Tuesday, December 6, 2011

Examining Governor Jerry Brown's Proposed Tax Increases

(Updated 27-MAR-2012)

NOTE:  This analysis is for Governor Brown's initial tax hike proposal.  Due to political infighting with the California Federation of Teachers (CFT), Governor Brown has modified his proposal to be more like the CFT's so-called "Millionaires Tax."  Essentially, the new plan has a smaller increase on sales tax revenues, has significant additional income tax increases on upper-income taxpayers, and extends the "temporary" increase to seven years.  A new analysis is in the works but all of the arguments against the increase still hold true. 

It looks like California Governor Jerry Brown is out with his proposed "fix" for California's budget shortfall.  Turning to his exhaustive play book of--how shall I say this politely?--one play, the Governor proposes tax hikes.  And this is from a Governor who sold the electorate on his vast political experience.

First, some background information.  California already has the nation's second-highest marginal tax rate of 10.3%, second only to Hawaii, at 11%.  Even California's 2nd top income tax rate is the nation's 4th highest, after Hawaii, California's top bracket, and Oregon.  California's 2nd top bracket starts at $48,000 in income for single taxpayers.


To fix the multi-billion dollar shortfall, Governor Brown proposes creating new state tax brackets and to increase taxes on those brackets by up to 21.5%.  The Governor's proposal would add the following new brackets.  The dollar brackets shown are for single tax filers; brackets for married filing jointly are doubled.
  • Tax rates for those making less than $250,000 remain the same.  California would keep it's current 9.3% rate for those making more than $47,000.
  • Income between $250,000 and $300,000 are taxed at 10.3%, which is the same rate currently charged for those making more than $1,000,000.
  • Income between $300,000 and $500,000 are taxed at 10.8%.
  • Income between $500,000 and $1,000,000 are taxed at 11.3%, which exceeds the highest marginal tax rate from any other state in the nation.
  • Thanks to California's Proposition 63, those earning more than $1,000,000 are charged an extra 1% to fund mental health services--proving I guess that you must be INSANE to be a millionaire and have your tax residence in California.
  • Unlike the federal government and many of its economic competitors, California treats capital gains exactly like ordinary income and taxes capital gains at the maximum applicable tax rate.  This means that California's budget greatly depends on stock market and real-estate returns on upper-income taxpayers.  The result is a watershed of revenue in good times and a drought during downturns.

The following chart helps to better compare the increased tax rates against those of other states.  (NOTE:  Oregon dropped their top rate from 11% to 9.9%)


The Governor purposely did not increase tax rates on lower incomes, perhaps in a nod to tax fairness.  After all, those making more than $300,000 only currently pay more than eight times more total tax and have an eight times higher average effective tax rate than the vast majority of other Californians.  The only thing lacking from the 1.9% of taxpayers is the votes at the ballot box to prevent more exploitation by the majority.


Those in upper brackets not only pay a higher effective tax rate, they also obvious pay far more in absolute dollars.  Those fortunate 42,517 taxpayers with incomes of $1 million or more paid an average of $304,553 in California income taxes with an effective tax rate of 8.97%.



In all fairness, all taxpayers, especially those at the lower-end of the income spectrum, will be hit by Governor Brown's proposed sales tax increase.  California ALREADY has the nation's highest sales tax rate.  Governor Brown will enshrine our first place finish by adding another 0.5% on top, not including the additional taxes charged by various California counties and cities.  This amounts to a 6% increase over current tax law.

Governor Brown's tax increase proposal will likely be popular with the two biggest spenders in California politics, the California Teachers Association (CTA) and the California State Council of Service Employees (SEIU).  Both are significant donors to the Governor's political party.  Furthermore, even fellow Democrats acknowledge that Governor Brown must kowtow to the teacher's union.


The bulk of any tax revenues is earmarked for education, which is already one of the biggest recipients of taxpayer dollars.

The big questions remain.  How will these proposed tax increases affect California's already damaged business climate--you know, the source for all that tax revenue.  California currently ranks at or near the bottom of various surveys, from multiple independent sources, for multiple years.




California's poor business climate and high taxation resulted in a net migration out of California.  According to the L.A. Times, the percentage of people from other U.S. states is the lowest it has been in a hundred years!  Because California's tax revenues are so dependent on very few, high-income taxpayers, small changes in taxpayer population can have dramatic effects on tax revenues.  Over 50% of income taxes come from less than 2% of the population.


