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.

The legislative budget committee working on closing the deficit responded to Governor Schwarzenegger’s demands for “efficiency” in state government by cutting his own staff.  This is quite an opening salvo, and basically a giant middle finger in the Governor’s face.  And both sides of the aisle were all too happy to do it.

A legislative budget committee voted unanimously Wednesday to eliminate state agencies altogether, taking dead aim at an administrative layer of gubernatorial bureaucracy that oversees most of the state’s departments.

The 10-member panel — six Democrats and four Republicans — also voted to eliminate the Office of the Secretary of Education, which lawmakers said is unnecessary because the state already has an elected Superintendent of Public Instruction and a State Board of Education.

Gov. Arnold Schwarzenegger recommended last month that lawmakers consolidate more than a dozen boards and commissions to save $50 million. Schwarzenegger also began laying off 5,000 rank-and-file state workers.The Legislature’s move Wednesday appeared to be a sharp retort directed at higher-paid administrative appointees who oversee the departments that provide direct state services.

I really like what they did with respect to the Integrated Waste Management Board, which costs the state no money at all.

Schwarzenegger told lawmakers Tuesday that they should eliminate the Integrated Waste Management Board as a first matter of course before making any other cuts. The board would save the state no general fund dollars, but it has become an easy target because it contains ex-legislators who earn six-figure salaries while serving on the board.

The budget conference committee on Tuesday instead recommended that the state eliminate the Department of Conservation and the Department of Toxics Control while moving their functions to the Integrated Waste Management Board. The committee also recommended that the Integrated Waste Management Board members become part-time and take reduced pay.

The Governor’s spokesman Aaron McLear smiled through gritted teeth in response to all this, saying that he’s “thrilled” the legislature is joining the effort to make government more efficient, but saying he would not support eliminating any of his OWN authority, of course.  He would only support eliminating the Secretary of Education, for example, if the Department of Education (now under the State Superintendent of Public Instruction) were moved into the executive branch.

None of this means that the Legislature will suddenly get religion and reject all of Arnold’s bad cuts.  The Obama Administration okayed $6 billion in education cuts without threatening stimulus funding, and you can bet the Governor will take him up on the offer.  And Democratic leaders, at least, appear in agreement on a number of cuts.

But this is the first example of the Legislature really pushing back at the Governor, and letting him know he doesn’t rule California by fiat, nor does he get to unilaterally decide to run it into the ground.  In addition, the more public disclosure of the billions in corporate tax cuts in recent budget deals while the programs for the poor get slashed brings a disconnect to the process on which perhaps some progressive lawmakers can capitalize.

The tax loopholes made it through the Legislature with no public hearings and little analysis of the effect, said Jean Ross, executive director for the California Budget Project, a research group that studies the effects of policies on the poor.

“The problem with dark-of-night deals is that you never get a chance to get a debate over value choices,” she said. “These three tax breaks represent a reduction of one-third the income taxes paid by California corporations…. They really represent a stark contrast in values and what kind of future we want to see for Californians.”

The tax breaks will cost the state $640 million for the rest of this fiscal year and for the 2010-11 budget year as lawmakers search for ways to close a $24.3 billion deficit, according to Ross’s report, “To Have and Have Not.” By the time they are fully implemented in 2014-15, the tax breaks could cost nearly $2.5 billion a year, she said.

Corporations are LYING, by the way, when they say that this makes the state more competitive.  See this paper or this one showing that state enactments have had little effect on economic development.  Big business simply wants to lighten their tax burden.

The legislative revolt against Schwarzenegger could be directed into sensible options for closing the budget gap, like repealing the corporate tax cuts, restoring the Reagan/Wilson tax brackets in between $47,500 and $1,000,000 imposing an oil severance tax, extending the sales tax to services while lowering the overall percentage, boosting enforcement of tax cheats, and more.  Right now, we have to settle for signals.  And this is a particularly good one.

