Showing posts with label taxes. Show all posts
Showing posts with label taxes. Show all posts
Tuesday, May 6, 2014
No on California Proposition 41 Bond Act
California Proposition 41, which is up before the voters for the June 3, 2014 primary election, is the sort of thing every voter has seen before. Despite the state being overburdened by debt, special interests will devise a plan to borrow more while hiding their true agenda.
Veterans Housing and Homeless Prevention Bond Act of 2014 might help veterans including homeless veterans a bit, but its real victors would be the investment banks that sell the bonds; construction moguls; and land speculators.
If the people of California want to help the homeless or veterans, through the State of California, the money should come out of an annual budget, not further borrowing.
Where will this alleged housing be built? Will your city, town, or county benefit? Probably not. It will go where the most corrupt politicians and bureaucrats want it to go, where it most profits their patrons.
Where is all the housing from prior, similar bond acts? Not much of anywhere, because the interest on the bonds, and the bankers' commissions for selling the bonds, and the bureaucratic pay for planning housing, and rezoning, and fighting with the neighborhoods that usually don't want the housing anyway, will eat up most of the taxes paid.
Except that all the taxes paid, despite the astonishingly high tax rates in California, are already being eaten up, not just with ordinary state expenses, but with interest and principle payments on prior bonds. [We supported the recent tax hikes to get us out of a mess, not to reinvigorate the mess]
The tragic inability of the State of California to help people during the late Great Recession was a direct result of overspending before 2008, including endless bond measures, each titled to try to appeal to enough voters to get them passed. During the recession California cut aid to the homeless, including the newly homeless who had long histories of paying taxes.
California needs to pay down its debts and deal with the underfunding of the pensions for public workers. When that is done we can fund things like alleged housing for the poor out of budget surpluses, if necessary by stopping funding items that are less important to us.
While it can be found everywhere, homelessness should be addressed at a detailed level. Some homeless people just need a job; some need medical or psychiatric help; individuals have individual issues. These issues can best be addressed at the local level.
The only homeless persons these bonds might help are veterans. While the vast majority of homeless people in California are not veterans, they would be left out in the cold by this program.
Don't be fooled by the title. Vote NO on Proposition 41 in the June 3, 2014 primary.
See also: California Official Voter Guide Proposition 41
Tuesday, December 4, 2012
Democrats Now in Charge of California
The new California legislature has been sworn in, and the Democratic Party, or at least its elected politicians, are in charge. There are Democratic super majorities in both the State Assembly and the State Senate, and of course Governor Brown presumably stands ready to sign into law anything his fellow Democrats pass. To block any legislation Republicans would have to get at least a few Democrats to join with them.
The Democrats are limited by nothing but reality now. They owe their usual constituencies big time, but how can they pay up? The passage of Proposition 30, which increased income and sales taxes, insures that there should be enough income to balance the budget in 2013. The economy seems to be thawing, which could also boost revenue a bit. But there is little or no room to increase the budget for teachers, other civil servants, or public welfare. This is after four years of fairly drastic cutbacks. Teachers and police remain out of work, medical and dental help for the poor remains cut to the bone. As always, to raise more funds either the economy has to pick up steam or taxes need to be raised.
The Democrats could become real unpopular real quickly if they raised taxes again significantly. Don't expect it.
California is still dealing with two giant legacy issues: bonds and public employee pensions. Ever since the Great Depression, California had been able to depend on growth in population and per person income. In that situation it made sense to fund projects with bonds, since they would be relatively easy to pay off over time. The same with pensions: by promising great things in the future, current wage concessions could be minimized. The bonds carried what seemed to be low interest rates, but for years now we have been in a super-low interest rate environment, making the bonds relatively expensive and hard to pay off.
Pensions were premised on above-historical average returns in the stock market. Need we say more? To keep past promises the state government (and local governments too) would have to gut services and cut into the number of public employees even further.
California might still grow its way out of this mess, but the way forward is no longer clear. We are no longer the state that everyone wants to move to. We no longer have the world's best schools and universities. We have little buildable land that is not protected by environmentalists (and the environmentalists are right!). To the extent the population of California grows it needs to be urban growth, growth in the direction of high rise buildings, not further suburbanization. If the population stabilizes or grows slowly we need to raise wages for the average worker if we want the economy to expand. Yet raising wages can be difficult when globalized manufacturing and services is based on wages that are already lower than are paid here.
Then there is the issue of being part of the United States of America, which now has a debt so vast it is hard to imagine that it can remain solvent in the long run. California would probably be better off becoming its own nation, with its own ability to manage its economy, money, and debt system, but that won't happen. The U.S.A. has an out-of-control military and homeland security complex that is sinking our entire economy. Expect federal taxes to increase, leaving Californians less money to spend near home.
Our own tax mess hardly leaves the sense that California is governed any better than the nation. For many residents real estate taxes are low, since they are based on ancient property values. But many other residents are paying real estate taxes on expensive homes, and inflation is not easing their burden over time. We have compensated with a sales tax that gives many people pause when spending money. If you are lucky enough to have $100 to spend, you can only take $90 or so to the checkout counter, because taxes will eat up the difference. That makes a huge difference both to consumers and to the merchants that service them. Our California state income tax is quite progressive, but makes our state unattractive as a home for many upper income people.
We are short of water. We are well past the point where there is enough water to satisfy fish, farmers, and consumers. Despite having some of the best agricultural land on earth, we have so many residents that we are net food importers.
