The analysis found that Obamacare “is projected to increase Medi-Cal enrollment by well over 1 million and boost federal funding for the program by more than $10 billion through 2014-15.” Medi-Cal is California’s implementation of Medicaid.

According to the federal government’s own Medicaid site:

“Since the new law [Affordable Care Act] was enacted in March 2010, CMS [Centers for Medicare and Medicaid Services] has worked together with state partners to identify key implementation priorities and provide the guidance needed to prepare for the significant changes to Medicaid and CHIP [Children’s Health Insurance Program] that will take effect on January 1, 2014.  In particular, CMS has provided several forms of guidance and federal support for state efforts to develop new or upgrade existing eligibility systems. “

Back to the CBP analysis: “The state projects that Medi-Cal enrollment will slightly exceed 10 million in 2014-15, with 1.5 million residents having enrolled due to California’s implementation of” the Affordable Care Act.

The means the Medi-Cal/Medicaid expansion will increase enrollment from 8.5 million Californians to about 10 million. So out of 38 million Californians, the increase will be from 31 percent to 38 percent.

It’s a symptom of what critics have called “a culture of welfare dependency.”

Politics

Politically, that means an expansion of clout for the Democratic Party in two ways. First, those receiving government benefits, especially at the lower end of the socio-economic scale, tend to vote Democratic. Second, expanding government programs means expanding the number of government workers to implement them. That means expanding the membership of government-worker unions, such as the Service Employees International Union, that orient strongly toward Democrats.

The state medical system will see an inrush of new federal dollars:

“The enrollment increase that is attributable to health care reform is projected to boost federal funding for Medi-Cal by $10.6 billion through June 2015. These funds will flow to doctors, clinics, and other health care providers in communities throughout the state. The vast majority of these federal dollars – more than $9 billion – will support services for Californians who enroll as part of the Medi-Cal expansion. The federal government will pay the full cost of providing health care services to these newly eligible enrollees through 2016, phasing down to a still-high 90 percent of the cost by 2020.”

Moreover, California’s general fund actually will see “a net decrease in … costs totaling nearly $900 million through June 2015.” That’s basically because the feds will be taking over some of what the state used to do.

Of course, there’s a cost. The money has to come from somewhere. CBP notes: “However, these gains coincide with the state’s 10 percent cut to Medi-Cal provider payments, which could hinder access to care.” That is, doctors will leave the system because it doesn’t pay them enough.

Indeed, just yesterday the Daily Caller reported:

“In California, low reimbursement rates have led almost seven out of 10 physicians to reject exchange insurance plans. Six out of 10 doctors nationwide expect their colleagues to retire earlier due to the health care law; 75 percent of all physicians (and 81 percent of the most highly trained, surgeons) think the best of the nation’s youth won’t go into medicine as a result.”

It’s Econ. 101: Increase the demand for a service while reducing the remuneration, and shortages are inevitable.

Spoiler alert: It’s not good.

After dramatically spiking in 2008 and remaining above 12 percent for all of 2010, California’s unemployment rate has gradually shifted downward. The most recently available data shows a 8.7 percent rate for California in July.

This has left many optimistic, including the governor.

Last month, before data for July was released, Gov. Jerry Brown boasted about the quality of California’s recovery in a flattering New York Times piece:

“'Some people were ridiculing California, and some were calling it a failed state,' Mr. Brown, a Democrat, said in an interview. 'The unemployment came down from 12.2 to 8.5. Real estate is rebounding. There’s a lot of confidence out there. That’s what happened.'”

Jim Tankersley, the level-headed Washington Post economic policy correspondent, correctly noted that, despite tax increases, California is still maintaining overall economic growth.

(Whether or not that economic growth is being hampered by tax increases is another question.)

“One thing, at least, seems clear: The doomsday predictions haven’t come true. California is still recovering,” he wrote.

It’s true. California is recovering. But the pace, quality and size of the recovery, which the CBP analyzed, is worth examining.

After all, fixating on unemployment numbers — often seen as the most important number in politics — or the rate of job growth, ignores other realities for the unemployed and workers alike.

The CBP report explained several interesting data points.

Uneven recovery

First, economic gains haven’t been evenly distributed. According to the report, men have seen their employment rate increase by 2.7 [percent], while the employment rate “among prime-working-age women actually declined 0.8 percentage points.”

Geographically, the gains (and losses) are also unevenly distributed:

“In the first six months of 2013, 34 out of California’s 58 counties had an average unemployment rate above 10 percent, and 31 of these high-unemployment counties – all but three – were inland counties. Overall, the unemployment rate in inland counties was 11.6 percent, while it was 8.2 percent for coastal counties. The lowest county unemployment rate in the state was 5.1 percent in Marin County, and the highest was 24.5 percent in Imperial County.”

Also, the recovery, though potent, is far from complete.

“If California’s job market continues to grow as it has over the past year, the state will not recover the jobs lost due to the Great Recession until January 2016,” the CPB report said.

And January 2016 is probably too optimistic. The report argued that, since population growth continued despite economic shrinkage, “the state’s economy will need to add even more jobs to put California back to where it was in 2007.”

That timeline only adds greater stress for the long-term unemployed, all 761,000 of those who have spent six months or more looking for jobs.

Life is also hard for the underemployed, an unfortunately large class of workers.

The report pointed out that 1.3 million California workers have part-time jobs but want, or need, full-time work. Even worse, most involuntary part-timers are single parents.

Low-wage jobs

Meanwhile, the report said, most job growth has come in the form of low-wage positions. The CBP defined low-wage workers as “those with earnings at the 20th percentile.” That is, they're in the bottom 5 percent of wage earners.

And those lucky enough to have jobs — like workers in the hospitality and leisure industry, from which nearly a quarter of all new jobs came — continued to see a decline in earnings from pre-recession values.

Most shocking, though, is just how few workers there are, given California’s size and historical employment numbers. The recession has led to the smallest share of the population working since Jimmy Carter was in the White House.

