Wednesday, May 27, 2009

What's the latest in the world of taxes?

California wanted to cover it's deficit in part with the 1A-1E propositions. The Obama administration wants to cover its universal healthcare project in part with the Cap and Tax (Cap and Trade; sorry!) legislation. And some in Congress are looking at paying for everything else in part with a new national sales tax.

Well, Rahm and Barack didn't waste their crisis, of that we can be sure. Please bear with me while I write only a semi-serious post because I don't have time now for a serious one. All of the scary ideas shown above are for real though. I've seen and heard them from multiple sources in the news.

Now, recall Amy Winehouse' song "Rehab" and its "No, No, No!" refrain. Or if you'd rather, Aflac's commercial in which the goat is eating the paper and saying "Naw, Naw, Naw!". Take your pick of those, but either way, that's what we TEA partiers and the rest of us in the electorate should be saying to new taxes.

Imagine a curve on a graph that rises and then falls somewhat like a bell curve. The X axis shows the amount of taxing and spending, and the Y axis is the number of votes for the pols in question. If this much taxing and spending hasn't bought all the votes they're gonna get, then no additional amount will do it. It's hit a point of diminishing returns. The TEA parties are a first loud manifestation of this. Eventually it will get loud enough that even the dumbest, deafest pol will hear it.

The key test is whether this will occur before or after permanent damage has been done to the American economy, civic environment and way of life.

Oh, and a VAT (Valua Added Tax) such as used in Europe is a somewhat slicker and slier alternative to a new national sales tax. In fact, many economic theorists I've respected over the years have preferred a VAT to both a sales or an income tax. But the question was asked on aTV news show today, "So, could either of the those replace the income tax"? The answer was a resounding "No, it would of course be in *addition* to the our income tax"!

Thursday, May 21, 2009

California Election - What Happened?

California had its election Tuesday May 19th and we've all had a couple of days to digest the results. 1A through 1E failed by hefty margins and 1F passed. 1F is the pay cap for pols in deficit years. My interpretation is that the electorate is angry and just said "No!" to everything in sight but the pay caps. That's a good start. We, the California electorate, should have gotten angry and stayed angrier a long time ago.

Remember Arnold Schwarzennegger's mandate when he won the recall election? It was intended to be a turn toward fiscal responsibility and to cure the ills amplified by the previous governor, Grey Davis. It didn't quite work out that way.

The tax-and-spend liberal machine that owns Sacramento has fought Arnold to a draw and stalemate, at least. Or possibly the machine has won and is rumbling its way over the financial cliff. It's possible that history will show that California was "GM'ed" by the public worker's unions starting a long time ago. I read somewhere that there was a union voting disaster facilitated by Jerry Brown while he was governor. That's going back a long way indeed. But its effects are ongoing. And we should remember that Jerry Brown still lurks in Sacramento as Attorney General, possibly positioning himself for larger office and opportunity.

Lastly I want to call attention to Proposition 1A. It seemed to be an effort to reduce the "pro-cyclicality" of California's spending. That sounded good, until I got to the massive tax hike part. If we in California thought on a more Chinese-style long-term timeframe, 1A might have been written differently.

Tuesday, May 19, 2009

Calornia Propositions A-F election today, cont.

As a first follow-up, here's some quick arithmetic. The result is that Proposition 1A wants everyone in California to pay an additional $422 a year, on average.

Here's the breakdown. Proposition 1A's summary/analysis says that state tax revenues would rise by about $16billion a year through the 2012-13 year. So let's look at that number as 16,000,000,000. says that California's population was 36.46 million in 2006, and increases by about 1.267% a year. So we'll take 36,460,000 and multiply by 1.01267 three times to compound to 2009. We get 37.86million, with a little rounding. Or we can write it 37,860,000. We'll cancel out three zeros from each number and divide. 16,000,000 / 37,860 = 422.61.

I think I know how I want to vote. That kind of marginal tax increase is very contractionary, as in the opposite of stimulative. And in California it's about wealth creation and getting the economy going again. Or rather, it should be.

Calornia Propositions A-F election today

Well, today is our election in California. The date got here fast and I haven't done my research into these propositions. The usual newsprint pamphlet containing the legislative analyses is missing from our house. Either we've misplaced it or we never got it.

I noticed a huge lack of URLs for information about the propositions. The single paragraph blurbs on the ballot don't mean anything. The basically explain nothing about the proposition, except the subject from the 60,000-foot level. And especially in this election, I don't believe what I've heard and seen in the political print ads and on TV. The ads are so slanted that they don't really make sense to me. The marketing program for these propositions basically "stink to high heaven"!

If you want to research these, here are some links.
Gotta love the one for 1D. I don't know how much stock I should put in an analysis when they can't spell the word.
For other info and .htm presentations of the information, go to and search with "proposition 1x legislative analysis", where x is the prop of your choice.

Over the course of the last month, I've noticed that any economic analyst I've considered intelligent has recommended "no" votes on all of these propositions. I'll probably vote "no" myself.

Having said that, are California's political process and budget processes broken? Certainly. They are also wildly pro-cyclical, where spending goes up during good economic times, followed by budget crunches during bad times. This was true since before the defense-related recession in California in the late 80's, the Silicon Valley / dot-com boom-and-bust of the 90's and early 2000's, and so on. So the processes certainly need to be changed. As an aside, the "rainy-day fund", known in the analyses as the "BSF" seems designed to smooth the cyclicality to the upside, with more taxes, instead of forbearance of possible spending during good times!

One glaring, flashing omission from these proposals is discussion spending cuts. There's a lot of rearranging of deck chairs and debt, shall we say, and some sizable tax increases. There is discussion around protecting certain "sacred cow" spending areas. But the whole thing seems built around the idea of "Don't look at the spending behind the curtain!"

Talk with you soon. I'm off to study and Vote!