Friday, March 07, 2008

A Little Bit Pregnant

I've interspersed commentary in this LATimes article:
Schwarzenegger puts tax loopholes on the table
George Skelton- Capitol Journal - March 6, 2008

SACRAMENTO — Give him credit: Gov. Arnold Schwarzenegger is the first Republican in California's Capitol to begin taking off the budget blinders.

Scurrilous lies of the highest order. dozens of Republicans were screaming that the budget was unbalanced when it counted during the last round of spending increases and rosy revenue projections. Many refused to even vote for this budget.

He's actually advocating tax increases, give or take some semantics.

Classic liberal bias. Gracious in providing a fig leaf as long as there are tax increases.

True, many conservatives -- professional politicians and party activists -- don't consider Schwarzenegger a real Republican. Politically, he's neither fish nor fowl. In fact, conservatives see him as a RINO -- Republican In Name Only.

Unlike the socialist liberals that control State government some people judge their elected representatives on their results not their rhetoric or good intentions.

But Schwarzenegger is the only Republican to win a top-of-the-ticket office in California since 1994. He won 91% of the GOP vote in his 2006 reelection, based on a Times exit poll. He's the state's most popular politician, enjoying a job approval rating (60%) even higher than Democratic U.S. Sen. Dianne Feinstein's (50%), based on the latest Field Poll. So he's basically in sync with California voters, especially Republicans.

Notice how there is no recent polling being mentioned.

The governor now apparently is willing to spend some of his popularity in an effort to straighten out the state's budget mess. He understands, advisors say, that by pushing for tax increases -- even if he calls them loophole closings -- his popularity is very likely to fall.

Gee, and when it does the LATimes looks visionary for having predicted what we already know.

And, face it, Schwarzenegger did win reelection by promising not to raise taxes and by pummeling his Democratic opponent, Phil Angelides, as a tax-and-spender. So he'll need to perform some flip-flopping acrobatics.

The governor's goal in recent days, advisors say, has been to kick-start negotiations over the final $8-billion plug for the state's budget hole. The deficit projection for the current and next fiscal years had been $16 billion. But the Legislature and governor halved that amount last month with some emergency cuts, borrowing and accounting tricks.

Of which about $4 billion is likely to be restored by court challenges. Still, the $16 billion is a "current account deficit." That means it doesn't include the $4b or so accidentally carried over from last year nor does it come even close to addressing the two real problems. No matter how you slice it California is going to get a combined $96b in revenues from all sources and is going to spend $123b on all expenses. Taking on an additional $100 per person in debt doesn't fix that.

Last week, Schwarzenegger decided to step across his no-tax line in the sand in order to point the way toward compromise with Democrats.

Compromise? The Democrats (well, liberals but that's another story) want more taxes. How is more taxes in any way a compromise?

Flying to Los Angeles aboard his private jet, aides expressed a sense of urgency to him. The governor mentioned that there was a lot of revenue to be gleaned from closing tax loopholes. A few days earlier, Legislative Analyst Elizabeth G. Hill had recommended closing or narrowing a dozen loopholes and generating $2.7 billion a year.

Hill cited home mortgage interest deductions explicitly as one of those loopholes.

It was clear to Schwarzenegger that, for political and practical reasons, the deficit hole could not be filled with spending cuts alone. He decided to support loophole closings. But advisors were surprised when the governor spontaneously popped out with the idea the next morning during an audience Q&A after addressing Town Hall Los Angeles.

"I'm a big believer," he said, "that when we have a financial crisis like this that we all should chip in. And this is why I totally agree with the legislative analyst's office when she says that we should look at tax loopholes. . . .

"I think that we should go after those tax loopholes because we would need the extra $2.5 billion. This is $2.5 billion we can give straight to education. I am totally for that . . . because everyone has to give something."

The battle is already lost. Everybody "giving" something? You mean like getting the CHP and Prison guards to give back pay raises and retirement benefits? That kind of give? No, not that kind of give.

Outside, talking to reporters, Schwarzenegger backed off slightly, but not substantively. "I'm not for the recommendations [Hill] made, necessarily," he said. "I just think that Democrats and Republicans should work together on this." The idea, he said, is to "close some of those tax loopholes."

Republican lawmakers consider closing loopholes the same as raising taxes. And they're right, of course. Loopholes are plugged to increase tax revenue. That fact can't be disguised with spin words like "loopholes" or "tax expenditures."

We don't tax home mortgage interest. The Legislature wants to start taxing home mortgage interest. How do these people sleep at night?

On Tuesday, Schwarzenegger told reporters that lawmakers shouldn't get hung up on semantics.

"We should not get caught up in what something is called," he said. "That doesn't bring anyone any healthcare. It doesn't bring any education. . . . What we need to do is fix problems. Let's just put everything on the table and not debate over the definitions."

Notice again how "everything on the table" omits spending cuts.

Democratic leaders should consider it an invitation to offer Schwarzenegger a tax proposal. The governor finally agrees with them, it seems, that the state does have a revenue problem -- not simply a spending problem.

But Democrats are splintered.

