With the rising conversation about extending Proposition 30‘s temporary taxes, I asked state Treasurer John Chiang if he would advise that the taxes be continued. Chiang said a promise was made that the taxes would be temporary and circumstances would have to change, such as the economy tanking, to justify continuing the taxes.

A Democrat, Chiang spoke to the Town Hall Los Angeles Thursday, reviewing his actions as state controller, a post he held for eight years before being elected treasurer last November; and reporting that California went from dire fiscal circumstances to the “most robust economic recovery on the planet.”

However, Chiang said all was not rosy. Even with paying down the debt, he said current debt numbers were higher than historic norms, public sector health care and pension liabilities were issues that could not be ignored and affordable housing was important for the state’s economic health.

Last week Chiang joined Assembly Speaker Toni Atkins, D-San Diego, in support of proposals aimed at helping ease the housing crisis. The proposals call for a new fee on real estate transaction recording documents and an expansion of the low-income housing tax credit for builders.

In answer to a question, Chiang said he would study if an increase in the property tax homeowner exemption would also aid in home ownership.

No split-roll

As to business property, Chiang did not support a split-roll property tax that would tax commercial property differently from residential property “at this time.” Doing so would be a major change to Proposition 13, the 1978 tax-limitation measure. Currently, Prop. 13 treats all property the same, limiting taxes to 1 percent of assessed value, with a maximum increase of 2 percent a year.

However, he suggested reforms could be necessary in the rules on change of ownership of business property.

The state’s economy recently moved up to be ranked seventh largest in the world and last week the Fitch rating agency upgraded California’s credit rating to an A+. But Chiang warned a drop in the business cycle could suddenly produce a gap in the state’s finances.

Chiang praised voters for passing Proposition 2, the rainy-day fund measure in the last election, to cushion any revenue shortfalls. But he said more must be done to protect California’s economy. He said business regulation must be reduced and the state tax structure must be reformed.

Chiang spoke about an acquaintance who runs a shrimp company who had to deal with four or five government agencies’ regulations. That process must be streamlined, said the treasurer.

I asked Chiang if he had consulted with state Sen. Robert Hertzberg, D-Van Nuys, on his tax restructuring proposal, Senate Bill 8. It includes a $10 billion tax on services, with reductions to some other taxes.

Chiang said he had not heard from Hertzberg on the bill, but it was important the discussion generated by the Hertzberg proposal go forward; that state tax policies needed to be updated.

While quarterly economic growth numbers showed the fastest growth rate in a decade and a recent Gallup poll found 36 percent of respondents said it was a good time to find a job, compared to just 30 percent a month ago, a report on California from researchers at the Public Policy Institute pointed out some troubling numbers on the employment front.

While California’s unemployment rate dropped from 8.4 percent to 7.2 percent over the past year, PPIC researchers Monica Bandy and Sarah Bohn note the unemployment rate does not account for California adults who are underemployed, working part-time when they prefer full time employment, and those who have stopped looking for work — discouraged because they lack skills for the jobs available or cannot find jobs.

The researchers suggest that, when these areas are considered, California’s un- and under-employment number is actually 15.4 percent, or 8.2 percentage points above the official unemployment rate.

According to the blog post Bandy and Bohn wrote for the PPIC site:

“While California’s economy is improving, the recovery has not been strong or fast enough to keep up with the growth in California’s working-age population. Additionally, the recovery has been uneven across sectors and metro areas, and the unemployment rate is still higher than it was before the recession began. According to the Bureau of Labor Statistics, California has the third-highest unemployment rate in the nation — only Mississippi and the District of Columbia have higher rates. In numerical terms, 1.35 million Californians are looking for work — and more than 35% of them have been looking for at least six months.”

Understanding the full situation of the job market and those who want to work is important to move the legislature toward reducing barriers to job creation in the Golden State.

For years, leading GOP lawmakers have wanted to change the way that the nonpartisan congressional staff calculates — or, in Washington parlance, scores — the budgetary cost of changes to the tax code.

Budget scoring now is fairly straightforward: Just figure out how much more money a tax increase would produce for the Treasury or how much a tax cut would cost in lost revenue.

Republicans, however, want two key congressional offices to use complex models to try to predict the broader effect of hikes and cuts on the economy. The process is called dynamic scoring.

The reasoning behind this is obvious: When you tax more of something, you get less of it. Conversely, if you tax something less, you get more of it.

