Senate leader’s Prop. 63 endorsement is conditional

Good morning. TGIF. Lots of good stuff this morning, so let’s dig in. 

When Senate President Pro Tempore Kevin de Leon endorsed Proposition 63 last week, he didn’t mention the endorsement was conditional.

This summer, the Los Angeles Democrat ushered through the Legislature a measure that substantially amends in advance the ballot measure’s ammo regulation provisions — a move a Prop. 63 spokesman at the time called “sickeningly cynical.”  

For about a year now, de Leon has been in a political feud with Lt. Gov. Gavin Newsom, Prop. 63’s primary proponent. The two fought over who had better ideas for gun and ammo control and what lawmaking avenue was more appropriate: the Legislature or the Ballot Box. And at least for now, de Leon won. 

None of this was mentioned in the endorsement. 

“Earlier this year, our Legislature passed the most sweeping and important package of gun safety laws in the nation, increasing nationwide momentum and grass-roots outcries for common-sense safeguards against gun violence,” de Leon wrote in a statement. “I endorse Proposition 63 because we must send a powerful and united message to the national Gun Lobby that California will not capitulate to political bullying or compromise the public safety.”

CalWatchdog has more. 

In other news:

• “After a year of stalled negotiations on a multi-billion dollar transportation plan, Democratic legislative leaders are privately discussing reconvening the state Legislature after the Nov. 8 election to take up road funding in a special session, legislative sources said.” Politico has more. 

• “Jerry Brown touted his pension reforms as a game changer. But they’ve done little to rein in the costs,” writes the Los Angeles Times/Calmatters. 

• “Reeling from outrage over a costly bureaucratic misstep, the Pentagon has halted its efforts to force California National Guardsmen to personally repay salary bonuses that should not have been approved in the first place,” writes CalWatchdog.

• “California’s path-breaking bid to end workplace pay disparities faces one of its widest gender wage gaps among the state’s own employees. A new report from the California Department of Human Resources shows that women in the state workforce earn about 79.5 cents on the dollar compared to men.” The Sacramento Bee has more.  

Legislature: 

• Gone till December (or maybe November…)

Gov. Brown:

• No public events announced. 

Tips: matt@calwatchdog.com

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Los Angeles Times columnist George Skelton is worth reading because he’s almost always wrong. His latest column blames “anti-tax demagogues” for California’s disastrous condition.

How about, instead, a string of incompetent governors who refused to discipline the Legislature’s spendthrift ways by putting a restoration of the Gann Limit on the ballot? Gann worked great for the 10 years it was in operation, 1980-90, preventing budget volatility. It limited spending increases to the increases in inflation plus population growth. Since 1990, there has been nothing but budget chaos.

If Brown had called a Special Election at his January 2011 inaugural to put Gann before voters, it would have passed and Brown wouldn’t have any budget problems today. Same thing with Schwarzenegger in 2003.

Or how about the ultra-powerful government worker unions, that have bankrupted the state with exorbitant demands, usually met, for pay, perks and pensions?

And how ’bout them pensions? Why can’t they ever be reformed except at the irrelevant margins?

No, it’s those lousy, stinking taxpayers and their grubby desire to keep their own money — instead of seeing it poured down the government rathole — who are to blame. Especially the “anti-tax demagogues” among them.

Skelton:

“A Democratic governor — basically a moderate — doesn’t find it worthwhile to dicker with conservatives. Brown futilely tried for several months last year to reach a deal with Republican lawmakers in which they’d provide the necessary two-thirds legislative vote to place a tax measure on the state ballot.”

Moderate? Ha!

Skelton:

“Republican leaders wouldn’t negotiate at all. A handful of unranked GOP senators agreed to talk. But for whatever reason — Brown wouldn’t cross labor, Republicans feared anti-tax demagogues — bargaining broke down.”

Skelton doesn’t even mention that Brown refused to twin a pension reform initiative with his tax-increase initiative. If Brown had done so, he would have gotten enough Republicans on his side to plunk a tax-increase measure on a special-election ballot. People don’t sell out for nothing. When Abel Maldonado sold out his Republican state Senate vote for tax increases back in 2009, in return Gov. Arnold Schwarzenegger gave Maldo the lieutenant governor’s seat and Proposition 14, the Top Two election initiative. The initiative might garner Maldo a seat in the U.S. Congress.

