In Today’s LA Times, George Skelton goes after Arnold Schwarzenegger the tax/fee issue.  SO, before we start, definition wise, here’s what I think the distinction to be.  A fee is charged specific users of specific services that the state provides.  Taxes are just general charges that are not tied to specific services.  Tax increases, under Prop 13, are required to have asupermajority.  Fees can pass with a simple majority (and, of course, a gubernatorial signature).

So, remember how Arnold made lots of “no new taxes” pledges? Well, it turns out that if you call it a fee, they are exempted too.  Yay!!

One of the pleasures of writing a Sacramento column is that politicians read it and occasionally change their minds. I’m thinking that must be what happened to Gov. Arnold Schwarzenegger on taxes.

First, he apparently has bought into my oft-written contention that taxes, as Oliver Wendell Holmes put it, “are what we pay for a civilized society.” In order to enhance the quality of life in an increasingly congested state, taxes sometimes have to be raised.

Schwarzenegger, who previously preached the no-tax gospel, seems to have converted. Why else would he have proposed to sock doctors and hospitals with a new tax to help pay for universal healthcare in California? The docs would pay the state 2% of their receipts and the hospitals 4%, raising an estimated $3.5 billion.(LAT 1/15/07)

Follow me over the flip.

So Arnold decides that taxes are ok now?  Funny thing, Skelton notes, because these same fees that he is proposing are the same ones that Arnold’s campaign cited as a very large chunk of the “massive $18Billion Angelides Tax increases”.

Last year, when Angelides suggested a similar “play or pay” concept – requiring employers to either provide the coverage or pay the state to do it – Schwarzenegger smeared him as a liberal taxer. An absurdly high $7-billion price tag was placed on Angelides’ idea – now essentially Schwarzenegger’s – and that became the biggest piece of the Democrat’s “$18-billion tax increase.”

Angelides’ taxes “would drive California’s economy backward,” the governor repeatedly charged.

The $7-billion and $18-billion figures were distortions shamelessly crafted by Schwarzenegger’s hired-gun political gurus. They quickly left the state after his reelection, scattering to various presidential campaigns.

But they left behind mounds of balderdash for Schwarzenegger to gingerly step through – on top of his own demagogic campaign rhetoric.

Well, actually, I heard that Steve Schmidt is still in town, but I’m not one to quibble over details.  You know, I protested when Westly came up with that $10B, partially because a big chunk was these fees.  But Garry South kept feeding the ammunition to Arnold’s campaign, and off we went trying to come up with a solution.  We want health care, sure, but how do we resolve the fact that Arnold, in campaign mode, said a lot of ridiculous stuff, much of which he had no intention of honoring.

So, we play semantic games.  And I’m not even sure that even approaches my biggest concern for this plan.  My biggest concern: 4%.  4%? WTF? What kind of insurance can you possibly pay for with 4% of say, a $20K cashier at Wal-Mart or Safeway? I’m sorry, but $800 will buy jack squat on the open insurance market, even in a nice state sponsored group.  Safeway, Ralph’s, and perhaps even Wal-mart, likely pay more than 4% now. So what will this end up being? Yup, a big windfall for EVERY employer, with the good citizens of California left holding the bill.  I’m sorry, we don’t need that kind of plan.

So, I return you to what I think I will return to every time the health care issue comes up.  Shiela Kuehl.  SHe has reintroduced her single payer bill that was vetoed last year.  It is the most sensible, pragmatic, and effective plan on the table.  It’s likely the way we will have to get to eventually, even if we pass a form of Arnold’s plan.  Let’s just cut through all the crap and move on down to a real health care plan.  Mr. Schwarzenegger, I’m sure you could find Sen. Kuehl’s number.  Why don’t you give her a call?  You want to really be remembered as the governor who changed California? Sign Sen. Kuehl’s bill.

I have an idea that I’ve been kicking around for years — I don’t think it was entirely my idea, originally, but I’ve honestly forgotten where I first got it from — that perhaps could cut the Gordian knot of the California budget process.  I suspect it would have to be passed through an initiative process (because of the supermajority thing in the leg), and the actual numbers to balance the budget would need to be filled in by some very talented finance folks.

If you’re curious, read the full post.  And let me know what you think.

I posted about this in comments on a (somewhat wingnutty) diary about Prop 86.  I am probably going to vote for the tobacco tax, but I have to admit that I dislike our habit, in California, of tying specific revenue streams to specific programs.

JSW points out (rightly) that the reason we do this (and indeed, the reason I’ll vote for 86) is that we can’t let the perfect be the enemy of the good.  A sane tax structure is not on the table, in California, because of Prop 13 and the huge supermajority requirement to do anything serious to reform the tax code.

So.  How about we abolish property taxes entirely?  That would make Prop 13 a dead letter.  We can replace the revenue stream with a zoning-based land tax (a low per-sqft rate on residences, a small credit for maintaining inspected public green space, and a higher rate for commercial and industrial space) plus a fairly steep real-estate capital-gains tax (to discourage speculation and capture the state’s share of the increase in value of the state’s land — land increases in value because of the society around it, not because of anything inherent to the soil! — which previously was captured through periodic assessment for property taxes).

This change would need to be phased in (having the property tax base rate continuing to rise at the Prop 13 rate, but with a falling multiplier discounting it away, while the new taxes were phased in at the same linear rate, and with the multipliers for the two tax systems always adding up to 100%).  This perhaps should be done over as much as 30 years (the life of a typical mortgage).  The point is to avoid creating windfall profits and losses, like Prop 13 did — it gave a huge benefit to older people who already owned homes, and disadvantaged younger people who wanted to buy later.  It continues to operate as a punishment to families that want to move, or that are first-time home-buyers.  If you’ve bought a house in CA since the early ’80s, you’re a victim of Prop 13, not a beneficiary.  Possibly you could do the phase-in somewhat faster, maybe as little as ten years.  In any ten-year period, there’s very likely to be a period where advantageous refinancing is available (due to standard cycles in interest rates), and that probably will help people deal with any change in expectations about the cash flows associated with real estate ownership.  In any case, as I said to begin with, there are details to nail down.

I haven’t ever applied any sort of rigorous legal or financial analysis to this.  But I figure, maybe it’s time I try to get it in front of people who actually know more about the tax code.  Any takers?