So if tax rates go up 10 percent, actual tax receipts won’t go up that much — maybe only 8 percent.

Sometimes a tax rate increase can be so high it reduces actual tax receipts. How can that be? Well, for example, if a tax rate rises to 100 percent, nobody would pay it. People or businesses would just stop working or producing.

It’s just like in your own life. Suppose you work 40 hours a week. If you double that, to 80 hours a week, will you get double the output? Maybe for a couple days, or even weeks. But not for long. And the reduction in output-per-hour will decrease faster the older you are.

The change in Congress also is important as a change in mentality. It’s a subtle shift that emphasizes increasing private production, instead of trying to squeeze as much as possible out of taxpayers.

And if the U.S. economy grows faster because of this, so will California’s economy.

I know some folks will disagree with me on this. OK. Explain how, if you increase taxes from 50 percent to 100 percent, revenues will double. (Instead of, as reality, dropping to zero.)

Government spending surged 4.6% in the third quarter, the fastest annual rate since the fiscal stimulus days of 2009. That came mainly from a huge spike in military spending, which some analysts attributed partly to the U.S. bombing of Islamic militants in the Middle East.

But there has been no budget increase for additional military spending, said Dean Baker, co-director of the Center for Economic and Policy Research in Washington.

“This is capacity that was otherwise sitting idle,” he said. “The blip in spending will probably be reversed” in the current quarter.

This is important because the Federal Reserve Board now is ending its Quantitative Easing — that is, inflation — program. For a while, anyway.

The so-called economic recovery since 2009 has been fueled by a succession of QE’s. This flushed more money into the economy, increasing spending.

But there has been a big problem: Interest rates also have been kept at 0 percent. So with inflation at 2 percent or more (check food and housing prices the last couple of years?), common folks saw their “savings” accounts at banks actually lose money.

No wonder the middle-class has been hit hard, and has shrunk, even during the recovery. Average folks have been hit hard by the Fed’s assault on savings, by Fed inflationism, by massive tax increases and by bureaucratic government assaults of increasing ferocity.

Rich folks saw their stock and property values rise due to the Fed QE series. They got the gold mine, while the middle-class got the shaft.

And that’s before the next recession hits.

But there’s a big shortcoming to this narrative. It’s called Los Angeles. America’s second-largest city is struggling. Unemployment is estimated to be 8.7 percent, which is worse than any state. As bad as it is, that figure is misleading because it counts as employed tens of thousands of people with part-time jobs, and it doesn’t include those who have stopped looking for work. Based on U.S. Bureau of Labor statistics for California, it’s likely that fully one in five L.A. residents who want full-time work can’t find such jobs.

From 1990 to 2013, even as L.A.’s population went from 3.49 million to 3.85 million, there was a 3 percent decline in total payroll jobs, according to a recent UCLA Anderson report.

The bad news is that both the city’s short-term and long-term prospects are grim as its core 20th-century industries struggle or vanish. Aviation and manufacturing, both of which used to be huge within city limits, are all but gone. And the film/TV industry has never done more of its shooting outside of L.A., leading to panicked state  lawmakers passing an emergency increase in Hollywood subsidies in recent weeks after being begged to do so by city lawmakers.

The biggest ‘failed city’ of them all

This is not a narrative one hears that often. When California journos write about failed cities, they focus on the ones that have declared or are darn near bankruptcy.

Meanwhile, the city whose population is far greater than the combined population of those failed cities steadily goes down the drain. In January, a blue-ribbon panel of prominent Angelenos acknowledged this in a hugely downbeat report called “A Time for Truth.” Here’s the L.A. Times’ account:

Los Angeles is a city facing economic decline, weighed down by poverty, strangled by traffic and suffering from a crisis of leadership, according to a report released Wednesday by a 13-member panel of influential civic leaders.

The Los Angeles 2020 Commission offered a harsh assessment of government decision-making, warning that the nation’s second-largest city is heading to a future where it can no longer afford to provide public services. Among a litany of problems highlighted in the report are underfunded retirement programs for City Hall employees, slower police and fire response times, and government spending that is growing faster than revenue. …

The report … was commissioned last year by City Council President Herb Wesson. It arrives as the city is struggling to regain its financial footing after a turbulent five-year period of recurring budget crises, the elimination of 5,300 jobs and battles to secure union concessions on pensions and retirement benefits. …

Among the challenges highlighted by the panel: a poverty rate higher than many other American cities; city revenue that has remained flat since 2009; a shrinking middle class; and “wishful” responses to a “continued economic decline.”