Arnold Schwarzenegger’s address to the legislature was notable only for its fatuousness.  He demands the destruction of the social safety net in California and pleads that we have “no choice,” while hiding the decisions he made which brought us to this point. He claims that his budget is not “just about cuts,” then offers the same reforms that the voters have time and again rejected, or half-measures like firing groundskeepers (to privatize school responsibilities to low-wage contractors, incidentally).  Evidently, the May 19 special election, which has been massively over-interpreted and interpreted wrongly by the Governor, was supposedly a call to arms against tax increases, but a spending cap and rainy day fund, which were on the ballot and voted down by 66% of the electorate, are still viable ideas.  He drew a line in the sand by calling for the dissolution of the Integrated Waste Management Board, an organization that IS NOT FUNDED WITH ONE PENNY FROM THE GENERAL FUND but instead with fees on garbage collectors.  He talked about spending less per inmate on the prison population but his budget seeks only to get rid of precisely the services, rehabilitation, drug treatment and vocational training, that would lower recidivism rates, unstuff the prisons, and allow us to spend less on their management.  He admitted that money from the sale of surplus property cannot go toward the General Fund, in a fleeting moment of truth, but claims it would lower our debt payments, which is true, but precisely what Arnold has been increases with borrow and spend policies for the last six years.

Of course, Arnold urged swift passage of all his Shock Doctrine proposals, because that’s how it works.  The goal is to give nobody time to think, only to acquiesce in the face of crisis.  Some, like Assemblywoman Nancy Skinner, will not put her brain on autopilot, mindful of the Depression that would ensue from an all-cuts budget and the drastic consequences for our economy.

“The Governor’s opening statement that the voters in rejecting the special election measures said, “don’t ask us to solve complex budget issues, that’s your job,” is right,” she said. “He was wrong however in his assertion that Californians want an all cuts solution …We have choices. For instance, restoring the top income tax rate on high wealth incomes of $250,000 and above in place under Republican Governors Pete Wilson and Ronald Reagan would allow us to avoid $4 billion of these cuts. Enacting an oil severance fee on oil drilled in California, revenue collected by every state and country in the world that produces significant amounts of oil, could avoid another $1 billion in cuts.

“The Governor talked of us acting courageously. Acting courageously is looking at all alternatives and making smart, rational choices that lessen the cuts with some sensible new revenues,” she said.

Noreen Evans, similarly, has stepped up, at least rhetorically, to offer a counter-weight to the Governor’s Shock Doctrine tactics:

SACRAMENTO – Santa Rosa Assemblywoman Noreen Evans is emerging as one of Gov. Arnold Schwarzenegger’s fiercest critics, a noteworthy development given her prominent role in the high-stakes back-and-forth over the state budget crisis […]

“I don’t know what the point of that exercise was, really,” the Democrat said immediately after the speech as she stood outside the Assembly chambers.

Schwarzenegger told Assembly and Senate lawmakers that he has “faith in our ability to once again come together for the good of the state.”

But Evans said the governor was not helpful “at all” in bridging the divide between Republican and Democrat lawmakers. Rather, she labeled Schwarzenegger’s approach to budget matters as one of “shock and awe.”

“It’s working because it’s shocking, and it’s awesome, and it’s terrible,” she said.

While there are some voices in the Legislature creating pushback, my experience is that the Democrats fall in line with their leadership (same with the Yacht Party, actually; it’s practically a Parliamentary system).  And given the clear signs from Bass and Steinberg to bend over backwards to enable Arnold’s proposals and get it done quickly, I think the only way to halt this forward march would be to mass support inside the Capitol around specific proposals.  For instance, the California Budget Project today released a report about the $2.5 billion corporate tax cuts included in recent budgets in September 2008 and February 2009, cuts we certainly cannot afford in this economic climate.  If everyone must share in the pain, as the Governor said, that must mean something. And so these $2.5 billion in corporate giveaways ought to be repealed.  Period.  Full stop.  Here are some of the gems from these tax breaks:

Nine corporations, dubbed the “lucky nine” in the CBP’s analysis, will receive tax cuts averaging $33.1 million each in 2013-14 due to the adoption of the elective single sales factor apportionment, according to estimates by the Franchise Tax Board.

