A creative way out of the state budget mess

03.24.11 - 3:18 pm | Tim Redmond |

(36)

With no Republicans willing at this point to go along with the governor's June election plans, Jerry Brown has quite the problem on his hands. There never really was a Plan B. And now he's got to find one, fast. He's already made the cuts, and they're awful. He's not going to get his own party to go along with much more. But it's legally dubious whether he can put taxes on a special election ballot without any Republican support, and he clearly doesn't want to.

So what's the best option? Well, the deep thinkers over at CalBuzz have a brilliant scheme. The idea: Pass an all-cuts budget, a devastating, ugly, puke-inducing thing -- then

gather signatures to place that on the November ballot, with a provision that if the measure fails the cuts will not occur because the 2009 taxes and fees will be re-instated for five years. As a practical matter, cuts can be delayed to occur after November. And costs can be shifted to local government for local responsibilities whether the measure wins or loses.

Then let Grover Norquist, Jon Fleischman, radio heads John and Ken and the rest of their not-our-problem cadre be forced to argue for the budget ballot measure while Democrats and labor argue against it.

It's much easier to get a vote against something in California -- particularly when that something contains provisions that nobody wants. A No vote means Yes on taxes and No on cuts.

Man, why aren't these guys running for office?

taxes

Comments

While I have faith in voters,

While I have faith in voters, this proposal sounds weird and confusing. No means yes?

Posted by The Commish on Mar. 24, 2011 @ 3:51 pm

Yes, I was confused too

It sounds like some sleight of hand. Propose some horrendous cuts and then ask people if they like them.

Without of course having to come up with any alternative.

Posted by TheDoc on Mar. 24, 2011 @ 4:33 pm

Doc, The alternative is

Doc,

The alternative is to not roll back the taxes on the rich which are set to expire. As I recall that's worth 12-15 billion. A good chunk of the cuts to basic services.

I agree with old man Redmond, it's a brilliant idea.

go Giants!

Posted by Guest h. brown on Mar. 24, 2011 @ 8:08 pm

No, h, a brilliant idea would be

to stop looking for "too clever" power plays to try and game the system.

And instead actually do the hard work of finding out where cuts can be made that don't hit front line services.

Start with a list of all the bureaucrats and middle managers in the public sector making huge salaries.

Start with tough and meaningful negotiations with the public sector unions on rolling back their pension and healthcare benefits to what is the norm in the private sector for the rest of us.

Start with the waste and duplication and redundancy of multiple layers of administrations.

Start with accepting that the government shouldn't be trying to do everything, but rather should target it's core accountibilities e.g. public safety and transportation.

Then, and only then, come and ask me to pay more tax

Posted by TheDoc on Mar. 25, 2011 @ 7:25 am

>Start with a list of all the

>Start with a list of all the bureaucrats and middle managers in the public sector
>making huge salaries.

Translation: since these people currently make about 25% less than comparable jobs in the private sector, we shouldn't rest until they make 50% less!

>Start with tough and meaningful negotiations with the public sector unions on
>rolling back their pension and healthcare benefits to what is the norm in the
>private sector for the rest of us.

Translation: since these people too make 25% less than comparable jobs in the private sector, but some of the benefits actually make up for it, we should make sure that the benefits are just as bad as in the private sector!

These two in combination would ensure that nobody would *ever* want to work for the government, which would drastically reduce the deficit. Problem solved!

>Start with accepting that the government shouldn't be trying to do everything,
>but rather should target it's core accountibilities e.g. public safety and
>transportation.

Translation: Make sure the government only does what *I* need, screw the rest of you.

Which is really, when you get right down to it, what it's all about.

Posted by Fred Fnord on Mar. 25, 2011 @ 10:30 am

Fred, where is your evidence that

public sector workers' total comp package is less than private sector workers?

And where is your evidence that it shouldn't be?

Posted by TheDoc on Mar. 25, 2011 @ 8:08 pm

California's problem is this:

California's problem is this: we spend too much money on too many services to too many people. This is also SF's problem and why we have a huge deficit every year, just like the state.

