California’s 1% Goes On The Offensive

We've Saved the Schools! (Image from Flickr, Mike Licht, NotionsCapital.com)

Three of California’s billionaires have committed over $20 million of their own money to launch and win a ballot initiative that would help close California’s perennial budget hole, according to the Los Angeles Times. However, their plan would only increase tax revenue by $10 billion, not even enough to close next year’s budget gap, which is already projected to exceed $13 billion. It will do nothing to restore the $21 billion that has been slashed from K-12 education over the past three years, or the billions cut from higher education and services for the poor, elderly and disabled. But worst of all, it relies on regressive sales tax hikes and a restructuring of the income tax code that leave the 1% unscathed, placing the burden of closing the budget gap on the rest of us.

The Think Long Committee is headed by investor Nicolas Berggruen, philanthropist Eli Broad and Google Chairman Eric Schmidt. The group also includes former governors Gray Davis and Arnold Schwarzenegger, according to the Times.

On the surface, their plan seems like a well-intentioned attempt to help bolster California’s crumbling infrastructure. After all, it promises to increase K-12 funding by $5 billion per year plus add several billion more for higher education. In reality it is an attempt to take the wind out of the Occupy Wall Street movement, which has been criticizing the skyrocketing cost of higher education and the defunding of both K-12 and higher education. The Think Long millionaires and billionaires are hoping the promise of increased education funding will convince the protestors to go home and give up their desire to make “the rich pay.”

This is unlikely, as their plan calls for a regressive 2% sales tax hike that disproportionately impacts lower income peoples, and an income tax restructuring that places the burden of closing the budget gap on middle income people.

The new tax code would leave those making less than $45,000 without any income tax liability, while those in the $45,000-95,000 range would be taxed a modest 2%. However, there would only be one more bracket, $95,000 and above, which would be taxed at 7%. This means that lower middle class families would be taxed at the exact same rate as millionaires and billionaires. In reality, though, those making millions would be paying a much smaller percentage of their income in taxes, since they tend to have more deductions and exemptions and bring in the bulk of their wealth through capital gains, which would be unaffected by their plan.

The California Teachers Association plans to float a countermeasure that would increase taxes on the state’s wealthiest residents. However, even their plan doesn’t go far enough, aiming only to close the state’s existing deficit and doing little to repay schools for the huge cuts they’ve suffered over the past few years, let alone raise revenue to a level that might bring California back among the top five states in per pupil spending.

What the state needs is a revenue increase in the $50-100 billion range, something that it is fully capable of achieving if income taxes on the wealthiest residents are sufficiently increased, along with business taxes and capital gains taxes. If we go back to the pre-Reagan era, the highest tax bracket paid from 50-90% in federal income tax on all income above a certain threshold. There is no reason the state of California can’t do likewise, for example, raising tax rates on all income over $500,000 to 20% or even 50%.

If we consider just the state’s 80 billionaires, this could bring in more than $10 billion. However, if we include each of the state’s roughly 600,000 millionaires, such a tax ought to create a budget surplus.

Of course this is exactly the kind of scenario the Think Long group is trying to avoid with their preemptive strike.

Jerry Brown: No Friend of Teachers or Labor

Huck/Konopacki Labor Cartoons

Led by the California Teachers Association (CTA), labor pumped millions of dollars into Jerry Brown’s war chest, helping him to defeat billionaire Meg Whitman in the race for governor of California. They were not just fighting for “anyone but Meg.” They actually believed that Brown would do great things for public education and public sector unions.

One of the first things Brown did once elected was to appoint a CTA lobbyist to the state board of education, which was really more of a favor from one 1%-er to another, than a boon to teachers or students. He also cobbled together a budget deal that promised no more cuts to K-12 education. Educators and the CTA considered this a victory and a great favor from their “pro-education” governor, despite the fact that it did nothing to restore the $21 billion that had been cut from K-12 education over the previous 3 years and even though the budget slashed more than $1.5 billion from higher education. However, even this was nothing more than a bit of political hocus pocus, predicated as it was on overly optimistic revenue projections.

Brown’s chickens are coming home to roost. The revenue projections were so far off that the state is now looking at a new $13 billion deficit. According to the Washington Post, the state is facing $2 billion in automatic cuts on the first of the year, much of that coming from K-12 and higher education. There will be another $10 billion deficit for the fiscal year starting on July 1^st and again K-12 and higher education will likely take big hits.

The California State University (CSU) system will lose $100 million, news the prompted the CSU trustees quickly vote for another 9% fee increase. They did this behind closed doors, possibly in violation of state sunshine laws, to avoid disruptions by student protestors. Community college students will be forced to pay another $10 per unit, while K-12 districts will lose $1.1 billion, or $180 per child, according to the Thoughts on Public Ed website.

Bipartisan Assault on America—Close Deficit by Slashing Taxes?

Despite a record deficit so large that Standard and Poor is threatening to downgrade U.S. credit worthiness if Congress does not close it quickly, Congressional Democrats and Republicans are both supporting corporate tax cuts, from 35% to 25%, reports the Los Angeles Times. Supporters say the cuts are necessary to make U.S. companies more competitive with foreign companies, despite the fact that U.S. corporate profits reached their highest level in history last year even at the 35% rate.

According to the Times, the top tax rate for corporations has dropped from 52% in 1952, when they contributed one-third of all federal tax dollars, to 35% today, which is only 8.9% of the total federal tax base. As a result, the corporate tax of U.S. economic output has decreased from 6.1% in 1952 to 1.3% last year. After loopholes and deductions, most companies pay much less than the 35% rate.

Here are just few examples from the Times piece:

Hewlett-Packard had $11 billion in pre-tax earnings in 2010, but paid only $2.2 billion in income taxes, a rate of 20.2%.