Everywhere you look, grim tidings

Bruce Bialosky, a Los Angeles writer and occasional GOP politician, despaired at the breadth of his city’s decline:

8% of Los Angelenos earn poverty pay. If you include those out of work, they state 40% of residents live in misery.

Los Angeles is the only one of seven major metropolitan areas in the country to have a net decline in employment over the last decade.

Major industries are leaving; none are moving here. Twelve companies on the Fortune 500 used to call Los Angeles home, and now just four do.

The school system graduates just 60% of its students from high school and only 32% are qualified for either the UC or Cal State University systems.

The pension system has set aside only 10% of the future needs of city workers.

Stunning stuff. The next time you hear someone tout the California rebound narrative, please guffaw and ask how come it doesn’t extend to California’s biggest city.

As the star of “NCIS: Los Angeles” would say, don’t call it a comeback.

Not so much for the middle class. The Times reported:

On the surface, California’s job market is booming.

The state has now recovered all the jobs lost during the recession, and done so at a faster pace than all but five states.

The growth, though, belies a troubling imbalance. The fastest job creation has come in low-wage sectors, in which pay has declined. At the high end of the salary scale, a different dynamic has taken hold: rising pay and improving employment after rounds of consolidation.

Most distressing, middle-wage workers are losing out on both counts.

“People talk about it like an hourglass,” said Tracey Grose, vice president of the Bay Area Council Economic Institute. “There are fewer opportunities for people in the middle.”

On top of that, California is the most expensive place to live in America. The 9.3 percent income tax rate, supposedly only on the “rich,” digs in at about $55,000 of income, barely into the middle class here. Severe government regulations on housing construction, especially by the California Coastal Commission and the LAFCOs, causing housing to cost twice to four times what it does in other states.

“California is back,” the politicians insist. Yes, if you’re a Silicon Valley billionaire. If not, then not so much.

Peter Schiff tells Cal WatchDog.com’s James Poulos about the coming consequences of our economic policies and why you can’t rely on the dollar. Who will leave California next? Who will leave the United States?

According to a new study by the Russell Sage Foundation, in the last decade median household income crashed by 1/3, from $87,992 in 2003 to $56,335 in 2013. The crash started during the Republican Bush administration, but has not been made better by the Democratic Obama administration.

Control of Congress also was roughly half Republican, half Democratic during this period. But until Janet Yellen took over this year, the Federal Reserve Board was run by Republicans Alan Greenspan and Ben Bernanke. So the Fed inflationism we have suffered, with prices going up as you see every day, mostly must be blamed on the GOP.

Here’s the chart:

So it’s a bipartisan disaster, with Republicans shouldering perhaps 55 percent of the blame, Democrats 45 percent.

At least we found out again, as if we needed to rerun the 1970s, that Fed inflationism and increased regulations (from President George W. Bush and the GOP congresses, as well as from President Barack Obama and the Democratic congresses), plus tax increases and wild spending increases don’t work. And unlike in the 1970s, when deficits were modest in comparison, deficits and debt don’t help, either.

The numbers also show that the “recovery” is a fraud. We’re just in a slightly less bad period of an ongoing recession caused by massive government confiscation and control of the economy.

And take a look at this chart:

It shows that, beginning with the Reagan tax cuts and recovery, wealth grew for every percentile of income except the poorest one (yellow squares), which at least held steady. The growth continued through the 1990s, when Democratic President Clinton first increased taxes, then cut taxes with the help of Republican House Speaker Newt Gingrich.

It was only under Bush that wealth crashed, with the poor getting hurt the most, their wealth being almost entirely wiped out. Obama the didn’t make things any better, except slightly for the poor.

Median wealth now is lower than before the Reagan reforms, meaning the years of progress under Reagan and Clinton have been completely wiped out — and reversed.

The California Index of Leading Employment Indicator jumped to 128.4 in the first quarter of 2014 from 122.5 in the fourth quarter of 2013. The Indicator is compiled by the A. Gary Anderson Center for Economic Research at Chapman University. Any number above 100 indicates growth; below 100 means jobs shrinkage.

The following graph follows the Indicator’s path over the last eight years, dramatically showing the jobs crash in California during the Great Recession, and the subsequent recovery.