Senate President Pro Tem Don Perata (D-Oakland) wants to fashion a budget proposal through the traditional legislative process, with public hearings, and avoid closed-door negotiations between leaders and the governor. That's fine. But this is ominous: He's vowing "the fight of a lifetime," threatening to block budget passage all summer if necessary to protect school funding, insisting loophole-closing isn't enough and talking up a sales tax increase.

Two years ago I was paying 14.5¢ per gallon sales tax on gasoline. Now I am paying 25¢ per gallon. There are districts where people are paying 8.25% sales tax on just about everything. Does the phrase blood from a stone mean anything to these people?

Assembly Speaker Fabian Nuñez (D-Los Angeles) is more attuned to Schwarzenegger.

"If other Democrats want to beat up the governor, I respect their views," he says. "But I think the governor is a good man and doesn't want to make cuts any more than I do. Now it's up to us to show him a road map to a balanced budget."

Comments like this get absolutely no critical examination by the MSM. They don't want to make cuts? Fine, i don't want to pay more taxes so there, it is off the table.

Nuñez isn't ready to support a general tax increase, like on sales. That should be a "last resort," he says. For now, he advocates closing business loopholes. For example, he'd impose an oil severance tax -- California is the only state without one, he says -- and raise $1 billion.

But the speaker opposes Hill's biggest recommendation: dramatically reducing the dependent income tax credit and gaining $1.3 billion. "That hits working-class families."

Oh what the heck, let's just sign over our Federal stimulus checks to Sacramento.

Republicans still oppose a tax hike by any definition.

Do they really think that the general fund budget -- currently at $103 billion -- can be balanced with only spending cuts? "That's our goal," says Senate GOP Leader Dick Ackerman of Irvine.

"Is it going to happen? I can't tell you that."

A slight waver? Maybe he's peeking outside the budget blinders.

Or maybe just a little bit pregnant.


Ogg the Caveman said...

Murst, loosers!

Northern Renter said...

Mortgage interest payments are not deductible here in Canada; I don't know about any countries other than the US and here. In any event, don't think of it as taxing the interest payments. Instead, think of it as losing a loophole. You'll feel so much better. Actually, I've read a few analyses that suggest that the main effect of making mortgage interest payments deductible is to increase the total cost of housing. We all know that people will buy as much as their monthly payments will allow.


PS First. You can have must, Ogg, and it's win-win.

w said...

It's interesting seeing the $#!t hit the fan. Massive imbalance of earners and immigrants. Exodus of middle class. Small wealthy class of landowners living behind fences. Just about all of my friends have thought about leaving the state and the pro/cons associated with it. My wife and I check out different places for fun and think about our options. If we were from somewhere else it might be even easier to make up our minds. As taxes go up and the standard of living drops in California the rate of exodus of tax payers will increase.

Property Flopper said...

It's going to take tax increases to fix the mess (short term). The money has to come from somewhere. Longer term, we need to cut back expenses.

Yeah, that sounds backwards, but in CA, it's impossible to cut expenses (in a meaningful way) in the short term. Thanks to the inititative process, we have a lot of mandated spending written into the state constitution. Top that off with set-in-stone labor contracts for state workers and it's darn near impossible to trim the fat.

Ultimately, any meaningful solution will require major changes to CA's spending, but that fight will get bloody.

Akubi said...

I cannot believe they are even considering mortgage interest deductions. If they want to completely and utterly destroy the housing market in California and lose more property tax revenue in the process, that's the way to do it.

w said...

There is no way NAR will lose the property tax deduction fight. Maybe it is just a stunt to get more donations from them to state representatives.

w said...

OT but interesting ruling against home schooling in CA.

Here's the money quote: "A primary purpose of the educational system is to train school children in good citizenship, patriotism and loyalty to the state and the nation as a means of protecting the public welfare," the judge wrote, quoting from a 1961 case on a similar issue.

The state will require children be taught by someone with a teaching credential even if it is their parent. Here is a funny example:
Homeschooling parent Debbie Schwarzer of Los Altos said she's ready for a fight.

Schwarzer runs Oak Hill Academy out of her Santa Clara County home. It is a state-registered private school with two students, she said, noting they are her own children, ages 10 and 12. She does not have a teaching credential, but she does have a law degree.

"I'm kind of hoping some truancy officer shows up on my doorstep," she said. "I'm ready. I have damn good arguments."

In a side note the teachers union is ecstatic.


MaxedOutMama said...

I think they just don't get it, Rob. You can't fix a state economy this way.

Rob Dawg said...

-You- can fit it this way. -I- can fix it this way. -They- can't fix it this way or any way. I'm not unaware of the obstacles and honestly that isn't the problem. the problem is that Sacto doesn't see what's coming. They don't understand elasticity. They really do think that they can ratchet up the sales tax and income tax and user fees until the books balance. Their revenue polices are already on the bad side of the Laffer minimum. There is no more money to be gotten. People won't pay.

Lou Minatti said...

Mortgage interest payments are not deductible here in Canada;

It's a subsidy that rips off the middle-class and the renters and benefits the wealthy and the stupid who paid bubble prices. As the All Being, as my first act I will eliminate it.