We used to have steel mills, foundries, and semiconductor fabrication plants. All gone, and unlikely to come back. Even Hollywood makes as many films as possible anywhere but California. We are strong on design, but also need to compete in the national and international markets, providing both services and real goods.
Herbert Hoover handed Franklin Delano Roosevelt a bigger mess in 1933. While economic in nature, it was a different sort of mess than confronts us today. Californians are watching the Democratic Party. Failure to deliver prosperity will almost certainly mean a cataclysm is in our future.
The Democrats are limited by nothing but reality now. They owe their usual constituencies big time, but how can they pay up? The passage of Proposition 30, which increased income and sales taxes, insures that there should be enough income to balance the budget in 2013. The economy seems to be thawing, which could also boost revenue a bit. But there is little or no room to increase the budget for teachers, other civil servants, or public welfare. This is after four years of fairly drastic cutbacks. Teachers and police remain out of work, medical and dental help for the poor remains cut to the bone. As always, to raise more funds either the economy has to pick up steam or taxes need to be raised.
The Democrats could become real unpopular real quickly if they raised taxes again significantly. Don't expect it.
California is still dealing with two giant legacy issues: bonds and public employee pensions. Ever since the Great Depression, California had been able to depend on growth in population and per person income. In that situation it made sense to fund projects with bonds, since they would be relatively easy to pay off over time. The same with pensions: by promising great things in the future, current wage concessions could be minimized. The bonds carried what seemed to be low interest rates, but for years now we have been in a super-low interest rate environment, making the bonds relatively expensive and hard to pay off.
Pensions were premised on above-historical average returns in the stock market. Need we say more? To keep past promises the state government (and local governments too) would have to gut services and cut into the number of public employees even further.
California might still grow its way out of this mess, but the way forward is no longer clear. We are no longer the state that everyone wants to move to. We no longer have the world's best schools and universities. We have little buildable land that is not protected by environmentalists (and the environmentalists are right!). To the extent the population of California grows it needs to be urban growth, growth in the direction of high rise buildings, not further suburbanization. If the population stabilizes or grows slowly we need to raise wages for the average worker if we want the economy to expand. Yet raising wages can be difficult when globalized manufacturing and services is based on wages that are already lower than are paid here.
Then there is the issue of being part of the United States of America, which now has a debt so vast it is hard to imagine that it can remain solvent in the long run. California would probably be better off becoming its own nation, with its own ability to manage its economy, money, and debt system, but that won't happen. The U.S.A. has an out-of-control military and homeland security complex that is sinking our entire economy. Expect federal taxes to increase, leaving Californians less money to spend near home.
Our own tax mess hardly leaves the sense that California is governed any better than the nation. For many residents real estate taxes are low, since they are based on ancient property values. But many other residents are paying real estate taxes on expensive homes, and inflation is not easing their burden over time. We have compensated with a sales tax that gives many people pause when spending money. If you are lucky enough to have $100 to spend, you can only take $90 or so to the checkout counter, because taxes will eat up the difference. That makes a huge difference both to consumers and to the merchants that service them. Our California state income tax is quite progressive, but makes our state unattractive as a home for many upper income people.
We are short of water. We are well past the point where there is enough water to satisfy fish, farmers, and consumers. Despite having some of the best agricultural land on earth, we have so many residents that we are net food importers.
We used to have steel mills, foundries, and semiconductor fabrication plants. All gone, and unlikely to come back. Even Hollywood makes as many films as possible anywhere but California. We are strong on design, but also need to compete in the national and international markets, providing both services and real goods.
Herbert Hoover handed Franklin Delano Roosevelt a bigger mess in 1933. While economic in nature, it was a different sort of mess than confronts us today. Californians are watching the Democratic Party. Failure to deliver prosperity will almost certainly mean a cataclysm is in our future.
Monday, October 22, 2012
No on California Proposition 39, Public Funding of Energy Corporations
Official Title: Tax treatment for Multistate Businesses. Clean Energy and Energy Efficiency Funding. Initiative Statute.
Proposition 39 appears to close a corporate tax loophole, and it would fund renewable, or "clean" energy in the state of California. Since in general I have supported closing corporate tax loopholes, and favor the reduction of greenhouse gas emissions, why am I not supporting Proposition 39?
The California corporate income tax loophole is complex. Few corporations operate only in California. Their revenues and expenses come partly, or even mostly, from out of state. Current laws allow corporations to pick from two methods to determine how much taxable income to report. Naturally each corporation picks the method that results in their lowest taxes. Proposition 39 would impose a uniform method on these calculations.
Proposition 39 should result in an additional $1 billion of tax expense to corporations and $1 billion of revenue to the state government. If Proposition 39 stopped there, it would be a good initiative.
However, 39 continues a California tradition of misgovernment by pre-determining how the new tax revenue will be spent. At this point the money should just go to paying reducing the annual deficit. Once we have an annual surplus, it should be used to pay down debt. Once debt is at a tolerable level, it should be used to create a "rainy day" fund.
Only if the California budget situation improves vastly over the next few years should the $1 billion be considered as money that can be spent by the government. And how should it be spent? We can't know that now.
Our budget is a mess partly because past initiatives have roped off funds, forcing them to be used in certain ways, for instance to pay off bonds or for public education. The alleged benefit of this earmarking of tax revenue is that without it the Legislature would go wild and fund frivolous bureaucracies and new tax loopholes, while ignoring core areas.