That it isn’t a bigger story is further direct confirmation that the complacent, union-centric, anti-free market worldview of the Sacramento political establishment pretty much sets the tone for what’s covered by the Sacramento media establishment. The only places one routinely sees commentary pointing out how terrible the state’s overall economy is? Pro-free-market newspaper editorial pages in San Diego and Orange County.

Maybe now that an organ of the left is pointing out how bad joblessness is in California, the issue will get some attention.

Low-wage, middle-wage workers hurting badly

OK, of course not, that’s not how Sacramento works. That’s reflected by the fact that the story about the new analysis is on the website of a Los Angeles area NPR affiliate — not in the Times or Bee.

“A report by the California Budget Project says the addition of 750,00 jobs over the past three years has still left much of the state in double-digit unemployment.

“‘California still has a job market in which too many workers can’t obtain full-time jobs that pay a good wage,’ said Luke Reidenbach, policy analyst with the non-partisan CBP and the report’s author. ‘California’s emerging recovery is not providing the mix of jobs needed for a robust economic rebound that benefits the full range of workers and their families.’

“Among the group’s findings: The share of unemployed Californians who have been seeking work for six months or longer is down only slightly from a record high, and stands at 43 percent. The report also found men have fared better than women. During the past three years of overall job growth, employment among prime-working-age men – ages 25 to 54 – has increased, as it dropped slightly for women in the same age group.”

“Other numbers: 1.3 million workers, or eight percent of all employed Californians can only find part-time jobs; 34 out of 58 counties have an average unemployment rate in the double digits. The lowest county unemployment rate is 5.1 percent in Marin County, and the highest is 24.5 percent in Imperial County.

“Due to recent gains, high-wage workers — those at the 80th percentile of California’s earnings distribution — have seen inflation-adjusted hourly earnings nearly return to their 2006 level. Meanwhile, inflation-adjusted wages of low-wage workers (those at the 20th percentile) and mid-wage workers (with earnings exactly in the middle of the distribution) have failed to catch up to pre-recession levels.”

Don’t hold your breath on seeing much of this in California’s mainstream media. The narrative is established: Jerry Brown has the Golden State on the rebound.

Snort. Not if you’re among the one in five California adults who want full-time work but can’t find it.

By John Seiler

Just in time for an election about raising millionaires’ taxes comes a study saying they won’t leave. Instead, when their taxes are raised, they’ll stay and shout, “Thank you, sir! May I have another!”

The California Budget Project is touting the study, “Millionaire Migration: The Impact of Top Tax Rates.” The study is by two professors, Charles Varner and Cristobal Young, both from the Stanford Center on Poverty and Inequality and the Department of Sociology at Princeton University.

According to the CBP’s summary:

“This new research dispels one of the most persistent myths about state tax policy: that wealthy Californians will leave the state to avoid having to pay a slightly higher tax rate on personal income.

“Using a highly rigorous study design that makes it possible to examine how state tax rates affect relocation over time, Varner and Young looked at the impact of the ‘millionaire tax’ that California voters approved in 2004. Their findings show that a higher personal income tax rate didn’t cause the rich to leave the state and also suggest that the risk of so-called ‘tax flight’ is outweighed by other factors, such as existing ties to family, friends, and career.”

“With California voters turning their attention to the November ballot, this new research undercuts the claim by opponents of Proposition 30 that this measure’s personal income tax increase, which would largely affect the top 1 percent, will drive high earners out of the state.”

So the study really is about having an impact on Prop. 30, which could prove crucial in a close election.

Does not compute

However, the study actually does not successfully prove its case. It looks at the effects of Proposition 63, which voters passed in 2004. Prop. 63 raised taxes 1 percentage point on incomes above $1 million to fund mental health programs.

According to the professors:

“This study addresses the following key question: Do changes in California’s top income tax rates lead to changes in the migration of top incomes?….

“This study tracks migration by, in essence, identifying taxpayers who file a California full-year resident tax return in one year and file a part-year / nonresident return in an adjacent year. We calculate the rates of in-migration and out-migration as a percentage of population for different income groups over the period 1994-2007. We then compare migration patterns before and after two recent California tax law changes.”

The other tax change looked at was the 1996 tax reduction, when Gov. Pete Wilson’s 1991 tax increase, which boosted the top tax rate from 9.3 percent to 11 percent, fell off the books.

The study provided a useful graph of the top state rate from when the first income tax was imposed in California in 1935. This is on top of the federal tax rate, I should add, which was 91 percent as recently as 1964.

And it provided another graph, which shows how progressive California’s tax rate is. Note how quickly the second highest tax rate, 9.3 percent, digs in: at just around $55,000 of income, which is lower-middle class in this expensive state.

The study explains:

“The basic face validity test on overall net migration trends showed no evidence for a tax effect, but top-income tax filers may be different. If they are different—and if tax rates are important factors in their state residency decisions—we would expect to find two patterns in California’s wealthy population. The number of top-income earners would fall after a tax increase and rise after a tax cut.”

And we get another good graph.

Their conclusions are shown in a chart:

So, it would seem that millionaires are unaffected by tax increases, or tax cuts for that matter. The study used control groups of those in different, lower, income groups. Their conclusion: “The only noticeable pattern here is that migration declines with income. Individuals at the very top seem to be more strongly attached to their current state than other slightly less wealthy individuals.”

On the 1996 tax cut, they write: “Migration ‘non-response’ to modest changes in tax policy is also relevant for policymakers considering tax cuts. Just as new top tax brackets do not drive millionaires to flee California or New Jersey (Young and Varner 2011), we do not expect tax cuts to influence top income earners’ state of residency.”

Their conclusion: “We have found no observable effect of two California tax changes on the migration behavior of high-income earners.”

Millionaires stayed

And they concluded that “out-migration declined among millionaires after the tax was passed (both in absolute terms and compared to the control group).”

