that has destroyed almost all of Eastern Europe. You can't. This is a shocking power grab and people had better wake up to it.
I've been hearing the California crisis, and the Governor's response, referred to as a kind of shock doctrine, used to transform the state's social safety net and radically alter the lives of the poor and downtrodden. And that's entirely true. But not necessarily through the budget cuts, which have met fierce opposition from Democrats and the nascent activist progressive movement. No, the real shock doctrine is happening behind the curtain, with a proposal engineered with bipartisan support, that will really permanently turn the state into an experiment in Chicago Boys free-market fundamentalism, not unlike the conservative "paradises" created in developing nations, all of which are crashing, by the way.
Last year, the Governor and legislative leaders put together the Parsky Commission, a classic blue-ribbon panel led by Gerald Parsky, a right-wing investment fund manager and professional hack who has consistently been put to use by Republicans in Sacramento and Washington to carry out their radical plans. He was George Bush's California campaign chair in 2000 and 2004. The idea behind this one started from a decent premise - California has a taxation problem, and needs a study group to look into how to reform it so that it's better equipped to handle boom-and-bust economic cycles. Supposedly, all ideas - including Prop. 13 - would be "on the table" from this commission, which would seek a more stable solution.
Of course, the fix was in from the start. Because this panel respected the 2/3 requirement for raising taxes, it sought revenue-neutral solutions, tinkering and shifting the tax burdens rather than reforming them. So predictably, the end result is a proposal that broadens the tax base while shifting the burden downward onto the lower and middle classes while relieving the wealthy. The Governor's Chief of Staff tipped her hand about this previously when she said that the problem with California's tax structure is that it's too progressive.
Some of the Commission's proposals, like broadening the sales tax to include services in addition to goods while lowering the rate overall, make a bit of sense. But the rest of it is pure right-wing fantasy:
At the 14-member commission's penultimate meeting in Los Angeles June 16, its members appeared to narrow its potential recommendations, due July 31, to two proposals.
Both would lower the top income tax levels and, in one case, eliminate the state's corporate tax and the portion of the sales tax pocketed by the state.
Under one proposal, what the commission refers to as Tax Package 1B, all Californians would pay a 6 percent income tax rate. The state's wealthiest residents currently pay 9.3 percent with lower percentages as earnings fall.
The effect of the proposal would be to increase the taxes on Californians earning less than $100,000 to broaden the tax base.
The state's 8.8 percent corporations tax would be eliminated, as would the 5 percent of the sales tax the state retains [...]
A new "business net receipts" tax makes up for much of the lost revenue from the sales and corporation tax eliminations.
"Business net receipts" taxes are essentially a value-added tax. And one estimate predicts that it would take in $28 billion dollars annually. But everything must be revenue neutral, so in a time of crisis, the Parsky Commission would go to a FLAT TAX and eliminate the corporate tax rate, as well as possibly cutting the capital gains tax. It's impossible to see this as anything but a giant wealth transfer from the rich to the poor. Simply impossible.
Useful idiots like the folks at Calbuzz prefer not to actually take sides on an issue when just splitting the difference between left and right automatically provides the best practice every time. Their somewhat illuminating article about all of this betrays a bias toward that wise "sensible centrism" that ends up orienting toward crazed right-wing solutions every time.
The political play is to produce a tax reform bill so clean it can be introduced in both houses with assurances no one will be allowed to bog it down with amendments. Democrats will be able to avoid drastic program cuts and Republicans can claim they've cut taxes. The bill breezes through both houses on an up-or-down vote and bada bing it gets signed by Arnold and everybody goes to dinner. No muss, no fuss, no partisan fingerprints [...]
Getting a consensus recommendation from the commission, which includes conservatives like former Reagan economic adviser Michael Boskin and liberals like Santa Cruz County Treasurer Fred Keeley is by no means guaranteed. Even if commissioners do agree, their proposal will be fly-specked by lefty groups who will dislike elements that are not progressive, and industry groups, who will push for business-friendly changes.
As a political matter, forcing an up-or-down vote on a package in the Legislature would address what-about-me objections from all quarters, in the same way as the prohibition on amendments to congressional legislation produced by the military base closure commission in the 1990s finally solved that intractable problem. (Or like a Pete Wilson-Willie Brown deal from days of yore in Sacramento.)
After all, the impending bankruptcy of state government should be sufficient to show players at every point of the political spectrum not only that sweeping change is needed, but also that everyone will have to compromise to keep California from sinking into the 9th Circle of Hell.