California has had a $20 billion or so budget hole for years. The only solution is to cut the budget to reflect what the state takes in. It obviously is not a one time problem, it is a structural problem.

California also has over 500 state agencies, departments, bureaus, commissions, etc. We should be able to live without at least 100 of those. Do we really need a state Department of Home Furnishings? Please. Califfornia also has government entities that simply duplicate what already exists at the federal level. So does SF, by the way.

The days of flush funds are over. And no, you can't keep blathering "tax the rich". It won't work anymore. The rich can leave. Besides, the top 1% of earners in this state already pay almost one-third of all income taxes as it is. The bottom 50% of earners pay essentially nothing...while using the most services.

There has to be a better way. Perhaps a flat tax with no deductions.

Posted by Guest on Mar. 25, 2011 @ 7:51 am

I like the flat tax/no

I like the flat tax/no deductions idea. Our revenue model is too volatile. We need to broaden the tax base.

Posted by The Commish on Mar. 25, 2011 @ 8:34 am

Measured as a share of family

Measured as a share of family income, California’s lowest-income families pay the most in taxes. The poorest fifth of the state’s non-elderly families, with an average income of $13,200, spent 11.1% of their income on state taxes. In comparison, the wealthiest 1 percent, with an average income of $2.2 million, spent 7.8% of their income on state taxes.

California is a moderate tax state. In 2008-09, California ranked 21st among the 50 states with respect to state taxes as a percentage of personal income.

Over the past two decades, the cost of funding state services has shifted from corporate to personal income taxpayers.

In 2007, the most recent year for which data are available, 647,547 taxpayers reported incomes of $200,000 or more. However, 2,044 of these taxpayers paid no California personal income tax. The tax breaks claimed most often by “no tax” taxpayers include enterprise zone tax credits, miscellaneous deductions, and mortgage deductions. The number of high-income “no tax” returns more than tripled between 1997 and 2007, rising from 579 to 2,044

Posted by Guest on Mar. 26, 2011 @ 8:50 am

Where is your data from?

this article, published in yesterday's WSJ, points out that California's revenue model is volatile because it's so reliant on taxing high incomes.

http://online.wsj.com/article/SB1000142405274870460470457622049159268462...

Posted by The Commish on Mar. 26, 2011 @ 10:06 am

"Data" is a plural word.

"Data" is a plural word. "Where are your data from?"

Datum is the singular piece of data.

-marc

Posted by marcos on Mar. 26, 2011 @ 11:01 am

Not anymore

From Webster's: "Data leads a life of its own quite independent of datum, of which it was originally the plural."

Both usages -- singular and plural -- are now correct.

Posted by The Commish on Mar. 26, 2011 @ 12:37 pm

The data is from the California Budget Project (CBP)

I didn't post the data, but I recognized it right off. Here's the link ~

http://www.cbp.org/pdfs/2010/100412_pp_who_pays_taxes.pdf

Posted by Lisa on Mar. 26, 2011 @ 3:24 pm

The information is from

The information is from California Budget Project -- they publish "Who Pays Taxes in California" every year around tax day, so look for updated information in two weeks or so.

Posted by Guest on Mar. 28, 2011 @ 9:14 pm

Guest, since all corporate taxes are

ultimately borne by individuals anyway, the distinction is surely moot.

The most successful places for doing business are typically low-tax jurisdictions. quite why you'd want to drive CA businesses to such places baffles me.

Posted by TheDoc on Mar. 26, 2011 @ 6:02 pm

Since all taxes are passed

Since all taxes are passed onto the end consumer, then it doesn't make a difference where they're placed, at the producer, intermediary or end user.

Since end users pay it all, then end users should determine where taxation takes place, as it all washes out in the end.

I'd argue that taxation should take place to discourage undesired economic activity and to encourage desired economic activity.

The discussion around shifting the taxation model from payroll to gross receipts or commercial rents reflects this thinking.

But I'd take it a step further, by taxing that which business would externalize from their balance sheets, such as environmental impacts or, as in the case of developers, infrastructural impacts.

If the distinction is moot, then there is no fundamental difference, right?

