Michael Hiltzik who for some reason has become the new voice of opinion in the business section of “my” L.A. Times launched on The Governator last week (sorry for the delay in blogging, I’ve been busy):
Gov. Shuns Most Obvious Fiscal Remedy
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For someone who accumulates praise for his do-it-now demeanor the way a scow collects barnacles, the governor certainly does a lot of whining. In truth, his budget can have anything in it he wants. If any California governor in the last 20 years has had the chops to prevail over this “broken system,” it’s him.
Yet he insists, “This is all the money we have…. We must live within our means.”
The only thing limiting the amount of money the governor can spend is his doctrinaire refusal to acquire it from the most efficient and least costly source: the tax rolls. It’s obvious from his budget that he endorses in principle most of the spending programs the state undertakes — on schooling, road building, environmental protection anod so on — or he would have taken a sharper ax to them.
But he keeps running from his responsibility to inform the voters that the right way to pay for them is cash on the barrelhead. Instead, he argues that putting the bill on the charge card — more than $2 billion in new debt this year alone — is the more responsible path.
Nor is it accurate to say that a tax increase is a “liberal” solution. Govs. Pete Wilson and Ronald Reagan, facing deficits like today’s, temporarily raised the top tax rates on the state’s richest residents to 11%.
Perhaps Wilson, who advises the governor, wants to spare him the pain of being pilloried by the right wing, but that’s a meager rationale for fetishizing the current top tax rate of 9.3%. (My rough math says that raising the top rate to 10% on all incomes higher than $500,000 and 11% on those beyond $1 million would yield as much as $2.5 billion a year.)
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You can reach Michael Hiltzik at golden.state@latimes.com and read his previous columns at latimes.com/hiltzik.
Why can’t Jill Stewart be writing this column? Oh – sorry, the Times would never hire her back. That’s their loss (and ours). Here’s Jill, on the very topic of Mr. Hiltzik’s ‘obvious’ solution:
Elizabeth Hill, the state legislative analyst, who strives not to side with Democrats or Republicans, pointedly explained that corporations comprise only a small part of the roughly $70 billion tax revenue–roughly $6 billion.
That was a shock to some Assembly members. Hill noted, again rather pointedly, that “the top 5 percent of Californians pay 42 percent of the income taxes” and that just 10 percent pay 80 percent of income taxes. Furthermore, large numbers of millionaires and those making $100,000 or more have vanished. Some went broke, but others left for states that don’t make them carry as big of a load, like tax-free (and booming) Nevada.
The packed audience at the special hearing appeared stunned. The message was clear: There aren’t enough corporations and rich around to pour huge new tax dollars into state coffers and save us.
Here’s Dan Weintraub (who also would be a damn site better as a columnist):
Nobody knows how those wealthy taxpayers would react to such an increase. If they stayed in California, and didn’t change their behavior, the state treasury and those who rely on it for services would be better off. And certainly a tax increase of a few thousand dollars on someone making a half-million a year would seem unlikely to drive them from the state.
But if the increase prompted just a few thousand of the wealthiest taxpayers to flee California, then the revenue decline it would cause could make the past year’s drop seem mild. The truth is you could put thousands of laborers to work at good wages and probably not compensate for the lost income tax from one departed millionaire.
Even if it worked as intended, raising taxes on the wealthy would push California out on a fiscal limb that everyone already knows is weak. Had the higher rates been law during the late 1990s, the revenue growth the state experienced would have been even greater. And the decline, when it came, would have been even steeper.
Going further in that direction would make the state’s masses even more reliant on the good fortune of a few than they are today. And as the last few years have shown, in the long term that can be a very risky proposition.
One major reason, many analysts agree, for the fiscal collapse of california is that tax collections collapsed faster than the economy did becase they were so dependent on high-wage earners – whose wages either collapsed in the dot-bomb era, or who took their liquidity and managed their ‘taxable’ exposure through deferred compensation or other strategems, or who simply moved to a lower-tax state.
I believe strongly in progressive taxation.
But I believe more in a tax policy that works, provides stable revenues to state and local governments, and is accompanied by some measure of fiscal prudence on the part of that goernment.
I outlined some notions of such a policy quite a while ago.
My party handed out millions of dollars as party favors in the 90’s, and the credit card bills are now coming due. My party ought to take the lead in finding a solution – one other than asking Dad for his Mastercard, so it can be charged up too.
A.L.,
It’s worth noting that those Californians in the top 5%, measured by income, got a huge tax break as a result of the Bush tax cuts. If you reduce federal taxes on Ms. Utility Company CEO by $900,000, and increase state taxes by $100,000, she still gets a good deal, no?
I also wonder how many Ms. CEO’s and similarly situated taxpayers have owned their homes for a significant period of time, and are therefore paying far less — proportionally, if not actually — in property tax compared to the middle class California family that finally scraped together the means to buy a house on my block last year, or the Inland Empire nurse who has barely managed to buy a condo.
Californians — especially those who own expensive cars — did get a big tax cut via the reduction in the vehicle license fee, which was a progressive revenue source. It raised about $3.6 billion a year. If it has stayed in place last year and this year, most of the state’s $8 billion deficit for next year would not exist.
As to those at the bottom of the California barrel, consider the fate of IHSS (in-home supportive services) workers, who would go from making the massive sum of $8.50 to $10.50 per hour to getting $6.75 under the governor’s budget proposal. If you have an elderly aunt who’s avoiding the nursing home thanks to an IHSS helper, or if you plan on being elderly yourself some day, it’s worth thinking about.
