Response to Gov Brown's State of the State

 SACRAMENTO PROGRESSIVE ALLIANCE

Dear Governor Brown,                                                Jan. 31, 2011

In your State of the State Address tonight you requested ideas on where revenues might come from to avoid the painful budget cuts proposed.   Here are our recommendations.

It is clear that the California budget is in crisis, and the issues are clear  in Governor Brown’s budget proposals.  There are no quick nor easy solutions. 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’  speeches.  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  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 47^th 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 state  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 economy’s  need for infrastructure.

Specific proposals  to increase revenue:

·      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 $. There is already legislation to do this.

·      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.  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 abuse where it exists.  There may be legitimate savings here.  Employees, particularly managers should not be able  to inflate pay in the year or two before retirement in order to receive an outsized pension benefit. While these cases  are not the major source of financial stress of pension systems, abuses are frequently publicized and undermine confidence in the administration and fairness of public employee pensions.

·      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   stimulus we could sell many more bonds in particular to  the public employees retirement system PERS  and STRS.  

·      Many more sources of revenue need to be developed.  We have been thinking too small and looking in the wrong directions           

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.    Tax suggestions were in the prior section.

 The legislature could also place on the ballot a “split roll” property tax initiative to deal with the present inequities of taxation. 
 In virtually every county, commercial property is paying a far smaller share of the property tax since Proposition 13 passed in 1978.


Commercial property is able to exploit huge loopholes in the law to avoid reassessment upon change in ownership.

Alternative;

             We can follow the process of Ireland and Greece and dramatically cut services and raise taxes and impoverish the economy.  Then, since the state  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.

In Conclusion:

    Providing  you with these sources reveals that “another way is possible.”  We refuse to accept the severe cuts in social services, education, police and fire protection, and health care among others. Relying upon budget cuts to “balance” the budget means leaving in place the many current corporate subsidies for the well off while producing more unemployment and hardship for the majority.

   Please use your leadership position to produce a humane budget this year.  Then, if you do, we can work together to pass the proposed revenue initiatives in the June election.

Duane Campbell,

For the Sacramento Progressive Alliance. 

A committee of Progressive Democrats of America

2827 Catania Way, Sacramento, Ca. 95826

Sources

Gar Alperovitz, America Beyond Capitalism: Reclaiming Our Wealth, Our Liberty, and Our Democracy.  (2005) John Wiley and Sons

Dean Baker,  Plunder and Blunder: The Rise and Fall of the Bubble Economy, (2009)

Campbell, Duane.  Choosing Democracy: a practical guide to multicultural education. (2010)

Justin Fox,  The Myth of the Rational Market: a History of Risk, Reward, and Delusion on Wall Street. (2009)

Jeff Faux, The Global Class War: How America’s Bipartisan Elite Lost Our Future- and What It Will Take to Win It Back. ( 2006)

William Grieder,  The Soul of Capitalism: Opening Paths to a Moral Economy. (2003).

David Harvey, The Enigma of Capital and the Crisis of Capitalism.  (2010)

Paul Krugman,  The Return of Depression Economics and the Crisis of 2008.  (2009)

Nomi Prins.  It Takes a Pillage: Behind the Bailouts, Bonuses and Backroom Deals from Washington to  Wall Street. (2009)

Joe Schwartz,  The Future of Democratic Equality; Rebuilding Social Solidarity in a Fragmented United States. (2008)

Joseph E. Stiglitz.  Free Fall, America, Free markets, and the Shrinking World Economy.  (2010

Sacramento Bee misses the story

The Sacramento Bee on Saturday features an article by Dale Kasler on page 1 entititled “State’s economic levers limited.”  This piece and others promote a piece that is fundamentally wrong.  It is simply not accurate that the state can not respond to the economic crisis.  Here is a start.  I will return to the issue of why the press persistently gets this issue wrong.

It is clear that the California budget is in crisis,  but the argument that there is little that can be done is simply wrong. We can not simply cut our way out of the crisis, budget cuts and lay offs make the recession worse.California will need to raise taxes to fund the schools and to repair the social safety net.

Specific policy proposals:

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. 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.

            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. 

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 47^th among all states in its per-pupil spending, spending $2,856 less per pupil than the national average.

  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.

Well. If these things are available, why do the “experts” interviewed for news stories not consider them ?

