Schwarzenegger’s Budget: Ever Deeper Into Mississippification


Posted on 17 May 2010

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By Peter Schrag

If you watched Gov. Arnold d Schwarzenegger’s presentation of his budget proposal last Friday, you’d have learned (again) that the state’s chronic fiscal problems are everybody’s fault but his.
It’s the legislature’s fault for not making the cuts he asked for in January (even though Schwarzenegger vetoed some of the cuts it did make).

It’s the fault of the federal judges who ruled that some of the cuts enacted last year violated federal law and struck them down.

It’s the fault of an income tax structure too dependent on high income taxpayers and the stock dividends they get in good times and don’t get in lean years.

It’s the unions and the other “special interests” who dominate Sacramento.

It’s the recession. He even made allusions to Greece and Spain.

Nowhere was there any mention of the governor’s first major act on his first day in office in 2003, when he slashed the vehicle license fee, a cut that cost the state about $6 billion a year until the fee was raised a little last year. Nowhere was there mention of the governor’s child care initiative, passed in 2002, that cost the state about $500 million a year, or his strong endorsement of the stem-cell research bonds that cost another $200 to $300 million, much less the borrowing in his prior budget “solutions” that’s added a few billion more to the state’s indebtedness.

And of course, even as the governor talks about how his heart bleeds for the people who are getting hit in this years budget – poor children and their parents, the old, the sick – all of whom will get hit even more in the year to come, he is determined to preserve the $2.1 billion in corporate tax cuts enacted as part of last year’s budget deal. Nor was there any mention of the billions in corporate tax loopholes that have crept into the tax code in the years before.

Bring on Bobby Jindal the governor of Louisiana, or maybe Haley Barbour, the yahoo governor of Mississippi. They know how to run backward states with regressive tax systems and third world programs. They know how to screw the poor.

At his budget briefing Friday, Schwarzenegger was asked if he was really serious in proposing the elimination of CalWORKS, the state’s welfare-to-work program that serves about 1.4 million poor people, most of them children, with monthly grants, job training and child care to enable parents to become self-supporting. Is he serious about eliminating most state-funded child care and food stamps, or slashing in-home care for some 430,000 elderly or disabled people? 

The real answer to the question, as his buck-passing about the causes of the larger fiscal mess indicates, is that he’s kicking the responsibility back to the Democrats in the legislature, who will now begin a summer-long process of struggling to save part of those programs.

In effect, Schwarzenegger, who came to office after the recall of Gray Davis, is abdicating from everything except the mythic belief (or maybe pretense) that we’re overtaxed and that any tax increase will kill the chances of economic recovery. The two Republicans who hope to succeed him promise yet more tax cuts and more Mississippification.

In fact the unemployment rate in low tax states like Mississippi (11.5 percent), South Carolina (12.2) and Florida (12.3) is almost as high as it is in California (12.6). In Nevada it’s 13.4. And contrary to myth, as a percentage of personal income, California ranks 19th in the nation in state and local taxes. Also contrary to the pervasive mythology California’s lowest income families pay the largest share of their incomes in state and local taxes; the richest pay the smallest share.

Of course, the rich pay much more of the total share: They have the highest incomes many times over. But their burden is lower.

The governor is right, as he said again Friday, that the state’s public employee pension system badly needs reform. Ever since the passage of Proposition 13 in 1978, fiscally strapped governments have settled with unions with promises of generous pensions and retiree health benefits, commitments that in most cases wouldn’t come due for years and that, when they were made, seemed cheap. Given the current costs, pension systems can’t be sustained unless new hires get pensions based on contributions rather than guaranteed benefits.

He’s also right that the tax system badly needs fixing, but not with the regressive quasi-flat tax scheme that his tax commission proposed and that he cited again the other day.

Ironically enough, in his call for reform Friday, logic also failed him. Not counting fund shifts and federal money, he said, total tax revenues this year were $76 billion, the same amount as “when I came into office in 2003...The GDP then was $1.3 trillion. The GDP now is $1.85 trillion. So look at that increase over the last few years. But not when it comes to our revenues. So there is something wrong with our system. This is what I'm trying to tell people. This is the evil.”

But the evil seems to lie in a tax system that takes less as a percentage of GDP than it did seven years ago. If taxes generated revenues at the same proportions, the state would be collecting $108 billion.

But the state’s leadership continues to be stuck in the pervasive mythology that we’re overtaxed and in the process marching steadily, if reluctantly, behind Schwarzenegger ever further down the road to Mississippification. Is there anyone willing to tell us that this is crazy?  