This is "the midpoint between two points always works best" pop politics masquerading as serious thought, and what else would you expect from a duo who can spin a whole article out of a picture of two politicians smiling. Somehow, "lefty groups" arguing against the literally insane idea of a flat tax has the same moral and intellectual equivalency of business groups trying to wiggle out of a way to pay their taxes. A flat tax would very clearly shift the burden of taxation to the middle class, and practically every taxpayer would actually see their tax burden increase except the few at the top. But because we're in crisis, and everyone will have to "sacrifice," surely we should ram through a right-wing fantasy, turning California into Latvia, Estonia and Lithuania, all of whom have flat tax systems. How's that working out for them?
Over the last decade, Eastern European countries became darlings of the far right by instituting free-market economic policies designed to break convincingly from their Communist past. The so-called Baltic Tigers-Latvia, Lithuania, and Estonia-garnered worldwide plaudits for a number of free-market reforms, led by the imposition of a flat-rate income tax, especially from the American right. "The flat tax is making a comeback," trumpeted the conservative National Review. The three nations are "leading a global tax reform revolution," said the right-leaning Heritage Foundation [...]
Too bad for them that it hasn't worked out. Latvia, which has a flat tax of 25 percent, and Lithuania and Estonia, which have 21 percent tax rates, are all in deep economic trouble. They all have huge government budget deficits, a sign that they took in too little in tax revenue to cover their costs, primarily state expenditures to provide a generous welfare state. Conservatives might argue that they didn't slash welfare benefits enough, but there is no dispute that the flat tax didn't provide the expected revenue.
This is the future that would be put into place - with a no-amendment, up-or-down vote - under the Parsky Commission. Somehow, the elected legislature of the people cannot be trusted with tax law, but an unelected, unaccountable blue-ribbon commission should be empowered to create this radical change in law with no public input. That's the wise and sensible solution. Because we can't have all this messy "democracy" mucking up the need to protect the rich and transfer wealth downward more radically than any proposal ever seen in America. California Budget Bites has more.
It's important to note that this all stems from the revenue-neutral demand embedded in the proposal. Otherwise, it could never pass because it would need a 2/3 vote. So somehow, a flat tax, elimination of corporate income taxes and slashing of capital gains taxes get thrown into the mix, something that nobody outside the fringe far right would ever endorse. The 2/3 rule, AGAIN, prevents a real solution.
If you wonder why I oppose a so-called "bailout" for California, it's because in addition to everything else, that attacks the wrong problem. We need a major restoration of democracy in the state, and instead we get "solutions" that don't reflect the desire of the citizenry. That's why only a local grassroots movement to finally remove the structural barriers, not a one-time cash infusion, will work.
The legislative budget committee working on closing the deficit responded to Governor Schwarzenegger's demands for "efficiency" in state government by cutting his own staff. This is quite an opening salvo, and basically a giant middle finger in the Governor's face. And both sides of the aisle were all too happy to do it.
A legislative budget committee voted unanimously Wednesday to eliminate state agencies altogether, taking dead aim at an administrative layer of gubernatorial bureaucracy that oversees most of the state's departments.
The 10-member panel -- six Democrats and four Republicans -- also voted to eliminate the Office of the Secretary of Education, which lawmakers said is unnecessary because the state already has an elected Superintendent of Public Instruction and a State Board of Education.
Gov. Arnold Schwarzenegger recommended last month that lawmakers consolidate more than a dozen boards and commissions to save $50 million. Schwarzenegger also began laying off 5,000 rank-and-file state workers.The Legislature's move Wednesday appeared to be a sharp retort directed at higher-paid administrative appointees who oversee the departments that provide direct state services.
I really like what they did with respect to the Integrated Waste Management Board, which costs the state no money at all.
Schwarzenegger told lawmakers Tuesday that they should eliminate the Integrated Waste Management Board as a first matter of course before making any other cuts. The board would save the state no general fund dollars, but it has become an easy target because it contains ex-legislators who earn six-figure salaries while serving on the board.
The budget conference committee on Tuesday instead recommended that the state eliminate the Department of Conservation and the Department of Toxics Control while moving their functions to the Integrated Waste Management Board. The committee also recommended that the Integrated Waste Management Board members become part-time and take reduced pay.
The Governor's spokesman Aaron McLear smiled through gritted teeth in response to all this, saying that he's "thrilled" the legislature is joining the effort to make government more efficient, but saying he would not support eliminating any of his OWN authority, of course. He would only support eliminating the Secretary of Education, for example, if the Department of Education (now under the State Superintendent of Public Instruction) were moved into the executive branch.
None of this means that the Legislature will suddenly get religion and reject all of Arnold's bad cuts. The Obama Administration okayed $6 billion in education cuts without threatening stimulus funding, and you can bet the Governor will take him up on the offer. And Democratic leaders, at least, appear in agreement on a number of cuts.
