I’ve been hearing the California crisis, and the Governor’s response, referred to as a kind of shock doctrine, used to transform the state’s social safety net and radically alter the lives of the poor and downtrodden.  And that’s entirely true.  But not necessarily through the budget cuts, which have met fierce opposition from Democrats and the nascent activist progressive movement.  No, the real shock doctrine is happening behind the curtain, with a proposal engineered with bipartisan support, that will really permanently turn the state into an experiment in Chicago Boys free-market fundamentalism, not unlike the conservative “paradises” created in developing nations, all of which are crashing, by the way.

Last year, the Governor and legislative leaders put together the Parsky Commission, a classic blue-ribbon panel led by Gerald Parsky, a right-wing investment fund manager and professional hack who has consistently been put to use by Republicans in Sacramento and Washington to carry out their radical plans.  He was George Bush’s California campaign chair in 2000 and 2004.  The idea behind this one started from a decent premise – California has a taxation problem, and needs a study group to look into how to reform it so that it’s better equipped to handle boom-and-bust economic cycles.  Supposedly, all ideas – including Prop. 13 – would be “on the table” from this commission, which would seek a more stable solution.

Of course, the fix was in from the start.  Because this panel respected the 2/3 requirement for raising taxes, it sought revenue-neutral solutions, tinkering and shifting the tax burdens rather than reforming them.  So predictably, the end result is a proposal that broadens the tax base while shifting the burden downward onto the lower and middle classes while relieving the wealthy.  The Governor’s Chief of Staff tipped her hand about this previously when she said that the problem with California’s tax structure is that it’s too progressive.

Some of the Commission’s proposals, like broadening the sales tax to include services in addition to goods while lowering the rate overall, make a bit of sense.  But the rest of it is pure right-wing fantasy:

At the 14-member commission’s penultimate meeting in Los Angeles June 16, its members appeared to narrow its potential recommendations, due July 31, to two proposals.

Both would lower the top income tax levels and, in one case, eliminate the state’s corporate tax and the portion of the sales tax pocketed by the state.

Under one proposal, what the commission refers to as Tax Package 1B, all Californians would pay a 6 percent income tax rate. The state’s wealthiest residents currently pay 9.3 percent with lower percentages as earnings fall.

The effect of the proposal would be to increase the taxes on Californians earning less than $100,000 to broaden the tax base.

The state’s 8.8 percent corporations tax would be eliminated, as would the 5 percent of the sales tax the state retains […]

A new “business net receipts” tax makes up for much of the lost revenue from the sales and corporation tax eliminations.

“Business net receipts” taxes are essentially a value-added tax.  And one estimate predicts that it would take in $28 billion dollars annually.  But everything must be revenue neutral, so in a time of crisis, the Parsky Commission would go to a FLAT TAX and eliminate the corporate tax rate, as well as possibly cutting the capital gains tax.  It’s impossible to see this as anything but a giant wealth transfer from the rich to the poor.  Simply impossible.

Useful idiots like the folks at Calbuzz prefer not to actually take sides on an issue when just splitting the difference between left and right automatically provides the best practice every time.  Their somewhat illuminating article about all of this betrays a bias toward that wise “sensible centrism” that ends up orienting toward crazed right-wing solutions every time.

The political play is to produce a tax reform bill so clean it can be introduced in both houses with assurances no one will be allowed to bog it down with amendments.  Democrats will be able to avoid drastic program cuts and Republicans can claim they’ve cut taxes.  The bill breezes through both houses on an up-or-down vote and bada bing it gets signed by Arnold and everybody goes to dinner.  No muss, no fuss, no partisan fingerprints […]

Getting a consensus recommendation from the commission, which includes conservatives like former Reagan economic adviser Michael Boskin and liberals like Santa Cruz County Treasurer Fred Keeley is by no means guaranteed. Even if commissioners do agree, their proposal will be fly-specked by lefty groups who will dislike elements that are not progressive, and industry groups, who will push for business-friendly changes.