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Peter Schrag, whose exclusive weekly column appears every Monday in the California Progress Report, is the former editorial page editor and columnist of the Sacramento Bee. He is the author of Paradise Lost: California’s Experience, America’s Future and California: America’s High Stakes Experiment. His new book, Not Fit for Our Society: Immigration and Nativism in America is now on sale.

Chevron gouged $24 billions in excessive profits in 2008, as per www.tyrannyofoil.com. Schwarzenegger should put an excessive profits tax on these profits, instead of protecting the oil corporations from fair taxation, then, there would be sufficient public funds for all the vulnerable, people programs. Big business lost the fight to eliminate domestic violence funding, so now they are coming back with a vengeance. There is no funding provision in the May Revise. Schwarzee picks on the most vulnerable, and not on corporate tax "deadbeats."

Would you? I mean, YOUR definition, not an url to some website. Tell me what YOU think an appropriate markup or return on equity is for a company.

Do you think they should be able to earn more or less than the 7% tax-free return they would get by buying California General Obligation bonds from the state treasurer?

Or do you define ANY profits as excessive?

Their income last quarter was $2.27 a share (a share currently costs $76.64) or about 3% this quarter (which was an exceptionally good quarter). Of course, their shareholders will pay state and local taxes on that income as well.

So what do YOU think a "Non-excess" profit would or should be? Just a number, please. You know; 1%, 2%, ...... 9% annually - something like that.

What would it take to get you to invest YOUR money in Chevron's stock? Why should anyone else invest in it for any less?

Gasoline at $4.50 per gallon; oil at $148 per barrel.

Apparently.

Gasoline at $4.50 per gallon; oil at $148 per barrel does not constitute 'profits', either 'excessive' ones or 'unexcessive' ones. That is a PRICE. a portion of which, I might add, is nothing but tax and goes to the government. In California, the state and local taxes are:6% Sales Tax. 1.25% county tax. 1.2 cpg state UST fee. plus local sales tax

Given a $4.50 per gallon PRICE the state would make $.27, the county would make about $.06, the UST would be another $.012, and local sales tax would take another $.1685 (here in LA) and of course the feds would make their $.184.

The total government take on that hypothetical $4.50 would be about 70 cents (on zero investment) which would be an INFINITE rate of return on investment and represent out 16% of the COST of that gallon of gas.

So I repeat the question, what percentage profit do you think would NOT be excessive for Chevron. Please educate yourself a little so you at least understand the question. Here are some urls that might help:

http://en.wikipedia.org/wiki/Profit_%28accounting%29
http://wiki.fool.com/Return_on_investment

Please do this. Don't just cut and paste somebody else's propaganda. Educate yourself so you at least understand something before you attempt to have an opinion about it....

I agree with your position of how Schwarzenneger contributed significantly to the problems. However, the major problem is not the coming legislative conflicts over the budget, it is the deep, agonizing, unpopular cuts being imposed, including lay offs of sheriffs, teachers, health care workers, child protective services, and the loss of the services which they provided. Neither the governor nor the legislature caused these cuts- although he contributed. They were created by the grand theft on Wall Street. The current economic crisis has forced the cutting of higher education, of k-12 education, and of social welfare systems.
This crisis was caused by the greed and avarice of the financial class and aided by the politicians of both major political parties as shown by the hearings of the Economic Crisis Committee chaired by Phil Angelides.
Over 40 states have severe budget problems caused by the Great Recession and there will be more next year. In Oklahoma, Nevada, and Arizona, the cuts are more draconian than in California- and these are low benefit states.
The response? Make Wall Street Pay. They caused this crisis. All sale of stocks and derivatives should be taxed 2% (The AFL-CIO proposes 0.25%). That would pay for the services we need, and limit the Casino Capitalism of the rich and well connected.

The cuts to child welfare programs, In-Home Supportive services, Healthy Families and so on, were caused by Schwarzenegger personally, using his line-item veto power, last summer, and not the legislature.

The cuts were caused by the fact that WE DON'T HAVE THE TAX REVENUE THAT PAYING FOR THESE SERVICES REQUIRED WHILE ALSO PAYING FOR THE OTHER SERVICES THAT WE ARE REQUIRED TO PAY FOR. Cuts had to come from somewhere, and some areas are protected by statute (as both the legislature and the governor discovered when they tried to cut those area), others are protected by the constitution.