Skelton:

“But wait! Let’s see how Californians vote in November.

“If they vote against the tax increase, it would mean — again — that Californians side with the GOP on fiscal issues. And then we’d need to ask why they’re refusing to elect more Republicans to state office.

“Mainly it’s because Republican candidates are too scary, especially to independents and women on social issues and Latinos on immigration.”

Actually, it’s because a) Republicans in this state are incompetent. Look at Meg Whitman’s 2010 campaign. And b) No matter what, this is just a Democratic state.

But because California is so massively dysfunctional, why would Republicans want to claim it anyway? It’s like wanting to take over North Korea.

The there’s the state’s pension crisis of at least $500 billion in pension debt, according to a Stanford University study. Any business with any sense as fast as it can gets out of Dodge, Calif.

Any business that remains here should have its executives’ heads examined under funds provided by Proposition 63, the insane 2004 initiative that jacked up income taxes on millionaires to establish mental health programs. Most of the money backing the initiative came — surprise! — from mental health associations whose members collected the tax lucre.

Brown’s new tax increase would impose another 3 percent income tax on such people, raising their tax rate to 13.3 percent, which would by far be the highest state tax in the nation. Hawaii currently has the highest at a mere 11 percent.

At this point, state politics is little more than special interests all poaching on what little money so far has been left to taxpayers.

And Skelton blames “anti-tax demagogues”!

March 19, 2012

By JOHN SEILER

Gov. Jerry Brown’s budget proposal contains more smoke than a forest fire. More mirrors than a funhouse. And more empty promises than a presidential candidate’s platform.

So much for his solemn pledge, in his Inaugural Address a year ago, “No more smoke and mirrors on the budget. No empty promises.”

The numbers are in the new report by the California Legislative Analyst’s Office, “Overview of the Governor’s Budget.” The budget under the microscope is for fiscal 2012-13, which begins July 1, 2012.

The LAO writes that the governor’s proposed $6.9 billion tax increase, to be put on the November ballot, is the “cornerstone” of the budget. Without it, the budget numbers collapse like a cheap card table. The increase would impose an extra half-cent sales tax, raising the state sales tax to about 8.5 percent in most counties. And it would impose an additional 2 percentage points of income tax on the wealthy, bringing the top state tax rate to 12.3 percent. That would make it the highest in the nation.

Election Far Away

But the tax increase hasn’t even been passed yet by voters. The election to authorize it is more than nine months off. And the last tax increase voters approved was in 2004, at the height of the real-estate bubble. That was Proposition 63, a 1 percentage point tax increase on millionaires dedicated to mental-health programs.

According to Ballotpedia, ‘The “Yes on 63’ campaign spent approximately $4.7 million. The largest donor was the California Council of Community Mental Health Services, which gave $733,389 to the campaign. The California Healthcare Association gave $541,735. The California Teachers Association kicked in another $302,555.^[6]

“In comparison, opponents of the measure spent virtually nothing, with two separate ‘No on 63’ campaign committees spending a cumulative total of just over $13,000.00.^[7]“

Despite almost no opposition, and the tax falling only on all those filthy rich people, Prop. 63 still got only 54 percent of the vote.

The conditions in 2012 are far different from those in 2004. The real-estate bubble burst in 2007, leading to the real-estate crash. Real estate still hasn’t recovered, and might not for years.

In November 2004, the month of the election, unemployment was just 5.9 percent in California. But in November 2011, the last month available, it was nearly double that, at 11.3 percent.

In 2004, the tax increase initiative sparked just $13,000 in opposition spending. In 2012, anti-tax forces already are planning on spending tens of millions of dollars fighting any tax-increase initiative, whether Brown’s or the others being talked about, such as Molly Munger’s $10 billion yearly tax increase.

I peg the odds of any tax increase passing in California this November at only about 10 percent.

Not Even $6.9 billion

But the LAO also calculates that Brown miscalculated the $6.9 billion in swag. It only would bring in $4.8 billion a year.

Put another way, to get the $6.9 billion Brown wants, the tax increase would have to rise by another $2.1 billion above the $4.8 billion amount, a 44 percent increase. For that the state is supposed to support another tax assault on businesses and jobs?

