The “California Miracle” Media Frenzy

Rolling Stone BomberRolling Stone, the music magazine with a longstanding hard-left view of politics (infamously evidenced by the accompanying cover), has gone mainstream.

Like dozens of mainstream media before it, it is hero-worshiping Jerry Brown, praising him for the “miraculous” economic rebound California is enjoying. Before we question how miraculous it may be, let’s let Tim Dickenson, the author of “Jerry’ Brown’s Tough-Love Miracle” in the current issue of Rolling Stone, explain just what Jerry’s pulled off:

America’s shrewdest elder statesmen blazed a best-worst way out of California’s economic morass. With a stiff cocktail of budget cuts and hard-won new taxes, Brown has not only zeroed out the deficit, he’s also begun paying down the debt. “Jerry Brown’s leadership is a rebuttal to the failed policies of Republicans in Washington,” says Neera Tanden, president of the Center for American Progress. “California is proving you can have sane tax systems, raise revenues, eliminate structural deficits and have economic growth.”

Fed up with the state’s own obstructionist Republicans, California voters have even given Brown a Democratic supermajority in the state legislature. As a result, the Golden State is now reasserting itself as a proving ground for the kind of bold ideas that Republicans have roadblocked in Washington – including a cap-and-trade carbon market, high-speed rail and education-funding reform.

Nobody moveAs an obstructionist Republican myself, I understand the courage it takes – and ridicule it engenders – to stand in front of a run-away train like California, hold up your measly skin-and-bone hand against the juggernaut, and scream “Halt!” I get the motivation behind trying to stop giving the state more money to spend when it has such a robust history of blowing through every penny it’s got and having less to show for it than a sailor waking up with a crippling hangover and a budding case of the clap.

Be that as it may, Dickenson is right. California voters did give the Democrats a super-majority, which in turn gives Brown everything he needs to create his legacy. Republican-weary journalists around the nation responded joyfully to last November’s election results, heralding a turn-around in California with stories that, like Dickenson’s are designed to mute small government, anti-tax Republicans everywhere.

I’m not grumbling about a better California economy – far from it. When the unemployment rate falls from 12.5 percent to 8.7 percent, as California’s has, it means formerly desperate people are getting by again, children are eating better, and businesses are getting back customers they lost. (It also means a lot of Californians gave up on the state and left for more job-friendly places, of course, but why bother pointing that out?) What I’m grumbling about is how rose-tinted Dickenson’s glasses are.

He praises Brown on the environment while ignoring how California’s toughest-in-the-nation environmental regulations, along with its Progressive tax structure, drive businesses out of state.

He loves how California is leading the way to Obamacare, while ignoring the fact that major insurers are bailing from the state’s plan, raising questions about its viability.

He gives Brown good marks on education because spending is up, but ignores the fact that California’s schools continue to slide. Eighty-six percent of schools in the state fell short of No Child Left Behind goals this year.

And worst in the world of objective reporting, he fails to mention any of the many troubles that threaten California’s future economic vitality.  The voter-approved 2012 tax hike Brown championed isn’t permanent, so the current bump in revenues will drop in just over three years when the sales tax increase ends, and peter out the following year when the sales tax increase ends.

Meanwhile, Brown is not attending to the state’s fundamental fiscal instability. He isn’t proposing changes to the state’s over-reliance on income taxes on the wealthy. His lifelong fondness of public employee unions is keeping him from addressing the unfunded liabilities the state, its counties and cities carry in their employee pension plans. And his long-running, red-hot love affair with Mother Nature doesn’t bode well for any meaningful effort to make the state less regulated and therefore more business-friendly. In fact, the state’s renewable energy goals and carbon taxes are going to drive up energy costs (we’re already $3.90/kilowatt hour more expensive than the national average) and make electricity less reliable. That will force even more businesses to leave.

Rolling Stone can have its fun and write happily about all the cool stuff that happens when Republicans are minimized to irrelevance. Let’s see how well they cover the impending, inevitable consequences of having too many Democrats in the wheelhouse.