Here are a couple of major economists explaining the problem;

Robert Samuelson in the Washington Post,  “Here we have the most spectacular and financial crisis in decades… and the one group that spends most of its waking hours analyzing the economy basically missed it…. The nation’s economists , “ seemed singularly disinclined to engage in ‘rigorous self-criticism to explain their lapses’.  Or, Nobel Prize winning economist Paul Krugman, “The economics profession went astray because economists, as a group, mistook beauty, clad in impressive looking mathematics, for truth.”

Or,  geographer David Harvey, author of The Enigma of Capital and the Crisis of Capitalism, 2010, in a speech to the World Social Forum, in 2010.

The current populations of academicians, intellectuals and experts in the social sciences and humanities are by and large ill-equipped to undertake the collective task of revolutionizing our knowledge structures. They have, in fact, been deeply implicated in the construction of the new systems of neoliberal governmentality that evade questions of legitimacy and democracy and foster a technocratic authoritarian politics.  Few seem predisposed to engage in self-critical reflection.  Universities continue to promote the same useless courses on neo classical economic or rational choice political theory as if nothing has happened and the vaunted business schools simply add a course or two on business ethics or how to make money out of other people’s bankruptcies. After all, the crisis arose out of human greed and there is nothing that can be done about that!

New Governor- same old budget crisis

New Governor; same old speeches.

Well, we have a new governor. His  inaugural speech did not say much.  Yes, there will be draconian budget cuts.  At least half of the current budget crisis was caused by the national economic crisis.  This crisis was created by finance capital and banking, mostly on Wall Street ,ie. Chase Banks, Bank of America,  Washington Mutual, AIG, and others.   Finance capital produced a $ 2 trillion bailout of the financial industry, the doubling of America’s unemployment rate and the loss of 2 million manufacturing jobs in 2008.  Millions are out of work.  You and I, and college students did not create this crisis.  Finance capital stole the future of many young people.

Budget cutting to balance the budget will not get us out of this hole.  Look at Ireland, Greece, or Spain.  Budget cuts only start a downward spiral of pain. 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.

Since Governor Brown did not say much concrete, we will need to wait for the budget next week to see where are the conflicts.
Peter Schrag points out one alternate route.

By Peter Schrag
 


According the best numbers available, the Obama-GOP tax deal that Congress approved earlier this month will save the wealthiest 148,000 Californians – those in the top one percent in income, who make an average of $1,775,000 a year – an average of $95,000 each.

The numbers come from new data compiled by the liberal Washington-based Citizens for Tax Justice and the 2008 tax statistics of the California Franchise Tax Board, the most recent available. Combined, they show that California’s richest taxpayers will be saving about $14 billion annually.

The next wealthiest 4 percent, with an average income of $310,000, will save another $6.5 billion. All told, about 740,000 California taxpayers fall into those two rarefied regions.

Together, that amounts to some 75 percent of California’s projected budget deficit for this year and next.  As Sacramento scrabbles to get out of its budget deficits, those are numbers worth considering.

 Even half from the richest among us-- $10 billion – would make a big difference. 

In every recession there are loud claims that California’s taxes are killing business and driving jobs out of state. We had one just the other from the California Republican Party. No doubt that even an attempt by the legislature and governor to go after a fraction of the Obama-GOP windfall will lead to yet another set of warnings from groups like the Business Roundtable and the Howard Jarvis Taxpayers Association about an impending stampede to Arizona, Texas and Nevada.

But the more likely damper on economic development and the creation of new jobs would be still further declines in state support for education, higher and lower, still further erosion in police and fire protection, still more under-maintained roads and bridges, already rated among the worst in the country, still greater deterioration in the state’s parks and recreational facilities. .

So now the first, obvious, question is, do we want to compete with the low tax, cheap labor states? Whether by intent or sheer ignorance, that’s clearly where we’ve been headed in the last decade or so. If there have been any big winners in those years, it’s been those in the highest four or five percent of the nation’s income groups.

The extension of the Bush tax cuts – theoretically only for a couple of years, but very likely for much longer -- will make it even more difficult for the federal government to help the states, many of which are suffering  fiscal problems as great as California’s, and in a few cases greater.

There is no way that California can dig its way out of its deficit,  and the predicted deficits yet to come, without more revenue -- not without further truncating the school year and cutting yet more programs and courses, not without further cuts in university classes and higher tuition, not without still further damaging California’s economy and quality of life .

All that so that the richest among us can keep their big tax-cut windfall? All that in our mindless worship of the bitch-goddess “no new taxes”?