It has not worked and it will work less well as time goes on. As corrupt and incompetent as the Legislature has been, it is still better to allocate funds on an as-needed basis. Some human judgment is needed to allocate funds each year, and that becomes impossible when initiatives earmark the vast majority of taxes collected by the state.
Has "clean energy" been left out? Clean Energy is itself a corporate industry. It has been highly subsidized by the federal government. Closing one corporate loophole to raise funds to shower down on a particular (and very small) set of corporations is just plain crazy. Wrapping a corporate subsidy in the flag of environmentalism may be good politics, but it is bad governance.
No on 39, No taxpayer funded bailout to the energy industry.
Proposition 39 summary, official arguments, and text
Proposition 39 appears to close a corporate tax loophole, and it would fund renewable, or "clean" energy in the state of California. Since in general I have supported closing corporate tax loopholes, and favor the reduction of greenhouse gas emissions, why am I not supporting Proposition 39?
The California corporate income tax loophole is complex. Few corporations operate only in California. Their revenues and expenses come partly, or even mostly, from out of state. Current laws allow corporations to pick from two methods to determine how much taxable income to report. Naturally each corporation picks the method that results in their lowest taxes. Proposition 39 would impose a uniform method on these calculations.
Proposition 39 should result in an additional $1 billion of tax expense to corporations and $1 billion of revenue to the state government. If Proposition 39 stopped there, it would be a good initiative.
However, 39 continues a California tradition of misgovernment by pre-determining how the new tax revenue will be spent. At this point the money should just go to paying reducing the annual deficit. Once we have an annual surplus, it should be used to pay down debt. Once debt is at a tolerable level, it should be used to create a "rainy day" fund.
Only if the California budget situation improves vastly over the next few years should the $1 billion be considered as money that can be spent by the government. And how should it be spent? We can't know that now.
Our budget is a mess partly because past initiatives have roped off funds, forcing them to be used in certain ways, for instance to pay off bonds or for public education. The alleged benefit of this earmarking of tax revenue is that without it the Legislature would go wild and fund frivolous bureaucracies and new tax loopholes, while ignoring core areas.
It has not worked and it will work less well as time goes on. As corrupt and incompetent as the Legislature has been, it is still better to allocate funds on an as-needed basis. Some human judgment is needed to allocate funds each year, and that becomes impossible when initiatives earmark the vast majority of taxes collected by the state.
Has "clean energy" been left out? Clean Energy is itself a corporate industry. It has been highly subsidized by the federal government. Closing one corporate loophole to raise funds to shower down on a particular (and very small) set of corporations is just plain crazy. Wrapping a corporate subsidy in the flag of environmentalism may be good politics, but it is bad governance.
No on 39, No taxpayer funded bailout to the energy industry.
Proposition 39 summary, official arguments, and text
Friday, May 28, 2010
Californians Will Pay the War Tab
Who will pick up the tab? On the micro scale, everyone has experienced this question, typically at restaurants. In society, when services are given to the poor, the unfortunate, or even those who competently avoid taking responsibility for themselves, either donors pay or taxpayers pay the tab.
Then there is the War. Mostly in Afghanistan these days, but it could flare up any minute in Iraq, Somalia, Iran, Korea, etc. There are direct costs to the occupation of Afghanistan, and then there is the ongoing, bone-crushing cost of maintaining the U.S. military establishment as a whole. There is no doubt that U.S. taxpayers are picking up this tab. But taxpayers are a varied lot, and pay or evade a wide variety of taxes.
Yesterday's vote in the U.S. Senate on special funding for the occupation of Afghanistan illustrates some interesting shifts in the tab-picking-up dynamic. Some Senators in the Democratic Party and some Senators in the Republican Party voted against the funding. The Democratic Party naysayers want a timetable for withdrawal set. The Republican Party Nays had voted against the amendment to attach a withdrawal timetable for the bill. They voted against the bill itself because no provision was made to raise the money for it; it would add to the deficit. So they want the meal, They are worried about who will pay the tab.
American taxpayers have run up an enormous tab. It is called the National Debt. There is interest on the national debt, which itself makes up a big part of the Federal budget each year.
Back when the Dems were the outs and wanted to be voted in, they opposed the war as pointless. Now the leadership of the Dems, including the President, sound exactly like the leadership of the Republicans did just a few years ago. Only the Republicans, given their self-inflating, gun-toting constituency, can't oppose the war openly. There are no votes there. What they can do is point to the way the Democratic Majority is taking out a mortgage on America, at variable interest rates, with no ability to pay if either interest rates go up or the economy cycles back into recessionary mode.
Who will pay the tab? With the Democrats in power, the Republicans are worried that taxes on the "rich" will be raised. After all, you can't squeeze tax dollars out of income-less people living in Obama-villes. The rich already pay a lot of the tax burden, but they also get some pretty good breaks, like not paying taxes on capital gains until the capital is sold, which is typically only when they die. I would rather be rich and pay at higher tax rates, but once you are rich you get used to spending your money like anyone else. Higher taxes for the rich could mean waiting a year before buying a new Bentley, or taking a few days less vacation on the French Riviera, or having to fire one of the maids. That is the kind of irritant that makes rich people put pressure on their politicians.
You know how it goes. "Sure Bob, last year I raised $100,000 for your campaign, but then you raised taxes and now Sally Sue's vacation budget is $250,000 short."
In case you have not noticed, in Democratic majority districts the rich have to pick up two tabs. One is for the presumed winners, the Democrats, and the other is for the Republican Party candidates, to keep their hopes alive and the pressure on the Democrats.
