Wednesday, January 19, 2011

California Budget Crisis- Sources of revenue

It is clear that the California budget is in crisis and we can not simply cut our way out of the crisis.  Budget cuts and lay offs make the recession worse.
School funding reveals the nature of crisis.  In the last two years the k-12 budget “solutions” have cut 4.6 billion dollars from the schools. We have larger classes and fewer teachers.  School reform has stopped- except for the politicians hot air.  School funding makes up a total of 30% of the state budget.  Any crisis in the state budget and any cuts in the state budget will make school budgets worse.
California will need to raise taxes to fund the schools and to repair the social safety net.  Anti tax radicals and Republicans  oppose any tax increases.   The state ‘solutions’ of the last three years depended upon receiving federal stimulus money.  The stimulus monies are almost finished and with the Republican winning control  of Congress there will probably not be more funds.
The world wide economic crisis was created by  U.S. finance capital and banking, mostly on Wall Street ,ie. Chase Banks, Bank of America, AIG, and others.   Finance capital produced a $ 2 trillion bailout of the financial industry, the doubling of U.S. unemployment rate and the loss of 2 million manufacturing jobs.  More than 15   million people are out of work.  At the national level almost all of the projected deficit through 2020 will be the result of three factors: the Great recession, the tax cuts of the early 2000s under George W. Bush, and the hundreds of billions of dollars of war spending.
The economic stalemate in California has produced school funding cuts far beyond reasonable levels.  At present,  the state ranks 47th among all states in its per-pupil spending, spending $2,856 less per pupil than the national average.
  In California we need to spend more state money to improve schools, to develop roads and infrastructure, and to create jobs.  Those who are well educated are more employed and paying taxes while those with less education, those who leave school, are in a prolonged economic crisis.  It is well documented that our schools and our universities are in a finance crisis.  We need to be preparing young people for new jobs and to create new industries.  The success of students in higher education will significantly determine California’s future competitiveness and prosperity.   Improving education, including both k-12 and higher education, makes California more likely to attract investment and the creation of new jobs and new industries.

California government must protect and empower our citizens. To foster prosperity  it must prepare the young for civic participation. (BTW. This has been recognized since the first California Constitution of 1849).  Protection includes health care, social security, safe food, environmental protection, safe streets, job protection, etc.
Our economy needs roads, bridges, telephone lines, communications systems, energy and quality education.  These services make freedom and prosperity possible. Conservative opposition to these services ignore the economies need for infrastructure.
Specific revenue sources :
            Enforce the current California law taxing the sales of goods by out of state companies ( such as Amazon)  over the internet.  Gain. 1.2 billion $.
            Pass an oil extraction tax.  Require that the oil companies pay taxes when they take our oil out of the ground and then refine it and sell it back to us.  Gain.10 Billions.  Pass the 10.1 billion dollar jobs package as proposed in the Assembly last year.  This would pay off debts to local governments and keep teachers in classrooms to avoid massive layoffs. Pay for the Jobs package with a new oil severance tax.    Imposition of an oil severance tax. California is the only oil producing state in the country that imposes no taxes on the pumping of oil. The proposed tax was to be 6% of the sales price of oil.  Alaska and Louisiana both charge 12.5%.     
            Establish a  public state bank such as the Bank of North Dakota. Initially move 25% of all state revenue, receipts and reserves into this bank and 25% of all PERS and STRS funds. Manage the bank as a public service. Over time, finance state borrowing from our own bank.   Gain.  6% of the budget.
            Continue efforts to eliminate waste, fraud and abusive where it exists.  There may be legitimate savings here.  For example not paying $13.2 billion for a Bay Bridge that originally was to cost under $6 billion.  There are some abuses in pensions revealed for high ranking police, fire and public safety officials and for some U.C. administrators. 
            Repeal the 2009 and 2008 tax cuts for corporations passed to gain the extra Republican votes for the budget.  Savings $1 billion.
            As a consequence of the just passed federal tax reductions, including the reduction of taxes to the wealthiest taxpayers,  Washington-based Citizens for Tax Justice estimate that  California’s richest taxpayers will be saving about $14 billion annually on their federal taxes. The next wealthiest 4 percent, with an average income of $310,000, will save another $6.5 billion.  State taxes should be increased on these two groups to secure this available 20.6 Billion dollars to fund the necessary jobs creation projects.  
            Sell state bonds to gain funds for investment. At present we pay bond holders a market rate.  Rates are so low at present we should borrow and invest.  To achieve a Keynesian stimulus we could sell many more bonds in particular to  the public employees retirement system PERS  and STRS.   Once started ( stimulated) debt financed building will stimulate more building bringing private  debt financing into productive investments.
            Many more sources of revenue need to be developed.  We have been thinking too small and looking in the wrong directions.  Please make suggestions.
            Unfortunately we would be unable to tap  a major source of potential revenue because it is tied to the national economy.  There should be a significant tax on the sale of stocks, bonds, and financial instruments.  The sources of this tax are in New York and can be easily moved around the globe.  Some planning is necessary to develop this source.  Potential Gain.  $30 billion per year.
            Since the state can not go into debt it will need to use tax policy to raise the funds necessary for public investments.  The state has also been targeting particular industries, notably the film industry with tax subsidies and local governments have been providing tax subsidies in the form of enterprise zones.  Along with needed  tax reform, these forms of subsidies (debt) should be reformed to focus on economic growth.   
 A state can not print money, but it can sell bonds to fund development. California currently sells bonds.  We could develop bonds for more  growth oriented public investment.  At present we pay bond holders a market rate. To achieve a Keynesian stimulus we could sell many more bonds in particular to  the public employees retirement system PERS  and STRS.  These are among the largest investment funds in the nation. Their investment strategies should be re designed to promote in state economic growth.  After all, the money in PERS and STRS is California money.  And, the best way to keep these funds financially solvent is to improve the California economy.  So, directing investment in a manner to promote growth would provide significant capital for public projects.  We could sell bonds to PERS and STRS at a better rate than they are presently getting.  Further, by working with PERS and STRS we could develop a system where they serve as a marketing director to sell state bonds to their members.  There are many people interested in investing in public bonds.
 After a 2-4 year transition period, a similar pool of available funds would develop in the new California Public Bank.
We can follow the process of Ireland and Greece and dramatically cut services and raise taxes and impoverish the economy.  Then, since the nation is poorer and has less income you will need to raise more taxes and cut more services all in an effort to protect the excessive profits of bankers and bond holders.
California can continue the current process of cuts and reductions.  The fiscal crises of the states – all the states- has caused major cut backs and retrenchment and made the economic crisis approach a depression.  The state cut backs are greater than the federal stimulus producing a prolonging of the crisis for working people.  Continuing on the present direction produces obscene profits for billionaires along with growing poverty and hardships for the majority.