But this is the first example of the Legislature really pushing back at the Governor, and letting him know he doesn't rule California by fiat, nor does he get to unilaterally decide to run it into the ground. In addition, the more public disclosure of the billions in corporate tax cuts in recent budget deals while the programs for the poor get slashed brings a disconnect to the process on which perhaps some progressive lawmakers can capitalize.
The tax loopholes made it through the Legislature with no public hearings and little analysis of the effect, said Jean Ross, executive director for the California Budget Project, a research group that studies the effects of policies on the poor.
"The problem with dark-of-night deals is that you never get a chance to get a debate over value choices," she said. "These three tax breaks represent a reduction of one-third the income taxes paid by California corporations.... They really represent a stark contrast in values and what kind of future we want to see for Californians."
The tax breaks will cost the state $640 million for the rest of this fiscal year and for the 2010-11 budget year as lawmakers search for ways to close a $24.3 billion deficit, according to Ross's report, "To Have and Have Not." By the time they are fully implemented in 2014-15, the tax breaks could cost nearly $2.5 billion a year, she said.
Corporations are LYING, by the way, when they say that this makes the state more competitive. See this paper or this one showing that state enactments have had little effect on economic development. Big business simply wants to lighten their tax burden.
The legislative revolt against Schwarzenegger could be directed into sensible options for closing the budget gap, like repealing the corporate tax cuts, restoring the Reagan/Wilson tax brackets in between $47,500 and $1,000,000 imposing an oil severance tax, extending the sales tax to services while lowering the overall percentage, boosting enforcement of tax cheats, and more. Right now, we have to settle for signals. And this is a particularly good one.
Arnold Schwarzenegger's address to the legislature was notable only for its fatuousness. He demands the destruction of the social safety net in California and pleads that we have "no choice," while hiding the decisions he made which brought us to this point. He claims that his budget is not "just about cuts," then offers the same reforms that the voters have time and again rejected, or half-measures like firing groundskeepers (to privatize school responsibilities to low-wage contractors, incidentally). Evidently, the May 19 special election, which has been massively over-interpreted and interpreted wrongly by the Governor, was supposedly a call to arms against tax increases, but a spending cap and rainy day fund, which were on the ballot and voted down by 66% of the electorate, are still viable ideas. He drew a line in the sand by calling for the dissolution of the Integrated Waste Management Board, an organization that IS NOT FUNDED WITH ONE PENNY FROM THE GENERAL FUND but instead with fees on garbage collectors. He talked about spending less per inmate on the prison population but his budget seeks only to get rid of precisely the services, rehabilitation, drug treatment and vocational training, that would lower recidivism rates, unstuff the prisons, and allow us to spend less on their management. He admitted that money from the sale of surplus property cannot go toward the General Fund, in a fleeting moment of truth, but claims it would lower our debt payments, which is true, but precisely what Arnold has been increases with borrow and spend policies for the last six years.
Of course, Arnold urged swift passage of all his Shock Doctrine proposals, because that's how it works. The goal is to give nobody time to think, only to acquiesce in the face of crisis. Some, like Assemblywoman Nancy Skinner, will not put her brain on autopilot, mindful of the Depression that would ensue from an all-cuts budget and the drastic consequences for our economy.
"The Governor's opening statement that the voters in rejecting the special election measures said, "don't ask us to solve complex budget issues, that's your job," is right," she said. "He was wrong however in his assertion that Californians want an all cuts solution ...We have choices. For instance, restoring the top income tax rate on high wealth incomes of $250,000 and above in place under Republican Governors Pete Wilson and Ronald Reagan would allow us to avoid $4 billion of these cuts. Enacting an oil severance fee on oil drilled in California, revenue collected by every state and country in the world that produces significant amounts of oil, could avoid another $1 billion in cuts.
"The Governor talked of us acting courageously. Acting courageously is looking at all alternatives and making smart, rational choices that lessen the cuts with some sensible new revenues," she said.
Noreen Evans, similarly, has stepped up, at least rhetorically, to offer a counter-weight to the Governor's Shock Doctrine tactics:
SACRAMENTO - Santa Rosa Assemblywoman Noreen Evans is emerging as one of Gov. Arnold Schwarzenegger's fiercest critics, a noteworthy development given her prominent role in the high-stakes back-and-forth over the state budget crisis [...]
"I don't know what the point of that exercise was, really," the Democrat said immediately after the speech as she stood outside the Assembly chambers.
Schwarzenegger told Assembly and Senate lawmakers that he has "faith in our ability to once again come together for the good of the state."
But Evans said the governor was not helpful "at all" in bridging the divide between Republican and Democrat lawmakers. Rather, she labeled Schwarzenegger's approach to budget matters as one of "shock and awe."