You might disagree with WHERE Schwarzenegger TOOK those cuts, but saying they were CAUSED by him is a little over the top. The cuts were CAUSED by the state not having enough money to pay its bills which was caused by driving too much of the tax base out of the state to be able to fund these services with the tax base that is left.

Mr. Hanshaw, could you read the aboved article again? Mr. Schrag writes about a $2 billions tax cut for corporations, if there was no free give-away like this, then, this $2 billions could be spent on vulnerable people. Why did not Schwarzenegger veto these corporate tax cuts with his line-item veto power? and bring in an oil extraction tax, similiar to that in Alaska and Texas.

What do you consider an "excess" profit.

If one is going to go to all the trouble to finance and manage a business, what amount of profit on their sales do you believe is fair? 2%? 4%? 6%? 8%?

You complained about Chevron having $24 billion in 'excess' profits in 2008, but that happened to be Chevron's ENTIRE profit in 2008. Chevron has 2,442,676,580 shares of stock out there - hundreds of millions of people worldwide own it either directly or in their mutual funds.

Are you saying they should have NO return on their investments?

You do realize that if such a confiscatory tax were leveled, Chevron would and could (and probably should) move elsewhere. And what is killing our tax base? Jobs with good pay (like the ones at Chevron) moving out of the state.

I realize sloganeering can be fun, but use a little common sense why don't you?

I have already answered that question. Big Oil caused gasoline to be at $4.50. To understand the sleeze-side of Chevron, see the USA Section of www.truecostofchevron.com.

Do you understand the difference between a price and a profit?

Yes. Your approach to excessive profits is based on business administration and accounting and mine is based on international (corrupted) commerce. Chevron's excessive profits are based on their excessive revenues,$263 billions, which are based on the excessive price for a barrel of oil, formerly $148 per barrel. When you state that the return of 11% is not very much, this because the return is the same, approximatey 11%, both before and after the profit, the revenues and cost per barrel, has been ratcheted-up by the Intercontinental Exchange(ICE) in Atlanta and the energy traders/speculators in the NYMEX. Both are unregulated by the "Fed." The bi-lateral trades of the "Dark Pool" ICE ratcheted-up the price of oil and Chevron,et al, took advantage of these unregulated trades. The unregulated trades caused the price of oil to sky-rocket, but the supply of oil remained the same or less, despite the large number of phony trades. Google the Global Oil Scam by Phil Davis. For example, if Chevron's profit were $10 billions and the revenues were $110 billions, the return would be approximately 11%.

Do you understand the difference between a price and a profit. I wasn't discussing excessive profits yet.

Yes, I did answer your question, and the answer is yes. My previous comment was an answer to two of your questions in two different comments, price and excessive profits.

Please define each.

Price - the sum or amount of money or its equivalent for which anything is bought, sold or offered for sale.

Profit - pecuniary gain resulting from the employment of capital in any transaction.

Excessive profit - the profits of a business enterprise in excess of the average profits for a number of base years, or of a specified rate of return on capital.

Excessive profit - the profits of a business enterprise in excess of the average profits for a number of base years, or of a specified rate of return on capital.

Who 'specifies' the rate of return under this definition? You??

And have you considered what happens over time with your definition? If you can NEVER make more than the "average" profits of preceding years, some years you will make less than the "average" profit (or even operate at a loss) which will then become part of your baseline and - over time - the 'allowable' profit will decrease eventually approaching the limit of zero profit. Or under your model would the company then be required to operate at a loss until it was bankrupt?

Now historically the definition has been this:

excess profits tax
A temporary tax levied on business profits during a period of national emergency. For example, the federal government may levy an additional corporate income tax during wartime to generate extra government revenues.

http://financial-dictionary.thefreedictionary.com/Excess-Profits+Tax

But you still haven't answered the question of just how much profit a company ought to be allowed. What percentage of the price ought to be profit? If it takes me a dollar to make a widget, should I be able to sell it for $1.25? How about $1.10?

Alternatively, what return on investment should a shareholder be allowed? If I buy a California General Obligation bond the state pays me about 7.5% annually (tax-free) then gives me my capital back after 20 years. Do you consider that a reasonable return on investment?

What I'm trying to get at here is whether or not you believe people who are willing to make sacrifices to build industries ought to be actually paid for their efforts (and how much) or if you think they ought to just do that out of the goodness of their hearts so that you can benefit from their actions.

For example, if Chevron's profit were $10 billions and the revenues were $110 billions, the return would be approximately 11%.

10 billion divided by 110 billion is .0909. That's a smidge over 9%, not 11%. Among other things you seem to not be proficient in long division....