Political columnist Dan Walters has a great summary message for those that oppose the tax increases.
Why should we pay more ...
  • when we already have one of the nation's highest tax burdens,
  • when the Legislature is handing out raises to its staff,
  • when politicians haven't curbed rapidly increasing pension costs,
  • when they're wasting billions on prisons, 
  • when they've shunned a spending limit,
  • when they've squandered money on a hapless bullet train project and unworkable computer systems, 
  • when they're spending tens of millions on illegal immigrants' college educations, and 
  • most importantly – when the state is mired in recession and 2 million-plus are jobless?
Well said, Mr. Walters!

Who's bankrolling the initiative?


Brown, Teachers, Business And Public Safety, Californians To Protect Schools, Universities And Public Safety, A Ballot Measure Committee Supported by Governor Jerry
www.electiontrack.com/lookup.php?committee=1343257

(as of 13-FEB-2012)



See also ...




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Wednesday, November 9, 2011

Who is ReFund California?


A new group called the ReFund California Coalition is actively organizing on California's university campuses as part of the Occupy Wall Street movement.

They're asking the University of California Regents, California State University Trustees and other political and corporate leaders to sign the Refund California Pledge.


The problem is NOT that California's taxes are too low.  The problem is that California has a structural deficit that cannot be solved by raising taxes on a small percentage of taxpayers.

Never mind that California ALREADY has the nation's second highest marginal tax rate.

Never mind that the top wage earners ALREADY pay significantly higher effective income tax rates than the majority of other Californians. Never mind that California ALREADY treats capital gains just like ordinary income (part of the so-called "Buffett Test").


Never mind that the vast majority of California's income tax revenues (94%) comes from just 33% of taxpayers while the other 67% contribute just 6%.

Never mind that most of California's General Fund also comes from just 33% of taxpayers while the other 67% of taxpayers contributes just 3%.  If unions understand one thing, it's the power of mobs.

Never mind that, for all of the class warfare rhetoric about "The 99%" and "The 1%", the top 1% of California taxpayers pays 42% of all income taxes, at over three times the average tax rate, but have less than 1% of the voting power.


Never mind that "The 1%" by themselves contribute 24% of California's entire General Fund.


Never mind that, despite all the budget cuts due to our smaller economy, education still receives the lion's share of revenue, as it should.

Their motives are probably clearer if you see the group's URL, www.makebankspaycalifornia.com, and some of the site images.


If the ReFund California wants to fight corruption in the U.S. financial system and its too cozy relationship with cronies in national and state government, then I'm with you.  However, many of Refund California's strategies are seemingly misguided and counterproductive.  City squares in Oakland, Sacramento, Los Angeles, and San Francisco are a LONG WAY from the seat of real power and corruption in Washington, D.C.  Likewise California's campuses.

Who are the ReFund California Coalition?  According the group's web site, ReFund California consists of the following organizations, many listed only by acronyms.


Let's explore these organizations and see who they are.

AFT 1521
  • AFT 1521 is the American Federation of Teachers, Los Angeles College Faculty Guild.
  • The American Federation of Teachers has been pushing to increase the top marginal income tax rate for California's top income earners, despite that California already has one of the most income-progressive tax systems in the nation.  A whopping 94% of California's income taxes are paid by just a 33% minority of taxpayers. See also, "American Federation of Teachers: Part of the Solution or Part of the Problem?".
  • Nationally, the American Federation of Teachers is the #11 top political spender with 91% of their member's funds going to one political party.
Alliance of Californians for Community Empowerment (ACCE)
  • The group was previously part of ACORN, but changed its name (see this and this) after the scandal-plagued national organization lost access to federal funding.
  • SEIU and ACORN have had a long financial relationship.
  • ACORN has had a long history working against banks.  Ironically, many partially blame ACORN's supposedly well-intentioned push for subprime loans to unqualified, low-income borrows as one of the many driving forces behind the subprime mortgage crisis.
California Calls

Includes ...
California Partnership

Includes ...
  • California Immigrant Policy Center
  • Coalition for Humane Immigrant Rights in Los Angeles
  • Libreria de Pueblo
  • LIFETIME
  • Parent Voices
  • PUEBLO
  • SEIU 721 (see below)
  • Service, Immigrant Rights & Education Network (SIREN)

Clean Carwash Campaign

California Nurses Association



Oakland Education Association


    POWER
    • People Organized to Win Employment Rights (POWER)

    San Diego and Imperial Counties Labor Council
    • An affiliate of the AFL-CIO


    SEIU 1021
    • Service Employees International Union, Local 1021 

    SEIU 721
    • Service Employees International Union, Local 721 representing Southern California Public Service Workers

