The Breathing Fee

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

Businesses will be forced to pay an annual fee based on greenhouse gases each emits after the Bay Area Air Quality Management District voted to levee the fee yesterday (see article here). The fee will hit every size business-big and small-at a rate of 4.4 cents per metric ton of carbon dioxide.

According to the Bay Area AQMD, which regulates smog in nine San Francisco Bay area counties, the proposal will rake in over one million dollars to pay for collecting and tracking data on greenhouse gases.

Let’s call this fee what it really is….a carbon tax.

The tax just adds another weight on businesses. That is unnecessary when there is an alternative to this tax—a carbon cap and trade system. If government demands that business carry extra loads to benefit society, then government should lessen the burden of taxes and regulations in other areas to keep businesses functioning properly.

While bigger businesses will get hit with the greater fees under the AQMD plan, smaller businesses will not escape. The Shell Oil refinery in Martinez would pay about $200,000 a year under the proposal. Smaller businesses would pay a minimum of $1.

The idea of charging a tax for greenhouse gas emissions has been floating around for some time but this effort in the San Francisco area will be the first time it is tried. Other areas of the state, as well as other places in the nation, are watching carefully to see if the Bay Area AQMD can successfully make this tax stick.

Businesses are concerned that once the door is opened, other tax and fee proposals might follow, and that the initial tax put forth by the AQMD will be raised.

In addition, the proposed tax will add to the cost of goods and services in the Bay Area if the business is not able to offset the costs in another way. Adding a tax to refineries and gas stations will up the cost of gasoline in the Bay area.

Businesses also are right to worry about a crazy quilt of different taxes and fees in different areas of the state, and a state imposed solution that will come down to implement the bill Governor Arnold Schwarzenegger signed two years ago to deal with greenhouse gases.

Businesses should not be hit by both a state solution to this problem and at the same time be punished with a local tax.

You can’t help but feel this is the beginning of a fee and tax driven enterprise that may or may not deal successfully with the global warming concerns. And you never know where proposals like this will lead. Carl Pope, national executive director of the Sierra Club said, "There are costs associated with emitting carbon dioxide and the people who emit it should pay the costs."

We humans exhaust carbon dioxide. Soon, we all may be hit with a fee for breathing.

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Why Helping Small Business Helps the Country

John Kabateck
NFIB State Director in California

When President Bush outlined his principles for an economic stimulus plan, he emphasized the need to help small businesses. He reiterated that theme in his State of the Union message.

There’s a good reason for that: Small businesses are creating the bulk of the new jobs in this country.

You might have missed that news amidst the recent front-page reporting of economic gloom and doom and headlines about interest rate cuts. Businesses with fewer than 50 employees actually added 66,000 jobs in December. During 2007, small businesses added a total of 716,000 jobs, according to the ADP National Employment Report, which tracks the payroll data of several hundred thousand businesses. In fact, the firm says that in 11 of the past 12 months, small businesses added more jobs than medium- and large-size businesses combined.

If American small businesses were a separate economy, it would be the world’s third-largest, trailing only the U.S. as a whole and Japan. Small business produces roughly half of the private Gross Domestic Product and, as the numbers demonstrate, clearly continues to drive our economic growth.

At the same time, entrepreneurs read newspapers and watch television like every other American, and there are indications that they’re starting to get a little unnerved by the economic news. So it’s a good time to consider an economic stimulus package to avoid a recession, which Congress is now doing.

One of the most important provisions included in the stimulus package is doubling the dollar amount for small-business expensing limits from $125,000 to $250,000. This will allow small-business owners to immediately write off investments in their business and will help small-business owners expand their businesses, as was demonstrated several years ago when expensing was increased to $100,000.

Another key provision included in the economic stimulus package is a 50 percent bonus depreciation deduction. Bonus depreciation is another incentive for businesses to invest in their business now, providing an immediate deduction for half the cost of the investment.

These are both good starts and policymakers are right to want to move quickly to get this package passed.

In addition to action on the economic stimulus plan, Congress intends to consider overhauling the tax code later this year. At that time, Congress should act to give permanent relief to small-business owners. For example, most small businesses file as S-corporations, which pay the same tax rates as individuals. These rates were slashed in 2003, but only until 2010. Making those tax cuts permanent and avoiding any future increases will be a great help to millions of small-business owners.

In addition, entrepreneurs are treated differently than Americans who receive their health care benefits from a corporation. They are not permitted to deduct health care costs from their wage base for self-employment taxes. Simply put, they’re forced to pay higher taxes because they’re self-employed. This tax bias should be eliminated to help make health insurance more affordable.

