Actually, tax increase would slam Calif. economy

April 17, 2012 - By admin

April 17, 2012

By Wayne Lusvardi

Dan Walters, call your office!  Or call a reputable economist for therapy.

Walters writes that a marginal tax rate increase amounting to $9 to $10 billion in new revenue would reflect only 0.5 percent of the total state Gross Domestic Product.  And it would increase state revenues by only 6 percent from $160 billion to $170 billion.  A marginal tax rate is the rate you pay on the taxable income that falls into the highest tax bracket you reach: 8, 9, or 10 percent, etc.

Why a tax increase?

But during Jerry Brown’s recent trip to New York. he blurted out that the state GDP had increased by $90 billion, or 4.75 percent, increase in 2011.  That should have increased tax revenues by $9 to $10 billion without having to raise the existing income tax rates on millionaires — Brown’s tax proposal; or income tax rates on everyone but the very poor — Molly Munger’s tax proposal.

The top tax income tax rate in California currently is 10.3 percent. This is the second highest rate in the nation, after Hawaii at 11 percent.

California recently let its temporary sales tax increase expire in July 2011. Thus, the state sales tax has been reduced from 8.25 percent to 7.25 percent — still the highest state sales tax rate in the United States. Local governments can add 1.5 percentate points to the base sales tax rate.

And California has the highest corporate tax rate of 8.84 percent of all Western states (excepting Alaska).

Subtract the $4.5 billion lost tax revenues from the expiration of the 1 percent temporary income tax rate increase and California would still have about $5.5 billion in new net taxes remaining.

The state legislature recently diverted $1.4 billion of excess redevelopmentagency monies from the state general fund back to local redevelopment agenciesfor “affordable housing.” This doesn’t even count the $2 billion in “excesscash” leftover from redevelopment agencies before they were phased out ofoperation.  This signaled that thelegislature is not serious about plugging the state budget deficit.

New tax revenues and excess redevelopment funds would add up to about $7.5 billion in new tax revenues without need of an income tax rate increase.

Untouchable Luxury Public Goods

The remaining budget deficit could be solved by cutting or suspending the provision of luxury public goods — such as redundant:

* Affordable housing;
* Stem cell research;
* High-speed rail;
* Green power;
* Cap and trade pollution credits;
* Useless energy research funded as a surcharge on utility bills;
* “Waterless” water bonds;
* “Categorical” public school ancillary jobs programs;
* Perchlorate regulation;
* Mandated elimination of ocean water cooling for coastal power plants at enormous cost to protect a few sea mammals and fish larvae while thousand of birds are killed by wind turbines; and
* Unneeded state commissions for termed-out state legislators.

Former University of California, Berkeley political scientist Aaron Wildavsky once wrote that such bureaucratic programs don’t just exist by hoodwinking the population. There is an ideology that grows around such programs. But tax expenditures keep going up because more people benefit from public distribution of jobs and property enhancements than from private production.

What green power, cap and trade, affordable housing, eliminating coastal power plants, bullet trains and “waterless” water bonds all have in common is enhancing the values of private properties and real estate speculation. These programs:

* Reduce old, obsolescent housing with new luxury low income housing;
* Reduce air pollution by shifting it elsewhere;
* Eliminate nuisance power plants by shifting them to remote areas;
* Reduce the number of nuisance jet airplane flights and noise by shifting passengers to trains; and
* Create open space buffers around upscale residential enclaves with so-called water bonds.

The above luxury programs don’t really reduce pollution, create more water resources, reduce water pollution risks of mental retardation, protect endangered species, create magical medical cures or make housing more affordable. What they mainly do is shift those problems elsewhere or to where nobody lives. By enhancing private property values, bureaucracies bind private residents to their programs.  In the language or psychotherapy, private property owners are co-dependent on union bureaucrats and labor unions for political perks. This is why California is often described as a dysfunctional family.

The bureaucratic agencies that run the above-listed programs all preserve and protect the California Dream of home ownership.  If strong cultural values and economic interests did not desire these popular programs, they would not be so resilient to elimination or expenditure reductions.  This is what economist William Fischel describes in his book, “The Homevoter Hypothesis: How Home Values Influence Local Government Taxation, School Finance, and Land Use Policies.”

Pogo Principle: We Have Met the Enemy and They are Us!

Aaron Wildavsky called this The Pogo Principle: “we have seen the enemy and they are us.”

It is hypocritical for tax advocates to continue to want tax increases shifted to the despised “1 percent” of high-income earners — the millionaires’ tax — while leaving luxury government programs for the bulk of the middle class untouched.

Voters are rational economic actors who perceive the benefits of luxury government programs and policies to their property and wealth interests.  It isn’t the super rich or the poor immigrant who is the sole cause of the state budget deficit.