As a political matter, forcing an up-or-down vote on a package in the Legislature would address what-about-me objections from all quarters, in the same way as the prohibition on amendments to congressional legislation produced by the military base closure commission in the 1990s finally solved that intractable problem. (Or like a Pete Wilson-Willie Brown deal from days of yore in Sacramento.)

After all, the impending bankruptcy of state government should be sufficient to show players at every point of the political spectrum not only that sweeping change is needed, but also that everyone will have to compromise to keep California from sinking into the 9th Circle of Hell.

This is “the midpoint between two points always works best” pop politics masquerading as serious thought, and what else would you expect from a duo who can spin a whole article out of a picture of two politicians smiling.  Somehow, “lefty groups” arguing against the literally insane idea of a flat tax has the same moral and intellectual equivalency of business groups trying to wiggle out of a way to pay their taxes.  A flat tax would very clearly shift the burden of taxation to the middle class, and practically every taxpayer would actually see their tax burden increase except the few at the top.  But because we’re in crisis, and everyone will have to “sacrifice,” surely we should ram through a right-wing fantasy, turning California into Latvia, Estonia and Lithuania, all of whom have flat tax systems.  How’s that working out for them?

Over the last decade, Eastern European countries became darlings of the far right by instituting free-market economic policies designed to break convincingly from their Communist past. The so-called Baltic Tigers-Latvia, Lithuania, and Estonia-garnered worldwide plaudits for a number of free-market reforms, led by the imposition of a flat-rate income tax, especially from the American right. “The flat tax is making a comeback,” trumpeted the conservative National Review. The three nations are “leading a global tax reform revolution,” said the right-leaning Heritage Foundation […]

Too bad for them that it hasn’t worked out. Latvia, which has a flat tax of 25 percent, and Lithuania and Estonia, which have 21 percent tax rates, are all in deep economic trouble. They all have huge government budget deficits, a sign that they took in too little in tax revenue to cover their costs, primarily state expenditures to provide a generous welfare state. Conservatives might argue that they didn’t slash welfare benefits enough, but there is no dispute that the flat tax didn’t provide the expected revenue.

This is the future that would be put into place – with a no-amendment, up-or-down vote – under the Parsky Commission.  Somehow, the elected legislature of the people cannot be trusted with tax law, but an unelected, unaccountable blue-ribbon commission should be empowered to create this radical change in law with no public input.  That’s the wise and sensible solution.  Because we can’t have all this messy “democracy” mucking up the need to protect the rich and transfer wealth downward more radically than any proposal ever seen in America.  California Budget Bites has more.

It’s important to note that this all stems from the revenue-neutral demand embedded in the proposal.  Otherwise, it could never pass because it would need a 2/3 vote.  So somehow, a flat tax, elimination of corporate income taxes and slashing of capital gains taxes get thrown into the mix, something that nobody outside the fringe far right would ever endorse.  The 2/3 rule, AGAIN, prevents a real solution.

If you wonder why I oppose a so-called “bailout” for California, it’s because in addition to everything else, that attacks the wrong problem.  We need a major restoration of democracy in the state, and instead we get “solutions” that don’t reflect the desire of the citizenry.  That’s why only a local grassroots movement to finally remove the structural barriers, not a one-time cash infusion, will work.

Speaker Bass announced that Gerald Parsky will be the head of the California Tax Commission.  The Commission was formed in October with the mission of releasing a report on April 15 (cute, huh?) on how to restructure the tax code in California. For some background, Parsky is the former chair of George W. Bush’s California campaigns in 2000 and 2004.  Along with Parsky, Bass named at least one more member of the commission, Chris Edley, the dean of UC’s Boalt School of Law.

As for what this commission is going to do exactly, well, that’s not totally clear:

The commission’s stated goal is not to raise taxes, Bass and the governor have said.

