California’s Budget and the Presidential Election

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

Could a surprise flood of money appear in the California treasury due to the presidential campaign? It’s possible…although probably too late for this year’s budget even if the budget scrum rolls on through the summer.

An investment advisor in the Wall Street Journal looks into his crystal ball to determine what investors should do as they watch the battle for the White House. One key tax rate he suggests investors watch is the capital-gains tax rate.

Capital gains taxes have led to bulging California budgets in the past. The boom of 2000 was in great part due to high tech entrepreneurs cashing in on their capital gains.

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The Deukmejian Gambit

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

The key to Gov. Schwarzenegger’s new budget plan might be
called the Deukmejian Gambit. And throw in some Jerry Brown, too.

A short history….In 1983, Governor George Deukmejian faced a
large deficit, although smaller in proportional terms than the one faced today
by Gov. Schwarzenegger. Deukmejian put forward a plan that included no tax
increases. There were the usual howls and protests. Other ideas were floated,
including—get this one—creating a state lottery to generate funds. A few
years later a state lottery was created and now this governor wants to borrow
against it to raise immediate cash.

Finally, a deal was struck between Deukmejian and the
legislature. A 1-cent sales tax increase would trigger if there was a shortfall
of tax receipts at a certain time.

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Study: California Recession More Severe than Rest of U.S.

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

California will suffer a more severe recession than the rest of the U.S. economy according to a report issued by the Milken Institute. The report, The Economic Outlook for the United States and California, Slow Growth or Recession?, by Ross DeVol, director of regional economics at the Milken Institute with assistance from Armen Bedroussian, summed up its analysis this way: "If the U.S economy has the sniffles, California’s economy has a full-blown cold-with all the associated aches and pains."

However, DeVol points out the recession will be mild by historical standards.

The report says California’s economy will be hit harder by the housing market correction, depressed consumer spending, and slowing imports. Also, California’s economy, especially in the L.A. area still feels the effects of the Hollywood writers’ strike. The report claims that California will face a net job loss in 2008 with the unemployment rating hitting 6.6 percent in the fourth quarter.

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Exclusive: LA Mayor Villaraigosa Talks to F&HD About the State Budget; LA’s Bad Business Rep

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

Los Angeles
Mayor Antonio Villaraigosa spoke at a meeting of the Valley Vote organization last
night in the San Fernando Valley. He’s not the
governor and I didn’t ask him if he was running for the job, but as we walked
out of the meeting I did ask him how he would handle the current state budget mess.

Villaraigosa responded: "I’ve said
for some time the state budget deficit is a spending problem but it’s also a
revenue problem. There are very real structural elements to it. The only way to
resolve this budget deficit is to cut some spending and also to raise revenues
and that’s what we’re doing here with the city budget. We’re saying for every $1.50
in cuts we are going to raise a dollar in revenue."

My thoughts: Using that formula on a
$20 billion state budget deficit problem would mean a combination of $12
billion in cuts and $8 billion in tax increases. Scary numbers. Yes, I know
that is a static calculation and that’s not what the final numbers would be, but
a one-and-a-half to one ratio still means a large tax increase in a tough
economy. I don’t think the voters buy it and we know the Republicans in the
legislature won’t. The economic ripples from a large tax increase would not be
good for the state economy.

I also asked the mayor about Los Angeles’ reputation
for being bad for business.

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Welcome to Fox&Hounds Daily

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

Welcome to Fox&Hounds Daily! This is not another blog simply about California politics – although, with our large state and so many voices to be heard, the more comments and participation in the process, the better off we will be. Nor is this site purely a discussion of business issues which are also well represented on the web. This non-partisan site will discuss the mix of politics and business — How the world of politics affects business and how the world of business affects, and is affected by, politics, and what those connections mean to the people in this state that both worlds serve.

The website, delivered free daily to subscribers, business people, opinion leaders, elected officials, and journalists, will educate readers on public policy and political issues. It will help businesses make decisions based on political trends, while at the same time helping policy makers and journalists to understand the issues facing the business community.

We will offer a full roster of regular bloggers and occasional commentators; leading political and business insiders, providing original content on important issues. We will profile business leaders and get their take on the political affairs in the state. We’ll provide links to headlines in other media sources carrying important business and political news, and perhaps we will break some news ourselves from time to time. And, we’ll have a little fun using satire to capture the human foibles and strange logic that comes with trying to steer a ship of state the size of California—with so many would-be captains on deck.

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