By Dave Johnson, Speak Out California

It is a popular misconception that taxes add to the squeeze on the middle class.  But it isn’t tax increases that have squeezed the middle class, it’s tax cuts.  It may be hard to believe (after so many years of constant anti-tax rhetoric) but here is why.

The middle class IS squeezed these days.  There are pressures and long hours at work, long commutes, health insurance costs, housing costs, food and gas prices rising, and wages are not keeping up — they haven’t been for a long time.  But it is not a coincidence that the middle-class squeeze began at the same time as the corporate-funded anti-government, tax-cutting fervor.  In fact a good case can be made that many of the reasons the middle class feels squeezed are the result of pressures brought about almost entirely FROM the effects of tax CUTS and cutbacks in government services, regulations and enforcement that went along with the tax cuts.

There are direct and indirect relationships.  One example of a direct relationship is the dramatic rise in the cost of a college education.  Sending kids to college has become extremely expensive.  And this places a very hard squeeze on parents who want their children to get a degree.  But here in California tuition was very, very low before Proposition 13.  Tax cuts directly led to this squeeze on the middle class.  (And remember, most of the property taxes that were cut were on business property.)

Indirect results include rising energy prices from cutbacks in government R&D and subsidies for oil alternatives as well as longer commutes as the government cuts back on transit solutions like buses, trains and roadbuilding or improvements.  Health care costs continue to rise because of government inaction and deregulation — the result of the anti-government sentiment encouraged as part of the the anti-tax campaign.  And insurance costs rise while coverage is reduced or even denied as the government cuts back on regulation and enforcement. (My wife is the one who brings in the health insurance for our family.  Every year she gets a raise, but every year the amount taken out of her check to cover her portion of the health insurance payment goes up by more than her raise, and her take-home pay is lower.  So more squeeze.)

Other areas where the anti-government, anti-tax campaign has increased pressure on the average person is at work.  Anyone that works for a corporation is feeling the extra pressures there.  As government of, by and for the people declines corporate power fills the vacuum.  

And there are so many more areas where we are squeezed by this increasing dominance of corporations in our lives.  As government — the power of We, the People — diminishes, the corporations swoop in to pick us clean.  How many examples of corporate power coming to dominate over people power can you think of?

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Dave Johnson, Speak Out California

Some years ago the corporate-funded anti-tax, anti-government advocates paid their way to become the dominant voice in our civil discourse.  They said there was a magic, simple formula that would lead to shared prosperity.  All we had to do was cut taxes, and everyone would have more money.

Everyone wants to have more money so this sounded wonderful.  It is always a seductive argument to tell people that you have a magic formula that can make things better for them.  One example is machines that create as much energy as they use — or more.  A common myth is that doctors are conspiring to hide the cure for cancer because it would put them out of business.  Another is that there is a formula that turns water into gasoline — or lead into gold.

“Just cut taxes, and we will all have more money.”  “Taxes take money out of the economy.”  “It’s your money and you should decide how to spend it.”

“But,” some people asked, “where will the money come from to pay for our roads and schools and all the things that have made us so prosperous?”  The seductive response from the tax-cutters was that government is an anonymous, incompetent, inefficient “them” that spends too much money that we could all have in our pockets, and if we just cut out waste everything would be all right.  Just cut the waste.

The thing was, whenever one tried to pin them down on specifics of this waste they would never really explain where all that fat really was that they were going to cut — at least not in quantities sufficient to match their tax cuts.  Don’t worry, put us in power, cut the taxes, and it will all sort itself out.

So eventually we fell for it and cut taxes and put the anti-government people in power.  When we noticed that their tax cuts went mostly for corporations and the very rich, they said don’t worry, the money would trickle down to the rest of us.  So we quieted down and waited for the magic to happen.  When we noticed that the corporations and wealthy were getting richer and richer while we were losing our pensions and health insurance and jobs, they said don’t worry, tax cuts make us richer.  We still didn’t understand that you and I and the regular people of California were not part of their “us” that would get richer.

The fact is the public officials that We, the People had elected had done competent jobs and there just wasn’t really much waste to cut.  Why would there be?  The people that we had elected had been good managers of our money.  Democracy and accountability require open, transparent processes that the corporate anti-government, anti-tax advocates labeled as “inefficient bureaucracy.”  That was the waste they had been talking about – the oversight and transparency of good government!  Our elected officials had put these systems in place and they had made sure there was no waste — it was a myth.  

Our government had been humming along, paving the roads, educating our children and investing in projects that led to modern wonders like the Internet.  And we had been enjoying the resulting prosperity.  California had the best public schools, colleges and universities in the country.  We had the best roads, courts, parks, libraries, health care system, water projects and most innovative and open government and this investment had led to a thriving economic ecosystem.  

So instead of cutting imaginary waste we started cutting out this engine of prosperity.  We cut the schools and the road maintenance and everything else.  The education system started getting worse and the roads and other infrastructure started deteriorating.   California fell from first to near the bottom on many scales.  Companies started leaving the state because of the deteriorating infrastructure and lower education levels.

Then when cutting our own services wasn’t enough we borrowed money to cover those tax cuts and pay for what government was left.  We borrowed and borrowed and borrowed.  We were just like the homeowner who refinanced every year as prices went up it seemed like the gravy train would run forever.

Today the borrowing is catching up with us.  As so many homeowners are learning to their dismay: borrowing means payments.  And borrowing more means larger payments.  In California the payments on our borrowing just happen to be pretty close to the amount of our budget shortfall.  The same is true of the federal government.