How Stupid Is California?

CartoonFreeloadersDependTaxpayer“It’s the state! It’s always the state!” said my wife, choking back tears.

She was nearly 50 minutes into trying to pay a bill from the Board of Equalization (BOE), California’s tax collection agency. As business owners, we know BOE because we make our sales tax payments to them, but as homeowners, this was the first time we’d ever received a bill from them.

So what was this bill for? There was no indication anywhere on the bill what tax we were supposed to pay. We read the bill from top to bottom and there wasn’t a clue anywhere. So, my wife went on the BOE website and there she found multiple taxes to choose from – here’s the list:

So, which one among all these wonderful choices should she click on? She asked me – I happened to be home – and I mentioned that California had a new fire protection tax – number 11 on the list. If I hadn’t been home, and if I hadn’t read about the tax, I wouldn’t have been able to suggest that. And as it turned out, I was right.

When she clicked on that tax, though, BOE asked for her account number and :”notice number.” What the heck is a notice number? In any case, she went hunting for two numbers on the bill.   She found one, under the heading “In relpy refer to.” The number was hyphenated, 63-330XXX. She tried it for the account number.

Knowing the state’s computers usually don’t accept hyphens, she typed it in without the hyphen, and it worked. Most wouldn’t know this trick. Stupid state! Now, what about the notice number? Out of desperation, she tried the same number for both entries – something she’s never found on any other form – but with the hyphen, so it would be different. No dice – rejected!

This was when she broke down and cried, “It’s the state! It’s always the state!”

Without options, she typed the number in again without the hyphen. And for no logical reason whatsoever, it worked. Fifty minutes to pay the state a lousy $128.

What kind of state does stuff like that to its taxpayers? Are they incredibly stupid or incredibly cruel? Or both?

P.S.: She just told me when you go into the Employment Development Department website, the only option to click is “Make multiple payments.” So what if you just want to make one payment? She has the answer to this and every other dealing we have with the state: “You have to think stupid.” In California, nothing makes sense, so you can’t approach things sensibly.

Enough Already!

scared-on-the-slide[1]It’s been an election roller-coaster ride lately in California.

Last June’s mid-term election: UP! Voters in both San Jose and San Diego overwhelmingly passed ballot measures to limit the cost explosions going on with public employee pensions.

Last November’s general election: DOWN! Two tax measures passed, meaningful reform died and the Democrats swept every state-wide office and seized super-majorities in both the Senate and Assembly.

Tuesday’s LA municipal elections: UP AGAIN! Sure, the GOP candidate for mayor only got 16.6 percent of the vote, missing the run-off by – yikes! – 13 points. And sure, a “cost neutral” change to police and fire pension paperwork-shuffling passed. (Time will tell if it is really cost-neutral.)

EnoughOvershadowing those votes was the dismal, high-profile failure of Proposition A, which would have imposed a permanent one-half cent sales tax increase to fund the continuation of Los Angeles’ exorbitant “business as usual” big government money-squandering.

Had it passed, LA’s sales tax would have been 9.5 percent, one of the highest in the nation.

Here’s the list of would-be recipients of A’s largess: 911 emergency response services; firefighters, paramedics, and police officers (by protecting current staffing levels); community policing; senior services; after-school gang and drug prevention programs, and pothole and sidewalk repairs. LA voters decided it wasn’t worth it, and it failed by a whopping 55/45 margin – blowout numbers! – even though big government advocates like SEIU and the police and fire unions wasted $1.3 million trying to pass it.

It’s looking increasingly like November’s Prop 30 tax  hike is being seen by voters as the last tax they want to pass. When you consider that 66% of LA voters voted for Prop 30 and 55% voted against A, the shift in opinion in just four months is impressive testimony in support of the position that in even liberal LA, voters have had enough of higher taxes.

Time to Stop Bashing California?