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It’s time for Real Budget Fixes

Physician and Health Care Industry Executive and Former California State Assemblyman

Well, it’s been just about a week since the Governor came out with his May revision and the commentary hasn’t slowed down one bit. Most of the attention thus far has focused on the "sale" of the lottery and whether that truly is more borrowing or not.

No matter how you look at (borrowing or not borrowing), this one time source of revenue would be used to plug the deficit for up to three years, but wouldn’t solve the long term budget problem.   It‘s pretty ironic, since Governor Schwarzenegger came into office with a promise to fix the budget, that the real budget fix will be left for the next Governor.

The most important issue in this budget is the "ongoing structural deficit". Spending on an ongoing basis will continue to outpace revenues, and the estimates are that the ongoing deficit will be between $5-6 billion annually.  This does not include the payments that will come due for the unfunded retiree health liabilities, which are likely to add at least another $2 billion or more on an annual basis.

The Governor has proposed a spending limit and a reserve fund, but one of the major issues that continues to be unaddressed is the volatility of our state tax system.  The bulk of the State’s general fund revenues are made up of receipts from three different taxes-income tax, sales tax, and the corporate and banking tax. Over the years the income tax has provided an increasing percentage of the general fund revenues and of the three major sources of revenue it is by far and away the most volatile.

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Can the Democrats Achieve a Super-Majority Senate or Assembly in November? – UPDATE

Allan Hoffenblum
Publisher of the California Target Book and owner of Allan Hoffenblum & Associates

Last week I wrote on the odds of the Democratic Party being able to achieve a veto-proof "supermajority" in the Senate or Assembly come November.

This requires the Democrats to pick up two new seats in the Senate and six new seats in the Assembly, while holding on to the seats they currently hold.

I surmised that because no Democrat filed to run against Republican Senator Abel Maldonado in SD15, which the CA Target Book identified as one of only two GOP-held senate seats up this year that are competitive, along with Senate President Pro Tem Don Perata throwing in the towel in the Jeff Denham recall election, that a pickup of two seats was not likely.

But the situation in SD15 did not sit well with local Democratic activists, particularly those on the San Luis Obispo County Democratic Central Committee. They are now backing a write-in campaign for Dennis Morris, described in Calitics, a popular liberal web site, as "a non-politician, a former legal scholar who retired to grow grapes on his vineyard."

If at least 3,700 Democratic voters write-in Morris’ name on the June 3rd primary ballot, his name will appear on the November ballot as the Democratic nominee, which could certainly put this district back in play come November.

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Thoughts and Ideas from the CalChamber Business Legislative Summit

Chandra Sharma
Political Communications, Redistricting and New Media Strategist

Yesterday Morning, I had the opportunity to attend the the California Chamber’s Business Legislative Summit in Sacramento, which featured a panel discussion on the state budget crisis with legislative analyst Elizabeth Hill, the Sacramento Bee’s Dan Weintraub and political strategist Dan Schnur.

The three panelists, all from varying political backgrounds, each brought a number of interesting ideas and perspectives to the table. Below are some of the thoughts, ideas and quotes they put forth which we felt F&HD readers might find particularly interesting. Each are, of course, the opinions of the respective speakers:

Elizabeth Hill

  • California can not get out of this budget dilemma just with the lottery – we must reduce spending and increase revenues.
  • In reducing spending, we must also try to maintain current service levels.
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Republicans must not Rebrand, but rather must Rediscover themselves

Michael Shires
Associate Professor of Public Policy, Pepperdine University

The Republican Party does not
need to be re-branded as pundits claim, it simply needs to return to
the core values that make it great-a commitment to personal freedom,
individual integrity, and global American leadership.  Oh yeah, and it would be nice if someone besides Democrats defined it.

SF Chronicle political writer Carla Marinucci describes how Schwarzenegger and McCain are striving to rebrand the GOP  to be seen as the party of the center (click here to read her article). The GOP IS and always has been the party of the middle- the middle class.  THAT is where it needs to return.

The last 20 years since President Reagan have been about helping elites reshape and redefine America.  Whether
Hillary’s health plan, the Kyoto protocol, the UN determination of
Middle East policy, it has all been about elites telling Americans what
is right for us to do.

The American people, and
especially the middle class, are tired of hearing about this crisis or
that and what government needs to do.  They are willing to
work and work hard, but they need to know with certainty that they will
reap the fruits of their labors-NOT that they will be frivolously taken
away to fund a new government program.

