Stimulate The California Economy And Balance The Budget

California’s unemployment rate has soared to 8.2% — third highest in the United States!  We need to stimulate California’s economy.  We need a massive jobs and infrastructure investment program, rebuilding our roads and bridges and schools and making our buildings energy-efficient, and hiring more teachers and police and firefighters.  We can do this, while balancing the budget at the same time.

How can we do this?  We can raise taxes on big corporations and the wealthy and use the money to stimulate the economy and balance the budget and get things moving again.

Our economic system is not perfect, so over time income tends to concentrate at the top, which makes it harder for most people to get by.  People spend less and things slow down.  We are seeing this today — wealth has massively concentrated at the top, and the consumer is “tapped out.”  No one is buying cars and Christmas sales will be much lower. 

Taxes on the wealthy and corporations fix this by recirculating money that has bunched up at the top.  Taxes provide the resources that We, the People can then use to stimulate the economy and get it moving again.

The corporations will try to say that this tax increase will slow the
economy.  But this isn’t what has happened when this has been done in
the past.  Actually history shows that taxing the wealthiest and
corporations helps our economy.  This is not surprising when you realize that more people with more jobs and money to spend is a good thing in a consumer-driven economy. 

There is a problem, though.  In California we have a rule that we cannot pass any tax with less than a two-thirds vote.  A little over half the people voted to impose this two-thirds requirement — and now 100% of us are hobbled for doing what we need to do to fix the economy.  Instead of stimulating the economy we have to lay off teachers and firefighters and road workers, further worsening the recession, because cutting budgets is the only option available.  Even if 55% or 60% of us would rather hire people and stimulate the economy, we still can’t.

So we need to change this rule.  We need to be able to pass taxes on the corporations and the rich, and get the economy moving again. 

We Prosper From Higher Taxes, Not Lower

I came across the article, Why the Economy Grows Like Crazy Amid High Taxes, by Larry Beinhart, and it says some things that the people of California should hear.

Beinhart make some very good points. first, he points out that if you look at the periods of higher taxes, you see that these are the very periods when the economy does much better. He writes,

Examples include World War II and the Truman-Eisenhower years, when it
was around 90 percent, and the Clinton years, when it was high relative
to the preceding and following administrations.

He also points out that big tax cuts are often followed by bubbles and crashes, like the big crashes of 1929, 1987 and 2008.

Beinhart says that one reason for this is that low taxes encourage businesses to distribute profits rather than reinvest them in their companies. When taxes are low the owners have incentive to grab all the cash they can out of the company.  But when taxes are high every dollar they take out of the company is immediately reduced.  If the money stays and is reinvested in the company the company’s value grows and can later be taken as capital gains.  As a former business owner I understand how this works. 

Beinhart writes,

With high taxes, the only way to retain the bulk of the wealth
created by a business is by reinvesting it in the business — in
plants, equipment, staff, research and development, new products and
all the rest.

The higher taxes are (and from 1940 to 1964 the top rates were around 90 percent), the more this is true.

This creates a bias toward long-term planning.

If
a business is planning for the long term, it wants a happy, stable work
force. It becomes worthwhile to pay good wages and offer decent
benefits.

So low taxes cause companies to only think a few months ahead and sacrifice their long-term good for short-term gain, instead of planning to be in business year after year.  Also, low taxes encourage a fast-buck climate in which takeovers and disruption rule.  Beinhart writes that when the Reagan tax cut era took over,

It was no longer enough for a business to be a reasonably good business, making steady, reliable profits.

Indeed,
that became a very bad condition for a business to be in. It made it a
target for takeovers by people who were willing to milk them of their
profits.

There is a lot more over at the article, so go read the rest.

This holds important lessons for Californians.  Along with Beinhart’s observations, there are other reasons to think that low taxes harm the economy.  For one, it is the nature of our economic system that a few people can come into possession of huge shares of the wealth.  This dries up the economy because regular people don’t have enough of a share of the wealth to allow them to spend much on consumer goods, etc.  We are seeing this happening today.  On top of that we are seeing the government forced by tax shortfalls to lay people off just at the time we need more people to be able to buy houses, cars, etc.  Taxes provide jobs and redistribute the wealth in multiple ways, so that regular people CAN buy houses, etc.

But in California we have rules that don’t let us raise taxes, even though we can see that we need the income so that the state can keep teachers, firefighters, roadworkers, etc. employed!  We as citizens actually tolerate rules that keep us from asking corporations and wealthy people from pitching in to help fix the economy!  It is time for us to start looking at how to fix these rules that hobble us during times of economic emergency.
 

The “Pass The Buck” Budget

After months of playing “chicken” the yearly California budget compromise ritual once again passes the buck to the next year.  Everyone breathes a sigh of relief that the “stalemate” is over.

But the problems aren’t solved at all, they’re worse.  Next year this will happen again but because of this year and previous years’ so-called “solutions” it will be that much harder to agree on a budget.  So if you thought this year was bad…

Friday Dan Walters, in, Revised state budget is still a sham, wrote that the budget,

…remains a stopgap budget filled with accounting gimmicks and questionable “spending cuts” and “revenues” – and still leaves the state’s fiscal house in great disorder. It makes little, if any, headway on closing what those in the Capitol call the “structural deficit” – the chronic gap between revenues and spending that was plaguing the state even before its economy went into the tank.

and wrote yesterday,

They violated every
principle of fiscal responsibility by conjuring up billions of dollars
in sham revenues — basically money borrowed from corporate and personal
taxpayers that would have to be paid back later — to cover a huge
deficit so they could blow town.