“It is revenue neutral, so we’re not looking, at this particular point, for any additional revenues. We are basically just looking for one thing and that is to create stability,” Schwarzenegger said at the press conference announcing the commission.

As for who else will be represented, Bass has made clear she wants a diverse group.

“When we looked at forming the commission we wanted to make sure that every sector of our economy was represented,” she said in October, “so we want to make sure that we have business leaders there, we want to make sure we have the high-tech industry, agriculture, etc.” (SacBee 12/08/08)

Obviously our overly cyclical tax structure has failed us.  By relying almost solely on a few revenue streams, primarily the income tax and capital gains, we have forced ourselves into these boom-bust cycles. The question is what can this commission do to fix that?

As a Republican with a strong background supporting Bush and McCain, Parsky will presumably have a better shot at convincing some of the Republican legislators of the importance of some of these reforms.  He’s fairly close with Arnold, and his name was tossed out as a possible Treasury Secretary had McCain prevailed last month.  He’s raised millions of dollars for Republican candidates, so if money counts, and it does, he should have the ear of the GOP legislators.  In many ways we need a prominent Republican voice on this commission, the Republicans need cover from a big-time money guy who has a track record on the GOP private sector trickle-down mumbo jumbo.

And Parsky does have the private sector GOP mumbo jumbo street cred. More over the flip.

If Parsky can bring some common sense progressive reforms to our tax code, great.  The guideline of a revenue neutral reform should be some sort of Shock Doctrine protection.  The important part of this is not just the smoothing of our income stream, but to also ensure fairness and that every pays their fare share.  However, we need to ensure that the Republicans on this commission aren’t looking to facilitate any Shock Doctrination of California. Parsky is generally moderate, but he has been known to push for some very corporate friendly policies in the past.

Parsky has a history of these commission reports.  Back in 2007, Parsky was named to a commission to review our pension obligations to public employees.  The report that was released called for immediate action, but in the end was summarily ignored.

Parsky knows quite a bit about pensions though. After all, he created the mess in UC’s Regents Investment Committee. For a full report on this, I highly recommend checking out Chris Thompson’s story on Parsky from 2007 had a great story about Parsky back in 2007. Parsky was the key figure behind moving Cal’s pension fund from a body operated based upon the advice drawn from the world class staff at the University of California system into one just another plaything of bigtime investment managers.  

It’s nothing new in the Bush dominated America: government for the profit of the rich.  Will Parsky’s leadership of Bass’s commission mean that any reforms will be regressive? Not necessarily, but with such a big goal, opportunities for big changes arise.  We need to move towards a more fair and a more progressive tax structure rather than going backwards.

Some more on the Pension below:

In 1999 and 2000, in a series of secret meetings, Parsky spearheaded an effort to radically remake the pension fund’s investment philosophy. Under his leadership, the regents gave hundreds of thousands of dollars to a Los Angeles investment firm to recommend and implement changes to the way the university invests tens of billions of dollars. At the same time, the president of that firm, Wilshire Associates, gave tens of thousands of dollars to the very Bush presidential campaign chaired by Parsky.

Wilshire, Parsky, and the Regents’ Investment Committee farmed out control of the investment fund to an army of pension consultants and money management firms, ending the decades-long practice of using university staff to trade stocks themselves. Along the way, they humiliated and destroyed the reputation of Patricia Small, the UC treasurer who had managed the investments for years and strenuously opposed their plans. Billions of dollars in stock were bought and sold in the midst of a massive stock market crash.