-marc

Posted by marcos on Mar. 27, 2011 @ 8:30 am

No, that's 180 degrees wrong

When you say " taxation should take place to discourage undesired economic activity and to encourage desired economic activity" you are presupposing that there is any agreement on what is "desirable"

But we can all disagree on that until the cows come home.

The ideal taxation system concerns itself ONLY with collecting revenue in the broadest and most effective way.

The tax system should not be used as a tool in some misguided attempt at performing social engineering.

That's why the flat tax idea is so elegant. It doesn't try and coerce people into behaving differently just through taxdeductions.

The reason the tax code is so complex and so inefficient is exactly because it has been designed in the manner you're suggesting.

Posted by TheDoc on Mar. 27, 2011 @ 10:18 am

Your opinions are just that,

Your opinions are just that, opinions. Taxation policy is whatever the government says it is and whatever the courts allow.

The reason why the tax code is so complex is that powerful interests bring to bear political power so that they're not the ones who are taxed and that patronizing their businesses results in a tax break for consumers.

There is no perfect tax system, contrary to the scriptures of "free market" economic sharia, just the one that the political process produces at any given time. Believe it or not, libertarian capitalist economic theory is

Much of the world severely taxes gasoline for a variety of reasons, for instance, and that is an almost universal and much of the world is poised to tax carbon.

The flat tax is brutal, even classical capitalist economists realize the value in taxing rent seeking, as that was the whole point of Smith and Locke's political economy, forcing capital into the productive economy by making rentier accumulation less profitable.

-marc

Posted by marcos on Mar. 27, 2011 @ 1:15 pm

I fully realize we have a flawed tax system

But my point is that it is flawed and complex precisely because politicians cannot resist endlessly fiddling with the tax code to try and skew it one way or the other.

You're trying to do the exact same thing, except you want to skew it in a way that aligns with your values rather than theirs.

And that's the problem with using tax as a blunt instrument to perform social engineering - everyone has a different idea of what is desirable.

So, lose the deductions, lose the skew, and just tax income at a flat rate, exempting the first however much to avoid the poorest having to pay tax.

The rest ismostly justpartisan fluff, although I'd also like to see a VAT to enable the income tax flat rate to be further lowered.

Posted by TheDoc on Mar. 27, 2011 @ 2:32 pm

How would a VAT enable lowered FRT? VAT=AMT?

I'm no economist, but i see VAT (value added tax) as a punishment of the who have earned extra income and wish to improve their lot by purchasing "luxury" items.

How does that differ from AMT?

Posted by Guest on Mar. 29, 2011 @ 12:44 am

VAT is a slaes tax; AMT is a flat tax on income

By having an indirect tax like VAT, we could have lower rates of income tax. You could then choose whether to spend it (and pay VAT) or save it (and pay no more tax).

Posted by TheDoc on Mar. 29, 2011 @ 8:26 am

A VAT levies a tax whenever a

A VAT levies a tax whenever a product or its constituent components has value added to it in the chain from production to ultimate consumption, it is not a sales tax.

The question is why one would wish to discourage adding value in an economy as a matter of tax policy, the same way one would not wish to discourage employment as a matter of tax policy through a payroll tax?

How long until we've exhausted each libertarian capitalist simplistic "tax reform" proposal by exposing it for the sham it really is?

-marc

Posted by marcos on Mar. 29, 2011 @ 12:57 pm

The mechanics of how VAT works is much less

important than the net impact on the end-user, which is as a sales tax, only that it is embeddded into the price of an item, so you don't see it.

And since you love skewing tax systems, you should love VAT, because you can skew it to zero rate food, while having a higher rate for fur coats and jewellery, as they do in Europe. so you can deter conspicuous consumption by the rich while encouraging it for the poor.

Tax reform mostly is about simplifying the system, and that presupposes reducing all the lard and pork that has been loaded into it in the first place.

Posted by TheDoc on Mar. 29, 2011 @ 1:50 pm

All tax systems are skewed, a

All tax systems are skewed, a poison picked is still poison.