This is why California state government is dysfunctional. It is why we have a state water system with only a half year of water storage.  Even though the Colorado River system has 4 to 10 years of storage.

Meanwhile, we have spent over $18 billion in five water bonds that produced no new water storage reservoirs and have mainly funded open space acquisitions.  This is why the state unemployment fund is in hock to the federal government for more than $10 billion, but luxury “affordable housing” programs continue to be flush with cash. It’s not solely because the “1 percent” are stingy, or big banks are “greedy,” or immigrants are overburdening government services.

You get what you vote for.

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Comments(26)
  1. Beelzebub says:

    The way the system is run today there is no solution to this mess. All of us will be kicking it around until they plant us 6 feet under. And the same holds true for our children. There won’t be any measurable progress until or unless the bond markets dislocate. Unfortunately people only wake up when there is a crisis in America which affects everyone’s life. As long as the fridge has a six pack of beer and the big screen works – all is well. And that’s the truth.

    Of course the answer is to live within our means. And the people must decide – by vote – which services they want and don’t want to fund. Those decisions must be removed from the sole discretion of the elected pols. That system is broke and it has failed. If the service can’t be paid for TODAY – without borrowing or accounting gimmicks – then that service must be cancelled or downsized until it can be paid with today’s revenue. If the people want today’s services or even more services – then taxes must be raised on everyone. Conversely, taxes must be lowered if the people vote to reduce or eliminate certain services provided by government. The people need to vote on the funding for the following areas: Medicare, social security, welfare, defense, gov salaries & pensions, bailouts and special favors for financial criminals and crony capitalists.

    There ya go. That’s my plan. Unless it or something similar is implemented – we are locked in perpetual debate. If a bond market dislocation happens first we will get a solution – but a very ugly one.

  2. Beelzebub says:

    Oh, I forgot to mention a biggy: The will of the people needs to get implemented on the funding services for illegal alien invaders in this country. And a black robed lawyer should be FORBIDDEN to step in and thwart the will of our countrymen! It is an absolute travesty that health care is free of charge for the illegal alien invaders when good, wholesome America citizens have their homes/bank accounts seized or are forced into bankruptcy for being unable to pay their medical bills!!! IMO that is an act of war on the American people. Just in California alone we spend over $20B (yes, with a “B”) on these foreign encroachers! The people should have an unalienable right to put an end to that crap forthwith!

  3. Hondo says:

    The Kalifornia budget could easily be balanced with no tax increases if everyone gave up a little. That includes the public employees and their excessive pay, pensions and health care costs. Everyone (except the public unions) agree that those costs are the biggest problems stopping Kali from balancing its budget. Relatively minor cuts to current pay, pensions and health care costs of public employees could easily balance the budget this year and far into the future. But we’ve run out of time.
    CALSTRS’ says their pension fund is well funded. That is a gigantic lie. Kalifornia can’t pay their bills now. Today. Not 5 or 10 years in the future. And at the county and city level it is much worse. THE GOVERNMENT AT ALL LEVELS IN KALIFORNIA IS UNFUNDED!!!!!! NOW, TODAY.
    And the gap becomes profound after the election. All levels of the government in Kalifornia have conspired with the public unions to kick the can down the road to just past this election. The budget gaps at all levels of government in Kali in the years 2014 and 2015 are beyond the rainbow. Off the scale. There will be no choice but bankruptcy, and or, social kaos. Then nobody gets any pensions. Or any welfare. Or services.
    Don’t take my word. And I don’t take any one persons word. Look around yourself and then cry for the greatest state ever.
    Hondo

  4. Beelzebub says:

    Hondo, but it’s not just about CalPERS and CalSTRS. The problem is much bigger than that. Those are only two elements of a much bigger problem.

    We need to restructure a good part of our infrastructure. The healthcare system in America is going to bankrupt us if we don’t revamp it soon. The problem is not Medicare or Medicaid so much – it’s the structure of the American medical system that will bring us down. Too many crony capitalists are getting filthy rich off it. I would say the medical system is the biggest and most immediate problem we face. And Obamacare doesn’t address it. It only fuels the fire.

    The problem with government is that too many promises were made by corrupted political hacks that can’t possibly get delivered. And it was not just a handful of hacks – it was a landful of hacks! Either they will have to volunarily deflate the bubble that they created (by admitting they promised too much and start reducing the promised benefits) or we will have a disorderly default. It’s one or the other. And being a stauch observer of the entrenched denial of our leaders – in government and in big business – my chips are on disorderly default. But what the hell do I know? I’m just another slob on the street.

  5. Rex The Wonder Dog! says:

    CALSTRS’ says their pension fund is well funded.