Eighty percent of the benefits of elective single sales factor apportionment will go to the 0.1 percent of California corporations with gross incomes over $1 billion.

Six corporations will receive tax cuts averaging $23.5 million each in 2013-14 from the adoption of credit sharing.

Eighty-seven percent of the benefits of credit sharing will go to the 0.03 percent of California corporations with gross incomes over $1 billion.

Are there 27 Democrats in the Assembly, or 14 in the Senate, willing to go to the mat to force the repeal of these unnecessary corporate giveaways, providing revenue that can go to the poor, the sick, the infirm, the elderly?  Rank and file Democrats never think to show their power in these negotiations.  In a time of crisis, they should – and force the Governor toward a more equitable solution.  Richard Holober’s post, which I referenced earlier, closes with this:

It’s time to re-unite a fractured progressive movement – based on hope, not fear. We need leadership that can think beyond the imminent crisis, reach out to build a coalition, and organize for budget justice. Labor and community based activist organizations must supply the leadership.

Let’s mobilize behind broadly supported values: require corporations to pay their fair share of taxes; increase the progressivity of our tax system; and eliminate undemocratic super-majority budget and tax rules that give a handful of reactionary politicians a stranglehold over funding our schools, health and public safety services. The campaign may take years. We can win, but first we need to get out of the budget crisis bunker.

Which politicians will enable us to escape that bunker?

I just appeared on KPFA with Eric Klein to talk about the Governor’s proposed budget cuts, along with several experts and stakeholders, including friend of Calitics Anthony Wright of Health Access California.  I agree with him that it’s almost hard to fathom the amount and severity of the cuts proposed for health care, especially at a time with the federal government is moving forward with a “do or die” plan to reform the health care market, increase access and lower costs.  The proposed Governor Hoover cuts would have the exact opposite effect, and the people gravely impacted by this will not have the luxury of waiting around for the Feds to catch up and fill in the gaps.

Two recent CBP fact sheets help break down the Governor’s proposed cuts to Medi-Cal and Healthy Families, in numbers that are easier to grasp. These fact sheets show:

More than 940,000 California children would lose health coverage if the Healthy Families Program is eliminated as the Governor proposes. More than 240,000 children in Los Angeles county alone would be affected. Want to know how many children would be impacted in your county? Check out the fact sheet to see.

In total, more than 1.9 million Californians could lose access to health coverage within three years through proposed reductions to the Medi-Cal Program and elimination of Healthy Families.

As the Governor said himself today, “behind every one of those dollars that we cut there are real faces.”

Kudos to the LA Times, by the way, for allowing the great unmentionable to get printed on their pages – the decisions made in Sacramento will truly be the difference between life and death for many Californians.

Schwarzenegger argues that the state’s declining economy and plummeting tax revenues have boxed California into a corner, forcing deep and historic cuts in the health and welfare programs that form the state’s social safety net. Without those tough measures, he says, California will cartwheel toward insolvency.

But a 10-person legislative budget panel, which is reviewing the governor’s proposals, listened during a long day in a crowded hearing room to scores of people who said their survival depends on programs set to be hit by the budget ax.

They heard from mothers of children with autism, representatives of people on dialysis, poor parents whose children see dentists on the government’s dime, former drug abusers set straight by a state rehab program.

And they heard from a woman named Lynnea Garbutt who has lived with AIDS all of her 24 years.

She has survived with the help of a state program that provides the expensive antiviral drugs she takes. Now, with that program facing elimination, she pleaded with lawmakers to save it — and her life.