You libertarian capitalists are like communists. You believe that you've got this theory that obeys, for the lack of a better world, "The Iron Laws of History," and are insisting that everyone adopt your system completely. When your theories do not square with observed reality, then, just like the Leninists, reality is wrong.

The problem with this is that there is much experience with what works and what doesn't in industrial economics, literally centuries of data from many different regions. All the libertarian capitalist crowd has going for it are the examples of the early industrial revolution, the 1890s and 1920s as examples, each of which was nasty brutish and short and which ended with a thud and a whimper.

Tax reform for you is about simplifying the system. For others, it is about making the system fairer. You have no monopoly on the discourse on tax reform, irrespective of the success of the Koch brothers in cornering the market on that discourse.

My take on what right wing, libertarian capitalist tax reform is all about is leveraging the idiocy of white middle class people so that the über riches pay little to no tax. You all fall for it again and again and again.

-marc

Posted by marcos on Mar. 29, 2011 @ 2:15 pm

The conflict between making taxes fair or simple

comes down to one thing. Most people agree on what is simple, and that the tax code is not simple.

But there are wide disagreements on what is fair. To you it's cross-subsidizing the low paid and unskilled by confiscating the earnings of people who succeed.

For me, it's a level playing field to encourage not penalize success.

You can't discuss fairness without unearthing a can of worms. But we can discuss making taxes simple. And making taxes complix does not ipso facto make them fair.

Posted by TheDoc on Mar. 29, 2011 @ 5:30 pm

Eh, sorry doc, you're wrong on VAT

"And since you love skewing tax systems, you should love VAT, because you can skew it to zero rate food, while having a higher rate for fur coats and jewellery, as they do in Europe. so you can deter conspicuous consumption by the rich while encouraging it for the poor."

Unless you were being ironic or joking.

Sadly that application of VAT failed throughout Europe. cf Greece, Ireland, Portugal, etc etc etc

Posted by Ian Waters on Mar. 30, 2011 @ 1:46 am

The Euro problem has not in any way

been blamed on VAT.

Posted by TheDoc on Mar. 30, 2011 @ 7:03 am

The VAT had nothing to do with it

The reason that Greece and Ireland and Portugul (and soon other EC counties) have "failed" is not because of their tax system - VAT or otherwise - it's because their government budgets spent $100 but only received $80 in tax revenue. After a few years - or few decades - of this type of shortfall, of course the organization will be facing either severe expenditure cuts, massive tax increases, massive bond borrowing, and/or a trip to bankruptcy court.

The VAT is not my favorite tax since it often doesn't apply to rent income or interest income - the two main revenue streams received by the very, very wealthy - but to the extent it's similar to a gross receipts tax in that the tax is imposed and collected by businesses rather than added onto a consumer's purchase price such as a sales tax, and to the extent a VAT applies to a much larger basket of goods and services compared to the sales tax, those are aspects to like about a VAT.

Posted by Robert on Mar. 30, 2011 @ 7:17 am

PIIGS are failing because

PIIGS are failing because monetary union with fiscal independence is a recipe for disaster. It has nothing to do with political union or tax structure.

-marc

Posted by marcos on Mar. 30, 2011 @ 8:12 am

Marc. Do you think for even 5 minutes before writing nonsense?

You've been a great roll the past few months - one unsupported statement after another. And you supposedly represent the Great White Hope for progresives? Good luck with that.

But I hope you're not working with any group, or politician, or other individuals on any joint projects since you're likely tarnishing their good reputations as well. But I suspect you could care less about other people, or other organizations, or any politicians who aren't your best buds.

As far as your comment. Ecuador and Hong Kong and other countries use the US dollar as their currency without suffering the drastic problems currently faced by Greece, Ireland, Spain and Portugal, among others.

The currency a country uses is not the issue. Spending more money than you're taking in as tax revenue is the problem, along with using debt to paper cover the differences for many years. Guess what. Debt becomes due one day, with a huge interest cost. That's the problem.

Much like language consolidation, within 100 years the entire world will be using the same currency or maybe one of a handful of remaining credible currencies. The currency used will be mostly irrelevant, but avoiding debt financing, balancing annual budgets, and using effective tax policies will be the same issues as every country faces today.