    I am a member of CalSTSR and they do not say they are well funded, in fact the last quarterly newsletter they stated they only have enough cash to make it another 30 years at which point the fund will be 100% empty. They have to have the legislature raise the contribution rates, they cannot do it themselves like CalPERS can.

  6. Beelzebub says:

    “I am a member of CalSTSR……”

    God almighty! I almost had an MI when I read that. You’re a trough feeder, Rex? :)

    That’s it. I’ve had it. I can’t take no mo. Where’s the rope? :D

  7. Rex The Wonder Dog! says:

    I worked as a teacher for a few years. I have a small amount of money in CalSTSR.

    Coming out of the private sector it was an eye opener to see how much dead wood there is in public K-12 education. And like all gov jobs and employment, hiring and promotions are all based on things other than merit, all political. No one is promoted on merit, and no dead wood, unproductive employee is ever fired. While in the real world only 5% of employees are bad apples-because you fire them- in gov at least 30% are bad, just can’t fire them.

  8. Ted Steele, Janitor says:

    The rexy poodle only eats in a trough in the same sense you do little man. Unless you live off the grid, grow your own food and raise your own livestock and drill your own oil you are as big of a trough feeder as the Poodle boi. With the farm and oils subsidies you soak up in your purulent flesh and the money you make working for whatever also imbedded in the matrix economy—- you feed like all of the pigs at the same trough! But keep dreaming!

    I’d say “wake up”! But I know you never will slepy little troll!

    ..and… of course—- Have a nice day!

  9. Rex The Wonder Dog! says:

    The problem with government is that too many promises were made by corrupted political hacks that can’t possibly get delivered. And it was not just a handful of hacks – it was a landful of hacks!

    It really was/is a ponzi scheme. It could have never been sustained. And the facts prove that up.

  10. Ted Steele, Janitor says:

    to quote an old friend…Frank Serpico, NYPD Ret., “10% of people are completely honest, 10% are unscrupulously corupt and the remaining 80% dream of being honest”.

    I think we can all guess where the poodle lives!

  11. Ted Steele, Janitor says:

    Of course as always Rexy Poodle misuses the phrase Ponzi Scheme because the pension plans lack the Ponzi required specific intent…….but he pretends not to get it!

  12. queeg says:

    If it so bad….the sun keeps rising in Sacramento…they know stuff we may not know.

    If your town or the state goes broke…pack and ship…relax….your breathtaking posts will not save the upwardly mobile and location nimble…they will be gone!!!

  13. Beelzebub says:

    “to quote an old friend…Frank Serpico, NYPD Ret., “10% of people are completely honest, 10% are unscrupulously corupt and the remaining 80% dream of being honest”.

    In today’s environment the chief would meet with Serpico behind closed doors in the hospital and tell him if he kept his mouth shut he would arrange a nice 100% disability retirement and if he caused trouble he would paint him as a rogue cop who endangered the safety of fellow officers and repeatedly broke department policy. The media and the bought-off columnists (there are many of them) would make Serpico out to be the bad guy – just like they originally tried to with Kelly Thomas after he was brutally battered. The police departments have not improved since Frank Serpico. They have gotten worse. The corruption and malfeasance is ingrained and systemic. The decent ones are forced to cover for the bad apples or face career suicide and get washed out, blackballed by all others except for Pinkerton. Today Frank Serpico would have never made it past his probationary period.

  14. NTHEOC says:

    All we lack is the political will on the part of Congress and the Legislature to solve our deficit problem by taxing those who have wealth rather than sacrificing the well being of those who have not.But we all know the politicians are in the pockets of the “”PRIVATE”" sector greedy fat corporate pigs that let the corporations shift taxes from themselves to everyone else.SHHHHHH, those at the calwatchdog will never speak of that. There is a deficit but it is political, not financial!!!Oh and One out of ten billionaires on earth today is a Californian!HAH,can you say “YES” to the millionaire tax!!!!!!!

  15. NTHEOC says:

    “”"It is hypocritical for tax advocates to continue to want tax increases shifted to the despised “1 percent” of high-income earners — the millionaires’ tax — while leaving luxury government programs for the bulk of the middle class untouched.”"” HAHAHHAHAHHHAHAHA YAAAA RIGHT!!!! Those at this so called watchdog must really like to be abused!!You have no problem allowing your wealth to be transferred to greedy corporate pigs,bankers and billionaires while the middle class workers are being RAPED!!Again, the total net worth of the billionaires in California is $231.8 billion!! Ten percent of that wipes out the budget deficit.I’ve said it before,a very modest tax increase on a very tiny number of people could solve our budget problems not just today but into the foreseeable future.

  16. Beelzebub says:

    “But we all know the politicians are in the pockets of the “”PRIVATE”” sector greedy fat corporate pigs that let the corporations shift taxes from themselves to everyone else.SHHHHHH, those at the calwatchdog will never speak of that”

    I do all the time, NTHEOC. I am fair, balanced, honest and I play no favorites.