So the millionaires apparently liked the tax increase so much they stayed to get more punishment.

This also is important:

“Migration is a very small component of changes in the number of millionaires in California. While the millionaire population sees a typical year-to-year fluctuation of more than 10,000 people, net migration sees a year-to-year fluctuation in a range of 50 to 120 people. At the most, migration accounts for 1.2 percent of the annual changes in the millionaire population. The remaining 98.8 percent of fluctuation in millionaire population is due to income dynamics at the top — California residents growing into the millionaire bracket, or falling out of it again.”

But the best explanation of all comes in the last paragraph of the study:

“Most people who earn $1 million or more are having an unusually good year. Income for these individuals was notably lower in years past, and will decline in future years as well. A representative ‘millionaire’ will only have a handful of years in the $1 million + tax bracket. The somewhat temporary nature of very-high earnings is one reason why the tax changes examined here generate no observable tax flight. It is difficult to migrate away from an unusually good year of income.”

That certainly is the case. Most people making $1 million or more a year have enjoyed an extraordinary event, such as a stellar year selling real estate. In other years, they might make only $300,000 or $500,000 a year.

What’s really going on

This is an important study because it is the best attempt anyone is going to make for saying that millionaires don’t leave California because of high taxes. But the study has several flaws.

First, the tax changes studied — the 1996 tax cut and the 2005 tax increase — came during boom times in California. The late 1990s enjoyed the dot-com boom. And the mid-2000s enjoyed the real estate boom. When things are booming, why leave?

The two boom-bust cycles were different. The dot-com boom was a real advance in technology, the commercialization of the Internet beginning in 1995. It was a unique event in world history. When the bust struck in 1999, a lot of companies, and investors, went belly up. But many companies of that era, such as Google, Ebay and Yahoo, survived and thrived, throwing off millionaires like sparks from a dynamo.

The real estate boom was fake, generated by artificially interest rates from the inflationist Federal Reserve Board, too-easy lending policies by the banks, Fannie Mae and Freddie Mac, the Bush administration’s irresponsible Keynesian deficit spending, and other dislocations. It had to end in a bad bust, and it did, beginning in December 2007.

Unfortunately, the Stanford study of millionaires ends in 2007. So we don’t see if millionaires left the state to escape high taxes during the Great Recession, in particular after Gov. Arnold Schwarzenegger boosted the top income tax rate from 10.3 percent to 11.3 percent from 2009 to 2011.

Silicon Valley

But a bigger problem for the study is that Silicon Valley continues to be a unique place not just in America, but on the planet. If you’re a young hotshot programmer with a 180 IQ, whether you grew up in Baltimore or Mumbai, Silicon Valley is the place to be. Austin, Tex., or Redmond, Wash., impose no state income taxes at all. But they’re not the center of the tech universe. Silicon Valley is.

In June 2004, Facebook moved from Massachusetts, which had a top state income tax rate of 5.4 percent. Mark Zuckerberg did not care that California soon would pass Prop. 63 and increase the top tax rate to 10.3 percent. He wanted to be in his Shangra-La in the valley of the silicon.

That happy circumstance is going to continue into the indefinite future for California. Although Apple and other companies are locating many of their operations in more business-friendly states, such as Apple’s gigantic server farm in North Carolina, the big brains always will want to live here. With Apple and Google expanding globally, their stock values seemingly rising higher every year, there’s no reason to think this will not continue.

A better study would exempt Silicon Valley millionaires from the statistics and see what the numbers then said. Because the real question is not the one asked by the professors, in their words, “Do changes in California’s top income tax rates lead to changes in the migration of top incomes?”

Rather, the real questions are, first: “Aside from Silicon Valley, where millionaires are not going to leave no matter what, do changes in California’s top income tax rates lead to changes in the migration of top incomes?”

Because that’s what affects most of us. Joseph Vranich used to compile a list of companies leaving California, 254 of which split in 2011. At least some of these companies paid top executives more than $1 million a year. Their exodus hurt local areas outside Silicon Valley.

That’s a main reason California’s unemployment rate, which dropped in September to 10.2 percent, still remains 2.4 percentage points higher than the national rate of 7.8 percent.

Where does the money go?

And the second question the Stanford study doesn’t ask is: “What effect do higher taxes on millionaires have on what the millionaires do with their money?”

As I keep saying, another name for rich people is business and jobs creators. Sure, they like their yachts and Rolls Royces. But there’s one thing rich people like more than such baubles: more money. And they get more money by investing in new business and jobs creation. If more of their money is taken from them through higher taxes, they will have less to invest.

Again, in California this effect is hidden because of the immense creativity of Silicon Valley. There was only one Steve Jobs, and he was born here, raised here and loved living in California. But as successful as he was, and Apple continues to be, their success would have been even greater if the state’s taxes were lower, leaving them more to invest. After all, until Jobs returned in 1997, Apple nearly died.

Companies and entrepreneurs need every advantage they can get in this increasingly competitive global marketplace. Higher taxes, including on supposedly untouchable millionaires, slow the engine that drives California’s prosperity.

By John Seiler

Sometimes the left-leaning California Budget Project produces worthy studies. Its new analysis of Proposition 30 isn’t one of them.

Being pushed by Gov. Jerry Brown and the state’s powerful government-worker unions, Prop. 30 would increase sales and income taxes taxes by from $6 billion to $8.5 billion a year. Supposedly the money would preclude cuts in K-12 and college education. But there’s no guarantee the higher taxes wouldn’t go toward the state’s burgeoning pension costs for retired government workers. All government money is fungible. These increases would allow cuts in other areas; which in turn would free money for the lucrative pensions.

The CBP analysis blithely ignores most of these problems. But the main problem is an economic one: It does not acknowledge that $8.5 billion siphoned from the private economy would severely slam the private sector, killing businesses and jobs.