WoodshedCrazifornia has been taken to the woodshed by liberal columnist Froma Harrop. Her piece Thursday in Real Clear Politics, Tough Times for California Bashers, declares:

[W]hen the Golden State conspicuously succeeds, California bashers find themselves at a loss. Until recently mired in deep budget deficits, California’s general fund is set to end next year in a surplus.
Surely deeper evil lies ready to bubble up, the bashers warn. To them, California resembles the phantom Rollo Tomasi from “L.A. Confidential” — the criminal “who gets away clean.”

It must especially pain conservatives that sunnier economic news partly results from voters directly rejecting Republican politicians and their agenda. A simplification here, but California’s famously dysfunctional politics have reflected Democrats’ desire to spend on certain public goals and Republican resistance to raising revenues needed to fund them.

So what did the voters do? Last November, they approved a temporary tax hike on themselves, expected to add $6 billion annually in revenues for the next seven years. And they handed Democrats a two-thirds supermajority in the state legislature, enabling them to raise taxes without Republican support.

Cornered by good news, some conservatives need to lash out.

I confess, I do lash a bit, but no, I’m hardly at a loss. Behind the liberals’ rush to launch into a rowdy rendition of Happy Days are Here Again remains a wealth of inconvenient truths they would rather ignore. Harrop certainly does.

She passes off the flight of companies and capital (both fiscal and intellectual) from the state with a Scarlet O’Hara-esque, “Right, and they’re no longer sewing sweatshirts in Manhattan or butchering cows in Chicago.” Cute, but it doesn’t turn the moving vans around. She lampoons our concerns about the costs inherent with the shift to subsidy-needing alternative energies without admitting our power costs are the highest in the nation and no one is predicting them to drop any time soon.

And she doesn’t even mention underfunded public employee retirement and health plans which will cost hundreds of billions of dollars to make whole. That’s billions, Froma, hundreds of ‘em. Oops. Was I lashing?

I could go on, but I sense you’re probably ahead of me on this anyway. If you’re not and still believe the Jerry Brown Choir that all is now better in California, I suggest you read Wayne Lusvardi’s response to Harrop at CalWatchdog, Is CA Really Barreling Down Recovery Road?

 

Killing The Golden Goose

California’s dislike of business, and willingness to tax it into oblivion, is storied. As State Senator Ted Gaines (R-Roseville) is quoted saying in Crazifornia:

I am tired of my constituents and other business owners here being treated like pinatas by regulators and politicians who smack them around until some fine or penalty falls out.

Or some newly created tax liability – like the new retroactive (to 2008) tax that’s going to smack the Golden State’s golden goose upside the head. Henry Blodget explains in Business Insider:

As a way of encouraging entrepreneurs and investors to start companies in California, the state has long offered a tax deduction for those who start, invest in, and eventually sell companies.

This tax deduction allowed entrepreneurs and angels to exclude 50% of any gain on the sale of “Qualified Small Business” (QSB) stock.

California’s capital gains taxes are a high 9%, so the deduction reduced the capital gains rate to 4.5%. This encouraged the entrepreneurs to start and keep their companies in California, instead of decamping to lower-tax states.

And, for many years, California entrepreneurs and investors have taken advantage of the deduction.

But now the state has apparently decided that it no longer needs to encourage entrepreneurs to start and keep their companies in California.

So it is eliminating the tax deduction.

Far more startling, the state is eliminating the deduction retroactively–going all the back to 2008. (Emphasis in original)

As you can imagine, those QSBs, the companies that qualified for the reduction in taxes but now suddenly don’t qualify, are not reacting positively to this news.

Retroactive tax increases – a recent passion of our revenue-hungry governor and his Democrat allies in the legislature – should be unconstitutional. They’re certainly unconscionable. Business people make decisions based in part on tax implications, and to change those implications after the fact is akin to double jeopardy and an apparent  violation of habeas corpus. An affected party would have to go back in time to protest the change, which of course had not yet been changed.

It’s taxation without representation stuck in a time loop.