Posted by Robert on Mar. 30, 2011 @ 10:26 am

The amount a country takes in

The amount a country takes in as tax revenue measured against the money it spends is orthogonal to how it raises or spends that money.

In most cases, when such an imbalance arises, the country allows its currency to revalue downwards and then gains a comparative advantage which allows it to right its finances.

PIIGS are unable to allow their currency to float because, wait for it, fiscally sound European countries also use the Euro.

This would be the case if PIIGS taxed with a VAT, an income tax or a toenail growth tax and spent more then they took in.

In Ireland, there was no significant fiscal imbalance. The government decided to put taxpayers on the hook for the bank's bad loans. That is what caused the massive budget deficit there, class warfare, not fiscal irresponsibility. In Spain, it was the crashing of the housing bubble and similar economic downturn as here. England still has their own currency and was able to face a similar economic crisis by both devaluing the sterling as well as cutting public spending.

Compare this to the US, where the red states are in economic crisis even though they've eliminated most public sector expenditures but are not facing the same kind of crisis because they are not allowed to run deficits and receive the benefits of joint fiscal and monetary union from the Big Bad Federal Guvmint.

There is no such thing as default on sovereign debt issued in the currency over which a sovereign has complete authority and control. The US will never go bankrupt on its dollar debt because it owns the dollar. PIIGS risk that, and bringing down the Euro with them, because they do not control the Euro, only their fiscal messes, and that has nothing to do with their taxation method.

-marc

Posted by marcos on Mar. 30, 2011 @ 10:48 am

"For me, it's a level playing

"For me, it's a level playing field to encourage not penalize success."

"can't discuss fairness without unearthing a can of worms."

Except that you say that not "penalizing success" has nothing to do with taking a position on fairness within the tax code, which it inherently does.

-marc

Posted by marcos on Mar. 30, 2011 @ 6:47 am

Your opinions are just that,

Your opinions are just that, opinions. Taxation policy is whatever the government says it is and whatever the courts allow.

Much of the world severely taxes gasoline for a variety of reasons, for instance, and that is an almost universal and much of the world is poised to tax carbon.

30 years of claiming that a flat tax would be "better" does not make it so, but given the fact that billionaire libertarian capitalists own the government, their political decision to impose such a tax regime on us is highly likely, the Democrats long since having lost any spine.

-marc

Posted by marcos on Mar. 27, 2011 @ 1:38 pm

Flat Tax

A Flat Tax would work. No deductions, No write offs, No nothing!!!!! The state would make more money in one year than it could spend in ten.

Posted by Guest on Mar. 25, 2011 @ 10:01 pm

The Gadaffi solution?

The Gadaffi solution?

Freeze the assets of all American billionaires. In all of their holdings around the world. Seize all of their wealth above 100 million in an 'excess wealth' tax and redistribute it back into the economy to pay for pensions and health care and full employment programs. And, cleaning up the environment. And a national high speed rail system. Enough solar installations and wind farms and tidal energy facilities to replace oil.

There's plenty of wealth in our crop of billionaires to easily do all of that.

Works for me.

Go Giants!

Posted by Guest h. brown on Mar. 26, 2011 @ 10:01 pm

Gladly

The "service", with your authority and presumably that of the "giants" ("go giants") will freeze the assets of every american "billionairre"

[please press *pound to skip the lecture in economics]

"Freeze the assets of all American billionaires. In all of their holdings around the world."

Ok so thats like 100% of Working American's 401Ks, IRAs, 403Bs, SEPs etc etc etc

"Seize all of their wealth above 100 million in an 'excess wealth' tax and redistribute it back into the economy to pay for pensions and health care and full employment programs."

So, take that investment retirement wealth and put it back in itself, ok no problem, thats kinda what we were already doing.

"And, cleaning up the environment. And a national high speed rail system. Enough solar installations and wind farms and tidal energy facilities to replace oil"

That would be a function of a) above b) getting up off your ass and making that happen.

Thanks for listening

Posted by Econ101 on Mar. 30, 2011 @ 2:08 am