"It's working because it's shocking, and it's awesome, and it's terrible," she said.
While there are some voices in the Legislature creating pushback, my experience is that the Democrats fall in line with their leadership (same with the Yacht Party, actually; it's practically a Parliamentary system). And given the clear signs from Bass and Steinberg to bend over backwards to enable Arnold's proposals and get it done quickly, I think the only way to halt this forward march would be to mass support inside the Capitol around specific proposals. For instance, the California Budget Project today released a report about the $2.5 billion corporate tax cuts included in recent budgets in September 2008 and February 2009, cuts we certainly cannot afford in this economic climate. If everyone must share in the pain, as the Governor said, that must mean something. And so these $2.5 billion in corporate giveaways ought to be repealed. Period. Full stop. Here are some of the gems from these tax breaks:
Nine corporations, dubbed the "lucky nine" in the CBP's analysis, will receive tax cuts averaging $33.1 million each in 2013-14 due to the adoption of the elective single sales factor apportionment, according to estimates by the Franchise Tax Board.
Eighty percent of the benefits of elective single sales factor apportionment will go to the 0.1 percent of California corporations with gross incomes over $1 billion.
Six corporations will receive tax cuts averaging $23.5 million each in 2013-14 from the adoption of credit sharing.
Eighty-seven percent of the benefits of credit sharing will go to the 0.03 percent of California corporations with gross incomes over $1 billion.
Are there 27 Democrats in the Assembly, or 14 in the Senate, willing to go to the mat to force the repeal of these unnecessary corporate giveaways, providing revenue that can go to the poor, the sick, the infirm, the elderly? Rank and file Democrats never think to show their power in these negotiations. In a time of crisis, they should - and force the Governor toward a more equitable solution. Richard Holober's post, which I referenced earlier, closes with this:
It's time to re-unite a fractured progressive movement - based on hope, not fear. We need leadership that can think beyond the imminent crisis, reach out to build a coalition, and organize for budget justice. Labor and community based activist organizations must supply the leadership.
Let's mobilize behind broadly supported values: require corporations to pay their fair share of taxes; increase the progressivity of our tax system; and eliminate undemocratic super-majority budget and tax rules that give a handful of reactionary politicians a stranglehold over funding our schools, health and public safety services. The campaign may take years. We can win, but first we need to get out of the budget crisis bunker.
Which politicians will enable us to escape that bunker?
I just appeared on KPFA with Eric Klein to talk about the Governor's proposed budget cuts, along with several experts and stakeholders, including friend of Calitics Anthony Wright of Health Access California. I agree with him that it's almost hard to fathom the amount and severity of the cuts proposed for health care, especially at a time with the federal government is moving forward with a "do or die" plan to reform the health care market, increase access and lower costs. The proposed Governor Hoover cuts would have the exact opposite effect, and the people gravely impacted by this will not have the luxury of waiting around for the Feds to catch up and fill in the gaps.
Two recent CBP fact sheets help break down the Governor's proposed cuts to Medi-Cal and Healthy Families, in numbers that are easier to grasp. These fact sheets show:
More than 940,000 California children would lose health coverage if the Healthy Families Program is eliminated as the Governor proposes. More than 240,000 children in Los Angeles county alone would be affected. Want to know how many children would be impacted in your county? Check out the fact sheet to see.
In total, more than 1.9 million Californians could lose access to health coverage within three years through proposed reductions to the Medi-Cal Program and elimination of Healthy Families.
As the Governor said himself today, "behind every one of those dollars that we cut there are real faces."
Kudos to the LA Times, by the way, for allowing the great unmentionable to get printed on their pages - the decisions made in Sacramento will truly be the difference between life and death for many Californians.
Schwarzenegger argues that the state's declining economy and plummeting tax revenues have boxed California into a corner, forcing deep and historic cuts in the health and welfare programs that form the state's social safety net. Without those tough measures, he says, California will cartwheel toward insolvency.
But a 10-person legislative budget panel, which is reviewing the governor's proposals, listened during a long day in a crowded hearing room to scores of people who said their survival depends on programs set to be hit by the budget ax.
They heard from mothers of children with autism, representatives of people on dialysis, poor parents whose children see dentists on the government's dime, former drug abusers set straight by a state rehab program.
And they heard from a woman named Lynnea Garbutt who has lived with AIDS all of her 24 years.
She has survived with the help of a state program that provides the expensive antiviral drugs she takes. Now, with that program facing elimination, she pleaded with lawmakers to save it -- and her life.
"If these cuts take place, you're not just cutting money from the program -- you're cutting my life," she told the panel, her voice shaking and tears falling. "I choose to live. Please don't make me die. My choice is life."