The study does print one opposing argument, but only in a brief section at the end. And the arguments are not answered. It notes:

“Opponents of Proposition 30, including the Howard Jarvis Taxpayers Association, Sacramento Taxpayers Association, Small Business Action Committee, and National Federation of Independent Business/California, argue that the measure allows Sacramento policymakers to “raise taxes instead of streamlining thousands of state funded programs, massive bureaucracy and waste.”

“They contend that the measure would hurt small businesses and cost the state jobs.”

Otherwise, for the CPB study — the impression almost anyone will get — is that’s all California sunshine and Floribunda roses for everyone except the “1 percent” who will pay for the party.

The study reports:

“The wealthiest 1 percent of Californians — those with annual incomes of $533,000 or more — would contribute more than three-quarters (78.8 percent) of the revenues raised by Proposition 30’s tax increases, while the top 5 percent of Californians — those with annual incomes of at least $206,000 — would contribute 81.2 percent of the revenues raised.”

It’s worth pointing out, which CPB does not, that someone making $206,000 a year is not “wealthy,” although certainly well off. California is so expensive that an income of that amount here is the equivalent of something like $100,000 in Arkansas or Michigan. It’s barely enough to pay the already existing massive taxes, a sky-high mortgage and private-school tuition to get your kids out of the failing California schools.

Killing jobs

But even for those who truly are wealthy, say making $1 million or more a year, this tax is bad. Because these people use their incomes to re-invest in businesses, creating new jobs. Take away billions more dollars of that money and the state inevitably will have fewer businesses and jobs.

Two examples prove that, neither cited by the CPB, even for refutation. In 1991, Republican Gov. Pete Wilson, along with the Democratic Legislature of that day, increases taxes $7 billion a year. Far from solving a budget-deficit problem, it made the problem worse. General-fund revenues actually declined, by $2 billion to $40 billion, from fiscal year 1991-92 to 1993-94. And revenues didn’t recover until after the tax increases expired, going to $46 billion in 1995-96.

You can read the numbers for yourself. Open Gov. Jerry Brown’s own January 2012 budget proposal and scroll down to Schedule 6, page Appendix 12 toward the end.

Then there’s recent evidence from Great Britain. The Wall Street Journal reported:

“Preliminary figures out this week show that Britain’s 50% top marginal income-tax rate may have reduced tax revenue from top earners by as much as 5%, compared to the old 40% top rate. Tax revenue from those filing self-assessments due January 31 was down some £500 million versus last year.

“What this week’s numbers teach, however, is that Britain’s richest taxpayers are simply shifting their incomes, or themselves, offshore, or deferring income, or otherwise arranging their affairs to avoid the confiscatory new top tax rate. Maybe that’s unfair, too—the rich are usually better at protecting their assets—but it’s the predictable consequence of a tax rate whose animating purposes are envy and spite.”

So there’s no guarantee that Prop. 30 even will raise revenues; it could retard them.

The rich will flee

The CPB nowhere acknowledges that rich people obviously are the most highly mobile folks around. They can jump in their Mercedes and Cessnas and move to their houses in other states and countries. Their tax accountants can tell them how long they can stay out of California to avoid paying income and capital-gains taxes here.

If this tax passes, many rich people simply will permanently leave the state in disgust. That’s already happening. One of the Facebook co-founders, Eduardo Saverin, left America earlier this year for low-tax Singapore. The latest from Reuters:

“Facebook co-founder Eduardo Saverin, who renounced his U.S. citizenship earlier this year, made his debut on a Singapore rich list published by Forbes Magazine.

“Brazilian-born Saverin, 30, is No.8 on the list with an estimated net worth of $2.2 billion.

“Saverin has been living in Singapore since 2009 but only gave up his U.S. citizenship ahead of Facebook’s initial public offering.”

This happens all the time. If you’re a rich person, why be robbed by California’s potential 13.1 state income tax, which then would be the highest of any state, on top of a potential 39 percent federal tax if President Obama and congressional Democrats have their way? That’s a total of 52.1 percent. All for the privilege of living in a country, the United States, that abuses you and thinks of you not as a business and jobs creator, but as a tax slave.

The CPB report blythely says:

“Nevertheless, the average household in the bottom fifth of the income distribution would see a total tax increase of just $24, and the average household in the middle fifth would see an increase of just $55. In contrast, the average household in the top 1 percent would pay an additional $21,883 in taxes.

“Consequently, Proposition 30 would take a modest step toward reducing the significant income gap between low-and middle-income Californians and the wealthy.”

They just don’t get it. How can “low-and middle-income Californians” be better off when their jobs are killed after the wealthy leave the state — and take their money and businesses with them?

By John Seiler

The backers of the Proposition 29 cigarette tax increase finally snubbed out the butt of their vigil over the June 5 vote. It lost by just 28,000 votes.

Proponents blamed the $47 million spent by the Big Tobacco companies to defeat the measure. Lance Armstrong, the bicycle champion still fighting doping allegations from his racing days, said, “Big Tobacco lied to voters to protect its profits and spent $50 million to ensure it can continue peddling its deadly products to California kids.”

Actually, what really defeated the measure was the state’s political Establishment, led by the Los Angeles Times and the California Budget Project. The Establishment realized that jacking up cig taxes $1 a pack to raise $735 million a year and give it to an new unaccountable cancer research bureaucracy only would worsen the state’s fiscal mess.

The Establishment understands that California is paddling toward Greek fiscal territory and any extra tax money that can be scrounged up has to go to solving the budget mess. Indeed, on June 8, the Times even ran an extra editorial, “The wrong cigarette tax,” reiterating its opposition to Prop. 29 but calling for a new cigarette tax dedicated just to the budget:

“We urged voters to cast ballots against Proposition 29 because at a time when the state cannot afford to fulfill its most basic responsibilities, the initiative would have put most of the new revenue — more than $500 million a year — toward an entirely new agency and a new state function: the funding of disease research that already is relatively well funded by the federal government….

