Let the Sun Shine In

Loren Kaye
President of the California Foundation for Commerce and Education

Readers of this blog already know that the legislative Budget Conference Committee voted along party lines to recommend a nearly $10 billion tax increase to provide most of the fill for a $15 billion budget deficit.

While a $10 billion tax increase may seem shocking, the sheer amount is the least of it. After all, surely noone believes that anything close to that amount would eventually be adopted by a bipartisan vote of the Legislature. More disturbing, though, is the direction that the tax increases are headed:

First, about one-fifth of the revenue increases are really just accelerations or gimmicks, which would create a $2 billion hole in next year’s budget.

Read more

Rubber? Meet Road.

Loren Kaye
President of the California Foundation for Commerce and Education

One of the most important policy debates of the decade is about to commence in California – several years after the policy was enacted.

Yesterday, the Air Resources Board released the Climate Change Draft Scoping Plan, the most important document to date discussing implementation of California’s landmark Global Warming Solutions Act of 2006. While labeled a “discussion draft,” it begins to lay out the nuts and bolts of how the Schwarzenegger Administration would have Californians reduce greenhouse gas emissions.

The document still only hints at the costs involved:

Read more

Closer to the Bottom

Loren Kaye
President of the California Foundation for Commerce and Education

If all economic news is bad news, this item won’t disappoint.

April’s S&P Case-Shiller home price index was released yesterday, showing that home prices in 20 major U.S. cities have dropped a record 15.3% in the past year and are now back to where they were in 2004. But in what may be a small sign that things are at the brink of a turnaround elsewhere in the country, three of the major metropolitan areas studied — while still posting negative annual figures — did show some improvement over the declines reported last month. And eight of the 20 metro areas covered showed home-price growth in April from March.

No silver lining for major California metro areas; the drop was much worse than the national average, and worse than last month’s year-over-year report:

Read more

Why is everyone so angry?

Loren Kaye
President of the California Foundation for Commerce and Education

Californians are angry – at least that’s the conventional wisdom.

Surveys by the Public Policy Institute of California and Field Research Corporation find Californians deeply pessimistic: less than a quarter of voters believe the state is heading in the right direction.

Californians are grumpy about the economy, too. Nearly three quarters of adults believe the economy will be in bad times for the next year. Voters have a low opinion of their elected officials and are critical of institutions such as the schools.

But just how deeply entrenched is this anger?

Read more

The Sales Tax Base is Just Fine, Thanks

Loren Kaye
President of the California Foundation for Commerce and Education

Dan Walters’ recent column perpetuates a persistent myth about the sales tax. According to Walters, "(T)he 75-year-old sales tax’s stolid image, however, masks long-term erosion of its revenue-producing ability … " Other elected officials, such as BOE Chair Judy Chu, use this argument to support a broad proposal to apply the sales tax to numerous business and personal services.

There’s a small problem with this erosion myth … it’s not true!

Walters compares money raised from taxing retail sales unfavorably to taxing personal income, but personal income has always been a more dynamic revenue producer than retail sales. The more recent phenomenon is the greater volatility of personal income tax revenues, compared with the relative stability of sales taxes.

Read more

What about the minimum wage?

Loren Kaye
President of the California Foundation for Commerce and Education

Lots of political and economic notice has recently been taken about the sharp increase in the national unemployment rate, up a half-point to 5.5%, which is a ten percent jump from the previous month’s level of 5%. However, closer inspection of the numbers reveals what might be either an anomaly or – more tantalizing – a policy outcome.

Nobody is claiming that the overall unemployment situation is not deteriorating. But John Silvia, chief economist with Wachovia, said the unemployment rate was distorted by a big jump in teenage unemployment in May, to 18.7% from 15.4%, as the school year ended and teenagers started searching for jobs. The rates for all adult men and women stood at 4.9% and 4.8%, respectively, reflecting much smaller increases.

According to some observers, it is at least possible that in addition to the more general problems in the US economy, last summer’s increase in the federal minimum wage as well as the next jump coming in late July are behind the particulars here. Last July, the federal minimum wage increased to $5.85/hour and will increase to $6.55 next month. With a sluggish economy, it certainly seems possible that the higher minimum wage is discouraging employers from hiring lower-skill workers whose productivity cannot justify paying them that wage, particularly if they know they will have to give them a raise come late July.

Read more

One Man’s Loophole…

Loren Kaye
President of the California Foundation for Commerce and Education

With Assembly Speaker Bass’ announcement of her secret plan to raise revenues to address the state budget deficit, the war of words will be as important as battle over numbers.

According to the Speaker, part of Assembly Democrats’ budget solution would be up to $6.4 billion in new revenues, much of it from closing "tax loopholes."  This is where language matters.

What is a tax loophole?  Classically, it means an unintentional characteristic of a law that allows a taxpayer to circumvent the law’s intent without actually breaking that law.  A good example might be the notorious "yacht tax loophole," which allows boat buyers to avoid sales taxes by delaying possession of expensive, out-of-state purchases. But in current political usage, a tax loophole has become any tax law that treats any taxpayer differently from some accepted or announced norm. This is an insidious distortion of political communication, which twists legitimate tax policies – decided clear-eyed by the state Legislature – into flim-flamming tax avoidance.

Read more

Flogging Prop 13

Loren Kaye
President of the California Foundation for Commerce and Education

Peter Schrag today praises Joel Fox with faint damnation. Schrag claims that the F&H editor was "partially right" in complaining "vociferously about people who he thought blamed too many of California’s problems on Proposition 13."

He further concedes that Howard Jarvis cannot be held responsible for earthquakes and wildfires. But that seems to be the extent of his absolution. Schrag identifies nearly every major post-1978 public policy affront as the progeny of Prop 13. Not just tax limitations but the adoption of term limits, anti-crime initiatives, and the stem cell boondoggle. It’s as if – if not for Proposition 13 – the California public (not to mention interest groups) would never have discovered this obscure constitutional power to legislate by popular initiative.

Read more

Here’s a head-scratcher

Loren Kaye
President of the California Foundation for Commerce and Education

The Brookings Institution just published a national ranking of metropolitan areas, based on their per-capita carbon emissions, and guess what?  Six of the 12 "cleanest" large cities are in California.  There’s more: when measuring per capita carbon emissions from residential energy use, 10 of the top 12 metro areas are in California.

Now this shouldn’t surprise anyone familiar with California’s tough residential energy efficiency standards and our reliance for electricity on natural gas, hydro and nuclear power (rather than coal).  And here’s one of the state’s best-kept secrets: our annual vehicle miles traveled per capita is the fifth-lowest of the 50 states.

Read more

Proposed service tax is a dangerous prospect

Loren Kaye
President of the California Foundation for Commerce and Education

When politicians spend money as if the money was there, then they don’t have to raise taxes.  California leaders have practiced this sleight-of-hand for years, and now the bill has come due.

The California Legislature went on a spending spree that has nearly doubled outlays since 1998.  Now, faced with a $15 billion budget deficit, many elected officials and interest groups are advocating tax increases to pay for overspending.

With California sales and income tax rates among the nation’s highest, and its corporate tax rate in the top ten, the tax-and-spend lobby is reaching for more creative – and economically damaging – sources to feed the beast.

Topping the list is a new sales tax on services – an idea that has failed miserably when attempted in other states.  But the promise of a tax windfall is so alluring that the tax spenders cannot help themselves.

An elected leader of California’s top tax collection agency has prepared a list of services that when newly taxed would raise more than $8.7 billion, just for state purposes.  Another $5.8 billion would be raised for local government coffers.

Trouble is, these numbers don’t add up economically or politically.

Read more