Senate President pro Tempore Don Perata (D-Oakland) said,

“I have agreed with the Governor to make some tweaks to the budget we
sent him. I’m not proud of this budget – it just kicks the can down the
road. But the reality is, Democrats agreed to nearly $10 billion in
tough cuts while the Governor could not get a single Republican vote
for the $5 billion in new revenue we need to close this gap and solve
the problem.”

That’s right, once again a small minority was able to get their way by refusing to participate in normal, civil,, give-and-take negotiation.  They are able to do this because the public doesn’t really know what is happening in Sacramento, only that no budget is passing.  So therefore it must be everyone’s fault equally — even if it isn’t.
 

The Press Is Fogging The Reason For The Budget Stalemate

Friday morning’s San Francisco Chronicle story, Legislature’s approval rating at a record low, illustrates why California’s budget impasse continues. From the article,

“Democrats and the minority Republicans have hunkered down, with neither side willing to make the compromises needed to put together a budget plan that can garner the required two-thirds support.”

The budget problem is that reporting like this keeps the public from understanding what is happening in Sacramento.
Here is what is happening with the budget:

  • The Democrats have offered plan after plan, accepting deep budget cuts, some borrowing and offering various ways to raise revenue.
  • The Governor has offered a plan, with deep budget cuts, borrowing, and a temporarysales tax increase.
  • The Republicans have refused to compromise, refusing any budget that raises any revenue at all, not even asking the extremely wealthy to pay the same sales taxes that the rest of us have to pay.

It is just that simple. The Republicans have been blocking the budget and they are getting away with it because the press refuses to report that the Republicans are blocking the budget. If the press reported this simple fact public pressure would build and the Republicans would have to yield.
Update – A comment on the possible budget “compromise”: It just kicks the can down the road by delaying dealing with our problems. It doesn’t fix anything, and cuts essential services from the people who need government most. In fact it just makes it much, much harder to solve the problem in the next budget because it steals revenue from next year.

California’s Conservatives Want To Get What They DON’T Pay For

California’s elected Republicans continue to block any and all efforts to pass a budget, because any honest budget must ask the wealthy and big corporations to pay their fair share. Even the Governor’s extremely modest one cent sales tax increase was too much for them.
So let’s talk about paying a fair share. David Sirota has a good column today at the Campaign for America’s Future blog, The Aristocrats, Part II – Starring George Will. In the column Sirota writes about wealthy Republicans who complain when regular people get decent pay for performing services that benefit … guess who … wealthy Republicans. Sirota writes,

In a column about underfinanced municipal pension systems today, Will expresses deep anger that veteran police, firefighters and municipal workers eventually get paid well for their services. In one California town on San Francisco Bay, Will tells us that – gasp! – “after just five years, all police and firefighters are guaranteed lifetime health benefits.” The horror.
Such salaries and benefits, of course, are part of a bargain: Enticing people to turn down the high-paying private-sector job and instead run into burning buildings (firefighters), do the dangerous work of apprehending criminals (police), disposing of sewage (garbage collectors) and administrating all the other services that conservatives pretend aren’t necessary (municipal workers) requires, well, an enticement – namely, the promise that making such a public-minded choice will result in decent and stable pay and benefits.
When you accept a public sector job, that’s the bargain: In exchange for being willing to do a tough job and accepting that you won’t have the chance to make hundreds of millions dollars like a corporate CEO, you are rewarded with the chance – if you play by the rules – to make a pretty good living.

Yes, there is a BARGAIN at work here. We, the People have built a system that has been working pretty darn well for the rich. We built a system of roads, schools, courts, police departments and firefighters. We built up a system of laws. We work in the factories and offices.

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FINALLY! The Republican Budget Proposal

Last week, after months of blocking every single budget and budget compromise the Republicans revealed a budget proposal of their own. This was months later than it should have been, and does little good at this point. Of course it was widely panned and was voted down.
So what was in their budget? They offer a few new cuts — beyond the Governor’s already proposed cuts — in the “big government” they complain about. They refuse to raise revenues from any source.
Mostly, what the Republicans want to do is borrow. This is the big, responsible solution they offer: more and more borrowing. They want to borrow $2 billion from future lottery revenue. This, of course, means that $2 billion won’t be there when needed because they have been borrowed and spent it now.
It costs money to borrow. We have to pay interest. We also have to pay back the borrowed money. This adds up.
Remember, much of the current budget shortfall is because we are already paying interest on previous borrowing. All those bonds that Schwarzenegger floated to meet previous shortfalls without raising revenue were certainly not free.
But there are also other costs. The Republicans offer cuts in health care, assistance to the disabled (including housecleaning and home care) and of course help for the poor. Those cuts mean layoffs and income cuts and these will ripple out through the ecosystem that depends on the purchases these funds would have meant. This at a time of pending recession.
This is all instead of asking rich yacht and private jet buys to pay the same sales taxes the rest of us pay on everything we buy.
This is all instead of asking big oil companies to pay a fee to drill oil in our state to sell back to us for huge profits.
This is all instead of asking huge corporations to pay a reasonable commercial property tax.
This is all instead of asking vastly wealthy individuals to pay their fair share in return for the wealth they gained from the infrastructure that all of us built.
Shame on them. A small minority has been able to block California from passing a budget. They use money from these vastly wealthy individuals and corporations to run deceitful ads to keep just enough of them in office to block the things that will help the people of California restore our infrastructure and economy, just so a few wealthy interests can have a few extra bucks.