“But our objections to the specifics of Proposition 29 do not mean that we don’t support a new cigarette tax. We do….

“As Proposition 29 would do, part of the money should go toward smoking prevention programs, as well as for smoking cessation treatments. The rest could productively be spent on treatment for smoking-related diseases, so the people who pay the tax receive the direct benefit and the state budget gets some relief.” 

The value of Establishment support or opposition, especially a Times editorial, is worth an unknowable exact amount, but probably many tens of millions of dollars. So expect a new initiative, as the Times suggested, on the November 2014 ballot along the lines indicated. It might raise taxes $1 a pack to fund lung cancer and other smoking-related treatments, relieving the general fund of spending on such treatments through Medi-Cal.

California Budget Project

Another major Lucky Strike against Prop. 29 was a study by the influential liberal think tank, the California Budget Project. Its longtime executive director, Jean Ross, recently became the head of the Ford Foundation, a pillar of the Eastern Establishment. Usually the CBP looks favorably on tax increases. But a May Budget Brief found, in particular, that Prop. 29 would slam poor people:

“Increasing the cigarette tax would have a disproportionate impact on low-income Californians because they spend a larger share of their incomes on tobacco products. National data show that in 2009, individuals with incomes in the bottom fifth of the distribution spent an average of 0.9 percent of their incomes on cigarette taxes, compared to an average of less than 0.1 percent for those in the top 1 percent. In part, this disparity stems from the fact that the cost of a single pack of cigarettes makes up a larger share of the incomes of low-income individuals.

“It also reflects the fact that low-income individuals are more likely than others to smoke. In 2008, for example, nearly 20 percent of California adults with household incomes of $20,000 or less were smokers, compared to fewer than 10 percent of those with household incomes of more than $100,000 (Figure 4).”

The implication is clear: Poor people will have less money because of the cigarette tax. They then will have to depend more on state services. Which will put even more pressure on the general-fund budget. The state’s deficit will get even worse.

The Budget Project looked at the big budget picture:

“Programs funded by Proposition 29 would be “locked in,’’ limiting the ability of the Legislature to modify spending in response to economic, budget, and demographic changes or other health-related research needs that may emerge in the future. In addition, these revenues would not be available to support other programs or to help close future budget gaps. 

“Finally, to the extent that voters approve new revenues for a specific purpose through an initiative, such as Proposition 29, lawmakers or voters may feel less inclined to subsequently approve additional revenues regardless of the purpose.”

That’s a key concept. The Establishment’s push now is for Gov. Jerry Brown’s $8.5 billion tax increase on the November ballot. Had Prop. 29 passed, voters might consider that they already had performed their socialist duty for 2012 in June, and didn’t need to do so again in November.

Black market

There’s also strong evidence that a hefty tax increase, such as Prop. 29’s $1 a pack, would make much worse already worrisome black market activity. When New York was boosting smoke taxes a couple of years back, the Huffington Post reported:

“NEW YORK — The big cigarette tax increases that many states are instituting to balance their out-of-whack budgets are raising fears that the trend will make black-market smokes more profitable and lead to more cigarette smuggling.

“Cigarette smuggling has been going on for generations and already costs states untold billions in lost tax revenue.

“Criminal gangs stock up in low-tax states like Virginia and Missouri, truck the cigarettes north and illegally resell them in high-tax states like Michigan and New Jersey. Other buy cartons and cartons of tax-free smokes on Indian reservations and sell them elsewhere. Buyers order untaxed cartons of murky origin on the Internet. And ships arrive from China carrying cargo containers filled with counterfeit cigarettes.

“Law enforcement officials and others worry that the widening price spread between taxed and untaxed cigarettes will only make the situation worse.”

California is too far from Virginia and other states in the Tobacco Belt to worry much about smuggling from there. But there are many local Indian reservations with low-tax cigs. And our Los Angeles, Long Beach, San Diego and San Francisco ports are among the largest in the world, daily unloading billions of dollars of goods.

Those born in America generally don’t have much of a taste for foreign cig brands. But they might acquire such a taste if the price of U.S.-made smokes is high. And California, of course, has a large immigrant population, whose smokers picked up the habit puffing brands from other lands.

For now, at least, a new cigarette tax has been defeated. But the demise of Prop. 29 clears the ash tray for the big push for Brown’s tax increase in November.

By DAVE ROBERTS

If California’s educational system were a student, it would be made to sit on a stool in the corner with a dunce cap on its head.

Nearly one in four Californians is functionally illiterate, about a third of high school students drop out and 70-80 percent of the high school graduates who go on to college require remedial classes in English and math. More than 4.6 million Californians age 25 or older lack a high school degree, ranking the state 48th in the country.

With the K-12 system having dropped the ball, the burden has been placed on the state’s community colleges and adult education programs to provide the knowledge and job skills for those wanting to do more in life than flip burgers or commit crimes.

Unfortunately, as the independent state oversight agency the Little Hoover Commission learned last week, there’s a lack of funding, duplication of resources and confusion over how to meet that need. And with the impending retirement of the Baby Boomers, the need for skilled, educated workers will grow dramatically in the coming years.

“In 2008 the head of the U.S. Department of Education said California has the best adult education system in the country by far,” Patrick Ainsworth, assistant superintendent for the California Department of Education, which oversees adult education, told the commission. “Things were going on that are not in any other state. They wanted to use us as a model. But since then a large portion of our adult education system has been dismantled. We have a shell of what our fomer programs were.”

In the 2008-09 school year, more than 1.2 million Californians were enrolled in adult ed courses, a figure which has been cut in half due to school districts hit by budget cuts transferring funding to K-12 classrooms. The state has more than 350 adult ed schools operating out of more than 1,000 sites such as neighborhood schools and community centers.