Apple’s effective tax rate last year was 24%

Google’s effective rate was 21%

GE’s effective rate was 7.4%

Legislators are saying that they want to pay for the tax cuts by closing the loopholes, which might sound reasonable if there wasn’t already a multi-trillion dollar deficit. Closing the loopholes certainly makes sense if the goal is to close the deficit. However, the savings (if any) should go toward preserving (or bolstering) programs that benefit those most in need. If the increased revenues are insufficient to close the deficit, then the corporate, marginal income, capital gains and inheritance tax rates all need to be increased, not lowered, forcing the wealthiest Americans to bail out the state, which they can well afford to do, rather than punishing children, seniors, the disabled and the poor by slashing social spending.

From Middle East to Mid-West: Workers Are Pissed!

While regimes across the Middle East face uprisings by workers and citizens fed up with autocratic rule, poverty and corruption, workers in the Mid-West have been protesting attacks on their workplace rights for the past week. The protests began in Wisconsin, in response to Gov. Scott Walker’s attempt to ban collective bargaining and striking and his threat to call in the National Guard on workers who do strike. The protests have now spread to Ohio, with similar actions looming across the region. Wisconsin’s workers have been inspired by the uprisings in the Middle East, with demonstrators calling their governor Hosni Walker and carrying signs saying “Protest Like an Egyptian.”

The last time Wisconsin used the National Guard against workers was in 1886, in response to protests in support of the eight-hour day movement that grew out the Haymarket massacre in Chicago. In Milwaukee, the state militia fired on striking steel workers at Bay View, killing seven. Walker’s declaration is a stark reminder of the brutality the state has historically used to defend private profits, and should be seen as wakeup call to workers that history often repeats itself.

In Wisconsin, tens of thousands have been demonstrating throughout the week, with enough teachers calling in sick to effectively shut down the Madison and Milwaukee school districts. 30,000 protested outside the state capital in Madison on Wednesday, with dozens of workers and students camping out overnight. Many private sector workers joined them with some grilling bratwursts and providing other support. Veterans groups also joined the protests and issued condemnations of Walker’s threat to use the National Guard against his own citizens. 1,500 people marched on Walker’s suburban Milwaukee home. Thousands of university and K-12 students also walked out of classes across the state.

Walker’s budget plan would bar public workers from negotiating over pensions, health care benefits, and workplace conditions, while forcing them to double their contributions to pensions and health care, resulting in an 8-20% pay cut for most employees. It would also ban strikes. However, the biggest threat (in the eyes of the union bosses) is the elimination of automatic dues check offs, which would jeopardize millions of dollars of members’ dues that have been used by the union bosses to buy lobbyists, influence politicians, and maintain their seats at the ruling class banquet tables. It is no coincidence that Wisconsin Democratic lawmakers have fled the state in hopes of blocking a vote on the law—they stand to lose millions in campaign contributions.

Unions like the AFT and NEA have sold out their members repeatedly by supporting Obama’s Race to the Top and Common Core Standards, their tacit acceptance of NLCB, and in many cases collaborating with districts to impose merit pay and evaluations tied to student test scores. They routinely collaborate with lawmakers to impose wage and benefits cuts, furloughs and pension cuts on their members. It seems unlikely that they would suddenly decide to fight back now, unless there was a stronger motivator than their members’ standard of living. In fact, the unions have made it clear that they will accept Walker's pension and health care cuts, if he would just leave their unions intact. The rank and file workers, however, seem much more concerned with the attacks on their wages and benefits and their right to take collective action in defense of their working conditions. Workers across the country are fed up with the ruling elite’s assault on working people to pay for their greed.

There has been very little labor militancy in the U.S. since the 1980s, after the crushing of PATCO by Reagan, and the defeats of the Hormel, Greyhound and Phelps Dodge workers. Since then, the AFL-CIO and public employee unions have done everything in their power to suppress labor militancy, avoid strikes, and redirect worker frustration to political campaigns.

Contrary to Gov. Walker’s claims, Wisconsin is actually managing relatively well compared with other states. Their current budget deficit is only a $137 million, compared with $25 billion in California. The projection for next year is considerably worse, but nowhere near the scale of the crises in California, Texas and Illinois. What problems there are with the budget can hardly be blamed on teachers and other public employees. Walker gave away $140 million to special-interest groups in January, hardly a prudent move for a man obsessed with closing a budget deficit.

California Alternative Budget--Make the Rich PAY!

Huck/Konopacki Labor Cartoons

Duane Campbell, from the Sacramento Progressive Alliance, and the Choosing Democracy blog, sent California Gov. Jerry Brown an alternative budget proposal, in response to the request for budget suggestions he made in his State of the State speech. He notes that California now ranks 47^th among all states in per-pupil spending, ($2,856 less per pupil than the national average) and correctly argues that we need to increase educational spending, not cut it or even keep it steady.


His Specific Proposals:

(1) 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.

(2) Pass the $10.1 billion 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%.

(3) 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.

(4) 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.

(5) Repeal the 2009 and 2008 tax cuts for corporations passed to gain the extra Republican votes for the budget. Savings: $1 billion.

(6) 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 estimates 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.

(7) 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.

(8) 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.

Here Are A Few More of My Own Suggestions:
(1) Tax marijuana

(2) Abolish the death penalty (it costs far more to hold prisoners on death row than to hold them for life without possibility of parole)

(3) Release all nonviolent drug offenders and get them into rehab

(4) Increase gasoline taxes (and use revenues to increase mass transit and alternative energy investments)

(5) Most Importantly: Tax the hell out of the rich and the corporations. Make them pay more than everyone else, much more. They can afford it. They’ll still be rich. It won’t change the status quo, but it will prevent the rest of us from losing any more ground