This is how Yacht Partier Chuck DeVore responded - move out of the state. Love it or leave it!
The cuts made to programs like Healthy Families (California's SCHIP) would eliminate federal matching funds and double or triple the scope of the cuts. And it would be one thing, by the way, if the Yacht Party simply held the line and said "we can't afford it." But no, they want to spend billions of dollars, only on their own projects instead of saving human lives.
In this article in the San Diego Union Tribune, the same Republicans (and Republican governor) who would eliminate children's health care and basic services for the neediest Californians, actually want the state to pony up the money for a water bond.
Schwarzenegger, says the article, is still fixated on a whopping $10 billion bond. And Senate Republicans are right there with him:
"Sen. Dave Cogdill of Modesto, the lead Republican on water issues, agreed. "It's obviously a tough time to bring it forward, but we can't wait," the article notes.
We can't wait? According to my calculator, If the entire $10 billion was sold together, the interest payment could be in the neighborhood of $660 million annually. That's $660 million more that would have to come out of schools, health care, and other items on the chopping block.
Similarly, the Yacht Party cried poor about programs that help people, but made room in the February budget for a huge corporate tax cut.
Everyone who has spent 10 seconds on this recognizes that there's no good way to use current revenues to provide the basic level of services Californians deserve. To the extent that I have hope that we will overcome the selfishness of the cruel and the impossibility of navigating a broken system, it comes from people, who are fed up and starving for leadership and change from a government that no longer serves their interests. To turn the figurative starvation literal, Los Angeles teachers are going on a hunger strike to protest budget cuts. We're all hungry, and we'll be a lot hungrier if Governor Hoover has his way.
Despite his admission that California is ungovernable, the Governor soldiered on today, announcing the full slate of revised budget cuts to replace his proposed borrowing, since scrapped, and to fill the even larger deficit estimated by the Legislative Analyst. As expected, the Governor called for eliminating the CalWORKS program for the poor, eliminating Healthy Families to provide health insurance to poor children, and phasing out the Cal Grants program which provides financial aid to California students. But that's not all. As Noreen Evans says, the Governor's cuts "dismantle the New Deal." Here are some of the lowlights in these 25 distinct cuts:
• Add another furlough day to an already-negotiated contract between the Governor and SEIU Local 1000.
• Cuts $1 billion dollars over 3 years to UC and CSU budgets.
• Eliminates CalFIRE equipment repair and replacement for one year.
• Eliminates all General Fund support for state parks, forcing them to become self-sustaining to survive.
• Cuts Medi-Cal coverage for breast and cervical cancer treatment and dialysis.
• Eliminates funding for Indian Health Services, Rural Health Services, and Seasonal Agricultural Workers.
• Reduces funding for the AIDS Drug Assistance Program.
All in all, we're talking about $6 billion or so in further cuts, most of them, as you can see, to the most vulnerable members of society. More than 1.9 million Californians could lose health coverage as a result. About the only positive here is that the Governor follows through in commuting the sentences of nonviolent, non-serious, non-sex offenders, for one year only, in 2009-10. Of course, he won't invest the time or money in treatment and rehabilitation that would save the state billions in the long run by completely revamping our corrections system.
Now, we're told that, since the citizens won't accept any new taxes (the truth, of course, is that the special interests won't accept them), because they supposedly let their voices be heard (in record-low numbers) in the special election, this is the best we can do. Let's set aside the fact that public opinions on this front are contradictory at best and the very opposite of what the Governor suggests at worst. The truth is that anyone who tells you we must cut, cut, cut because there's no other option is lying to you.
The only permanent tax measure in the entire February 2009 budget was a giant tax cut for the largest corporations in America. At a time when revenues are scarce and no money can be found for poor children or student grants-in-aid, every large corporation will be allowed to decide for themselves how they choose to be taxed by the state of California.
At issue is the new "elective sales factor," a system for determining how much tax a company should pay in the state. Up to now, California's tax system taxed corporations using a formula based on employment, property and sales in the state, sometimes know as a "triple factor" system.
Many companies have long argued that this traditional way of calculating taxes punishes companies that invest in the state and create jobs, but critics disagree. Under the new elective system, set to go into place for the 2011 tax year, companies can choose to pay under either the triple factor formula or via the "single sales factor" system, based entirely on their sales in California.
"The policy behind a single sales factor formula is you reward the companies that heavily invest property and payroll in the state," said lobbyist Chris Micheli, who represents numerous corporate clients with his firm, Aprea & Micheli. He said he did not personally lobby on the elective sales factor provisions.
The most vocal critic of these changes is Lenny Goldberg, executive director of the California Tax Reform Association. He said he is opposed to single sales in the first place-but that allowing companies to choose which system they use is even worse. He said companies will now be able to report more revenue to the state in good years and move losses into the state in bad ones.