The state’s 112 colleges serving 2.7 million students have also had to scale back due to decreased funding. In 2009-10 the colleges were hit by $520 million in cuts, equaling 8 percent of the budget and resulting in 140,000 students being turned away, according to California Community Colleges Chancellor Jack Scott. An additional $290 million in reductions proposed for 2011-12 would result in another 140,000 students losing access due to further course reductions and the elimination of some career training programs.

Functionally Illiterate

“The National Center for Education Statistics says 23 percent of our adult population is functionally illiterate, unable to fill out a job application and manage their affairs,” said Ainsworth. “Pressure from unemployment is driving many people to get retrained. Between the two of us (community colleges and adult ed) we are faced with this gigantic problem of a huge underclass in our state who previously had the commitment to provide a second chance.

“We have equality of opportunity in our country — now that is in question. Do we have that safety net in place? It’s been eroded. Now we are in even worse shape. School districts, one-third of funding has disappeared over the past three years. They are going to make children their first priority [over adult ed]. From an economic development point of view we have to confront this issue. Are we or are we not going to provide a system that gives people a leg up and provides for their futures?”

There were no answers to that question at the 4½-hour commission hearing, but it doesn’t look good.

The problem starts, of course, with K-12 education, which allows students to graduate high school after taking an exit exam that certifies that they can read at a 10th grade level and do math at an 8th grade level. As a result, many graduates are two or more grade levels below what they need when they get to college.

“When someone has graduated from high school and shows up with below two levels of proficiency and you’re telling them they are not college-ready, is that the first time they are hearing it?” Commissioner Victoria Bradshaw asked Constance Carroll, chancellor of the San Diego Community College District.

“Yes, they have been told otherwise throughout their secondary experience,” replied Carroll. “We need to do something about the level of proficiency that high school students achieve. When there’s a gap between 10th-grade proficiency and grade 13 where colleges start, we should put a great deal of effort in bringing those proficienies up to the college level. Almost all of the new jobs require at least a year of post-secondary education. That starts at grade 13, not grade 11. Getting people ready for college and for jobs should be one and the same goal.”

Model Program

The San Diego Community College District is actually a model of what should be happening in post-secondary education. It’s one of the few areas in the state that integrates its colleges and adult education programs. In much of the state, community colleges and adult ed are separate fiefdoms dealing with similar students and with the similar goal of educating and training those seeking a GED or needing to learn English as a second language or gain job skills.

“I worry that California as a state doesn’t have the same integrated approach,” said Carroll. “We have an emergency we are dealing with in remedial problems. Students are not college ready. From my viewpoint after 33 years in California community colleges we have bifurcated systems that are not really integrated with each other, as many of us think they should be.”

As a result, many students are not sure whether they are better off in an adult ed school or community college, finding similar offerings in both. The “one-stop shop” in the San Diego District helps guide them in the right direction, but elsewhere they may be on their own.

Too Many Goals

Another problem is that adult ed programs have been all over the map trying to be all things to all people, which is a luxury that may be no longer affordable in tight budgetary times and with unemployment at 11.7 percent in the state.

“Districts have expanded their services, going into retirement homes, they have gotten so far from their core mission,” said Commissioner Marilyn Brewer. “Classes on wine tasting and how to design t-shirts. They are using state resources to provide those classes when they could be doing basic education and things that could promote emploment.”

Commissioner Eugene Mitchell agreed, saying, “That’s the concern I have. When 90 percent of students aren’t prepared for college you would think for the benefit of the State of California how we would use the capacity for that population. The economic crisis that has beset this country dictates we move in a different direction. People just want to get a job. I don’t have as much heartache over [course] reduction in other directions.”

The commissioners are also concerned that the measurement of success of the programs is inadequate other than just moving students through the system, and that there is not a standardized system of coursework and testing.

Good Job

California Community Colleges Vice Chancellor of Academic Affairs Barry Russell told them, “We are doing a good job of getting more students to completion of these courses. We are moving them to the next level, getting them out of basic skills and into job training at a higher rate than we have had in the past. We are not sure we can measure how much better is this student than the last time.”

Commissioner David Schwarz asked, “Don’t you want to know how your community colleges are doing? Providing the same test? It may be a wake up call or greatly reassuring. At the end of the day you don’t know, other than passing people through, whether their proficiency is increasing. That’s troubling to me. You may be finding they are not doing as well as their counterparts in the Department of Education. You should know that.”

The California Budget Project recently issued a report, “Gateway to a Better Future: Creating a Basic Skills System for California,” which concludes, “T]here is serious need for reform. Discussions are underway in the California Department of Education and the California Community Colleges about how to improve basic skills instruction in both systems and coordinate them more effectively. To date, however, the task of reforming basic skills education has not been addressed with sufficient urgency. The conclusions reached by many experts in the past have been largely ignored. Now there is growing clarity based on research, the experience of other states, and innovative California programs about what works and what does not. The critical next step is to overcome institutional and policy inertia and translate these lessons into practice.”

Good news: Due to the state budget crunch of recent years, spending has been cut on the so-called “Healthy Families” state program.

Healthy Families was imposed on the state during the regime of “moderate” Republican Gov. Pete Wilson back in the 1990s. He was running for president, and this was supposed to make him look like what President George W. Bush latter called a “compassionate conservative.”

Healthy Families wasn’t just for the poor, but the middle class. It was another goose-step toward total socialized medicine in America. It was a precursor to Obamacare. It took from parents some control over their children, giving that control to government functionaries.

This just was reported by the left-wing California Budget Project, which favors high Healthy Families spending:

Several factors may have contributed to the drop in the number of children enrolled in the Healthy Families Program. First, the state imposed a waiting list for the program between July 2009 and September 2009, preventing 88,000 children from accessing Healthy Families coverage.