Talk about a quagmire. The Democrats can't get out of Afghanistan without a "victory" because that would make them vulnerable to the Republicans. The Republicans are really, really worried about the future tax burden (and everyone should be), and the smarter ones are beginning to realize that the military part of the military-industrial complex has gotten to big compared to the industrial part. Too much industry has left the U.S.A., leaving a service-based economy that can't pay for the industrial goods we import.
Once I was working as a waiter in a pizza joint and a table of customers ran out on me. The restaurant owner, chewed me out thoroughly, but did not carry out his threat to take the tab out of my miniscule wages. He had to pick up the tab.
When taxes get high, evasion becomes commonplace. Some blame the Greek crisis on that phenomena.
Before dining out, which I seldom due since my wife and I both prefer cooking ourselves, I like to negotiate who is going to pay the tab. I don't like surprise. I especially don't like heavy drinkers who suggest that the tab be split "evenly." The federal deficit and national debt are one big surprise waiting to happen. There is absolutely nothing in our legal codes about who exactly is going to pay that tab.
In California we have seen the same problem with the state budget. Every constituency sucking on the state tit, from welfare babes to billionaire contractors, wants more, at the very least a restoration of the recent budget cuts. Paying for more means raising taxes on an entire class of people. But taxes really do hurt people, and the economy, and are already high except for one class of people. Those who have benefitted from the undervaluing of their buildings, for tax purposes, due to Proposition 13.
Then there is the War. Mostly in Afghanistan these days, but it could flare up any minute in Iraq, Somalia, Iran, Korea, etc. There are direct costs to the occupation of Afghanistan, and then there is the ongoing, bone-crushing cost of maintaining the U.S. military establishment as a whole. There is no doubt that U.S. taxpayers are picking up this tab. But taxpayers are a varied lot, and pay or evade a wide variety of taxes.
Yesterday's vote in the U.S. Senate on special funding for the occupation of Afghanistan illustrates some interesting shifts in the tab-picking-up dynamic. Some Senators in the Democratic Party and some Senators in the Republican Party voted against the funding. The Democratic Party naysayers want a timetable for withdrawal set. The Republican Party Nays had voted against the amendment to attach a withdrawal timetable for the bill. They voted against the bill itself because no provision was made to raise the money for it; it would add to the deficit. So they want the meal, They are worried about who will pay the tab.
American taxpayers have run up an enormous tab. It is called the National Debt. There is interest on the national debt, which itself makes up a big part of the Federal budget each year.
Back when the Dems were the outs and wanted to be voted in, they opposed the war as pointless. Now the leadership of the Dems, including the President, sound exactly like the leadership of the Republicans did just a few years ago. Only the Republicans, given their self-inflating, gun-toting constituency, can't oppose the war openly. There are no votes there. What they can do is point to the way the Democratic Majority is taking out a mortgage on America, at variable interest rates, with no ability to pay if either interest rates go up or the economy cycles back into recessionary mode.
Who will pay the tab? With the Democrats in power, the Republicans are worried that taxes on the "rich" will be raised. After all, you can't squeeze tax dollars out of income-less people living in Obama-villes. The rich already pay a lot of the tax burden, but they also get some pretty good breaks, like not paying taxes on capital gains until the capital is sold, which is typically only when they die. I would rather be rich and pay at higher tax rates, but once you are rich you get used to spending your money like anyone else. Higher taxes for the rich could mean waiting a year before buying a new Bentley, or taking a few days less vacation on the French Riviera, or having to fire one of the maids. That is the kind of irritant that makes rich people put pressure on their politicians.
You know how it goes. "Sure Bob, last year I raised $100,000 for your campaign, but then you raised taxes and now Sally Sue's vacation budget is $250,000 short."
In case you have not noticed, in Democratic majority districts the rich have to pick up two tabs. One is for the presumed winners, the Democrats, and the other is for the Republican Party candidates, to keep their hopes alive and the pressure on the Democrats.
Talk about a quagmire. The Democrats can't get out of Afghanistan without a "victory" because that would make them vulnerable to the Republicans. The Republicans are really, really worried about the future tax burden (and everyone should be), and the smarter ones are beginning to realize that the military part of the military-industrial complex has gotten to big compared to the industrial part. Too much industry has left the U.S.A., leaving a service-based economy that can't pay for the industrial goods we import.
Once I was working as a waiter in a pizza joint and a table of customers ran out on me. The restaurant owner, chewed me out thoroughly, but did not carry out his threat to take the tab out of my miniscule wages. He had to pick up the tab.
When taxes get high, evasion becomes commonplace. Some blame the Greek crisis on that phenomena.
Before dining out, which I seldom due since my wife and I both prefer cooking ourselves, I like to negotiate who is going to pay the tab. I don't like surprise. I especially don't like heavy drinkers who suggest that the tab be split "evenly." The federal deficit and national debt are one big surprise waiting to happen. There is absolutely nothing in our legal codes about who exactly is going to pay that tab.
In California we have seen the same problem with the state budget. Every constituency sucking on the state tit, from welfare babes to billionaire contractors, wants more, at the very least a restoration of the recent budget cuts. Paying for more means raising taxes on an entire class of people. But taxes really do hurt people, and the economy, and are already high except for one class of people. Those who have benefitted from the undervaluing of their buildings, for tax purposes, due to Proposition 13.
Wednesday, February 10, 2010
Going Down With the U.S.A.
