Posted on 08/09/2010 5:28:37 AM PDT by Kaslin
California still faces a $19.1 billion deficit. The budget is over a month late, no negotiated compromise is in sight, and worst of all, no serious minds in Sacramento are even considering long-term solutions. What we usually get instead are short-term gimmicks, the most recent one now has been presented as part of the Democratic proposal to balance the budget.
Darrell Steinberg, Democrat and Senate President Pro Tempore (leader), is suggesting a tax shift. His proposal cuts the state sales tax rate by 1.75% and raises income tax rates and car license fees to offset the sales tax reduction. This is because in 1986 Bob Packwood, Senator from Oregon, eliminated the sales tax deduction from your federal income taxes – principally because there is no sales tax in Oregon. More recently, the sales tax deduction was restored, but in a limited form.
Mr. Steinberg figured out that if more of the taxes paid by Californians were of the deductible nature, then the federal government would be underwriting part of the California budget imbalance. Unfortunately, Mr. Steinberg appears not only to be ignorant of our tax laws, he doesn’t even seem to read the newspaper. In particular, he has obviously never heard of the Alternative Minimum Tax (AMT).
The AMT, initially imposed in 1969, wreaks havoc on our tax system. It was installed to stop a small group of high earners from not paying taxes, but because it was never indexed to inflation, it now makes ordinary Americans pay more. State and local taxes are primary generators of the AMT – this means that the higher your state and local taxes are, the more your AMT will likely be. If you are currently paying AMT, as do already a significant number of Californians, the benefits of the tax switch proposed by Mr. Steinberg will therefore be eliminated. In addition, those who do not currently pay AMT may become subject to it and thus eliminate for them any benefit conferred by this tax shift.
For a long time, political observers wondered why Congressmen from California did not band together with other high-tax state representatives to eradicate the AMT. While some people argue that we cannot afford to dispense with the tax because it generates too much revenue, it clearly falls disproportionately on taxpayers from high-income, high-tax states like California, New Jersey, New York and Connecticut. You would think that elected officials from these states would lead a charge to get rid of the tax, and then compensate for the revenue loss with higher marginal tax rates that would affect all Americans and thus create a more honest system. After all, taxpayers from these states end up paying more to the federal government than those from other states specifically because of the AMT. Furthermore, there’s a good argument that the AMT distorts the tax system, no longer does what was originally intended, and costs taxpayers extra money for tax preparation because of its complex nature.
The apparent reason that these elected officials have not fought for tossing out the AMT has only one logical explanation – all these states are overwhelmingly Democratic, and there are two very obvious reasons that Democrats don’t press for AMT reform. The first is that most of these Democrats are from the far left and there is not a tax that they have ever seen that they don’t like even if it falls disproportionately on their constituents. The other reason is that they simply do not understand economics. Many of my friends who are in the state legislature or Congress have observed how many Democrats just do not have even the most rudimentary understanding of how the economy functions.
Mr. Steinberg should be given credit for at least coming up with a thought that has some economic basis. The unfortunate part is that it will not garner any significant increased revenues, and he should know that. All of which means that he should get back to the crux of the problem – too many state employees doing too many things they should not be doing and being paid too much in overall compensation (base pay, pension and health care costs).
California governments have still not trimmed their staffing to what it should be. Instead they’ve been adding employees! The issue of the huge pension and health care costs has not really been confronted. Just recently the Sacramento School District imposed draconian new doctor visit co-pays on their employees: they raised it from $1 to $5. Most of us outside of state government just shake our heads in frustration at the $5 amount, but even more shocking is the fact that a $1 co-pay was previously in place.
Mr. Steinberg should propose real solutions to the budget crisis, and then maybe persuade his friends in Congress to eliminate the AMT. Only then can he claim some real progress and that, my friends, would be a true Democratic revolution
I, for one, am all for stoopid liberals paying higher taxes while whistling the Bee Gees “Massachusetts”!
the crux of the problem – too many state employees doing too many things they should not be doing and being paid too much in overall compensation (base pay, pension and health care costs).
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There ya go...a liitle snippit of reality in an otherwise bland article on the disfunctional State of California.
Have ya seen the new report on how far under water the public employee pension system is? ....total unfunded liabilities for all benefit plans are an estimated $3.1 trillion — nearly three times higher than the plans report.
Heres the source: http://www.ncpa.org/pdfs/st329.pdf
Heres some analysis:
http://globaleconomicanalysis.blogspot.com/2010/08/huge-battle-looms-over-public-pensions.html
http://market-ticker.org/archives/2563-Reality-Beckons-Government-Pensions.html
The plan is to have the Republican Red States bail out the Democrat Blue States. BO will take care of them, as he has the union pigs in the UAW and NEA. Only when the Red States get so fed up that they quit sending money to D.C. will this theft end. They can’t put half the country in jail, so “DEFUND!” should be the anti-Socialism battle cry in ‘10 and ‘12.
Where'd he get THAT number?? Last I saw, they were a half TRILLION dollars in debt!!
THe $19.1 Bil is for the 2010-11 budget year. The trillions are for the unfunded future debt for pensions, etc, etal.
Regardless, I believe that the $19B is still a lowball number for the year and the state is in worse shape than we’re being told.
Next year will be the same, and the next, and the next, etc., etc., ad nauseum.
Walking a wire. Personally, the state needs to blow up fiscally to force the changes needed to hopefully move towards solvency again.
There is an election in November. Nothing will happen until January and then nothing will probably happen then. I think Cal is waiting for a bailout injection of epic proportions so they don’t have to say no to any of the constituants (illegals, unions etc.).
And still I have yet to meet a liberal who will tell me they want less than they have, talk about cognitive dissonance.
Was it Maggie Thatcher that said “Socialists eventually run out of other people’s money to squander!”
How can he? Those jobs were given out as political patronage awards to loyal Democrats. Those salaries are payment in full for past political support, and can't be taken back by any Democrat who wants to keep his seat.
Yet another tax proposal to squeeze the “rich” by shifting the tax burden from Sales Taxes to income taxes — essentially ensuring a tax break for the unproductive who pay no income taxes.
Hiking the income taxes on the high earners just drives them out of the state. Lowering the income tax will bring them back.
A rational tax reform would be to eliminate CA’s income tax completely, and cut the sales tax rate from the current 8% down to 6% while extending it to apply to all goods and services. The lower but broader sales tax rate would bring in more revenue even before it drove the lowlifes out and brought the high earners/spenders back. Think how attractive it would make CA to businesses and high earners to have no income taxes. It has made TX one of the fastest growing states while CA has lost its productive people and attracted only lowlifes and illegals. The 6% rate means we could do it while retaining Prop 13 so we don’t get stuck with the outrageous property tax rates TX has.
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