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The California Chamber Releases its List of Job Killer Bills

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

Here we go again….more bills listed by the California Chamber of Commerce that could damage economic recovery and cause the loss of jobs in California. For a number of years, the CalChamber has listed bills that Chamber officials believe will restrict business and force job loss. The list of this year’s bills can be found here

The Chamber cited 33 bills in six categories. The categories are Barriers to Affordable Housing; Costly Workplace Mandates; Economic Development Barriers; Expensive, Unnecessary  Regulatory Burdens; Fuel Price Increases; and Inflated Liability Costs.

Why press for more burdens when jobs are needed to boost the economy and overcome the government deficit? But it happens every year. The CalChamber has been an effective agent in fighting to maintain job growth in California by bringing attention to these job killer bills.

Fortunately,  Arnold Schwarzenegger has been a good goalie in the governor’s office, blocking many of the job killer bills that reach his desk. As of last year, the Chamber had noted 108 Job Killer bills in the Schwarzenegger years. Thirty reached the governor’s desk and he vetoed 26 of them.

Let’s hope the governor continues to be a sharp goalie and protect California from losing more jobs during these difficult economic times.

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Standing in the Schoolhouse Doorway

Patrick Dorinson
Host of The Cowboy Libertarian Radio Talk Show in Sacramento

The budget theater continues on the grounds of the State Capitol with high school students protesting the Governor’s budget cuts and being exhorted on by the Superintendent of Schools Jack O’Connell. Watching this spectacle two things came to mind.

First, why weren’t these kids in school? And second, although we have been going through this exercise about education spending and proposed cuts during every budget season for I don’t know how many years, the problem never seems to get resolved. We keep spending more money with not much to show for it in turning out the kind of educated workforce our economy needs now and into the future. Although California kids should rank high nationally in how to skip school and protest since they get a lot of practice.

Maybe student performance is not strictly a money problem. And maybe we need to look at the public schools and introduce innovations that are paying dividends in other states like vouchers and school choice.

I can hear the California Teachers Association screaming now that this is a Republican plan to destroy the public schools and attack the teachers. But that is just the talk of a union that likes the current system,  is afraid of competition and fears the possibility that it could be successful.

In 2003, President Bush signed into law the D.C Opportunity Scholarship Program  that provides school vouchers for 2,000 children, most of whom came from disadvantaged backgrounds. It began as a 5-year pilot program, narrowly passed by a Republican Congress and has been threatened every year since, but the parents seem to like it. Every year, applications for the program have tripled and it is changing lives.

But most Democrats in Congress, including Senator Barbara Boxer and Speaker Nancy Pelosi, sided with their patrons in the Teacher’s unions. Senator Dianne Feinstein, however, exhibited real political courage and supported the plan. Scroll down in this statement and see what she said on the floor of the U.S. Senate in January 2004 regarding the D.C School Choice program

In 1957, Arkansas Governor Orval Faubus stood in the schoolhouse doorway of Little Rock’s Central High School and denied entry to African American students. President Eisenhower sent troops to ensure that those students could get the education they deserved. See what one of the beneficiaries of Eisenhower’s action has said by clicking here.

I will leave you with two questions.

Who is standing in the schoolhouse doorway now?

And for Senator Feinstein, if it is good enough for 2,000 school children of Washington D.C. who were trapped in failing schools, how about the thousands of schoolchildren of East L.A. trapped in failing schools?

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Reading Arnold’s Mind

Joe Mathews
Connecting California Columnist and Editor, Zócalo Public Square, Fellow at the Center for Social Cohesion at Arizona State University and co-author of California Crackup: How Reform Broke the Golden State and How We Can Fix It (UC Press, 2010)

People have been asking your blogger the following question: what’s the difference between working at the LA Times (I quit earlier this year) and being a fellow at New America? The answer is easy: technology. Because New America is a think tank, I have access to the Mind Reading Machine (MRM), a little-known device. This weekend, I got to use the machine for the time, and I decided to point it at the brain of Gov. Arnold Schwarzenegger. Last week was a big one for him and for California: a revised budget proposal that was widely panned, his renewed push to get his budget reform plan on the November ballot, and a state Supreme Court ruling permitting gay couples to marry in the state.

Here’s what the Mind Reading Machine spit up:

"You know when something good happens at the wrong time? I can’t admit this to anyone, but that’s how I think about this gay marriage ruling.