As we enter the off-year election season, Californians and Americans both have a lot to be angry about. The incompetence of incumbent politicians and their mostly capitalist masters has reached epic proportions.
Nothing is being done about overpopulation. Only token measures are being taken as greenish nods towards long-term environmental sustainability. Yet despite ignoring these very real problems, the economy is in shambles.
I believe that in general Californians are over-taxed. I am not saying that there are not people who don't pay their share, because of one loophole or another. I am saying that between local, state, and federal taxes and between income, real estate, sales taxes and various fees, the problem is not that the tax rate as a whole is too low.
Why, when we pay so much in taxes, is there so little to show for it? One reason is bureaucratic creep, which is the tendency over time for bureacracies to expand, and for pay for especially the highest level of bureaucrats to increase out of proportion to productivity. This is true within business corporations even more so that in government agencies.
The other is misallocation of taxes. This happens in all areas, on all scales. But the biggest problem for California is the biggest problem for the United States of America: defense spending.
The reality is that the U.S. runs a global empire. We spend more on our military than pretty much any conceivable combination of enemy states put together.
This has undermined America's economy since the Vietnam War, and now the sink holes are appearing. The biggest, undeniable sink holes are the federal deficit and federal debt.
While I believe that we are in an economic upturn this year, I don't see the Democratic Party or the Republican Party dealing with our fundamental economic problems. As a tag-team they are able to crush third-parties and independent candidates, but they also amplify economic mismanagement. In California the Republican politicians won't cut prison funding, or admit that the War on Drugs is a failure. The Democrats don't seem to recognize that the rest of us can only pay so much for welfare programs before we have to start begging ourselves. On the national level both parties fall over themselves to serve and protect the budget of the Department of Defense.
The most recent round of blame has to be laid squarely on the Bush tax cuts for the rich. Recall that many Democrats in Congress voted for those tax cuts, including Mike Thompson of California's 1st Congressional District. The cuts were supposed to stimilate the economy, eventually leading to higher tax collections on a larger economy. But then we had an amplification of the Islamic rebellion, and President Bush with Republican and Democratic Party support decided to invade both Iraq and Afghanistan. Domestic programs were not cut, nor were taxes raised.
The federal deficit was bad enough when the economy was in its latest up cycle, fueled by too-low interest rates from the Federal Reserve and the fee-based mortgage origination system that led to the housing bubble. When the bubble popped, the Democrats blamed George Bush and the Republicans, conveniently forgetting their own support for those low taxes on the rich and high defense spending.
Think of it this way: if the state of California were to pull out of the Union, and we wanted to pay off our share of the national debt on a per capita basis, how much would we each pay? You don't even want to know the answer. It is too depressing to print here.
On a funnier note, the rich really kicked themselves in their collective ass with part of the Bush (+Democrats+Republicans) tax cuts. The rich don't pay the same taxes as you and me. Most Americans are employees, so their biggest tax bite is federal income tax on wages plus social security taxes. The rich mainly get richer from capital gains and dividends (of course they may pay real estate taxes, and sales tax). So President Bush lowered taxes on capital gains. But surprise, the economy was so mismanaged that between the time of the Bush tax cut and today, on the whole, in the stock market (the biggest liquid source of capital gains), no one made any capital gains!
In other words, in retrospect, as a class, the rich would have been better off not wrecking the economy with tax cuts and military spending. Then they would have at least actually had some capital gains to spend, after they paid the old tax rate.
When will they ever learn. [Where have all the flowers gone ...]
Nothing is being done about overpopulation. Only token measures are being taken as greenish nods towards long-term environmental sustainability. Yet despite ignoring these very real problems, the economy is in shambles.
I believe that in general Californians are over-taxed. I am not saying that there are not people who don't pay their share, because of one loophole or another. I am saying that between local, state, and federal taxes and between income, real estate, sales taxes and various fees, the problem is not that the tax rate as a whole is too low.
Why, when we pay so much in taxes, is there so little to show for it? One reason is bureaucratic creep, which is the tendency over time for bureacracies to expand, and for pay for especially the highest level of bureaucrats to increase out of proportion to productivity. This is true within business corporations even more so that in government agencies.
The other is misallocation of taxes. This happens in all areas, on all scales. But the biggest problem for California is the biggest problem for the United States of America: defense spending.
The reality is that the U.S. runs a global empire. We spend more on our military than pretty much any conceivable combination of enemy states put together.
This has undermined America's economy since the Vietnam War, and now the sink holes are appearing. The biggest, undeniable sink holes are the federal deficit and federal debt.
While I believe that we are in an economic upturn this year, I don't see the Democratic Party or the Republican Party dealing with our fundamental economic problems. As a tag-team they are able to crush third-parties and independent candidates, but they also amplify economic mismanagement. In California the Republican politicians won't cut prison funding, or admit that the War on Drugs is a failure. The Democrats don't seem to recognize that the rest of us can only pay so much for welfare programs before we have to start begging ourselves. On the national level both parties fall over themselves to serve and protect the budget of the Department of Defense.
The most recent round of blame has to be laid squarely on the Bush tax cuts for the rich. Recall that many Democrats in Congress voted for those tax cuts, including Mike Thompson of California's 1st Congressional District. The cuts were supposed to stimilate the economy, eventually leading to higher tax collections on a larger economy. But then we had an amplification of the Islamic rebellion, and President Bush with Republican and Democratic Party support decided to invade both Iraq and Afghanistan. Domestic programs were not cut, nor were taxes raised.