The LAO’s analysis warned, “Currently, we forecast that the proposal would generate $4.8 billion for the 2012-13 budget process, or $2.1 billion less than the administration’s estimate. Our estimates of the initiative’s revenue increases in later years also are lower than the administration’s. The reasons for our lower estimates are essentially the same as the reasons for our differences in baseline revenues…

“Both our office and the administration agree that the initiative revenues will likely prove to be volatile, given that a large portion of them will relate to upper-income tax filers’ capital gains and other nonwage income.”

“Volatile” is the right word.

Tax Bonanza

Bloomberg reported today, “The potential for California (STOCA1) to see a tax windfall from a Facebook Inc. public stock offering this year demonstrates how much the state relies on capital-gains taxes, a volatile revenue stream that hampers its credit rating.

“Menlo Park, California-based Facebook, the world’s most-used social-networking site, is considering the largest initial public offering for an Internet company on record, a person familiar with the plans said last year. Estimated at $10 billion, the offering would make instant millionaires of company employees and require the state to adjust its revenue forecast to reflect additional capital-gains taxes they’d pay, the state’s legislative analyst said yesterday.

“That kind of unanticipated boost shows the boom-and-bust cycle that capital gains taxes often inflict on California’s budget. In fact, capital-gains tax revenue as a percentage of the state’s general fund plummeted from 12 percent to just 3 percent between 2007 and 2009 as investors pulled away from the stock market, a decline of $9.3 billion, according to state finance department figures.”

This would seem an ideal time to propose switching California to a revenue-neutral, flat tax of the sort Gov. Brown himself advanced when he ran for president 20 years ago. His friend, economist Arthur Laffer, even has devised a great flat-tax reform for California, as I reported on CalWatchDog.com two years ago. So Brown knows what can be done.

But no. Brown refuses to innovate. Instead, he brings out the old root-canal tax proposals favored by the government unions that funded his campaign in 2010.

Meanwhile, the state’s economy, despite a modest recovery, continues to stagnate — barring the occasional Facebook public offering that affects only Silicon Valley.

On Jan. 10, Controller John Chiang released his “Summary of State Finances in December 2011.” It found, “Compared to estimates found in the Governor’s newly proposed 2012-13 Budget, total General Fund Revenues in December 2011 were $165.2 million worse (-2.0%) than expected. Personal income taxes were $69.8 million lower (-1.4%) than projected and corporate taxes were $19.5 million below (-1.4%) the estimates in December.”

Which means there’s no new boom exploding revenue to cover Brown’s budget, which includes $6 billion in new spending. There’s no real-estate bubble. There’s no dot-com boom. There’s just modest growth.

The year will show how much more smoke Brown will blow, and how many mirrors he will erect, to hide what’s really going on and hornswoggle voters into passing his tax increase.

By JOHN SEILER

California’s government unions could seek a 43 percent tax increase on wealthy Californians. The Contra Costa Times reported on the action, but missed the magnitude of the tax increase. The Times:

SACRAMENTO — Labor leaders were never overly enamored with Gov. Jerry Brown’s plan to extend taxes on purchases, income and auto fees, but were willing to go along with it to give the newly elected Democratic governor a chance to find revenues his way.

But with Brown’s plans now smoldering in ruins, his labor allies are moving to gain control of the debate over tax initiatives they hope to pursue in November 2012.

“I’m not sure which way we’ll go, but it won’t have a regressive sales or income tax on the middle class,” said Art Pulaski, secretary-treasurer for the California Labor Federation. “We’re going to want to look at a way to generate revenues that doesn’t put more burden on working folks.”

The problem is that California already has the country’s most regressive state income tax, which digs in at 9.3 percent on incomes beginning around $50,000. According to the ALEC-Laffer survey released last month, California ranks 50th of the 50 states on “Personal Income Tax Progressivity.”

The Contra Costa Times continued:

“The existing tax structure basically benefits the most wealthy of us, especially corporations and the most wealthy individuals, at the expense of middle class folks,” said Dean Vogel, president of the California Teachers Association. “For the last 20 years at least, with a two-thirds vote required to pass the budget, we’ve been trading tax breaks for votes that built a structural deficit. Nobody wants to talk about it, but it’s there. It’s a heck of a way of doing business.”