“If these cuts take place, you’re not just cutting money from the program — you’re cutting my life,” she told the panel, her voice shaking and tears falling. “I choose to live. Please don’t make me die. My choice is life.”

This is how Yacht Partier Chuck DeVore responded – move out of the state.  Love it or leave it!

The cuts made to programs like Healthy Families (California’s SCHIP) would eliminate federal matching funds and double or triple the scope of the cuts.  And it would be one thing, by the way, if the Yacht Party simply held the line and said “we can’t afford it.”  But no, they want to spend billions of dollars, only on their own projects instead of saving human lives.

In this article in the San Diego Union Tribune, the same Republicans (and Republican governor) who would eliminate children’s health care and basic services for the neediest Californians, actually want the state to pony up the money for a water bond.

Schwarzenegger, says the article, is still fixated on a whopping $10 billion bond. And Senate Republicans are right there with him:

“Sen. Dave Cogdill of Modesto, the lead Republican on water issues, agreed. “It’s obviously a tough time to bring it forward, but we can’t wait,” the article notes.

We can’t wait? According to my calculator, If the entire $10 billion was sold together, the interest payment could be in the neighborhood of $660 million annually. That’s $660 million more that would have to come out of  schools, health care, and other items on the chopping block.

Similarly, the Yacht Party cried poor about programs that help people, but made room in the February budget for a huge corporate tax cut.

Everyone who has spent 10 seconds on this recognizes that there’s no good way to use current revenues to provide the basic level of services Californians deserve.  To the extent that I have hope that we will overcome the selfishness of the cruel and the impossibility of navigating a broken system, it comes from people, who are fed up and starving for leadership and change from a government that no longer serves their interests.  To turn the figurative starvation literal, Los Angeles teachers are going on a hunger strike to protest budget cuts.  We’re all hungry, and we’ll be a lot hungrier if Governor Hoover has his way.

Despite his admission that California is ungovernable, the Governor soldiered on today, announcing the full slate of revised budget cuts to replace his proposed borrowing, since scrapped, and to fill the even larger deficit estimated by the Legislative Analyst.  As expected, the Governor called for eliminating the CalWORKS program for the poor, eliminating Healthy Families to provide health insurance to poor children, and phasing out the Cal Grants program which provides financial aid to California students.  But that’s not all. As Noreen Evans says, the Governor’s cuts “dismantle the New Deal.”  Here are some of the lowlights in these 25 distinct cuts:

• Add another furlough day to an already-negotiated contract between the Governor and SEIU Local 1000.

• Cuts $1 billion dollars over 3 years to UC and CSU budgets.

• Eliminates CalFIRE equipment repair and replacement for one year.

• Eliminates all General Fund support for state parks, forcing them to become self-sustaining to survive.

• Cuts Medi-Cal coverage for breast and cervical cancer treatment and dialysis.

• Eliminates funding for Indian Health Services, Rural Health Services, and Seasonal Agricultural Workers.

• Reduces funding for the AIDS Drug Assistance Program.

All in all, we’re talking about $6 billion or so in further cuts, most of them, as you can see, to the most vulnerable members of society.  More than 1.9 million Californians could lose health coverage as a result.  About the only positive here is that the Governor follows through in commuting the sentences of nonviolent, non-serious, non-sex offenders, for one year only, in 2009-10.  Of course, he won’t invest the time or money in treatment and rehabilitation that would save the state billions in the long run by completely revamping our corrections system.

Now, we’re told that, since the citizens won’t accept any new taxes (the truth, of course, is that the special interests won’t accept them), because they supposedly let their voices be heard (in record-low numbers) in the special election, this is the best we can do.  Let’s set aside the fact that public opinions on this front are contradictory at best and the very opposite of what the Governor suggests at worst.  The truth is that anyone who tells you we must cut, cut, cut because there’s no other option is lying to you.  