The federal deficit was bad enough when the economy was in its latest up cycle, fueled by too-low interest rates from the Federal Reserve and the fee-based mortgage origination system that led to the housing bubble. When the bubble popped, the Democrats blamed George Bush and the Republicans, conveniently forgetting their own support for those low taxes on the rich and high defense spending.
Think of it this way: if the state of California were to pull out of the Union, and we wanted to pay off our share of the national debt on a per capita basis, how much would we each pay? You don't even want to know the answer. It is too depressing to print here.
On a funnier note, the rich really kicked themselves in their collective ass with part of the Bush (+Democrats+Republicans) tax cuts. The rich don't pay the same taxes as you and me. Most Americans are employees, so their biggest tax bite is federal income tax on wages plus social security taxes. The rich mainly get richer from capital gains and dividends (of course they may pay real estate taxes, and sales tax). So President Bush lowered taxes on capital gains. But surprise, the economy was so mismanaged that between the time of the Bush tax cut and today, on the whole, in the stock market (the biggest liquid source of capital gains), no one made any capital gains!
In other words, in retrospect, as a class, the rich would have been better off not wrecking the economy with tax cuts and military spending. Then they would have at least actually had some capital gains to spend, after they paid the old tax rate.
When will they ever learn. [Where have all the flowers gone ...]
Sunday, January 10, 2010
California 2010 Looks Grim
The global economy and even the U.S. economy may be recovering, but 2010 looks grim for California. It is difficult for a state with a $20 billion projected budget deficit to pull itself out of a recession. Even as some California businesses are gearing up exports to China and India, the public service sector will be seeing major cutbacks.
Unlike the federal government, the State of California can't just borrow money during recessions to see it through. It borrows too much money all the time anyway, in the form of bonds. But the real problem is a lack of long-term budget planning. The Democrats and Republicans in Sacramento, pawns of their respective corrupt party regimes, can't even do a single year's budget on time.
The seeming prosperity of California from 2002 until 2006 came in a form that was particularly misleading to those responsible for budgets. Let's imagine what it is like to be a California Assembly (or State Senate) member in California. You raised a lot of money to win the election, and owe a lot of people favors. Normally you would need to dampen post-election expectations. But in good tax years, you can take a lot of the pressure off yourself by spending every cent that comes in, and providing whatever tax loopholes your donors demand. Better still, be optimistic. If tax revenues went up in 2005, plan for them to go up in 2006, 2007, 2008, 2009 ...
But California's economy was not really producing much more in real goods and services in 2006 (the last great tax year) than it was in 2002. The increase in taxes was largely due to the real-estate frenzy. Under Proposition 13, if you stay in your home property taxes stay low. But if you buy a new home, taxes are based on the sales price. So when real-estate changed hands in 2005 and 2006, there was a windfall in real-estate taxes. The assumption is that once a house is set at a high tax rate, it will stay there (with modest annual increases) until it is sold again, at an even higher price. Bad assumption.
I was on the Point Arena School Board in 2005 and 2006 and our revenues were increasing 8% to 10% a year. The Superintendent loved it. He could give more money to the teachers without having to cut back in other areas. I said we should be more careful, paying out any surplus in bonuses instead of raises, because it is really hard to take back a raise. In my experience teachers unions prefer layoffs to pay cutbacks. Which hurts the kids. I did not believe we could rely on 10% budget increases on an annual basis. I was right, of course, but no one was much interested in my arguments in 2005. I like to think I made my district more fiscally conservative than many other districts, but in retrospect we were spending wildly and the district did run into a crunch when the bubble burst.
Public employees and welfare recipients are the people most affected by the state budget crisis. But they really need to understand that what they were given in the middle of the decade was a mistake, it was based on an illusion, it was a standard of living that was not sustainable. Those who have been laid off (private and public sector) have paid for the mistake for all of us. It isn't fair. We should all share some of the pain, and we all need to work more effectively when we do work. Unless we want to become a third-world economy going forward.
The place where we should be able to find the most savings is prisons. Aside from the common observation that prison guard salaries are outrageously high, we need to admit that our lock-them-away system is an economic disaster. I believe that for most criminals shorter sentences consistently applied have a strong deterent effect. I also believe that crime intervention programs among high school students are the most economically effective way to cut crime. Most kids will do the right thing if given the right guidance, support, and a job. In addition, we need to bring most black market economies into the legitimate economy. Black markets create super-profits that can be used to lure youths (and adults) into crime.
I don't expect much to change. Every incumbent should be thrown out, but most voters will just elect the same old people. They know there was a train wreck in Sacramento, but they don't understand how their own incumbent was part of the train wreck. Almost the only changes will be when the incumbents are term-limited out, and even then the party machines will just promote the same corrupt types up through their primaries.
Probably there will be a Democrat elected governor this year, and it will probably be Jerry Brown. And he will face the same realities Schwartzenegger has faced lately. Except the economy might be more on the mend by the time he takes over in 2011.
When a computer is filled with crap, with viruses and trojans and even otherwise harmless programs that just run in the background taking up memory and CPU time, at some point if you want to use the computer you need to clean it out and reboot it. California desperately needs a reboot, but even Hercules would be bewildered by the amount of crap that needs to be cleaned out.
Unlike the federal government, the State of California can't just borrow money during recessions to see it through. It borrows too much money all the time anyway, in the form of bonds. But the real problem is a lack of long-term budget planning. The Democrats and Republicans in Sacramento, pawns of their respective corrupt party regimes, can't even do a single year's budget on time.