    You see, you are one of those people who you have so much disdain for because the public union officials are doing the same damn thing that the corporate pigs are doing. And until people from the left (you) and the right (them) figure that out and come together to fight ALL CORRUPTION IN GOVERNMENT nothing will change. You are a mirror image of those you attack here. You just represent the other side of the spectrum. You have surrendered your mind too. Either you don’t see that or you are a total hypocrite. Only you know which. ;)

  17. NTHEOC says:

    beelzebub says,
    I do all the time, NTHEOC. I am fair, balanced, honest and I play no favorites.
    =========
    You are that beelz, and I respect that about you!!To bad the calwatchdog does not believe in your philosophy.Btw,nice post!

  18. Rex The Wonder Dog! says:

    Oh wow, we have a love fest going on here :)

  19. queeg says:

    Never saw a corporate pig in the wild…who are they?

  20. NTHEOC says:

    queeg,
    They are easy to spot and here are just a few that you will never see at the watchdog!!Bank of America, Citi, JPMorganChase, Wells Fargo, Chevron, Exxon, ConocoPhillips, Arch Coal, Alpha Natural Resources and Peabody Energy.None of these ten companies paid anything close to the 35 percent corporate tax rate if any at all,and they got refunds despite record profits.Lets not forget about “”VERIZON”".The company is healthy and profitable, the CEO just raised his own pay from 7 million to 24 million dollars, While you and I pay a 33% tax rate Verizon some how gets refunds.So how does this corporation repay this country?By sending American jobs overseas and trying to take away the pensions, healthcare and other benefits from 45,000 union employees that helped build them into the successful company they are!!!!!! Hello “”WATCHDOG”", WHERE ARE YOU….

  21. Beelzebub says:

    Yep, NTHEOC.

    You see, the government powers and the corporate powers have merged which has resulted in defacto ‘fascism’.

    The peasants got screwed again.

    That is the reason the poverty rates have risen dramatically in the last decade.

    Few people on this board are willing to acknowledge and recognize that fact.

    I am a fair and balanced poster – owned by no poltitical party or political ideology.

  22. nowsane says:

    Economist Art Laffer, of Pres. Reagan economic fame and creator of the “Laffer Curve” had the following words of advise in this Reason.TV video, http://youtu.be/TI7-uoAagBI

    Published on Apr 10, 2012 by ReasonTV

    “It’s not Republican, it’s not Democrat. Honestly, it’s not liberal, it’s not conservative … It’s economics,” says Economist Art Laffer. “If you tax people who work and you pay people who don’t work, don’t be surprised when you get a lot of people not working.”

    Laffer is the founder of supply side economics, the namesake of the “Laffer curve” and the author of the new book, Eureka! How to Fix California. He sat down with Reason.com’s managing editor, Tim Cavanaugh at the offices of the Orange County Register, to talk about why Texas has a better tax structure than California, the power of public employee unions and what he really thinks of California governor Jerry Brown.

    Approximately 7:03

    But I seriously doubt that Jerry Brown will follow this advice!

  23. Beelzebub says:

    “It’s not Republican, it’s not Democrat. Honestly, it’s not liberal, it’s not conservative … It’s economics,” says Economist Art Laffer. “If you tax people who work and you pay people who don’t work, don’t be surprised when you get a lot of people not working.”

    I don’t agree with all that Mr. Laffer has to say (or his theories) – but the above quote is dead on target.

    I mean why the hell do you think California has 33% of America’s welfare population and only 12% of the nation’s collective population?

    This is not brain science and you don’t have to have a Phd in Economics to understand it. Your mind is either open or it’s closed. Even an imbecile can follow a bouncing ball!!!

  24. Joe says:

    Love the article, but can’t understand the concept of affordable housing being a “luxury public good.” Are you saying that we continue to pour money into affordable housing projects following the biggest housing bubble collapse in history (resulting in vast amounts of new “affordable housing”)?

  25. Rex The Wonder Dog! says:

    There is no such thing as :affordable hosing”, it costs tons more than regular housing-the only difference is the ones getting, usually always a connected recipient, just don’t pay the costs.

    I remember back in the early 1990′s when REO apartments were selling fro $5K-$15K per door and smart business people would buy them and put $5K-$10K of rehab in and then rent them out, while gov was building “affordable housing:” at $150 per door.

  26. Beelzebub says:

    Obama’s illegal aunt was living in ‘affordable housing’ totally on the taxpayer’s dime for years. And when she got exposed one of Obama’s judges gave her asylum because it was too dangerous to go back to where she came from. :D What a fing scam! There are tens of thousands of American citizens on gov housing lists and we are giving free shelter to illegals. Gag me!!! :(

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