    SEIU ULTCW
    • Service Employees International Union, representing United Long-Term Care Workers

    SEIU USWW
    • Service Employees International Union, Local 1877, representing United Service Wokers West
    UAW 2865
    • United Auto Workers, Local 2865
    • Representing academic student employees at the University of California
    • Few realize that the United Auto Workers also represents student employees--it's not just for auto workers anymore.
    • For a group against government bailout of the banks, it is ironic that the UAW is protesting.  The UAW was one of the bigger beneficiaries of the federal government's multi-billion dollar bailout of General Motors in 2009.
    • In the 2008 Presidential election, the students, faculty, and staff of the University of California were the single largest block of donors to Barack Obama.
    • Nationally, the UAW is #17 on the top political spenders list.
    UAW 4121
    • United Auto Workers, Local 4121
    • Representing academic student employees at the University of Washington
    United Students Against Sweatshops (USAS)

    The New Bottom Line

    Includes ...
    • National People's Action (NPA)
    • People Improving Communities through Organizing (PICO National Network)
    • Alliance for a Just Society (AJS)
    • Right to the City Alliance
    • Main Street Alliance
    • Alliance of Californians for Community Empowerment (ACCE)
    • Oregon Action
    • Washington Community Action Network (Washington CAN) 
    • Contra Costa Interfaith Supporting Community Organization (CCISCO) 
    • People Acting in Community Together San Jose (PACT SJ) 
    • Inland Congregations United for Change Inland Empire (ICUC) 
    • Oakland Community Organizations (OCO) 
    • L.A. Voice 
    • People Improving Communities through Organizing California 
    • Faith in Community (FIC - Fresno)
    • Faith Action for Community Equity (FACE Hawaii)
    • Progressive Leadership Alliance of Nevada (PLANevada) 
    • Colorado Progressive Coalition 
    • Communities Creating Opportunity Missouri (CCO) 
    • Harriet Tubman Center/ Michigan Organizing Collaborative Detroit 
    • Lakeview Action Coalition Chicago 
    • Grassroots Organizing Missouri (GROMO) 
    • Illinois People's Action 
    • Iowa Citizens for Community Improvement (Iowa CCI)
    • Working in Neighborhoods Cincinnati (WINCincy)
    • Communities United for Actions Cincinnati (CUFACincy)
    • Take Action Minnesota 
    • Federation of Congregations United to Serve Orlando (FOCUS) 
    • Industrial Areas Foundation Southeast 
    • Virginia Organizing 
    • Voices Of Community Advocates & Leaders (VOCAL - NY)
    • Brockton Interfaith Community (BIC - MA) 
    • Brooklyn Congregations United (BCU) 
    • Maine People's Alliance
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    Thursday, October 20, 2011

    Elizabeth Warren and a Very Strange Bedfellow


    Everyone knows that Elizabeth Warren is a champion of financial reform, right?  She's got a good reputation, which is one of the reasons that she's running for U.S. Senate in Massachusetts.  She's the darling of Occupy Wall Street people looking for real reform of the American political system, supposedly free from the corrupting influence of big-money politics.

    They say that politics makes for strange bedfellows.  Need a blatant example?  He's an invitation for a fundraiser for Elizabeth Warren's campaign.  See anything unusual?  Let's just focus on one name.
    Why would ANYBODY pretending to be a champion for middle-class, against the supposed oppression and corruption of the super-rich, associate themselves with George Soros?

    George Soros is a speculator and hedge-fund manager who currently ranks at number 7 on the Forbes list of richest Americans.  While the fortunes of most Americans plummeted  during the financial crisis, his increased.


    George Soros is also the #4 top funder of shadowy 527 committees.


    George Soros is also one of the founding members of the so-called "Shadow Party" within the Democratic Party.

    Soros is a New York resident.  Ms. Warren is running for office in Massachusetts.  George Soros is active in the politics of other states, including here in California.  He and other well-connected, big-money Democrats funded Proposition 27, designed to eliminate citizen-based reforms of California's redistricting process.

    In my opinion, Proposition 27 was a very anti-democratic piece of legislation (which was supported, naturally, by various Progressive politicians and labor unions).



    Be careful, people.  You can tell a lot about someone by the people with whom they associate.
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    Tuesday, October 18, 2011

    American Federation of Teachers: Part of the Solution or Part of the Problem?