I’ve got no problem with gay marriage, of course, but up til now I’ve done a great job of avoiding the issue politically. Many Republican voters didn’t know my private views before the Supreme Court did its thing Thursday and I had to issue a statement saying I would uphold the court’s decision. I had everyone confused because  I came down hard on that big forehead [MRM EDITOR’S NOTE: forehead is an all-purpose insult favored by the governor], the mayor of San Francisco, for marrying those folks without any legal authority. If you look at what I said, I condemned him not for the marriages but for making up the law as he went along.

Of course, the right-wing knuckledraggers thought I was with them on the issue. What a bunch of foreheads! Don’t they know I spent my career in bodybuilding and Hollywood? Who do you think was buying those pictures of me in Speedos? I’ve gotten where I am today because of gay people. By the way, I’ve gotta remember to tell Clay to call my tailor to order 50 new suits for all the weddings I’m going to have to attend this summer. It’ll be a miracle if I have any time to negotiate the budget.

And the budget — specifically my budget reform proposal — is the real casualty of this gay marriage ruling. I’ve been working for months to try to set up my budget reform proposal (it’s got a fantastic rainy day fund) so voters will pass it in November. It’s so obvious we need to do it, but I’ve never been able to get the public to focus on the details and urgency of this. Budget reform is a complicated, technical subject full of subtleties. When I try to sell my proposal, it reminds me why I never made art films. I failed twice before on budget reform — right when I got into office, and with the unsuccessful Prop. 76 in the 2005 special election, which lost more money than Last Action Hero. Losing sucks.

It was already going to be difficult for me to win on budget reform before the gay marriage ruling. All my polling guys — the one my aides know about, and then all other guys I deal with directly and don’t tell them about — tell me I’m losing popularity. Getting enough attention to pass budget reform in November was already tough with all the voters focused on the presidential race and my friend McCain and that fellow who Maria likes and who Bloomberg says is cool. Forget the name– from Chicago, thinks he’s the Second Coming. So budget reform was a tough sell in November. It’s like a movie opening. You can have two hits open on the same weekend if you’re telling different stories. The presidential campaign was the national story. And my California counter-programming was going to be my budget reform thing. It would have been great, with messaging along the lines of me saving the world in crisis. You know, the usual. I had it set up beautifully, too. My budget reform proposal would give people the choice. Do my budget reform, or the sales tax goes up. That would get everyone’s attention.

But this gay marriage thing could screw all that up. That’s because the knuckledraggers got the signatures on an initiative for November to put some nonsense in the state constitution that marriage is between a man and a woman. Don’t they know marriage is between a Democrat and a Republican? Anyway, now that the court has made gay marriage legal, this initiative, which would undo the decision, is going to get all the attention that should have gone to my budget reform. And Republican voters I need to support budget reform are going to be mad at me because I’m against the anti-gay marriage initiative. By the way, the initiative is crazy. If it passed, half of Hollywood — the half that hasn’t already taken their productions out of state because of those bribes the other states are offering — will leave. The only Hollywood folks left in California will be me and Clint, and we’ll have to spend our dotage making buddy comedies full of bladder control jokes in abandoned sound stages in the Valley.

Anyway, where was I? Oh, yeah. The press didn’t want to write about budget reform, but they would have had to do if it were the big thing on the ballot. But now the gay marriage initiative will get all the attention. And no one will talk about budget reform, and if no one knows what the proposal is, they’re not going to vote for it. So the gay marriage initiative is going to get in the way of my last best chance for budget reform (not to mentioning reapportionment reform).  If I lose this time, I’m the lamest of lame ducks, and all those columnists at the Bee whose last names start with the letter W will write that I’m the biggest failure since Culbert Olson.

So those judges gave the right to marry to a lot of folks, which is nice. But they really screwed me."

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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.

Another opportune time to cash in on capital gains might be at hand again because of the presidential contest. While Republican candidate John McCain says he wants to leave the present capital gains rate of 15% alone, both Democratic candidates Barack Obama and Hillary Clinton favor raising the capital gains tax rate.

With pundits claiming the presidency could fall to the Democrats, investors will consider what to do with any major capital gains they have earned. If, as the campaign rolls through the Fall, it appears the Democratic candidate has the upper hand, these investors might begin cashing out.

In California that could bring a temporary windfall. This might seem like a good reason, from a California perspective, to vote for the Democratic candidate. But, if that candidate does become president and raises the capital gains tax rate, future revenues to the treasury may slow to a trickle.

For both the short term and the long term, California should consider a capital gains cut of its own. Capital gains are currently taxed at the taxpayer’s full tax rate. Lowering the capital gains rate could free up some revenue immediately for the strapped California budget. More on that in some future post.

In the meantime, California investors will have to sit back and watch what the feds do.

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