The impacts of this criminal behavior by the state will be swift and profound. For starters, a lot of entrepreneurs who sold their businesses after 2008 are going to be very, very angry at the state, and will become much more likely to leave the state. Worse, hundreds or thousands of other entrepreneurs who plan to sell their companies will relocate to states with less insane tax policies.

Like Prop 30, the net effect will be not more money for the state, but less. Will Sacramento ever learn that bullying the successful has consequences?

Sidebar: Crybabies at Work

In an article in X-Economy, California entrepreneur Brian Overstreet explains how this crazy situation came to be.

It seems that a few years ago, the Franchise Tax Board (FTB, the state tax collector) told a company that had taken the tax advantages due it as a Qualified Small Business to drop the “Q” and pay the higher nine percent capital gains tax. The FTB had determined that the company failed to meet one of the qualification points – having 80 percent of its workforce and assets in California.

The company sued and won, with the court ruling that the FTB’s action was an unconstitutional violation of the Commerce Clause.  Overstreet picks up the story from there:

Since the FTB lost the case, you might think that they would strike the unconstitutional requirement and keep the rest of QSB statute intact. Not a chance.

What the FTB did instead was to take their ball and go home. They decided that since they could not impose the “80 percent requirement,” no one would be entitled to the QSB exclusion. They put out an announcement terminating the Qualified Small Business exclusion and retroactively disqualifying all exclusions and deferrals going all the way back to 2008.

True to form, California is alone in its stupidity.  The federal government, tone deaf as it is on the economy, realized that encouraging fast-growing businesses is a good thing and extended its QSB program.

Overstreet – and Crazifornia – conclude:

Why in the world would any smart business person start or invest in a new California company facing that kind of penalty?

The First Day of the 12 Days of Crazifornia

“On the First Day of Crazifornia, Moonbeam gave to me a tax on millionaires.”

In November, California voters listened to Gov. Brown’s continuous shilling of the tax-hiking Proposition 30 and voted in a new tax on millionaires (and many others) and a new sales tax.

Even before the November election, California had nearly the highest income tax burden in the nation. The old income tax rate of 10.55% for high earners squeaked in just behind Hawaii to be America’s second highest.

Our sales tax rate, 7.25%, was the highest.

And don’t forget our other exorbitant taxes, from what you pay at the pump (the highest gas tax in the nation) to what your employer pays in workers’ comp. One thing California is certainly good at is squeezing every available “revenue” from its residents.

So it came as no surprise that when faced with the carefully engineered choice between laying off teachers and firemen or raising taxes yet again, Californians chose to raise taxes. After all, most voters weren’t raising their income tax rates, only rich peoples’ taxes, to a highest-in-the-nation 13.3% for people making more than a million a year! Prop 30 will also raise taxes on everyone who makes more than $250,000 a year (or what we call middle class in the Tarnished State).

The Prop. 30 increase to the state’s sales tax protects our leadership in that sad stat – pity residents of Los Angeles, San Francisco, Oakland and a handful of other cities that now will suffer a combined state and local sales tax rate of over 9%.

Of course, Prop. 30 called both the income and sale tax hikes “temporary” – we’ll see about that!

Brown optimistically thinks the higher taxes will bring in $9 billion in revenue to the state – or about what it spends annually paying down its debt. But that’s assuming that those Californians faced with a new tax burden – most of whom are job-generators, and none of whom are on the state’s dole – won’t look to move to cheaper states. Like Texas or Nevada, which have no income tax at all. Or maybe Arizona, which set up a program to help California CEOs relocate to the Grand Canyon State just days after Prop 30 passed. As a Christmas present, Brown might as well send a nice new suitcase to California’s wealthy – along with a bill for the tax on it.

Come back tomorrow for the Second Day of Crazifornia!

Prop. 13 and Itemized Deductions

Cartoon: The Weekly Standard

The SacBee’s Dan Walters commented today on how the new Democrat majority is working on a bill that represents “a shoe in the door” to eventual reconsideration of Prop. 13, California’s historic property tax relief measure.