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Teed Rockwell said...

A New Progressive Strategy for California

The Republicans have made the “No New Taxes” mantra an article of faith, and they can supposedly impose their will on the Democratic majority because of the 2/3 rule for revenue increases. There is, however, a secret weapon that is now available to the majority, if they decide to use it. The last election has now made it possible for a simple majority to pass a budget, even though two thirds are still required to approve revenue increases. In other words, the taxophobic minority can decide how big the pie is, but now the majority gets to decide how the pie is divided. This mean the majority can say to the minority “You don’t want to pay for Government? Then no government for you”. In other words, not a dime from Sacramento goes to any district whose representative refuses to vote for revenue increases. No public funded building projects, no libraries, no convention centers. Jerry Brown has plans which will increase his power to use Sacramento money as carrots. He wants to transfer more responsibilities to the states, and then send revenue to the individual cities and counties to perform what were formerly state government duties. There is however, an opportunity for using sticks as well as carrots. Transfer the responsibilities to every county and/or city, but only send money to areas whose representatives are willing to vote for revenue increases. Let the Republican districts pay for these responsibilities with local tax increases, or do without.

There are two possible outcomes that can arise from this action.

1) The Republican Districts stoically tighten their belts and deteriorate into little western approximations of Somalia, with little or no functioning government. I don’t think this is very likely, but even if this happens the rest of us will still be able to use the extra revenue to keep our parks and schools open.

2) The people in those districts will protest that they are being unfairly treated, and demand their services back. The rest of us then say “Write to your representative and state senator and tell him or her to vote for revenue increases. If they refuse, replace them next term with someone who will take a realistic approach to revenue issues. Until you do this, the fairest place to make government service cuts is to those who think that government is unnecessary.”

I can regretfully understand why President Obama has been forced to compromise with the new Republican majority in congress. Governor Brown, however, is under no such pressure. California withstood the nation-wide Republican onslaught by electing no Republicans to statewide office, and electing fewer Republicans to the statehouse. It is absurd and unjust that a minority perspective that has been decisively defeated at the polls should continue to maintain a stranglehold because of the two-thirds rule. In a recent poll, California voters were asked if we should “increase state funding for California’s community colleges and public universities.” 82% said yes! (1) To call this approval “overwhelming” is an understatement. Those extremists who have repeatedly cut state funding for public colleges are clearly out of sync with the rest of the public. They have forced their will on us for decades because of the old budget rules. Now that the majority controls the budget, we can take back the power of self-government. They have never compromised with us, and now there is no need to compromise with them. It is time to play hardball.


John N said...

Teed, The biggest problem that has not been addressed by you is the unabated spending by the legislature. I don't mind paying more taxes but not without a plan to spend our tax dollars wisely. Without some sort of restraint on spending the people should not lay out one more dime. You seem to have all these backdoor schemes to punish republicans who don't go along with your tax and spend antics. To save even more money we should adopt a part time legislature and quit paying for people on the payroll that aren't producing.

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