Author: Joel Fox

On this "casual" Friday, thought I’d just relate to some of
the items in the news.

TAX DEBATE

Calbuzz thinks I missed the point (to put it mildly) in critiquing
their support for certain tax measures — increasing income taxes for the rich
and property taxes on business. They say I didn’t deal with the concern of the
rich getting richer.

I offered a plan to give fairness to all in the tax system:
a well-constructed flat tax which picks a point on the income scale in which
the tax kicks in and gets rid of most write-offs and loopholes, which I noted
most often benefit the rich.

But, I think I hit the target on the tax proposals they
advocated, which will not solve California’s problems.

Anyone interested in paying a county income tax on top of a
state income tax? I didn’t think so, but that’s what could happen if SB 653
(Steinberg) becomes law.

In anticipation of government restructuring that would move certain responsibilities to county government, this bill would authorize county supervisors to submit to voters a local personal income tax, a local corporate income tax, and a local sales and use tax.

Over fifty years ago, the legislature declared that income taxes would be the sole purview of the state while counties were authorized to levy other taxes such as taxes on hotel stays and business taxes. SB 653 would open the door to a local income tax to be placed on top of the state income tax, already one of the highest in the nation.

The guys over at Calbuzz (Jerry Roberts and Phil Trounstine) went
on a rant in support of raising taxes yesterday claiming the way to save
California is to tax the rich and tax businesses. Tax the rich because higher
income taxes really don’t cause people to move, they say; tax corporations
because they are greedy. Furthermore, they cheered Jerry Brown taking his case
to the people on tax extensions, advising him to conduct a populist campaign
like he did when running for president in 1992.

Well, I’ll agree with them on one point: Brown should
campaign like he did in 1992 — and advocate for a flat tax like he did then. More
on that in a moment.

Taxing the rich will not be the savior of California’s
fiscal mess. People do change their behavior in response to tax increases,
especially the rich. Relying on a higher income tax will make the California’s
volatile tax system worse.

Following the end of the budget talks, numerous commentators argued that the Republicans have become irrelevant to the governmental process because they could not cut a budget deal with Governor Jerry Brown and the majority Democrats. However, there may be another way to read the long-term results of the collapse of the talks – that the legislature, itself, is becoming irrelevant.

Senate president pro tem Darrell Steinberg said, Republicans "appear to want to be irrelevant and seem intent on achieving that objective."

A Los Angeles Times news analysis by Evan Halper and Michael J. Mishak titled, “Budget Talks Fold and California GOP’s Influence Fades Further” ran as the lead story on the front page of the print edition. A news analysis, mind you, not a news story, as the top headline of the day signifying that the Times’ editors believe this to be true.

The small business community is frustrated and angry about the business and political climate in California, if my experience yesterday is a guide.

At the request of California National Federation of Independent Business executive director, John Kabateck, I had the privilege of moderating a panel on Employer and Labor relations in the current political environment at NFIB’s yearly conference.

However, it was before that panel began that I saw the concern of small business in the questions from the attendees directed at Assembly Republican leader Connie Conway, state senator Anthony Cannella, assembly members Shannon Grove and Henry Perea, and especially senate pro tem, Darrell Steinberg.

Questioner after questioner blasted the state for undercutting business. Many of the business owners complained of laid-off workers, lost profits, and even watching other companies leave the state.

With Governor Jerry Brown declaring the end of budget
negotiations there is plenty of uncertainty of how the budget gap of over
$15-billion will be resolved. Two main avenues get all the buzz: A majority
vote scheme to put tax measures on the ballot or seeking a November ballot
initiative. I believe the second approach is most likely.

Elsewhere on this site, Loren Kaye discusses the possibility
of seeking a majority vote to place taxes on the ballot and the hurdles in the
path of that approach. Perhaps the governor or Democrats in the legislature
might try to test the legal obstacles along that path by filing a lawsuit
themselves and search for a friendly judge to get a ruling on the majority vote
approach. Possible–but unlikely.

The November ballot approach is much more likely, especially
if the state’s economy improves. If the state brings in more dollars than
projected, the budget can be massaged past the end of the fiscal year and
initiatives would be filed for November in an attempt to secure even more
revenue. Look for the new state revenue figures as a portent of this approach.

Some cuts will have to be made and schools are the likely
target. However, cuts to schools could well play into the hands of those promoting
a November tax initiative. With the school year starting a short two months
before the election, news of the cuts will be fresh in the minds of
voters. 

No sooner had word leaked out that the governor and Republican legislators were working on a five year spending cap as a compliment to the five year tax extension plan than Jon Coupal of the Howard Jarvis Taxpayers Association filed a proposed initiative with the Attorney General’s office for a hard spending limit. Spending is limited under the HJTA plan, but the term of the law is not.

The effectiveness of a five year spending limit is suspect. Projections are that the state will not have a lot of excess revenue over the next five years. The goal of a spending limit, beyond the obvious effort to control spending, is to reassure Wall Street and the bonding agencies that California is taking concrete steps to deal with it’s budget problems in the long term.

The HJTA approach does that.

The Public Policy Institute poll released Wednesday showed the
anti-tax attitude is still strong in this state.  The poll indicates that Gov. Brown’s tax
extension proposal is in for a dogfight. Support for the measure is dropping
with only 46 percent approval, a terrible place to start if you’re seeking a
Yes vote in an election.

While the poll indicates a positive attitude toward local
governments, voters are not about to ease the requirement of a two-thirds vote
to raise certain local taxes. By a 59-percent to 37-percent margin, likely
voters in the PPIC poll say they favor this two -thirds vote provision.

The two-thirds vote requirement for local special taxes was, of
course, part of Proposition 13, the 1978 tax reform initiative.

Stop me if you’ve heard this before, but according to the poll,
Proposition 13 is supported 2 to 1, the same margin it passed by nearly 33
years ago. That two to one edge has been fairly consistent with the voters over
the years.

News reports that Gov. Jerry Brown is considering a ballot initiative on taxes if he cannot secure Republican votes to put taxes on a June special election confirm whispers that have been circulating for a couple of weeks. Plan B for Brown’s budget would go directly to the people to raise taxes.

While there is still talk of Brown using a suspect alternative of seeking a majority vote in the legislature to amend older ballot measures to get his tax plan on the June ballot, a November special election would not face legal hurdles.

Taxes appearing on a November ballot would be classified as a tax increase rather than a tax extension for the taxes under consideration expire the end of June.

Of course, the income, sales and vehicle taxes that Brown wants to extend may or may not be the subject of an initiative effort.