Even though property tax receipts have grown 10-fold since Prop. 13 went into effect – due in part to California’s highly inflated real estate costs, which in turn are due in large part to the state’s imposition of laws and regulations that keep an artificial lid on supply – the Dems want to raise the property tax rate. They figure since Californians just willfully raised income and sales tax with Prop. 30, they’ll want to raise property taxes, too.

It’s possible. It will start with eliminating Prop. 13 for commercial properties, and if that moves forward, residential properties will be vulnerable.

Itemized Deductions

I haven’t been able to verify this, but it makes sense. On this morning’s Heidi Harris Show (870 am in the LA market), co-host Ben Shapiro made the point that Democrat states love to raise taxes, but also love to pile on the itemized deductions. So, the show of beneficence is there, but in the privacy of their meetings with their CPAs, they grab every itemized deduction they can to cut the amount they really give.

Which state is number one in the amount of itemized deductions allowed? No, not California. It’s Joe Biden’s Delaware.

But , according to Shapiro, California has the second number of itemized deductions.

 

Brown Wants California to Lead U.S. to New Taxes

Are Californians shooting themselves in the head with Prop. 30?

Despite a continuing economic malaise that keeps his state behind most others in recovering from the recession, California governor Jerry Brown thinks the state is ready to lead the nation again. No, not in being the the envy of the national economy, but into a new era of hefty taxes on the wealthy.

He wants to take his successful ballot measure, Proposition 30, national.

It imposes a series of progressively higher tax increases on individuals in higher income brackets, starting at a jump from 9.3 to 10.3 percent for those making between $250,000 and $299,999 and stepping up to an increase from 10.3 to 13.3 percent for those making over $1 million a year. (If you are one of the “lucky” ones with a $10 million annual income, your state tax bill will go up $300,000 to $1,330,000.) The measure also pumped up the state’s sales tax from 7.25 to 7.75 percent.

Following Prop. 30′s passage by 54/46 margin, backed by $80 million in public employee union contributions, Brown said on CNN’s “State of the Union” program Sunday morning he hoped the vote marked the start of a sweeping national change toward tax increases.

“Revenue means taxes, and certainly those who have been blessed the most, who have disproportionately extracted, by whatever skill, more and more from the national wealth, they’re going to have to share more of that,” Brown told Candy Crowley. (Read more on the comments at the Sacramento Bee.)

A National Model?

Can President Obama and governors in other states look to California’s vote and see an endorsement for hiking taxes on the rich? Perhaps Obama can because he, like Brown, has sequestration to use as a threat. For other states, the election’s tea leaves don’t give much hope to tax hawks.

Everyone but the most honest Progressive commentators agrees with Brown’s statement that deficits are out of control. There’s less agreement, though, on whether “the cutting, the cutting” is out of control. Proposition 30 passed largely because Brown set it up as a counter-measure to what most voters would see as out of control cuts: a $6 billion sequestration-like deficit reduction Brown carefully structured to impact only popular segments of government like education and public safety.

Obama is in a similar catbird seat as the $120 billion looming federal sequestration includes a devastating $60 billion in defense cuts, which most would consider to be out of control cuts – except, again, those Progressive commentators honest enough to say they’re all for stripping America of its military might.

Had Proposition 30 been set up as a counter-measure to $6 billion in cuts to the budgets of anti-business, job-killing regulatory agencies, or $6 billion in cuts to the ever-expanding state payroll and retirement benefits obligations, most would not have thought the cuts to be out of control. The same might be said of hefty cuts to the state’s social welfare spending, which is three times greater per capita than the national average.

Tea Leaves

Without similar sequestration threats, other states are unlikely to succeed in becoming a part of Brown’s vision of California leading the nation towards big tax hikes on the wealthy. After all, other states didn’t share California’s embrace of tax increases this November.