"Tax policy should be consistently applied," Goldberg said. "But we've given this elective that provides for infinite manipulation."
The changes were part of a budget trailer bill, ABX3 15, authored by Assemblyman Paul Krekorian, D-Burbank, and a related bill from the Senate, SBX3 15 by Senator Ron Calderon, D-Montabello. Goldberg said these bills negotiated behind closed doors, without hearings, during rushed budget negotiations-leading to a very bad deal for the state.
"This is the gutting of the state corporate tax," said "In fact, they did it so badly that lawyers are chuckling about the opportunities for tax avoidance."
This would make California the only state in the nation to give corporations a choice on how they would like to be taxed. It will make the state's finances more volatile forever, because as Lenny Goldberg says companies can use California as almost a kind of tax haven.
By the way, such a tax evasion was pushed as much as anyone by Democrats in areas with high-tech sectors. They have been clamoring for this shift in corporate tax policy for a generation, and they slid this into the budget at the last minute. And... wait for it... reversing it will require a 2/3 vote.
You can argue about whether or not this would spur local investment or just provide a giveaway - although the facts point to the latter. You cannot argue at all that, in the midst of an historic recession and a dearth of revenue, now was the best possible time to hand out what could be $1.5 billion dollars a year in a huge corporate tax break. Supposedly, we're told by the Governor and political leaders that now is a time for sacrifice and to "live within our means." Surely the corporations ought to be held to that same standard. We are in a situation where we have no money for parks, no money for the poorest in society, but enough to give a huge corporate tax cut. Surely they feel the civic responsibility to contribute their fair share. Surely they understand the dangers of a less-educated, less-healthy workforce on their personal bottom lines. Surely they aren't all about the MONEY.
It shouldn't stand. The Democratic leaders in the legislature, who allowed this to go forward with nary a peep in February, should not be allowed to get away with such complete double-talk this time. That $1.5 billion would save almost every program I bullet-pointed above. If they want to cut their way to glory, at the very least they can repeal this massive, unjustified corporate tax cut. The reason the next Governor will inherit a mess is mostly process, but also the failure of the Democrats in the leadership to look out for the best interests of the state and allow far more hijacking than is reasonable. 15 Democrats in the Senate and 27 in the Assembly could actually DEFY that leadership and demand a repeal to this tax giveaway.
Otherwise, they have absolutely no standing to argue that the cuts-only nightmare we will soon face represented "the best they can do."
I spoke at yet another Democratic Club meeting on the May 19 propositions yesterday, against yet another member of the California Legislature, Julia Brownley (who I really like and respect). One thing I sought to make clear to everyone is that we are going back to the drawing board on May 20 no matter what happens on May 19. The Legislative Analyst already finds the February budget deal to be $8 billion dollars out of balance, and April tx receipts came up $1.8 billion dollars short of the budget projection. Some of us recognize that this means alternative solutions must be gathered right now, because Democratic legislators will be stuck in the chamber with the Yacht Party on May 20 regardless.
I was heartened to hear Assmeblywoman Brownley note that a majority vote fee increase will probably be part of the solution. When the Legislature passed this in December, they raised more money than would be sacrificed if Props. 1C, 1D and 1E failed. An argument could be made that the majority vote fee increase combined with the passage of those props would obviate the need for almost any cuts. I think that's faulty reasoning, since 1D and 1E ARE cuts, to vital services that will cost the state more money in the long run. As for 1C I find it completely unworkable and just a borrowing gimmick.
I do have to say that it would be much easier to swallow this posturing from the ballot measure supporters that they would have no choice but massive cuts on May 20 if everything failed, if they didn't enable massive permanent corporate tax cuts in the last budget deal...
Corporate tax attorneys are chuckling over the absurd deal in the last agreement that lets multistate and multinational taxpayers decide, each year, how much income they want to report to California. Because this was negotiated in private, with no hearings and no independent expertise brought to bear, the result is a giveaway and a national embarrassment, in a state that had prided itself on a fair, successful corporation tax.
Here's how it works. Each state typically figures out what percentage of a large company's business is done in the state, and then taxes that percentage of income. Historically, if 10% of a multistate company's payroll, property and sales are located in the state, then 10% of its nationwide or worldwide income is subject to tax. In the budget deal, California changed the formula to allow companies to choose to make that percentage based only on sales in California.
The entire architecture of the ballot pact that emerged was heavily shaped by leaders' desire to please - or at least neutralize - the state's most powerful political players.
Now, some of those very interest groups protected in the budget deal are bankrolling the campaign to ratify it.