The only permanent tax measure in the entire February 2009 budget was a giant tax cut for the largest corporations in America.  At a time when revenues are scarce and no money can be found for poor children or student grants-in-aid, every large corporation will be allowed to decide for themselves how they choose to be taxed by the state of California.

At issue is the new “elective sales factor,” a system for determining how much tax a company should pay in the state. Up to now, California’s tax system taxed corporations using a formula based on employment, property and sales in the state, sometimes know as a “triple factor” system.

Many companies have long argued that this traditional way of calculating taxes punishes companies that invest in the state and create jobs, but critics disagree. Under the new elective system, set to go into place for the 2011 tax year, companies can choose to pay under either the triple factor formula or via the  “single sales factor” system, based entirely on their sales in California.

“The policy behind a single sales factor formula is you reward the companies that heavily invest property and payroll in the state,” said lobbyist Chris Micheli, who represents numerous corporate clients with his firm, Aprea & Micheli. He said he did not personally lobby on the elective sales factor provisions.

The most vocal critic of these changes is Lenny Goldberg, executive director of the California Tax Reform Association. He said he is opposed to single sales in the first place-but that allowing companies to choose which system they use is even worse. He said companies will now be able to report more revenue to the state in good years and move losses into the state in bad ones.

“Tax policy should be consistently applied,” Goldberg said. “But we’ve given this elective that provides for infinite manipulation.”

The changes were part of a budget trailer bill, ABX3 15, authored by Assemblyman Paul Krekorian, D-Burbank, and a related bill from the Senate, SBX3 15 by Senator Ron Calderon, D-Montabello. Goldberg said these bills negotiated behind closed doors, without hearings, during rushed budget negotiations-leading to a very bad deal for the state.

“This is the gutting of the state corporate tax,” said “In fact, they did it so badly that lawyers are chuckling about the opportunities for tax avoidance.”

This would make California the only state in the nation to give corporations a choice on how they would like to be taxed.  It will make the state’s finances more volatile forever, because as Lenny Goldberg says companies can use California as almost a kind of tax haven.

By the way, such a tax evasion was pushed as much as anyone by Democrats in areas with high-tech sectors.  They have been clamoring for this shift in corporate tax policy for a generation, and they slid this into the budget at the last minute.  And… wait for it… reversing it will require a 2/3 vote.

You can argue about whether or not this would spur local investment or just provide a giveaway – although the facts point to the latter.  You cannot argue at all that, in the midst of an historic recession and a dearth of revenue, now was the best possible time to hand out what could be $1.5 billion dollars a year in a huge corporate tax break.  Supposedly, we’re told by the Governor and political leaders that now is a time for sacrifice and to “live within our means.”  Surely the corporations ought to be held to that same standard.  We are in a situation where we have no money for parks, no money for the poorest in society, but enough to give a huge corporate tax cut.  Surely they feel the civic responsibility to contribute their fair share.  Surely they understand the dangers of a less-educated, less-healthy workforce on their personal bottom lines.  Surely they aren’t all about the MONEY.

It shouldn’t stand.  The Democratic leaders in the legislature, who allowed this to go forward with nary a peep in February, should not be allowed to get away with such complete double-talk this time.  That $1.5 billion would save almost every program I bullet-pointed above.  If they want to cut their way to glory, at the very least they can repeal this massive, unjustified corporate tax cut.  The reason the next Governor will inherit a mess is mostly process, but also the failure of the Democrats in the leadership to look out for the best interests of the state and allow far more hijacking than is reasonable.  15 Democrats in the Senate and 27 in the Assembly could actually DEFY that leadership and demand a repeal to this tax giveaway.

Otherwise, they have absolutely no standing to argue that the cuts-only nightmare we will soon face represented “the best they can do.”