Seven years later, what was once one of the most lucrative pension plans in America is in desperate trouble. Before Parsky and his colleagues restructured the investment strategy, the university’s fund easily made more money than the average pension plan. Now, it ranks among the country’s worst performers. Before Parsky’s reforms, the university paid nothing to outside money management companies, aside from a small venture capital arm. Last year, the UC treasurer’s office paid at least $32 million to forty different money management companies whose investment advice may have cost the fund billions of dollars. (East Bay Express 5/9/2007)

The one, and perhaps only, hard piece of accountability that has come out of the widening US Attorney scandal is that the Congress passed legislation striking out the provision in the PATRIOT Act that allowed the Justice Department to appoint replacement federal prosecutors without seeking Senate confirmation.  The new law passed in both Houses with expansive, veto-proof majorities (94-2 in the Senate, 306-114 in the House). Any veto would be overridden, so the President has no choice but to sign the bill.

Except he hasn’t yet, and the hip-pocket veto has enabled Abu G to strike again – right in our own backyard of Los Angeles.

In a Senate Judiciary Committee business meeting Thursday morning, Senator Patrick Leahy (D-VT) revealed that Attorney General Alberto Gonzales once again used an interim appointment authority at the heart of the US Attorneys controversy that Congress banned in a bill sent to the President for signature on June 4 […]

Tracy Schmaler, a spokeswoman for Senator Leahy, clarified the situation in an e-mail to RAW STORY.

“It just so happens the committee got notice yesterday, that on June 16, George Cardona’s 210 days as Acting U.S. Attorney in the Central District of California will have run out and the Attorney General will appoint him as an interim U.S. Attorney at that time. (i.e. still using the end-run authority because Bush has slow-walked signing the bill),” she wrote.

The Cardona appointment is interesting, to say the least.  It was reported in the LA Times just two weeks ago that a new hire for Cardona’s position was imminent.  The Los Angeles DA Steve Cooley called the pick, Thomas O’Brien, “the most apolitical person selected to that job in quite some time.”  Remember that the vacancy here was made by Debra Wong Yang’s departure to Republican law firm Gibson Dunn, the same firm whose client was Rep. Jerry Lewis, who Yang was investigating at the time.

So Lewis’ team had already bought out Yang (allegedly!), and now they were faced with the prospect of a hard-charging independent former DA in the role.  That must not have sat well with him.  So did Lewis tell the Justice Department to keep their handpicked loyalist in place until he made his way out of Congress (he’s rumored to be retiring)?

Marcy Wheeler also sees another angle here.

Finally, the move is especially curious because Gerry Parsky, a bigwig Republican who heads a Commission that picks judicial appointees in CA, has been particularly cranky about being left out of the process of naming USAs. And DOJ already went around him on this position specifically.

Once Yang resigned in November to pursue private law practice, it was up to the commission to make recommendations to the White House and the Justice Department. But Sampson and Goodling tried to generate candidates of their own. Interviews were scheduled with half a dozen people, many of whom had held political appointments in the department.

Parsky did not respond to e-mailed questions about his role in the process.

After word of the interview schedule leaked, Parsky called the White House and the Justice Department to complain, according to a person familiar with the process who requested anonymity because it involves a personnel matter. Goodling was allowed to proceed with the interviews, but was told she had to tell the candidates that they would have to reapply through the commission.

Ultimately, the commission is believed to have recommended two candidates; the only one interviewed by the Justice officials in Washington was a career prosecutor who has headed the criminal division of the Los Angeles office. The White House has not said whom it will nominate for the post.

Some people close to the selection process suspect Goodling and Sampson were attempting an end-run around the commission to install a politically connected Washington insider, possibly by using a law that permitted the attorney general to appoint interim U.S. attorneys without Senate oversight.

Indeed, Parsky was on board with the Thomas O’Brien appointment, according to the recent LA Times article.  Until it all fell through.

What the hell’s going on here?  Why is it so important to keep George Cardona in the Los Angeles USA seat, in defiance of a law passed by over 85% of Congress?  Does this have to do with investigations of members of Congress like Lewis (and, potentially, Ken Calvert)?  Will there be an effort to suppress the vote in the extremely ethnically diverse region, and must Cardona be the point person for that?  It’s very, very curious.