The Indicator compiles four components:

• GDP growth, which rose 2.7 percent in the fourth quarter of 2013 (year to year), up from 2.0 percent in the third quarter.
• The S&P 500, which increased 29.6 percent in the fourth quarter, up from 16.7 percent in the third quarter.
• Real exports, which rose 5.4 percent in the fourth quarter, up from 2.3 percent in the third quarter.
• Construction spending, which rose 27.1 percent in the fourth quarter, up from 23 percent in the third quarter.

“We used the fourth quarter 2013 components to show us what will happen in the first quarter of 2014,” Esmael Adibi, the director of the Anderson Center, told CalWatchdog.com.

Jobs growth

“All variables combined in the Indicator series show a decent jump from the previous quarter,” Adibi said. “So jobs creation should pick up a little bit of steam and do better than in the fourth quarter of 2013.”

Adibi pointed to a second graph showing how closely actual jobs growth (the dotted line) tracks the Indicator’s projected jobs growth. So Chapman’s jobs projections have been close to spot on:

The graph does show that jobs growth still is not as strong as it was in the previous economic recovery of the a decade ago.

Taxes

The jobs growth comes despite recent tax increases, in particular the $7 billion increase from Proposition 30, which voters passed in Nov. 2012. The biannual Chapman Economic Forecast, which Adibi produces along with Chapman President Jim Doti, has warned that tax increases would retard economic growth and jobs creation.

“Tax increases obviously are negative,” Adibi explained. “If we didn’t have those, jobs growth would be even higher.”

Adibi still expects the 2.3 percent annual economic growth projected in Chapman’s Nov. 2013 Forecast to be close to what really happens, “barring the unexpected.”

He said that businesses especially crave certainty. And they’re currently getting certainty on taxes. The state budget is balanced for now, meaning more tax increases are unlikely.

As to Brown’s re-election bid, Adibi said the economic numbers are looking good should the governor seek a fourth term. “The economy is doing better,” Adibi said. “The budget surplus is kicking in due to higher taxes and economy. Voters also will like more spending taking place” on schools, universities and other popular programs.

“The typical American family now earns less in real terms than in 1989 after household incomes fell for the fifth consecutive year, highlighting how the sluggish recovery is crimping spending power even as the US Federal Reserve considers slowing its monetary stimulus.

“The economic recovery’s failure to deliver any gains to middle America underscores the continuing challenge for the Fed, which will on Wednesday decide whether to reduce its asset purchase from $85bn a month.”

Actually, it confirms the Fed's 12-year assault on the economy through increasing inflation and keeping interest rates at zero percent, preventing the middle class from earning interest on its savings. More of the same only will make things worse.

Basically, since Reagan left office in 1989, the economy has underperformed. His policies: cut taxes, cut regulations, no inflation. (He allowed too much spending, leading to deficits; but three out of four good policies ain't bad.)

“The figures will also add to pressure from the left for Barack Obama to appoint Janet Yellen – widely regarded as one of the policy makers most concerned about high unemployment – as the next Fed chair. Mr Obama has made median incomes one of the signature issues of his presidency.”

But she's an even bigger inflationist than current Fed boss Ben Bernanke, so she would make things even worse.

“According to the Census Bureau, the median household income fell from $51,100 to $51,017 in 2012, and is now 8.3 per cent below its pre-recession peak in 2007.

“The annual Census Bureau figures demonstrate what has gradually become a lost generation for the American middle class. “Poverty is higher today than it was in 2000 and household incomes are lower,” said Sheldon Danziger, president of the Russell Sage Foundation, which funds social science research.

“Mr Danziger warned the country would face “two lost decades” if federal spending cuts and slow progress in cutting unemployment continue to erode incomes.”

Actually, it's federal spending that's too high — so high it's eating into the very marrow of our economic existence — that's a major part of the problem. Since World War II, spending by the federal government never has exceeded 20 percent for long. But under Bush-Obama, spending has soared above 24 percent.

It's the spending that's too high. It's the spending that's choking the economy. And it's the spending that inevitably will come down because the backs of American workers are breaking under its burden.

Reagan showed everybody how to produce prosperity. But nobody follows him, including even his fellow Republicans: the Bushes, Dole, McCain, Bernanke, Greenspan, Romney, et al.

That will change because Americans will not tolerate the Bush-Obama-Greenspan-Bernanke Depression continuing much longer.