The seeming prosperity of California from 2002 until 2006 came in a form that was particularly misleading to those responsible for budgets. Let's imagine what it is like to be a California Assembly (or State Senate) member in California. You raised a lot of money to win the election, and owe a lot of people favors. Normally you would need to dampen post-election expectations. But in good tax years, you can take a lot of the pressure off yourself by spending every cent that comes in, and providing whatever tax loopholes your donors demand. Better still, be optimistic. If tax revenues went up in 2005, plan for them to go up in 2006, 2007, 2008, 2009 ...
But California's economy was not really producing much more in real goods and services in 2006 (the last great tax year) than it was in 2002. The increase in taxes was largely due to the real-estate frenzy. Under Proposition 13, if you stay in your home property taxes stay low. But if you buy a new home, taxes are based on the sales price. So when real-estate changed hands in 2005 and 2006, there was a windfall in real-estate taxes. The assumption is that once a house is set at a high tax rate, it will stay there (with modest annual increases) until it is sold again, at an even higher price. Bad assumption.
I was on the Point Arena School Board in 2005 and 2006 and our revenues were increasing 8% to 10% a year. The Superintendent loved it. He could give more money to the teachers without having to cut back in other areas. I said we should be more careful, paying out any surplus in bonuses instead of raises, because it is really hard to take back a raise. In my experience teachers unions prefer layoffs to pay cutbacks. Which hurts the kids. I did not believe we could rely on 10% budget increases on an annual basis. I was right, of course, but no one was much interested in my arguments in 2005. I like to think I made my district more fiscally conservative than many other districts, but in retrospect we were spending wildly and the district did run into a crunch when the bubble burst.
Public employees and welfare recipients are the people most affected by the state budget crisis. But they really need to understand that what they were given in the middle of the decade was a mistake, it was based on an illusion, it was a standard of living that was not sustainable. Those who have been laid off (private and public sector) have paid for the mistake for all of us. It isn't fair. We should all share some of the pain, and we all need to work more effectively when we do work. Unless we want to become a third-world economy going forward.
The place where we should be able to find the most savings is prisons. Aside from the common observation that prison guard salaries are outrageously high, we need to admit that our lock-them-away system is an economic disaster. I believe that for most criminals shorter sentences consistently applied have a strong deterent effect. I also believe that crime intervention programs among high school students are the most economically effective way to cut crime. Most kids will do the right thing if given the right guidance, support, and a job. In addition, we need to bring most black market economies into the legitimate economy. Black markets create super-profits that can be used to lure youths (and adults) into crime.
I don't expect much to change. Every incumbent should be thrown out, but most voters will just elect the same old people. They know there was a train wreck in Sacramento, but they don't understand how their own incumbent was part of the train wreck. Almost the only changes will be when the incumbents are term-limited out, and even then the party machines will just promote the same corrupt types up through their primaries.
Probably there will be a Democrat elected governor this year, and it will probably be Jerry Brown. And he will face the same realities Schwartzenegger has faced lately. Except the economy might be more on the mend by the time he takes over in 2011.
When a computer is filled with crap, with viruses and trojans and even otherwise harmless programs that just run in the background taking up memory and CPU time, at some point if you want to use the computer you need to clean it out and reboot it. California desperately needs a reboot, but even Hercules would be bewildered by the amount of crap that needs to be cleaned out.
Sunday, January 25, 2009
California on the Ropes
California is on the ropes. It is being hit harder than most states by the current recession. Its government is paralyzed. No one is steering; the ship of state has run aground.
Unraveling a disaster of this magnitude is going to be a lot harder than avoiding it in the first place would have been. After the budget crisis of 2001-2002, the government of California should have taken steps to build up a surplus during the relatively good years of 2003-2007. It should have made fundamental reforms in the way budgets are created. Instead it feasted on tax dollars blown in by the housing bubble.
The electorate should bear part of the blame for electing those who have been in the legislature lately. Mostly, though, the electorate has mainly be manipulated by the two major party political machines. The machines determine who will have the money to win their primaries. All most all of California's elections are basically won in the primary of the dominant political party in that district; the lines of the district are drawn to ensure that almost no incumbent that runs loses his or her seat. And even competent politicians are term limited out of the Assembly in just six yeas.
Even if better politicians were elected, they might be dazed and confused by the current budget system.
There is no central budgeting authority that makes sure budgets are balanced in the sense that in good years there is a surplus that can be used as a cushion in bad years. Nor is there an authority that makes sure public spending is balanced between the various needs of the people of California. The state Senate is not a central authority; nor is the state Assembly. The governor actually has little power over budgets except the power of persuasion. Nor is there any bureaucracy that keeps things in order so that politicians can do what they do best, posture and swill whatever lobbyists lay before them.
Every session of the legislature is a feeding frenzy. This is fought around a skeleton of laws enshrined in the state Constitution that determine where much taxpayer money can go. Can't get the legislature to throw you a bone? Sponsor a referendum. Bond measures are passed willy-nilly because voters consider each measure in and of itself, with little regard to how the bonds affect the state budget. Bonds take decades to pay off and effectively treble the cost of any project, once you include interest payments.
