Actually, tax increase would slam Calif. economy

by CalWatchdog Staff | April 17, 2012 9:49 am

[1]April 17, 2012

By Wayne Lusvardi

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

Walters writes[2] 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[3] 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[4], 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[5]. This is the second highest rate in the nation, after Hawaii at 11 percent[6].

California recently let its temporary sales tax increase expire in July 2011. Thus, the state sales tax[7] 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[8] 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[9] 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.”[10]

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.

  1. [Image]:
  2. Walters writes:
  3. marginal tax rate:
  4. GDP had increased by $90 billion:
  5. top tax income tax rate in California currently is 10.3 percent:
  6. Hawaii at 11 percent:
  7. state sales tax:
  8. corporate tax rate of 8.84 percent:
  9. Aaron Wildavsky:
  10. “The Homevoter Hypothesis: How Home Values Influence Local Government Taxation, School Finance, and Land Use Policies.”:

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