    According to a recent article in the San Jose Mercury News, the American Federation of Teachers (AFT) is pursuing  a possible ballot initiative to raise taxes YET AGAIN on California's millionaires. I certainly wish that the members of the American Federation of Teachers (AFT) would actually apply their math, economics, history, and critical reasoning skills. AFT is right. We do have a problem, but the problem is NOT that California's taxes are too low for upper-income earners.


    First, a caveat: I am not now, nor have I ever been a "millionaire."  However, in 2007, 2008, and 2010, I spent more on federal, state, and payroll taxes than all my other family living expenses COMBINED!

    California ALREADY has the second highest marginal tax rate (10.3%) in the nation. Only Hawaii has higher marginal rates (11%).  California's 2nd highest tax rate of 9.3% is the fourth highest in the nation behind Hawaii, California's top tax rate, and Oregon.  California's 2nd highest tax bracket starts at 48,000 in income.
    http://www.taxfoundation.org/taxdata/show/228.html

    California's millionaires ALREADY pay a surtax supposedly to fund mental health services proving, I guess, that you must be crazy to be a millionaire and officially live in California.

    California ALREADY implements President Obama's so-called "Buffett Test."  Capital gains in California are ALREADY taxed EXACTLY like ordinary income.

    California's wealthy ALREADY pay the bulk of the state's income taxes.  The top 2% pay roughly HALF OF ALL PERSONAL INCOME TAXES (PIT).
    http://soquelbythecreek.blogspot.com/2009/07/oppressive-progressive-income-tax.html


    The top 33% minority ALREADY pays 94% of the entire Personal Income Tax load.  Meanwhile, the bottom two-thirds supermajority contributes JUST 6%. But who has more voting power to raise taxes on the minority?

    Similarly, the 33% minority contributes more than half of California's General Fund revenue.


    California's upper-income taxpayers ALREADY pay a much higher effective tax rate than do the majority of Californians.  I ask you, looking at the chart in the article below, who isn't paying their fair share?
    http://soquelbythecreek.blogspot.com/2011/10/who-pays-their-fair-share-in-california.html


    Even though a majority of Californians pay a lower state income tax rate than do a small minority, California's overall state tax burden is ALREADY one of the highest in the nation.


    California's high taxes ALREADY places the state at or near the bottom on a variety of business climate surveys.  On one survey of 500 CEOs from around the country, California has ranked DEAD LAST as a place to do business since at least 2005!  In another survey, 70.5% of respondents ranked California as the least favorable business climate in the U.S.!
    http://chiefexecutive.net/best-worst-states-for-business
    http://www.taxfoundation.org/research/topic/15.html
    http://www.aboutdci.com/wp-content/themes/dci/docs/Winning-Strategies-2011.pdf (See Appendix C).


    Is it any surprise then that California also has the nation's second-worst unemployment rate?
    http://www.bls.gov/web/laus/laumstrk.htm

    Of course, as part of the AFL-CIO, the American Federation of Teachers (AFT) enjoys tremendous clout both in Sacramento and Washington, as does its cousin organization, the California Teachers Association (CTA).  The California Teachers Association (CTA) is the #1 top spender in California politics according to the California Fair Political Practices Commission (FPPC).  CTA outspends the #2 top spender, SEIU, by almost double!
    http://soquelbythecreek.blogspot.com/2011/02/do-public-employee-unions-have-major.html
    http://www.fppc.ca.gov/reports/Report31110.pdf


    AFT is #11 on the list of top all-time national political donors, giving 91% of their member's state-mandated contributions to Democrats, 0% to Republicans. Hmmm.
    http://www.opensecrets.org/orgs/list.php?order=A


    California's politicians kowtow to the unions.  Even fellow career Democrats like former Assembly Speaker Willie Brown recognize this.  As he stated in his article, "Jerry Brown won't challenge teachers union," ...
    http://articles.sfgate.com/2011-02-27/bay-area/28635640_1_teachers-union-pensions-union-leaders
    "No one knows the power of such unions in California better than Gov. Jerry Brown.
    "You'll notice that even as he's proposed draconian cuts to health and welfare programs and the state's universities, and asked taxpayers to pony up extra for several more years, BROWN HAS BEEN CAREFUL NOT TO TOUCH TEACHERS.
    "HE KNOWS GOOD AND WELL WHAT THE CALIFORNIA TEACHERS ASSOCIATION CAN DO FOR HIM - OR AGAINST HIM - IN AN ELECTION."
    Here's the ironic part of the story.

