Poisoning the Golden Goose
With the continuing economic crisis evaporating government treasuries in California, businesses big and small find themselves the targets of advocates who seek more revenue to offset potential budget cuts and officials who must deal with spiraling costs.
There is a well-financed effort led by public employee unions to raise taxes on businesses and products. Public employee unions have been circulating a poll that claims to show voters, who recently rejected a continuation of the budget deal taxes, are willing to raise taxes on certain businesses and products.
Not so fast. Such claims have been made before but when the voters actually have to vote on these tax increases they understand that the taxes will filter down to the consumers.
Public Employee Unions, Democratic Legislators and an Open Primary
Public employee unions’ relationship with Democratic Legislators has shown cracks over the results of the Special Election and the on-going difficult state budget. But, the biggest crack may not be on the radar, yet – some elected Democrats hoping that the Open Primary effort a year from now is successful.
It’s one of those whispered comments you hear in the halls of the capitol from time to time, where rumors are as popular as cold beer at a hot Fourth of July picnic. But this one has some weight to it.
Democratic legislators believe they made the difficult but correct choice to put off even deeper budget cuts by supporting the Governor’s budget deal in the Special Election. While the California Teachers Association went along with some of the package, especially the key measure on establishing a spending limit and extending taxes, a number of public unions, including the American Federation of State, County and Municipal Employees and the Service Employees International Union balked. In fact, they put money into defeating the measures.
Anti-Prop 13 Chorus Singing Again
“It’s all Prop 13’s Fault” chorus is at it again. You can count on them like clockwork during difficult economic times – world recession not withstanding – to blame Proposition 13 for California’s economic woes in commentaries and cartoons. I often wonder where this chorus goes when government treasuries are flush.
Chris Reed of the San Diego Union-Tribune points to statistics in his blog that show property taxes under Proposition 13 have increased faster not only than population and inflation growth, but faster than other sources of state revenue as well, despite the property tax cap.
Yet, while these other state taxes, such as the income and sales tax, are susceptible to volatile swings tracking the economy, under Proposition 13, the property tax has grown steadily and is the most reliable revenue source. That would all change if “fixes” applied to Proposition 13, like a split roll to collect more property taxes on commercial property, were put into effect.
Schwarzenegger Speech Supports the Peoples’ “Powerful Message”
Declaring that California’s “wallet is empty, the bank is closed, and credit is dried up,” Governor Arnold Schwarzenegger today told a joint session of the legislature that it must produce a budget that spends no more than the revenue the state brings in. Pointing out that revenue is down 27% from the previous year this means the budget must be balanced with major cuts.
The governor’s message is not only appropriate, but also practical. Even if the majority believed there is an appetite for more revenue from the voters, there is no way that revenue could be approved and collected before the state runs out of funds in July. So the cuts have to be done and done quickly.
Acknowledging that cuts will bring fear and pain to some Californians, the governor said the legislature must heed the “powerful message” from the special election that the legislature must not come to the voters to solve its problems, but live within its means, create government efficiencies and don’t raise taxes.
Will the Tax Commission Save the Day?
Working in relative obscurity since its inception, the Commission on the 21st Century Economy –simply known as the tax commission—will find itself in the spotlight now that the budget debate is back at Square One. Can the commission propose a tax system that taxpayers view as fair; while at the same time bring in increased revenue through an expanded economy?
That’s a tall order, but with the frustration growing over proposed major cuts and a rejection of tax increases in the recent Special Election, there seem few alternatives that would bring about consensus from a majority of Californians to solve the budget dilemma.
The commission took a break from public sessions to await the results of the election. The Governor’s executive order first mandated the commission bring in a report on refashioning the tax code by mid-April. That deadline was pushed back until the end of July.
Carly Fiorina Talks Business
Former Hewlett-Packard CEO Carly Fiorina spoke to the California Republican Party Convention in February and has since told the San Jose Mercury News that she is “seriously considering” a run for the U.S. Senate against Barbara Boxer. As a journal interested in the confluence of business and politics, Fox and Hounds Daily submitted to her a series of questions about her brilliant but controversial business reputation. Here are the questions and Fiorina’s responses:
1. You were fired by the Board of HP. Why?
To answer why I was fired, it is important to understand why I was hired. I was hired as a reformer, a leader who would challenge the status quo and transform HP from a company stuck in the past to an innovative industry leader. HP’s transformation required tough choices about performance measurement, accountability for competitive performance, streamlining the organization, as well as, the merger with Compaq. While overcoming these challenges and pushing through the changes ultimately positioned HP to become the largest technology company in the world, in the short term they negatively impacted the stock price.
Ultimately, I was fired because I disagreed with some members of the board on management prerogatives, called for an examination of board performance and accountability; and challenged leaks on the board which were undermining the company’s interests. All of the Board’s decisions during my almost six year tenure were unanimous except the decision to fire me. In this case, the Board was bitterly divided, with two Board members resigning over the issue. The three Board members who fought most vigorously for my removal were themselves fired 15 months later for leaking confidential information and conducting electronic spying on both current and former Board members.
Can California Make a Comeback?
Urban scholar Joel Kotkin gives his take on woeful California and how things might turn around in Forbes. Kotkin argues jobs and support for the middle class is the solution to California’s difficulties. And he also takes a shot at the current political leadership, recalling that political leaders in the 1990s were part of the solution in overcoming similar dire circumstances. It’s an interesting read. Take a look here.
The Special Election was Act One
The Special Election was Act One of a three-act drama that will play out over the next year and a half. When the curtain falls on the final act — the 2010 general election — California will set a new course for its fiscal future.
In Act One, the voters rejected the budget proposals put up by the governor and legislature. Act Two will consist of how the governor and legislature respond.
Those who see this as a chance to finally get California’s fiscal house in order with a more conservative fiscal plan are right. But they must act fast.
Reforms must be presented, implemented, and show some results before the voters make decisions on the November 2010 ballot. That ballot will likely contain a myriad of opportunities to alter direction, or to cement changes that could come out of the newly reinstituted budget negotiations. Of course, new leadership will be offered in the governor’s race. A new group of legislators will be elected. And, undoubtedly, voters will be presented with a number of options to change the way we conduct business in California.
What Should Not Happen Next
The voters have spoken. All the ballot measures of major fiscal consequences went down to defeat. Most pundits agree the defeat of the key measure, Proposition 1A, was due to the fact that tax increases would be extended for two years.
So what happens on the tax front now?
Taxes will suddenly be referred to by their “nom de plume”: Fees. The voters will not be fooled. If they don’t want taxes they won’t want fees, either. Fees are often aimed at certain products and the added fees drive up the costs the consumers ultimately pay. Fees, in many cases, are disguised taxes.
Another thing we’ll probably see is an attack mounted against the two-thirds vote requirement to raise taxes and to pass the budget. Undoubtedly, the majority in the legislature want both lowered. They may say they just want a majority vote for the budget but that plan has a weakness. See the discussion about Fees, above. If the budget is a majority vote then majority vote fees will be recruited to fund the majority vote budget.
It’s All About Jobs
The ballot measures voters will decide on today, for the most part, address immediate problems with the state budget. Proposition 1A is aimed at making a longer term fix. But none of the measures address the core problem with California’s seemingly endless fiscal problems. It’s all about jobs.
If California is to flourish and get past the constant budget battles, state leaders have to concentrate on creating jobs, keeping jobs from fleeing to other states, and improving the state’s economy.
It’s a simple formula: Putting people to work means citizen’s can be more self-sufficient and less reliant on government. At the same time, productive citizens pay taxes and the state and local treasuries are enriched without resorting to tax increases while relieving the stress of budget battles.