I spoke at yet another Democratic Club meeting on the May 19 propositions yesterday, against yet another member of the California Legislature, Julia Brownley (who I really like and respect).  One thing I sought to make clear to everyone is that we are going back to the drawing board on May 20 no matter what happens on May 19.  The Legislative Analyst already finds the February budget deal to be $8 billion dollars out of balance, and April tx receipts came up $1.8 billion dollars short of the budget projection.  Some of us recognize that this means alternative solutions must be gathered right now, because Democratic legislators will be stuck in the chamber with the Yacht Party on May 20 regardless.

I was heartened to hear Assmeblywoman Brownley note that a majority vote fee increase will probably be part of the solution.  When the Legislature passed this in December, they raised more money than would be sacrificed if Props. 1C, 1D and 1E failed.  An argument could be made that the majority vote fee increase combined with the passage of those props would obviate the need for almost any cuts.  I think that’s faulty reasoning, since 1D and 1E ARE cuts, to vital services that will cost the state more money in the long run.  As for 1C I find it completely unworkable and just a borrowing gimmick.

I do have to say that it would be much easier to swallow this posturing from the ballot measure supporters that they would have no choice but massive cuts on May 20 if everything failed, if they didn’t enable massive permanent corporate tax cuts in the last budget deal…

Corporate tax attorneys are chuckling over the absurd deal in the last agreement that lets multistate and multinational taxpayers decide, each year, how much income they want to report to California. Because this was negotiated in private, with no hearings and no independent expertise brought to bear, the result is a giveaway and a national embarrassment, in a state that had prided itself on a fair, successful corporation tax.

Here’s how it works. Each state typically figures out what percentage of a large company’s business is done in the state, and then taxes that percentage of income. Historically, if 10% of a multistate company’s payroll, property and sales are located in the state, then 10% of its nationwide or worldwide income is subject to tax. In the budget deal, California changed the formula to allow companies to choose to make that percentage based only on sales in California.

…and if they didn’t protect the very corporate interests who are now bankrolling their ballot measures:

The entire architecture of the ballot pact that emerged was heavily shaped by leaders’ desire to please – or at least neutralize – the state’s most powerful political players.

Now, some of those very interest groups protected in the budget deal are bankrolling the campaign to ratify it.

For the oil industry, the package omits a once-proposed 9.9 percent oil severance tax. Energy companies have given more than a million dollars to pass the plan, led by a $500,000 donation from Chevron.

For the liquor, beer and wine industry, increased alcohol taxes were shelved. Alcohol industry heavyweights, such as E. & J. Gallo Winery ($100,000) and California’s Beer and Beverage Distributors ($50,000), have all opened their checkbooks.

For the teachers union, the list of ballot measures includes a separate measure to ensure repayment of deep cuts to schools and protections for top-priority programs. The California Teachers Association has contributed $7 million to the passage of Propositions 1A and 1B.

For casino-operating Indian tribes, the state lottery measure avoids any new games that could threaten their gambling operations. Tribes, who could have been major contributors against the lottery proposition, have kept their checkbooks closed.

In the last budget deal, all the industry-specific taxes, all the service-based taxes that wouldn’t be so regressive, faded away, and the same groups protected by that fade (including practically every sports team, as sporting event-industry taxes were once on the table) ponied up for the special election.  So pardon me if I don’t believe your lament that you’ll just be forced to cut state services, when you found room for billions in tax cuts to the largest corporations in America and protected every single industry that could donate money for ads and mailers.  Let’s just say I don’t buy the image of a legislature with their hands tied.

When Arnold Schwarzenegger isn’t governing by magazine cover, he’s governing by Sunday talk show.  This is a good venue for him, because nobody asking him questions has any idea what Arnold’s actually done to California, and he can spout off one-liners and talk the Beltway language of post-partisanship without rebuttal.  These kinds of interviews are never given to reporters in his home state, because they might actually have experience with his tenure and thus would be in position to know a lie when they see one.

For example, the Governor is getting a lot of ink for the line about how he’d be willing to take any stimulus money from any governor in the country who rejects it.  Less discussed is the essential falsehood present in this comment:

STEPHANOPOULOS: So when you — we’re looking at a similar budget crisis in the coming years here in the United States. Does the Republican Party have to re-think its absolute opposition to tax increases of any kind?