Now we approach a day of reckoning for our tax cuts.  The bill has to be paid, and the people who received the big tax cuts are pointing the finger at you and me.  We can continue to cut out government and lay people off.  We can continue to cram more and more children into classrooms with fewer and fewer teachers.  We can have longer and longer lines at the DMV.  We can close parks.  We can have fewer police patrols and fire stations and ambulances and health and safety inspectors.  We can just get poorer and poorer.

Or, we can start to close loopholes like the one that lets wealthy people avoid sales taxes on yachts and private jets while the rest of us pay sales taxes on everything we purchase.  We can start to close loopholes like the one that lets oil companies pump our oil out of the ground without paying us and then sell our oil to us.  We can start to raise taxes on the wealthy and corporations who prosper because of the roads and financial and legal system we built, and whose taxes were cut leading to this mess.  They need to stop simply taking and start paying their fair share.  We can do these things and start to restore the thriving economic ecosystem we once had.

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If you tuned into my appearance on Wednesday’s “Which Way LA?” show, you heard me discuss a “structural revenue shortfall” – that since 1978 California has simply not generated enough money to pay for its basic services, from public education to transportation to water. I thought I would expand on that concept this morning, and explain in more detail exactly what I mean by it.

Arnold and the Republicans would have us believe that our budget deficit is caused by overspending in the “good times” that leaves us with huge shortfalls when the economy turns sour. But there isn’t $16 billion in “overspending” and Arnold knows it, as proved by his $4 billion cut for California public schools. Others claim that the problem is locked in and/or frivolous spending – but here again, that only accounts for a tiny fraction of the massive deficit total.

No, the real problem is that since 1978 this state has cut nearly $12 billion in taxes. This was done during economically prosperous periods, particularly the 1990s. And that lack of revenue has piled up over the years – the state has fallen further and further behind to the point now that our state’s governor is seriously proposing ending public education as we know it.

Details over the flip…

Most of the information in this examination comes from the California Budget Project – of whom I have become a huge fan – and specifically their report Two Steps Back: Should California Cut Its Way to a Balanced Budget, released earlier this month. The report is a devastating indictment of this state’s addiction to tax cuts, an addiction that now threatens our ability to function as a modern society.

We have a structural revenue shortfall – in other words, since 1978 we have not raised the money we need to keep our schools, parks, hospitals, and roads open and in good working order. We have instead preferred to waste our money on tax giveaways for a few people while middle- and working-class Californians get stuck with higher costs for lesser services. As we face new crises, such as climate change, the need for public investment is that much greater – and the structural revenue shortfall makes it even more difficult for us to adequately respond to these needs.

Let’s look at the specifics. When we talk of a structural revenue shortfall, most people immediately think of Prop 13. As we explained back in January, Prop 13 was a radical solution to a temporary problem. Conservatives ensured that the state would not have enough money to pay for its basic services by slashing property taxes and then severely limiting the ability to raise them (or any other tax).

But the structural revenue shortfall is not a product of just Prop 13. Since 1993 there have been various tax breaks, for corporations primarily, that cost us $12 billion this budget year alone. These rates were reduced during the “good times” of the 1990s economic boom, but they’re costing us dearly today. If corporations paid the same rate in 2005 that they did in 1981 we would be collecting $7.5 billion more each year in revenue. (These numbers are taken directly from the CBP report.)

Half of that $12 billion comes from the loss of the Vehicle License Fee revenue. As Mark Leno explained, this is the classic example of reckless tax cuts during the “good times” that come back to hurt us in the “bad times.” The CBP estimates that for this budget year (2007-08) we would have taken in $6.1 billion from the VLF had Arnold not killed it as his first act in office. That, as the CBP notes, is more than Arnold’s cuts to K-12 education, parks, and health care combined.

All so that California drivers can save a measly $150 a year. It is an unconscionable situation – the LAUSD is facing $460 million in cuts that would mean the closure of 22 high schools, the firing of 5700 employees, and an 8% pay cut for those that remain. Is this really worth a $150 savings for drivers?

The CBP report also shows that these tax cuts have gone disproportionately to the wealthiest among us. In fact, the poorest among us now bear the largest share of the tax burden. The lowest 20% income brackets pay 11.7% of their income in state and local taxes, whereas the top 4% pay only 7.1% of their income. The result is that  lower income Californians have a higher tax burden – but get less in return for those taxes.

Republicans, ignoring all of the above facts, instead argue that our problem is too much spending. It’s true that spending has risen, but why exactly has this increase happened? Natural population increase, as well as the rather significant inflation we’ve been facing this decade, is what makes the cost of government rise. The fastest growing segment of the population is, in fact, the elderly – not immigrants – which explains why the cost of social services is rising significantly.

So let’s sum up what we have here. In the flush years of the 1990s, California enacted tax cuts that now cost us some $12 billion a year. Spending is rising, but that’s what happens when you have both a growing and aging population, and that increase in spending is on core programs – health care and education – not on frivolities. Half of this tax cost – $6.1 billion – is due to the VLF alone. We are going to destroy public education just so drivers can save $150 a year.

Reversing these frivolous tax cuts would potentially eliminate the need to make crippling spending cuts. And the California Tax Reform Association has identified several more tax changes that could bring the revenue total to $17 billion.

Finally, let’s remember the big picture. Tax cuts do not create jobs – people create jobs. People who are educated, in good health, and who have a modern support system, from transportation to water infrastructure – they are the ones that create jobs. It’s no accident that California became a global leader in innovation and growth only after the 1960s, when we made the proper investments in public services. We’ve been living off of that investment for over 30 years now, and unsurprisingly, we’ve found we can no longer do it.