    • BOTH the American Federation of Teachers (AFT) and the California Teachers Association (CTA) are tax-exempt 501(c)(5) organizations, according to Form 990 disclosures on file with the U.S. Government and with Guidestar.org.
    • BOTH the American Federation of Teachers (AFT) and the California Teachers Association (CTA) derive the majority of their revenues from state-mandated union dues, paid by hard-working public school teachers.
    • This begs the next obvious question:  Who pays teachers' salaries?  Naturally, these come from the taxpayer.

    Instead of using their political clout on REAL solutions, the American Federation of Teachers (AFT) is wasting their member's dues and our time on yet more non-solutions.  AFT, how about using your political clout on tax reform, spending reform, or pension reform?  For too long, organizations like AFT have blocked prudent reforms in California and in Washington.  Consequently, there are likely massive spending cuts coming as part of the Super Committee process, which likely means jobs cuts for AFT members and other public employees.  AFT, if you refuse to be part of the solution, then by definition, you become part of the problem.
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    Tuesday, October 4, 2011

    Who Pays Their "Fair Share" in California?

    See also "California Proposition 30: Jerry Brown's Big Government Tax Hike" that gave Californians the nation's highest state sales tax rate and the nation's 1st-, 2nd-, 3rd-, 5th-, and 7th-highest marginal state income tax rates.

    President Obama is fond of saying that "millionaires and billionaires" are not paying their "fair share" of taxes.  Of course, the President never explicitly defines what someone's "fair share" should be.

    Here is a chart showing the average effective tax rate for California taxpayers, paying the state's highly income-progressive Personal Income Tax (PIT).  The effective rate is the tax paid divided by the Adjusted Gross Income (AGI).  The effective tax rate for the supermajority (66.67%) of Californian taxpayer's was between 0% and 1.5% in 2008--the latest tax data available. Meanwhile, the superminority (33.33%) paid between 1.5% and 8.97%.  Why is this important?  California requires a two-thirds majority to pass a tax increase.  Effectively, the supermajority of Californian's impose excess taxes on the one-third majority.




    Revenues from Personal Income Tax (PIT) contributed over half (58%) of the state's General Fund (see Figure SUM-04), ...



    ... which pays for the majority of California's governmental services, including K-12 and secondary education, corrections, health and human services, etc. (see Figure SUM-05).


    The General Fund also pays off California's General Obligation Bonds. In 2011-12, about 5.57% of the General Fund is allocated to paying off California's debt-financed projects.  An October 2011 report from the California Treasurer indicates that debt service is over 7% and will spike at over 9%, even without new borrowing.

    The 33.33% superminority pays roughly 94% of all California Personal Income Taxes (PIT), effectively contributing over half of the entire General Fund. The 66.67% supermajority contributes just the remaining 6% of PIT, and roughly 3% of the General Fund.  Those with an Adjusted Gross Income (AGI) of $50,000 or less were in the bottom 66.67% in 2008.



    At the ballot box, however, every taxpayer has the equivalent voice.  Consequently, the supermajority decides the projects and programs for which the superminority shall pay and how much the superminority will be charged for the privilege. 

    The Occupy Wall Street movement employs divisive "us-versus-them" class-warfare rhetoric when it talks of "The 99%" and "The 1%."  Maybe the "The 1%" in California aren't pulling their weight.  Let's look at the data.  Despite being only 1% of the taxpaying population, "The 1%" paid 42% of all California Personal Income Tax (PIT) in 2008--the latest data available.  On average, the tax rate paid by "The 1%"  was over three times higher than the average rate paid by "The 99%."  At the ballot box, "The 1%" represents about 0.86% of all registered voters.  Want to understand why there is so much money distorting our political process?  It's because one set of voters decides how to spend the money raised by a minority of wealthy voters, who cannot prevail at the ballot box.


    Again, 58% of California's General Fund revenues comes from Personal Income Tax (PIT) revenues.  Consequently, due to California's highly income-progressive tax system, "The 1%" pays 24% of the entire General Fund while the remaining 99% pay 34%.

    It should be noted that California ALREADY implements President Obama's "Buffett Test."
    • California ALREADY imposes significantly higher marginal tax rates on upper-income taxpayers.  Consequently, California has one of the most income-progressive tax systems in the United States.
    • California taxes capital gains exactly like it does ordinary income.  There is NO capital gains tax preference in California.
    If the "Buffett Test" really provided a solution, then California wouldn't have significant budget shortfalls.

    Also, in honor of Governor Brown's tax increase proposal, the following chart cuts the day by those making over $300,000 (the target of most of the increases) and the 2/3rds majority of taxpayers, required to pass a tax increase (and who happen to earn $60,000 or less).


    See also ...
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