Second, some families’ incomes have dropped below the program eligibility threshold, pushing those children into Medi-Cal, which serves a lower-income population. And lastly, premium increases and other reductions made to the program in the past few years may have made the Healthy Families Program unaffordable for families struggling to make ends meet. From 2008-09 through 2011-12, lawmakers cut $144.6 million from the program.3 Moreover, the impact on children and communities is magnified, since the federal government matches each dollar spent by the state with two dollars in federal funds. Thus, a state reduction of $144.6 million translates into a total loss of $433.7 million for local communities.

Ron Paul on Medical Charity

Here’s an idea: Why don’t we cut out all this socialized medicine, return tax money to citizens — and let the citizens choose their own medical care? With charity for the poor?

I recently heard Rep. Ron Paul, a medical doctor, speaking about the American medical system when he first became a doctor five decades ago. That was before President Lyndon ‘Ho Chi” Johnson began Sovietizing American medical care with his Medicare and Medicaid schemes.

Paul said that doctors all contributed charity work. They were paid a low wage for docs, $3 an hour (about $30 in today’s inflated money). The hospital, medical companies and pharmaceutical companies charged the lowest rate for their services.

By contrast, he said, today the government-run system is designed to funnel the maximum amount of dollars to doctors, hospitals, Big Pharma and insurance companies — with the taxpayers stuck with the tab.

No wonder the country, and California, are broke. In modern America, even the virtue of charity to the poor has become a government racket.

May 17, 2011

I’ve been writing about the suicidal idea for California to tax Internet sales. In a comment to that post, a small business operator wrote how it would kill his business, and others like it. I thought it worth reprinting here on the blog. This shows what’s really going on in California.

Contrast its realism with the fantasies dreamed up in the union-dominated Legislature or the hothouses of such think tanks as the California Budget Project, whose lobbying for such a tax I reported on here.

Here’s what the small businessman wrote:

I can speak from personal experience on this issue, because I’m one of those small fry affiliates desperately trying to scratch out a living from Amazon’s affiliate program (and others). I was laid off in 2009, haven’t been able to find a new job since, and have no realistic expectation that I will find a new one any time soon, given California has the 2nd highest unemployment rate in the nation. I’ve been working every day, often 15 hour days, creating blog pages to try to get to the point where I can at least cover my monthly expenses. At this point, affiliate marketing is my only realistic hope of keeping off the welfare rolls and out of food banks. If any of these bills go into law, Amazon, Overstock, and other affiliate programs will dump me, and then I don’t know what I will do. The rich affiliates will move out of state, taking their jobs, personal income, etc. with them, I don’t have that option.

I can tell you from personal experience, switching over to new vendors would require re-doing the months worth of work I’ve already done. I would get ZERO future income from hundreds or even thousands of hours worth of work I’ve already done, and switching everything over would prevent me from doing hundreds of hours worth of work that I could do as I end up having to spend that time re-doing work I’ve already done. Anyone who thinks you can just flick a switch and change everything over doesn’t understand how affiliate marketing works.

As for Barnes & Nobles offer to pick up some of the dumped affiliates, note the word “some”. The beauty of Amazon’s affiliate program is that anyone, anyone, with a website, no matter what their traffic, no matter if they have no prior affiliate experience, no matter how small their website, can join the Amazon Associates Program and start in affiliate marketing. You don’t have to have a fully completed website, you don’t have to have a minimum traffic level, you aren’t scrutinized by some affiliate manager, you can just join and start working. It doesn’t matter how small you are, how poorly you perform in the beginning, you can still join, participate, and work towards bigger and more profitable times. That’s a large part of WHY amazon became as big as they did, their open door policy towards all affiliate marketers.

Not so with Barnes & Noble. I’m sure they’ll be glad to scoop up the top performers, well, the ones who don’t relocate out of state, that is, but they won’t be interested in the small fry. I applied to their affiliate program and was rejected, and I’m sure I’d be rejected today too. They’re far less attractive than Amazon in any event, Amazon has a better site, better prices, better range of products (its not just books, folks) and I’m sure better conversion rates. There’s a reason why Amazon is the biggest online retailer.

If these bills pass in California, I’ll essentially be killed as an affiliate marketer, unless I can get an out of state friend let me come and live on their couch. California still won’t get any sales tax from Amazon, Overstock, etc., the rich affiliates will take their jobs and their income out of the state, and I’ll either be forced into going onto welfare and begging my way out of the state so I don’t lose thousands of hours invested into my affiliate sites. That’s the reality.

May 9, 2011

By JOHN SEILER

California’s tax-increase cult is lobbying to grab every last dollar it can tax — the future of the state be damned. The drumbeat is daily. I wrote yesterday how all three top Los Angeles Times columnists came out, simultaneously, for higher taxes.

Even as I was writing, the California Budget Project — better termed the California Tax-Increase Project — came out with a new study: “Narrowing the Gap: Options for Boosting California’s Sales Tax Collection from Online Retailers.” It begins:

California loses more than $1 billion each year in uncollected taxes on Internet sales because out-of-state online retailers refuse to collect the taxes owed on consumers’ purchases.

That $1 billion figure will get Gov. Jerry Brown and Democratic legislators salivating like Pavlov’s dog. It’s another billion they could waste on special interests, such as the bloated pensions of government workers that funded their election campaigns.

Except that, as even this study noted, not much money can be collected without action by by the U.S. Congress. The study accurately described the problem:

A series of US Supreme Court rulings has limited states’ ability to require out-of-state retailers to collect the sales tax owed on purchases of taxable goods by consumers that in-state retailers are legally obligated to collect. The grounds for these decisions rest on the Court’s interpretation of a provision of the US Constitution commonly referred to as the Commerce Clause.  This provision explicitly reserves to Congress the power to regulate interstate commerce and has been interpreted by the Court to also prohibit certain state actions that interfere with interstate commerce. Court decisions have determined that states can levy taxes on businesses without violating the Commerce Clause as long as certain conditions are met, including that that the tax applies to businesses with a signifi cant connection to the state — referred to as “substantial nexus.”