For the oil industry, the package omits a once-proposed 9.9 percent oil severance tax. Energy companies have given more than a million dollars to pass the plan, led by a $500,000 donation from Chevron.
For the liquor, beer and wine industry, increased alcohol taxes were shelved. Alcohol industry heavyweights, such as E. & J. Gallo Winery ($100,000) and California's Beer and Beverage Distributors ($50,000), have all opened their checkbooks.
For the teachers union, the list of ballot measures includes a separate measure to ensure repayment of deep cuts to schools and protections for top-priority programs. The California Teachers Association has contributed $7 million to the passage of Propositions 1A and 1B.
For casino-operating Indian tribes, the state lottery measure avoids any new games that could threaten their gambling operations. Tribes, who could have been major contributors against the lottery proposition, have kept their checkbooks closed.
In the last budget deal, all the industry-specific taxes, all the service-based taxes that wouldn't be so regressive, faded away, and the same groups protected by that fade (including practically every sports team, as sporting event-industry taxes were once on the table) ponied up for the special election. So pardon me if I don't believe your lament that you'll just be forced to cut state services, when you found room for billions in tax cuts to the largest corporations in America and protected every single industry that could donate money for ads and mailers. Let's just say I don't buy the image of a legislature with their hands tied.
When Arnold Schwarzenegger isn't governing by magazine cover, he's governing by Sunday talk show. This is a good venue for him, because nobody asking him questions has any idea what Arnold's actually done to California, and he can spout off one-liners and talk the Beltway language of post-partisanship without rebuttal. These kinds of interviews are never given to reporters in his home state, because they might actually have experience with his tenure and thus would be in position to know a lie when they see one.
For example, the Governor is getting a lot of ink for the line about how he'd be willing to take any stimulus money from any governor in the country who rejects it. Less discussed is the essential falsehood present in this comment:
STEPHANOPOULOS: So when you -- we're looking at a similar budget crisis in the coming years here in the United States. Does the Republican Party have to re-think its absolute opposition to tax increases of any kind?
SCHWARZENEGGER: Well, no, I think that the Republican Party or any party has to always think, when you make a decision, "Do I want to make a decision that's based -- that's best for the party? Or am I a public servant and have to serve the people, what is best for the people?"
And in this particular case, in order to solve a $42 billion deficit, the only way you can do that is a combination of making severe cuts and also having some revenue increases.
Really? Arnold was "listening to the people" when he helped ram through a massive corporate tax cut, in a time of deficits, for large multinational corporations? Show me the poll where the public was clamoring for a multinational corporate tax cut. How about the poll where the public was desperate for waiving environmental laws regarding public works projects and delaying implementation of laws regulating diesel emissions? Actually, the California public has spoken pretty profoundly that they want a serious reduction of greenhouse gas emissions.
I mean please. This is a guy who campaigned almost entirely in 2003 on cutting the vehicle license fee, costing the state almost enough to fill this entire budget gap over 6 years, and now he's raised it after admitting defeat. Arnold Schwarzenegger is a born liar. He has the interests of the California Chamber of Commerce and anything but the people of California. That's why he refuses to engage with them or their elected representatives, preferring to float above it all and run to the national media with false tropes about "serving the people." Forget just apologizing to Gray Davis, he should abdicate to him.
This last bit from John Myers was amusing:
And in non-governor news, he confirmed an interest in a cameo appearance in an upcoming Sylvester Stallone flick, picked Mickey Rourke to win an Oscar, and said The Candidate was his favorite political flick. That movie is an interesting choice, given it's about a candidate who's so focused on winning -- rather than governing-- that after his victory famously says: "What do we do now?"
Before last night's blogger conference call with LA City Council President Eric Garcetti, my opinions of the budget deal from Sacramento weren't very well-formed. I think I have become so inured to craptastic solutions from Sacramento that this one looked no worse than others. Of course, I don't have a responsibility to constituents and a need to implement the outlines of the plan, so Garcetti's very forceful words against the package kind of snapped me out of my slumber. Here's a paraphrase.
"I think it's a reflection of a broken system. It's like shooting a little morphine into a sick patient. I think depending on federal dollars to balance the budget is irresponsible, and will blunt the impact of the stimulus. It means that the county and school districts will see a lot of projects rolled back. The health care cuts are going to be devastating. You're going to see a lot more homeless people this year, a lot more people who need critical care and can't get it. So there is no joy in this resolution other than that it is a resolution."
Very strong stuff. And he's not wrong. My one quibble would be that it's not the reliance on federal stimulus dollars to balance the budget, which is necessary and will save jobs throughout the system, that gets me, but the continued reliance on borrowing and the raid of voter-approved funds for mental health and early childhood programs, which is illegal and will require the unlikelihood of passing new initiatives.