I think it is fair to argue about whether any specific tax in California is too high or too low, but I agree with those who think that taken as a whole, California taxes (with federal and local taxes) are about as much as a people can reasonably bear. When the economy revives there will be more tax revenue
I would also tend to agree that California's tax structure is ridiculously unfair. Two people living in houses of similar real value may be paying taxes that are an order of magnitude different. Some businesses pay little or no taxes, when businesses that are equally profitable pay much higher taxes. The Board of Equalization seems to be all about inequality these days.
The people of California have to look at the whole picture and come to a consensus about what a good budget process would look like. Once that is known, they need to elect politicians who will put it in place.
Perhaps what California needs is a California political party that is centrist in nature. It could put a damper on politicians who love to spend other peoples' money and don't mind raising taxes. And on those who won't allow taxes to be raised, but who in actuality also love to spend other peoples' money on their pet bureaucracies, or provide tax breaks for their friendly corporate sponsors. Those two groups of politicians have caused the current crisis, and they correspond fairly closely to the two major political parties.
Even if a centrist party were started today, it would take a while to implement. Be prepared for a couple of unpleasant years in California. It won't be the government that pulls us out of this mess. It will be the creative citizens who put their shoulders to the wheel and revive the economy with their sweat. While most unemployed citizens just bumble around, happy to get unemployment benefits while waiting for their next set of instructions.
Here are three suggestions for immediate use:
Have a ten year moratorium on new statewide bond issues. Don't make it a law; organize the citizens to vote down every bond for ten years.
Let 25% of state prisoners out of prison on early parole. That is the quickest way to cut the budget. They are going to get out eventually anyway, which is a risk society has decided to take. If they violate parole, they go back in. So the downside is not nearly as bad as bankrupting the state of California would be.
Create a state-owned credit union that is strictly for creating mortgages for residences. Loan only to those who have substantial downs, but keep interest rates on the loans as low as possible. Get the housing market stabilized, and the tax base will be stabilized. That will buy time to make the fundamental changes that are necessary for survival in the 21st century.
Unraveling a disaster of this magnitude is going to be a lot harder than avoiding it in the first place would have been. After the budget crisis of 2001-2002, the government of California should have taken steps to build up a surplus during the relatively good years of 2003-2007. It should have made fundamental reforms in the way budgets are created. Instead it feasted on tax dollars blown in by the housing bubble.
The electorate should bear part of the blame for electing those who have been in the legislature lately. Mostly, though, the electorate has mainly be manipulated by the two major party political machines. The machines determine who will have the money to win their primaries. All most all of California's elections are basically won in the primary of the dominant political party in that district; the lines of the district are drawn to ensure that almost no incumbent that runs loses his or her seat. And even competent politicians are term limited out of the Assembly in just six yeas.
Even if better politicians were elected, they might be dazed and confused by the current budget system.
There is no central budgeting authority that makes sure budgets are balanced in the sense that in good years there is a surplus that can be used as a cushion in bad years. Nor is there an authority that makes sure public spending is balanced between the various needs of the people of California. The state Senate is not a central authority; nor is the state Assembly. The governor actually has little power over budgets except the power of persuasion. Nor is there any bureaucracy that keeps things in order so that politicians can do what they do best, posture and swill whatever lobbyists lay before them.
Every session of the legislature is a feeding frenzy. This is fought around a skeleton of laws enshrined in the state Constitution that determine where much taxpayer money can go. Can't get the legislature to throw you a bone? Sponsor a referendum. Bond measures are passed willy-nilly because voters consider each measure in and of itself, with little regard to how the bonds affect the state budget. Bonds take decades to pay off and effectively treble the cost of any project, once you include interest payments.
I think it is fair to argue about whether any specific tax in California is too high or too low, but I agree with those who think that taken as a whole, California taxes (with federal and local taxes) are about as much as a people can reasonably bear. When the economy revives there will be more tax revenue
I would also tend to agree that California's tax structure is ridiculously unfair. Two people living in houses of similar real value may be paying taxes that are an order of magnitude different. Some businesses pay little or no taxes, when businesses that are equally profitable pay much higher taxes. The Board of Equalization seems to be all about inequality these days.
The people of California have to look at the whole picture and come to a consensus about what a good budget process would look like. Once that is known, they need to elect politicians who will put it in place.
Perhaps what California needs is a California political party that is centrist in nature. It could put a damper on politicians who love to spend other peoples' money and don't mind raising taxes. And on those who won't allow taxes to be raised, but who in actuality also love to spend other peoples' money on their pet bureaucracies, or provide tax breaks for their friendly corporate sponsors. Those two groups of politicians have caused the current crisis, and they correspond fairly closely to the two major political parties.
Even if a centrist party were started today, it would take a while to implement. Be prepared for a couple of unpleasant years in California. It won't be the government that pulls us out of this mess. It will be the creative citizens who put their shoulders to the wheel and revive the economy with their sweat. While most unemployed citizens just bumble around, happy to get unemployment benefits while waiting for their next set of instructions.
Here are three suggestions for immediate use:
Have a ten year moratorium on new statewide bond issues. Don't make it a law; organize the citizens to vote down every bond for ten years.
Let 25% of state prisoners out of prison on early parole. That is the quickest way to cut the budget. They are going to get out eventually anyway, which is a risk society has decided to take. If they violate parole, they go back in. So the downside is not nearly as bad as bankrupting the state of California would be.
Create a state-owned credit union that is strictly for creating mortgages for residences. Loan only to those who have substantial downs, but keep interest rates on the loans as low as possible. Get the housing market stabilized, and the tax base will be stabilized. That will buy time to make the fundamental changes that are necessary for survival in the 21st century.
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