CalWatchdog Morning Read – April 15, 2016

By CalWatchdog Staff

Hello, everybody! A California appeals court on Thursday reversed a two-year-old landmark decision that upended teacher tenure laws.

The Vergara case challenged several state laws establishing layoff procedures based on seniority, dismissal procedures and how tenure (permanent status) was awarded. Presiding Justice Roger Boren decided the plaintiffs failed to show how the tenure laws “make any certain group of students more likely to be taught by ineffective teachers than any other group of students.”

“It is clear that the challenged statutes here, by only their text, do not inevitably cause poor and minority students to receive an unequal, deficient education,” Boren added.

The ruling is a big win for unions and is likely to be appealed. CalWatchdog has more.

In other news:
– In honor of Tax Day (which is Monday), a new Field Poll says that 54 percent of Californians think their income taxes are too high. Unsurprisingly, that sentiment is more popular with Republicans (80 percent said they pay too much) than Democrats (only 42 percent said they pay too much).

– Income taxes generate roughly two-thirds of the state’s revenue. Nearly 90 percent of that comes from the top one-fifth of taxpayers ($91,000 annually and above), which is the only group of taxpayers whose average income has increased over the last twenty years, reports The Sacramento Bee.

– Two more state lawmakers are asking for UC Davis Chancellor Linda P.B. Katehi to step down in response to several unflattering stories by The Sacramento Bee about outside positions she held and a six-figure effort to scrub the Internet of negative details of an 2011 pepper-spraying-of-students scandal. CalWatchdog has more.

– The legislature approved $176.6 million “to conduct testing and cleanup of lead contamination in the neighborhoods surrounding the closed Exide battery recycling plant in Vernon,” reports the Los Angeles Times.

Assembly:
– Gone ’til Monday at 1 p.m.

Senate:
– Gone ’til Monday at 2 p.m.

Gov. Brown:
– No public events scheduled.

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Hertzberg commented on the study results, “California’s economy has changed from one that had been dominated by making goods to today where 80 percent is producing services.”

Hertzberg’s plan, Senate Bill 8, would tax services as part of a restructuring plan and raise an additional $10 billion in tax revenue.

In response to the study, Board of Equalization Vice-Chair George Runner said,  “I’d consider a broader sales tax only if it’s part of revenue neutral tax reform, such as abolishing California’s income tax and the Franchise Tax Board, along with other taxes that destroy jobs. … The last thing overtaxed Californians need is another tax.”

Runner opposes Hertzberg’s proposal.

There will be plenty of time to get into the debate over service taxes. However, it should be noted that the $122.6 billion the service tax could supposedly raise is not only larger than the current General Fund budget of $113 billion, but almost $10 billion larger. In other words, a tax on services as outlined in the study could replace the General Fund revenues and get the additional $10 billion that Hertzberg is looking for while eliminating the income tax, state sales tax and corporate tax.

Hertzberg’s proposal would not attach a service tax to all the items delineated in the BOE study, pointing out education and health care as tax-free services.

If not all services are taxed the door would be open for other services and industries to seek exemptions from the tax — a potential field day for the state’s lobbyists.

By John Seiler

On PBS NewsHour yesterday evening, Gov. Jerry Brown enthused about his new budget:

“The budget is fixed. I inherited a $27 billion deficit. That’s what it was two years ago.

“And that’s gone. This budget will be balanced. Now, is the world absolutely safe from any contingency? No. 1, the world is changing and turbulent. So, if the economy gets worse, then we get less money.”

He believes that his Proposition 30 tax increases of $6 billion did the trick. But what if his tax increase, along with numerous federal tax increases, cause the economy to “get worse”?

We’ll know pretty soon because of two critical dates coming up. The first is around Feb. 7 or 8, when Controller John Chiang releases the numbers for tax collections for January 2013, the first month on which the new taxes hit with full force. Then we’ll know how much the economy has been affected. (The exact date depends on how long it takes the controller’s office to do the calculations.)

We’ll know if the wealthy are starting a mass exodus.

Hints

We already have some hints. The numbers for Nov. 2012 showed that income taxes were down 19 percent from Nov. 2011. That was the month that Prop. 30 passed, boosting the top state income tax rate to 13.3 percent from 10.3 percent. Were rich people, contrary to the governor’s assurances, leaving the state, or finding ways to avoid paying higher taxes?

Also revealing were the numbers from the next month, Dec. 2012, when income tax collections actually rose by 13 percent from Dec. 2011. That might seem to confirm Brown’s contention that rich people love paying high California taxes.

But Chiang’s own comments told a different story:

“Income tax revenues ran above expectations as individuals may have moved certain types of income, such as capital gains, to 2012 to avoid the possibility of higher federal taxes in 2013. January’s revenue totals will bear close scrutiny to see … whether revenue projections remain on track….

“As we look toward the second half of the fiscal year, several issues will be important. Will the economic recovery be strong enough to support increases in income and sales taxes along with some firming in corporate taxes?”

Chiang, who actually does understand numbers, almost sounds like a supply-sider. In any case, his numbers for January tax collections will be out in three weeks.

April 12

The second big date is April 12. That’s the last business day before Tax Day, which this year falls on a Monday, April 15.

April 12 is important because that’s the date rich people will have to cash in some of their stocks and bonds to pay, on April 15, for their taxes for 2012. And this year, rich folks are going to be especially walloped by California. That’s because Prop. 30 was retroactive. It is paid not only on 2013 income, but on income for 2012 — last year.

If it isn’t withheld from their paychecks, normally rich people make quarterly payments on such income. But because the election was late in the year, on Nov. 6, they haven’t had much chance to do so. So the bulk of the added taxes will be due on April 15. For example, if someone has $11 million of income, the new “millionaire’s tax” applies the extra 3 percentage points from Prop. 30 to the portion above $1 million; that is, it will apply to $10 million. Which means $300,000 will be due.

That means the person will have to, say, sell $300,000 in stock on April 12. Now, tens of thousands of millionaires will be doing the same thing on April 12. California is a large state with a lot of rich people.

If this sell off on April 12 is large enough — and it could be — it could hammer equities in California companies. Of course, Californians can own stock in other states and countries; and investors from other states and countries invest in California companies. But in general, rich Californians invest more here than elsewhere, if only because many top executives have large investments in their own companies.

Mark those two dates on your calendar: Around Feb. 7 or 8 and April 12. If the numbers turn out badly, they’ll give California unwelcome news before Brown puts together the May Revision of his budget proposal.