SCHWARZENEGGER: Well, no, I think that the Republican Party or any party has to always think, when you make a decision, “Do I want to make a decision that’s based — that’s best for the party? Or am I a public servant and have to serve the people, what is best for the people?”

And in this particular case, in order to solve a $42 billion deficit, the only way you can do that is a combination of making severe cuts and also having some revenue increases.

Really?  Arnold was “listening to the people” when he helped ram through a massive corporate tax cut, in a time of deficits, for large multinational corporations?  Show me the poll where the public was clamoring for a multinational corporate tax cut.  How about the poll where the public was desperate for waiving environmental laws regarding public works projects and delaying implementation of laws regulating diesel emissions?  Actually, the California public has spoken pretty profoundly that they want a serious reduction of greenhouse gas emissions.

I mean please.  This is a guy who campaigned almost entirely in 2003 on cutting the vehicle license fee, costing the state almost enough to fill this entire budget gap over 6 years, and now he’s raised it after admitting defeat.  Arnold Schwarzenegger is a born liar.  He has the interests of the California Chamber of Commerce and anything but the people of California.  That’s why he refuses to engage with them or their elected representatives, preferring to float above it all and run to the national media with false tropes about “serving the people.”  Forget just apologizing to Gray Davis, he should abdicate to him.

This last bit from John Myers was amusing:

And in non-governor news, he confirmed an interest in a cameo appearance in an upcoming Sylvester Stallone flick, picked Mickey Rourke to win an Oscar, and said The Candidate was his favorite political flick. That movie is an interesting choice, given it’s about a candidate who’s so focused on winning — rather than governing– that after his victory famously says: “What do we do now?”

Exactly.

Before last night’s blogger conference call with LA City Council President Eric Garcetti, my opinions of the budget deal from Sacramento weren’t very well-formed.  I think I have become so inured to craptastic solutions from Sacramento that this one looked no worse than others.  Of course, I don’t have a responsibility to constituents and a need to implement the outlines of the plan, so Garcetti’s very forceful words against the package kind of snapped me out of my slumber.  Here’s a paraphrase.

“I think it’s a reflection of a broken system.  It’s like shooting a little morphine into a sick patient.  I think depending on federal dollars to balance the budget is irresponsible, and will blunt the impact of the stimulus.  It means that the county and school districts will see a lot of projects rolled back.  The health care cuts are going to be devastating.  You’re going to see a lot more homeless people this year, a lot more people who need critical care and can’t get it.  So there is no joy in this resolution other than that it is a resolution.”

Very strong stuff.  And he’s not wrong.  My one quibble would be that it’s not the reliance on federal stimulus dollars to balance the budget, which is necessary and will save jobs throughout the system, that gets me, but the continued reliance on borrowing and the raid of voter-approved funds for mental health and early childhood programs, which is illegal and will require the unlikelihood of passing new initiatives.  

There isn’t any margin for error if, say, one of the FIVE measures that will now be on the ballot in order to secure the budget fail, or if the giant corporate tax cut fails to satiate business, or if nobody wants to buy our debt or buy the state lottery, which is losing revenue.  It’s another seat-of-our-pants craptastic budget which makes no long-term solutions and essentially keeps intact a broken structure.  Garcetti is right that the problem is systemic, and so that’s the goal for progressives in the state for this point forward – systemic change.

Well, Sacramento lawmakers miss their homes and they have a couple months of campaigning to do.  So they got together and hammered out a no-taxes, no-borrowing, cuts-and-gimmicks budget that delays for at least a year the great reckoning that California desperately needs if it wants to have a functioning government.  Of course, there are new taxes in the deal, in the form of gimmicks that will eventually force the state to raise taxes higher in the future.  For example, the budget apparently borrows from taxpayers:

A key element of the deal would increase by 10 percent the amount of income taxes withheld from working Californians, and from taxpayers who earn income from investments.