People have to decide what they want to pay for. There is no right or wrong, but there are choices. The across-the-board cuts that the governor proposes avoid choices. There’s also the peculiar proposal to borrow and defer this year, and ask the voters to prohibit it in the future. I like “political scientist Bruce Cain’s comment”:http://www.mercurynews.com/mld/mercurynews/news/editorial/10659125.htm?1c in a story written by Daniel Borenstein in today’s “San Jose Mercury News:”:http://www.mercurynews.com/mld/mercurynews/
”He wants to be the last person to borrow. He wants to be the last person to commit the crime.”
Finally, a footnote on Jill Stewart. I have no use for anyone who knows how to criticize, but not how to praise. (Never mind how nasty she is.) Isn’t the need for that kind of balance the theory behind Good News Saturdays on this very blog?
“I believe strongly in progressive taxation”
and “progressive taxation” came from the communist manifesto.
“Social Justice” does not belong in the tax code of a free people.
Once principle is violated it becomes meaningless.
The only proper aim of taxation in america is for National Defense, and forein policy, for the states, police, roads and bridges (infastructure)
Communist “Social Justic” in our tax code is an outrage, a toxic anti american evil that needs to be abolished. it violates everything amerca is about.
Marc,
Not going into any contraversial territory today, just wanted to let you the inestimable Daniel Weintraub, (“Here’s Dan Weintraub (who also would be a damn site better as a columnist”), is indeed a columnist for the Bee, he just happens to have a blog as well (somewhat edited by the Bee’s editorial staff, not worth linking to this shameful display of progressive PC).
Mike Daley
http://www.sacbee.com/content/politics/columns/weintraub/
It gets worse. Back in the Seventies; ordinary people were being taxed out of their homes as assessments rose while their incomes did not as California’s population boomed while available land and housing did not. Hence Prop 13. Which capped revenue from property taxes.
It got even worse when either Deukmejian or Wilson, forget which, took property tax money away from the local governments and re-distributed it in lessened amounts to balance a previous State budget in crisis.
This leaves local governments (counties and cities) nearly totally dependent on the state of their lobbying effort in Sacramento. The one thing they keep is the sales tax, hence all the big box superstores, since there is little government outlays (roads/schools/sewers/water etc.) compared to lots of sales tax money. It’s another reason California’s housing crisis is so bad; local governments prefer retail over housing.
Prop 13 is the third rail because lifting it would cause ordinary people to lose their homes; folks are justifiably afraid that the largely urban/wealthy Legislature from the Bay Area and LA would not stop at just Commercial properties which have been floated and killed, that they would go whole hog and lift it for residential. Given that they are mostly from places that are uber-rich or impoverished renters.
A.L., If you like Weintraub, you’ll love his colleague “Dan Walters”:http://www.sacbee.com/content/politics/columns/walters/. As a Sacramentan, I’ve been talking to “The Radical Centrist”:http://www.theradicalcentrist.com/ about setting up network of Bloggers Helping Arnold Reform California (BHARC?) via constructive criticism and thoughtful advocacy. You in?
Ah, Jim, do you really think that it makes sense for urban legislators to be especially in favor of repealing Prop 13 because their constituents are (allegedly) rich? There’s a non sequitur here: they wouldn’t mind because their consituents would be hurt the most? I rather doubt if agricultural land, for example, would reassess nearly so high, and of course a split rate for agricultural property is not out of the question.
Jim,
A couple of historical notes.
Prop. 13 was largely financed by apartment owners, not by homeowners. Seems they couldn’t pass along the rising property taxes in rent. Interesting that the history looking back uses the rhetoric of homeowners being taxed out of their homes — not part of the campaign to pass Prop. 13.
Prop. 13 was aimed at local governments, since that’s where the property tax went. Prop. 13 contained a provision that the state legislature would be required to allocate the property tax revenue — not something it had done before. Since the state coffers were flush at the time (1978), the Legislature passed AB 8, which bailed out local governments for the loss of the property tax revenue — using income tax and sales tax receipts.
It’s that AB 8 bail-out money that the state reclaimed for its own budget in the early 90’s (by then the voters had passed Prop. 98, which requires that 40% of every dollar coming in to the state go to schools). Few people know that it was never a local government revenue to begin with.
But wait, it gets worse! The state has created yet another bail-out with the Vehicle License Fee, which went … guess where? … to local government! The Gov fulfilled his campaign promise, and cut the VLF by $3.4 billion a year, but in order to avoid a justifiable (in my view) local government revolt, the state backfilled that money, continuing to send the same amount to local government without the revenue source despite the fact that the state budget was in crisis.
How was this accomplished if the state was broke? By borrowing, of course! The state used part of the proceeds of the $15 billion bond that the governor campaigned to pass. It’s going to be borrowed money that gets sent to the locals again this year.
That VLF cut will be paid for by your children and grandhildren if you are a California resident. I doubt that you’ll have to guess how I feel about that! Pay me now or pay me (with interest) later. We’ve shifted from tax and spend to borrow and spend anyway.
All of the Above;
While this sixth decade, 4th gen Californian, was forced to spend some of the State’s most politically important years, mid-70’s, in the hell hole of DC, nothing in that decade was as negative as what occured in the preceding decade, the infamous 60’s.
No, not the deluded little people on the streets and campuses, but the epitome of power, the Warren Court.
In the late 60’s said Court decided that the State’s long funtioning Federally styled bi-cameral legislature was “unconstitional”. From that point on, no longer was the Assembly population based and the Senate County based, but all would be population based, thereby denying all rural residents any say in governing.
Prior to this ruling, Governor Pat Brown was able to create one of the greatest physical and educational infrastructures in the Nation. Following the ruling, CA degenerated into another “right to OP’s money” state.
Prop 13, as necessary and correct as it was, was nowhere as negative an influence as the Warren Court’s highly flawed “one man-one vote” decision in the real world.
Mike