Why did not Schwarzenegger veto these corporate tax cuts with his line-item veto power? and bring in an oil extraction tax, similiar(sic) to that in Alaska and Texas.

I'm guessing that as he sees an increasing percentage of our tax base go to other states - or overseas - and since the state has been judged to be either the 48th or 49th LEAST BUSINESS friendly state in the US for each of the last four years, he's trying to do SOMETHING to keep the REST of our tax base from leaving.

Our existing corporate tax rate is the highest in the country:

http://www.taxadmin.org/fta/rate/corp_inc.pdf

and it's driving business out of the state. The more business that leaves the more tax revenue leaves with them, and you can't offset that by increasing the tax on the remaining corporations (heaven knows we've tried) because they just leave too.

When the last GM plant closed in California because GM (which is owned 61% by the Federal government, 17.5% by the United Auto Workers Union, and 11.7% by the Canadian government bailed out of California because even with THEIR clout and deep pockets they didn't think they'd be able to break even operating in the state it ought to have told you something. http://www.modbee.com/2009/09/06/843767/dan-walters-california-factory.html

Unfortunately, I believe you enjoy repeating silly propaganda more than you do actually having a meaningful discussion.

When you push taxes up higher initially the tax receipts go up. But once you pass a certain point, they go DOWN, because it's just cheaper to do the work elsewhere. Tell me you can at least understand that in concept.....

Better yet, look what Cisco systems is doing - A homegrown California company that's outsourcing and offshoring up the ying-yang.

Look at McDonnell Douglas - whoops, you can't. We drove them into bankruptcy and Boeing bought them out. How many new aircraft that Boeing is building are they building at the old McDonnell Douglas facilities in Southern California? How many are they building in Washington State (no corporate tax), Missouri (corporate tax rate 2/3rds of ours), South Carolina (less than half of ours).

Northrop-Grumman just moved out too.

Hell, TONS of companies have moved out -

http://thebusinessrelocationcoach.blogspot.com/2010/02/californias-hosti...

The corporate tax rate is 35% in all states. Chevron and other big corporations pay only about 5% of this corporate tax rate through using corporate tax loop holes, some of which are legal.

The corporate tax rate is 35% in all states

Click on this URL:

http://www.taxfoundation.org/taxdata/show/230.html

Doesn't it embarrass you to publicly post information that anyone can tell in two seconds of googling is incorrect?

You are certainly entitled to your own opinion. You are NOT entitled to make up your own facts.

Make Wall Street Pay. They caused this crisis. All sale of stocks and derivatives should be taxed 2%

Which would drive the stock market offshore where it is even LESS regulated.

Goldman Sachs is a "vampire squid."

But the evil seems to lie in a tax system that takes less as a percentage of GDP than it did seven years ago.

The issue he is bitching about is INHERENT in a "progressive" income tax.

The progressive income tax is a leveraged investment - not unlike the credit-swap crap that got the US economy in trouble. Consider for a moment:

With a graduated income tax many people pay little income tax while a few pay a lot. When the recession comes, it disproportionately affects those people who actually DO pay most of the taxes, since the others are getting a disproportionate share of their income as non-taxable government provided benefits anyway. Even the money they do make they don't pay much tax on, because they are in the lowest bracket. But all at once the top 1% are only getting half what they got the year before - and it drops them into a lower bracket. The tax revenue becomes a smaller percentage of a smaller amount, and this adverse leverage REALLY makes revenues go down.

Any serious discussion of why we are in the fix we are in in terms of decreased state income tax HAS TO address this factor. Granted, a flat tax would be less 'progressive', but if the rich person's income dropped by 50% he/she would still pay 50% of what he/she did the year before, giving us the system that Mr. Schrag indicates he wants, tax revenue as a fixed percentage of the income received. As long as we use a 'progressive' tax that isn't going to happen, because any tax decreases due to lower individual income will go disproportionately to those people who pay the highest taxes.

A second factor causing the recession, which is not mentioned above, was the high price of oil, which was caused by Big Oil and the Dallas/Houston oil crowd.

Have you taken a look at the amount of oil that China is buying these days compared with their historic purchases?

http://www.thenational.ae/apps/pbcs.dll/article?AID=/20100109/BUSINESS/7...

And India?

http://advisoranalyst.com/glablog/2010/04/06/indian-oil-giants-set-to-in...

Did you ever hear of supply and demand?

Did you ever feel that these propaganda websites from which you apparently derive all your political thoughts are perhaps just a little TOO simplistic?

Apparently not.