The study conceded, “Until Congress acts, states’ ability to close their sales tax gaps is somewhat limited.” And it noted,

several states have enacted laws in recent years aimed at boosting sales tax collections by out-of-state retailers. Further state action could spur Congress to implement a comprehensive solution to the problem.

What the study didn’t note was that Congress is unlikely to act. It didn’t act when Democrats controlled both houses of Congress from 2007 to 2010. And now that anti-tax Republicans have taken over control of the House, and likely will hold the House after the 2012 election, there is zero chance that tax legislation would passed to allow such state tax increases.

Getting Around the Law

But that didn’t stop the California Budget Project from boosting ways around the law:

New York led the way in 2008 with an innovative law that requires out-of-state retailers to collect the sales tax on all purchases made by the state’s consumers if those retailers use “affi liates” in the state to promote their sales.

The law assumes that online retailers’ relationship with affi liates constitutes a “physical presence” in New York that entitles the state to require those companies to collect the sales tax. The Appellate Division of the New York Supreme Court has upheld the law. New York officials estimate that approximately 30 retailers began collecting state and local sales tax as a result of the legislation, boosting collections by more than $100 million in two years.

That ought to get California politicians’ Pavlovian tax glands salivating. The study continued:

Encouraged by the success of New York’s approach, several other states, including Arkansas, Illinois, North Carolina, and Rhode Island have enacted legislation modeled after New York’s law, and at least 10 additional states, including California, are considering similar measures. A bill currently before California’s Legislature, AB 153 (Skinner), is modeled after New York’s law.

The Rest of the Story

But there’s more to it than what is included in the study. The New York assault on Amazon remains on appeal. In the meantime, numerous online retailers already have fired their affiliates, including: Baby Universe, Backcountry.com, Binoculars.com and Bodybuilding.com.

That means New York just destroyed dozens of little businesses, many “Mom and Pop” affiliates, that had been good citizens, and which paid other taxes to the state, such as property and income taxes.

Amazon has threatened that, if it loses its appeal, it also will fire its Empire State affiliates.

The California Budget Project study mentioned Illinois going after affiliates. But Amazon already fired its affiliates there. As Amazon wrote in a letter to those fired in March:

We had opposed this new tax law because it is unconstitutional and counterproductive. It was supported by national retailing chains, most of which are based outside Illinois, that seek to harm the affiliate advertising programs of their competitors. Similar legislation in other states has led to job and income losses, and little, if any, new tax revenue. We deeply regret that its enactment forces this action.As a result of the new law, contracts with all Illinois affiliates of the Amazon Associates Program will be terminated and those Illinois residents will no longer receive advertising fees for sales referred to Amazon.com, Endless.com , or SmallParts.com.

I wrote about this attack on California affiliates last month in “Suicidal California Amazon Tax.” I noted that the best estimates showed that only $152 million would be collected should the affiliates be taxed here. But $124 million would be lost in income taxes because Amazon (and other stores) would fire their affiliates. Net tax income:  $24 million. That’s less than $1 for every Californian.

And I also noted that, in a state that remains the global center of the Internet, we should promote frictionless Internet commerce. The more the Internet is used, the more people use products and services from our companies: Facebook, Intel, Apple, Conexant, Google, Cisco, Broadcom and thousands more.

It’s suicidal to harm California businesses to benefit other businesses — such as Barnes & Noble and Walmart — headquartered in other states.

If the Internet becomes clogged with complicated tax rules, with states poaching on each other, then there will be less Internet activity — and so reduced business for California Internet businesses. And reduced business would mean a lower tax base, resulting in fewer taxes being collected.

It’s impossible to quantify, but I think if California imposes any special taxes on Internet commerce, as the California Tax-Increase Project wants, tax receipts actually would decline.

Perceptive Comment

Even though my article came out a month ago, earlier today a person named Sean Roberts left this perceptive comment:

As a progressive, I totally agree that this bill will only destroy in-state internet publishers of all sizes, who depend on affiliate ad sales for income in the same way that newspapers and broadcast TV rely on ad sales for their income. Taxing sales generated through ads on California-based websites makes as much sense as trying to tax sales made by out-of-state companies which advertise in local newspapers or on local TV stations. Of course this latter type of sales tax would never fly if only due to the lobbying clout of the print and TV media.

Amazon and other affiliate ad networks will simply stop allowing affiliate ads on California-based content websites, killing many in-state businesses. The sales will still be made through Amazon, only no ad revenue will be paid to California webmasters. The state will lose that income tax revenue, while the websites will likely go out of business.

As a website owner, I know the ins and outs of the business. Faced with the loss of all my advertisers, my sites would be forced to move out of state or close. Almost every other California based professional web publisher will face this same problem. How will this possibly end up in a net gain of any sort for the state treasury? It won’t.

This is a law conceived by incompetent and/or corrupt legislators who make no attempt to grasp the intricacies of how web advertising works. Just the fact that Barnes and Noble is mentioned as a “replacement” for Amazon ads shows just how little these legislators understand the web publishing industry. Only a very small percentage of Amazon affiliate ads promote BOOKS these days. Instead, these ads promote every other product under the sun. As a result, Barnes and Noble would be unable to pick up 99% of the ad revenue that would be lost if Amazon and other affiliate ad networks (like Shareasale and Commission Junction) were to dump California websites, as they have promised to do in the event this bill passes.

Sure there needs to be sales tax equity, but his is an issue that needs to be addressed at the Federal level. Walmart is the main force lobbying for this bill in CA and other states. They could care less about the havoc such poorly conceived legislation will wreck — their sole intent is to wage war on Amazon.

That’s what’s really going on. This is a battle among retail giants using tax policy to hit one another. The little folks — the Mom and Pop affiliates that would be destroyed by the tax increases the California Budget Project is obsessed with — would be just collateral damage.

I’m always shocked how those who say they’re for the little guy end up slamming him up against a wall, punching and kicking him, grabbing his wallet and leaving him on the concrete, bleeding and convulsing.