The maneuver would generate about $3.8 billion to ease the budget crunch, but the plan calls for providing future refunds to affected taxpayers.

In other words, we’ll all be giving California immediate cash they then will have to hand back to us later, increasing the need for future revenue adjustments.  In the short term, this literally cuts the wages of workers in the state across the board, particularly those who can least afford it.

In addition, there are new truck-sized loopholes that will be shepherded in here.  This is from the California Tax Reform Association, and if true, it’s a bombshell:

In exchange for a small amount of temporary short-term revenues, the Legislature is poised to open two vast new loopholes in the corporation tax, loopholes which will continue indefinitely.  The impact will be to greatly diminish the corporation tax at future costs to education, health care, and public safety. This is a huge giveaway to multinational corporations.

Those loopholes are:

Net Operating Loss Carrybacks.  In exchange for suspending the ability of corporations to take losses going forward for two years, the budget deal would permit loss carrybacks-the ability to get refunds against prior taxes based on a year’s losses.  

This is nothing but a tax shelter which destabilizes the general fund.  It gives a refund for taxes already paid, with such refunds coming most likely when the economy is in recession. As a result, when we’re making cuts, the state will be cutting refund checks to large corporations. The ability to take losses into the future has been part of tax policy for 20 years, but the legislature has rejected carry-backs for 20 years, because it is nothing but tax manipulation.

Cost:  at least _ billion per year, but likely more because of the second loophole.

Exchanging credits among affiliated corporations.  For state tax credits, the state has always insisted that the credits be taken by the corporation that engaged in the activity which is eligible for a credit.  In exchange for limiting corporation tax credits for two years to get short-term revenue, the budget deal opens up the ability of affiliated corporations or subsidiaries to transfer their credits among other corporations-forever!  

There are many billions in unused credits from companies that have not earned sufficient profit to use them.  This proposal will open the ability of companies to effectively sell these credits-e.g. by allowing ownership by another company-so that the billions in unused credits can now be used by profitable corporations.  

Cost:  this could be billions per year and will total many billions over the years. In combination with loss carry-backs it will open the corporation tax to endless manipulation.

If you’re the state controller, you can say goodbye to collecting one dime of tax revenue from corporations in the foreseeable future.  I guess we’ve finally become a business-friendly state after all.  Thank you, shock doctrine!

And in addition, there will be very real pain from this budget, not just in the future, but right now.  Just in the area of health care, the costs are tremendous.

The immediate cuts in the budget deal are expected to include:

• increased reporting (every six months in Medi-Cal) with the purpose of having over 250,000 children lose coverage.

• increased Healthy Families premiums.

• delayed restoration of the 10 percent Medi-Cal provder rate, leading to a loss of hundreds of millions of federal matching funds.

These are severe cuts that will hurt not just hundreds of thousands of patients, but our state’s health system and our economy.

You read the first one right, the goal is to use “death by paperwork” to kick a quarter of a million children off of Medi-Cal.  This is the honorable, do-no-harm budget our legislative leaders have constructed.

There was no reason to believe that any persuasion would have worked on the Yacht Party from the beginning of this session.  Dragging this out 77 days so we could provide a big ol’ giveaway to corporations while doing nothing to address the long-term structural deficit doesn’t make a lot of sense.  It would have been better to force the issue through ballot initiative right now, and end this madness of a 2/3 requirement for budget and tax matters.  The state is poorly run because so much energy is put into overcoming intractable structural hurdles rather than trying to streamline a bureaucracy that must serve 38 million people.  This starts with injecting minimum accountability for the party in power and allowing lawmakers to do their jobs.  I believe that Karen Bass and Darrell Steinberg know this, and they will be more reluctant to go along with drilling a giant financial hole for future generations.  The question is whether or not they’re too late.