Actually, the structural deficit exists because 21 years ago voters, misled into thinking they were voting for road construction, effectively repealed the Gann Limit, which limited increases in spending to increases in inflation plus population growth. Spending then spiraled out of control.

The Contra Costa Times again:

“We did polling, and it has huge support, so if we support an initiative for November, it would be more than 1 percent,” said Josh Pechthalt, president of the California Federation of Teachers. “I’m frankly not interested in something so minimal. I think 1 percent is much too low. It’s a misreading of where people are politically.”

Pechthalt means more than a 1 percentage point increase in taxes on the top 1 percent of income earners.

President Obama’s agreement earlier this year to extend the Bush-era taxes was a 4 percent break for the top 1 percent, Pechthalt said. [Again, he means 4 percentage point increase.]

“If we could capture that in California, that would generate $10 billion,” he said.

“Capture” Taxpayers

The Times did not note that, with the current top rate of 9.3 percent, increasing that rate 4 percentage points would mean a whopping 43 percent increase in state taxes on the wealthy. The rate would go from 9.3 percent to 13.3 percent, by far the highest in the country.

And notice how Pechthalt uses the word “capture,” which is what the state would have to do to rich people to keep them in the state if taxes increased that much. Moreover, as well as the top 9.3 percent income tax in California, there’s already an additional 1 percentage-point extra tax on  incomes above $1 million to fund mental health from Proposition 63 back in 2004.

So, the top rate potentially could be 15.3 percent. Pasting the 15.3 percent top state income tax rate top of the 35 percent top federal income-tax rate, that would total a 50.3 percent top income tax just for living in the Golden State. By contrast, leaving the state for a state without a state income tax — such as Nevada, Texas or Florida — would mean a rich person’s top income tax rate (state and federal combined) would drop from 50.3 percent to 35 percent. That would be a hefty 30 percent tax cut.

According to Ballotpedia, “The initiative was written by then Assemblyman Darrell Steinberg and Mental Health lobbyist Sherman Selix.” Steinberg now is the president pro-tem of the state Senate, and a  major player in the state’s excessive spending and taxing mess. The CTA also was a big supporter of Prop. 63. Yet now they cry poor mouth when there’s supposedly not enough money for schools. They should have thought of that back in 2004.

Businesses Leaving

Businesses already are turning East and hitting the accelerator on their Mayflower trucks. According to Joseph Vranich, the Business Relocation coach:

Out-of-state economic development officials are traveling through the state to alert frustrated business owners and corporate executives to their friendlier business climate versus California’s hostility toward commercial enterprises.

* From Jan. 1 of this year through this morning, June 16, we have had 129 disinvestment events occur, an average of 5.4 per week.

* For all of last year, we saw an average of 3.9 events per week.

* Comparing this year thus far with 2009, when the total was 51 events, essentially averaging 1 per week, our rate today is more than 5 times what it was then.

Our losses are occurring at an accelerated rate. Also, no one knows the real level of activity because smaller companies are not required to file layoff notices with the state. A conservative estimate is that only 1 out of 5 company departures becomes public knowledge, which means California may suffer more than 1,000 disinvestment events this year. The capital directed to out-of-state or out-of-country, while difficult to calculate, is nonetheless in the billions of dollars.

The top five destinations are (1) Texas, (2) Arizona, (3) Colorado, (4) Nevada and Utah tied; and (5) Virginia and North Carolina tied.

Vote Not Certain

The unions may seek a “soak the rich” tax increase in November 2012, but they might not get it. An April PPIC poll showed support for boosting taxes on the wealthy. But November 2012 still is 16 months away.

Meanwhile, the national economy continues to stagnate. There has been no substantial economic growth in America for four years.

On Friday, new figures showed the national unemployment rate rose in June from 9.1 percent to 9.2 percent. When California’s numbers are released later this month, the unemployment rate could rise from the 11.7 percent of May.

President Obama goes into election year facing a bad economy. Republicans naturally are taking advantage of that.

In California, in the November 2010 election Democrats stemmed the rising national Republican tide, with the GOP here actually losing seats in the state Legislature. But in 2012, Democrats might not be able to repeat that feat here. Or, at least, anti-government sentiment might be able to halt a new tax increase, even one on the wealthy.

In the end, despite the unions’ dreams, the state will have to face its need for reforms on spending, especially union pay and pensions, and on taxing.