by dcampbell
Sat Jan 08, 2011 at 05:57:58 PM PST
The Sacramento Bee on Saturday features an article by Dale Kasler on page 1 entitled “State’s economic levers limited.” This piece and others promote a piece that is fundamentally wrong. It is simply not accurate that the state can not respond to the economic crisis. Here is a start. I will return to the issue of why the press gets this issue wrong or what Robert Reich calls- “The big lie.”
It is clear that the California budget is in crisis, but the argument that there is little that can be done is simply wrong. There are resources to fund job recovery and economic growth. It is a choice. We can not simply cut our way out of the crisis, budget cuts and lay offs make the recession worse. California will need to raise taxes to fund the schools and to repair the social safety net.
Specific policy proposals:
As a consequence of the just passed federal tax reductions, including the reduction of taxes to the wealthiest taxpayers, Washington-based Citizens for Tax Justice estimate that California’s richest taxpayers will be saving about $14 billion annually on their federal taxes. The next wealthiest 4 percent, with an average income of $310,000, will save another $6.5 billion. State taxes should be increased on these two groups to secure this available 20.6 Billion dollars to fund the necessary jobs creation projects. Enforce the current California law taxing the sales of goods by out of state companies ( such as Amazon) over the internet. Gain. 1.2 billion $.
Pass an oil extraction tax. Require that the oil companies pay taxes when they take our oil out of the ground and then refine it and sell it back to us. Gain.10 Billions. Pass the 10.1 billion dollar jobs package as proposed in the Assembly last year. This would pay off debts to local governments and keep teachers in classrooms to avoid massive layoffs. California is the only oil producing state in the country that imposes no taxes on the pumping of oil. The proposed tax was to be 6% of the sales price of oil. Alaska and Louisiana both charge 12.5%.
In California we need to spend more state money to improve schools, to develop roads and infrastructure, and to create jobs. Those who are well educated are more employed and paying taxes while those with less education, those who leave school, are in a prolonged economic crisis. It is well documented that our schools and our universities are in a finance crisis. We need to be preparing young people for new jobs and to create new industries. The success of students in higher education will significantly determine California’s future competitiveness and prosperity. Improving education, including both k-12 and higher education, makes California more likely to attract investment and the creation of new jobs and new industries.
California government must protect and empower our citizens. To foster prosperity it must prepare the young for civic participation. (BTW. This has been recognized since the first California Constitution of 1849). Protection includes health care, social security, safe food, environmental protection, safe streets, job protection, etc.
Our economy needs roads, bridges, telephone lines, communications systems, energy and quality education. These services make freedom and prosperity possible. Conservative opposition to these services ignore the economies need for infrastructure.
The finance capital collapse and theft on Wall Street produced this crisis, not immigration. Now Wall Street has recovered, but the states and specifically California is left with the destruction. The best available response is for California to tax and spend to stimulate the economy- that is Keynesian stimulus. The anti tax radicals and the Republicans will oppose this approach. They must be defeated.
Specific proposals :
Enforce the current California law taxing the sales of goods by out of state companies ( such as Amazon) over the internet. Gain. 1.2 billion $.
Pass an oil extraction tax. Require that the oil companies pay taxes when they take our oil out of the ground and then refine it and sell it back to us. Gain.10 Billions. Pass the 10.1 billion dollar jobs package as proposed in the Assembly last year. This would pay off debts to local governments and keep teachers in classrooms to avoid massive layoffs.
Pay for the Jobs package with a new oil severance tax. Imposition of an oil severance tax. California is the only oil producing state in the country that imposes no taxes on the pumping of oil. The proposed tax was to be 6% of the sales price of oil. Alaska and Louisiana both charge 12.5%.
Establish a public state bank such as the Bank of North Dakota. Initially move 25% of all state revenue, receipts and reserves into this bank and 25% of all PERS and STRS funds. Manage the bank as a public service. Over time, finance state borrowing from our own bank. Gain. 6% of the budget.
Continue efforts to eliminate waste, fraud and abusive where it exists. There may be legitimate savings here. For example not paying $13.2 billion for a Bay Bridge that originally was to cost under $6 billion. Do not pay to import the steel for the bridge from China.
Repeal the 2009 and 2008 tax cuts for corporations passed to gain the extra Republican votes for the budget. Savings $1 billion.
As a consequence of the just passed federal tax reductions, including the reduction of taxes to the wealthiest taxpayers, Washington-based Citizens for Tax Justice estimate that California’s richest taxpayers will be saving about $14 billion annually on their federal taxes. The next wealthiest 4 percent, with an average income of $310,000, will save another $6.5 billion. State taxes should be increased on these two groups to secure this available 20.6 Billion dollars to fund the necessary jobs creation projects.
Sell state bonds to gain funds for investment. At present we pay bond holders a market rate. Rates are so low at present we should borrow and invest. To achieve a Keynesian stimulus we could sell many more bonds in particular to the public employees retirement system PERS and STRS. Once started ( stimulated) debt financed building will stimulate more building bringing private debt financing into productive investments.
Many more sources of revenue need to be developed. We have been thinking too small and looking in the wrong directions. Please make suggestions.
Unfortunately we would be unable to tap a major source of potential revenue because it is tied to the national economy. There should be a significant tax on the sale of stocks, bonds, and financial instruments. The sources of this tax are in New York and can be easily moved around the globe. Some planning is necessary to develop this source. Potential Gain. $30 billion per year.
Limits on Keynes.
A major limit on the use of Keynesian theories within one state is that most states- particularly California- are not allowed to go into debt. Keynesian theory and practice call for public expenditures and going into debt to pay for these expenditures. Of course California has been going into debt each year for the last three years, it is just that accounting moves have been used to disguise the debt.
Since the state can not go into debt it will need to use tax policy to raise the funds necessary for public investments. The state has also been targeting particular industries, notably the film industry with tax subsidies and local governments have been providing tax subsidies in the form of enterprise zones. Along with needed tax reform, these forms of subsidies (debt) should be reformed to focus on economic growth. Tax suggestions were in the prior section.
A state can not print money, but it can sell bonds to fund development. California currently sells bonds. We could develop bonds for more growth oriented public investment. At present we pay bond holders a market rate. To achieve a Keynesian stimulus we could sell many more bonds in particular to the public employees retirement system PERS and STRS. These are among the largest investment funds in the nation. Their investment strategies should be re designed to promote in state economic growth. After all, the money in PERS and STRS is California money. And, the best way to keep these funds financially solvent is to improve the California economy. So, directing investment in a manner to promote growth would provide significant capital for public projects. We could sell bonds to PERS and STRS at a better rate than they are presently getting. Further, by working with PERS and STRS we could develop a system where they serve as a marketing director to sell state bonds to their members. There are many people interested in investing in public bonds.
After a 2-4 year transition period, a similar pool of available funds would develop in the new California Public Bank.
Alternative;
We can follow the process of Ireland and Greece and dramatically cut services and raise taxes and impoverish the economy. Then, since the nation is poorer and has less income you will need to raise more taxes and cut more services all in an effort to protect the excessive profits of bankers and bond holders.
California can continue the current process of cuts and reductions. The fiscal crises of the states – all the states- has caused major cut backs and retrenchment and made the economic crisis approach a depression. The state cut backs are greater than the federal stimulus producing a prolonging of the crisis for working people. Continuing on the present direction produces obscene profits for billionaires along with growing poverty
There are kids who need teachers, hospitals that need nurses, neighborhoods that need police and fire protection.
Four more at www.choosingdemocracy.blogspot.com