There isn't any margin for error if, say, one of the FIVE measures that will now be on the ballot in order to secure the budget fail, or if the giant corporate tax cut fails to satiate business, or if nobody wants to buy our debt or buy the state lottery, which is losing revenue. It's another seat-of-our-pants craptastic budget which makes no long-term solutions and essentially keeps intact a broken structure. Garcetti is right that the problem is systemic, and so that's the goal for progressives in the state for this point forward - systemic change.
Well, Sacramento lawmakers miss their homes and they have a couple months of campaigning to do. So they got together and hammered out a no-taxes, no-borrowing, cuts-and-gimmicks budget that delays for at least a year the great reckoning that California desperately needs if it wants to have a functioning government. Of course, there are new taxes in the deal, in the form of gimmicks that will eventually force the state to raise taxes higher in the future. For example, the budget apparently borrows from taxpayers:
A key element of the deal would increase by 10 percent the amount of income taxes withheld from working Californians, and from taxpayers who earn income from investments.
The maneuver would generate about $3.8 billion to ease the budget crunch, but the plan calls for providing future refunds to affected taxpayers.
In other words, we'll all be giving California immediate cash they then will have to hand back to us later, increasing the need for future revenue adjustments. In the short term, this literally cuts the wages of workers in the state across the board, particularly those who can least afford it.
In addition, there are new truck-sized loopholes that will be shepherded in here. This is from the California Tax Reform Association, and if true, it's a bombshell:
In exchange for a small amount of temporary short-term revenues, the Legislature is poised to open two vast new loopholes in the corporation tax, loopholes which will continue indefinitely. The impact will be to greatly diminish the corporation tax at future costs to education, health care, and public safety. This is a huge giveaway to multinational corporations.
Those loopholes are:
Net Operating Loss Carrybacks. In exchange for suspending the ability of corporations to take losses going forward for two years, the budget deal would permit loss carrybacks-the ability to get refunds against prior taxes based on a year's losses.
This is nothing but a tax shelter which destabilizes the general fund. It gives a refund for taxes already paid, with such refunds coming most likely when the economy is in recession. As a result, when we're making cuts, the state will be cutting refund checks to large corporations. The ability to take losses into the future has been part of tax policy for 20 years, but the legislature has rejected carry-backs for 20 years, because it is nothing but tax manipulation.
Cost: at least _ billion per year, but likely more because of the second loophole.
Exchanging credits among affiliated corporations. For state tax credits, the state has always insisted that the credits be taken by the corporation that engaged in the activity which is eligible for a credit. In exchange for limiting corporation tax credits for two years to get short-term revenue, the budget deal opens up the ability of affiliated corporations or subsidiaries to transfer their credits among other corporations-forever!
There are many billions in unused credits from companies that have not earned sufficient profit to use them. This proposal will open the ability of companies to effectively sell these credits-e.g. by allowing ownership by another company-so that the billions in unused credits can now be used by profitable corporations.
Cost: this could be billions per year and will total many billions over the years. In combination with loss carry-backs it will open the corporation tax to endless manipulation.
If you're the state controller, you can say goodbye to collecting one dime of tax revenue from corporations in the foreseeable future. I guess we've finally become a business-friendly state after all. Thank you, shock doctrine!
And in addition, there will be very real pain from this budget, not just in the future, but right now. Just in the area of health care, the costs are tremendous.
The immediate cuts in the budget deal are expected to include:
• increased reporting (every six months in Medi-Cal) with the purpose of having over 250,000 children lose coverage.
• increased Healthy Families premiums.
• delayed restoration of the 10 percent Medi-Cal provder rate, leading to a loss of hundreds of millions of federal matching funds.
These are severe cuts that will hurt not just hundreds of thousands of patients, but our state's health system and our economy.
You read the first one right, the goal is to use "death by paperwork" to kick a quarter of a million children off of Medi-Cal. This is the honorable, do-no-harm budget our legislative leaders have constructed.
There was no reason to believe that any persuasion would have worked on the Yacht Party from the beginning of this session. Dragging this out 77 days so we could provide a big ol' giveaway to corporations while doing nothing to address the long-term structural deficit doesn't make a lot of sense. It would have been better to force the issue through ballot initiative right now, and end this madness of a 2/3 requirement for budget and tax matters. The state is poorly run because so much energy is put into overcoming intractable structural hurdles rather than trying to streamline a bureaucracy that must serve 38 million people. This starts with injecting minimum accountability for the party in power and allowing lawmakers to do their jobs. I believe that Karen Bass and Darrell Steinberg know this, and they will be more reluctant to go along with drilling a giant financial hole for future generations. The question is whether or not they're too late.