According to a Forbes analysis, only two votes outside California can be seen as an endorsement of giving politicians more money. In Oregon, a phase-out of death taxes was rejected, and in Michigan, a two-thirds vote requirement for tax increases died. But measures reducing states’ tax income overwhelmingly prevailed, with votes on eleven measures going against the tax and spend crowd as proposed new taxes failed and proposed caps on property taxes passed. New Hampshire’s action was the most definitive, with voters approving a constitutional amendment that forbids the state’s Legislature from imposing any new income tax on personal income.

With these results, it seems the odds are with New Hampshire, not California, on which state will be leading the national view on taxes. Californians can only hope that’s true, and that their state will see the light and be a late joiner.

Voters Give Cali to the Spenders

I expected Californians would look the calamitous condition of their state in the eye on Election Day and vote to stay the disastrous course. But I was surprised at just how disastrous a course they set.

It wasn’t a ballot measure or any particular race that signaled how entrenched bad decision-making is in California’s voters. It was the sum total of the Assembly and Senate races – a total disaster, as Californians gave the Democrats super-majorities in both the Assembly and Senate. (There’s a tiny and shrinking chance the final races could affect this, but most commentators, Crazifornia included, think, as Gavin Newsom famously shouted upon legalization of gay marriage in San Francisco, “It’s gonna happen, whether you like it or not!”)

Despite how poorly they’ve run the state, picked up two state Senate seats and two Assembly seats. Their new super-majorities mean the Democrats will no longer have to look for a Republican or two who will join them in voting for tax increases. With two-thirds of the votes in both houses in the Democrat’s hands, they will now be free to raise taxes whenever, on whomever and however much they want to.

Do you think the wealthy and successful will stand for this? Hint: The accompanying illustration shows them in the foreground, fleeing for more business-friendly states.

The only faint silver lining to this particularly dark cloud is that the California GOP will be blameless for at least the next two years as the state’s fiscal disintegration continues.

Barking Towards Oblivion

Yesterday, the California Democrats unveiled their budget proposal, an utterly uninspiring amalgamation of new burdens on businesses and taxpayers, with no proposals to cut spending – not one.

Businesses would be scammed out of $2 billion by letting some rare California business tax breaks expire. Personal income tax and car fees (what got Grey Davis drummed out of office, for cryin’ out loud!) would both go up. There would be no cuts to welfare entitlements, no sanity injected into the state’s prison system, and certainly no purging of useless, duplicative state commissions, boards, agencies and departments – in short, there was no respect for the people of California.

Against all that, I give you my vet, Dr. Mike Eberhardt.  I’m going to a Rancho Santa Margarita Planning Commission hearing on his behalf tonight, to speak in favor of innovation and against the expensive repression of business that goes on so routinely in Crazifornia.

Dr. Eberhart’s clinic is in an industrial park, not a neighborhood.  An innovative vet, he built a fenced-in dog run behind the building, encircling it with an expensive wrought iron fence, in keeping with the design of other fencing in the park. He uses it to let dogs walk off anesthesia, and to better diagnose dogs.  He found that dogs on a metal table in a vet’s treatment room will mask their symptoms, but if he and the owner go out to the dog run, in a few minutes, the dog will drop the mask and a better diagnosis can be made.

Ah, but the city of Rancho Santa Margarita has a policy requiring a Conditional Use Permit for dog runs like his. And they’re recommending that the Planning Commission deny his application.  Overseeing dog runs may be a good idea if you’re attempting to regulate doggy daycare facilities, where such runs can create a lot of barking and a lot of poop.  But his dogs are there for one-on-one observation, are never left alone, and are cleaned up after, so it’s … well … an entirely different animal.

What’s logical to you and me is missed in the regulation-addicted mindset of California government.  How crazy is it?  Well, Dr. E’s spent over $20,000 to date on attorney’s fees, and will ring up a bunch more as his attorney prepares for and sits through tonight’s hearing.

Welcome to business in California – where every good idea gets the bureaucratic bum’s rush, and every good business gets taxed into oblivion.