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"We threw Gray Davis out of office because of his tax increases," a Los Angeles resident told the Daily News about the new state proposed tax increases. "Now they're trying to do this, and it's three times worse."
Yesterday, state politicians finally came to a tentative agreement about the budget. The latest calls for a 1 percent sales tax increase for 39 months, which would give LA County a 9.75% sales tax beginning July 1st because voters passed Measure R in November, effectively raising the sales tax to 8.75 percent. Additionally, there would be "a surcharge of 2.5 percent to 5 percent on the state personal income tax; a 12-cents-per-gallon increase in the gasoline tax; and a near-doubling of the vehicle license fee to 1.15 percent," finds the Daily News.
While the budget was critically needed months ago, to cautiously quote South Carolina Senator Lindsey Graham, this is " worse than nothing."
The tax increases could cost the average family of four an extra $1600 a year. The LA Unified School District could lose up to $555 million, forcing them to cancel programs and lay off up to 8,000 employee. Welfare payments could get severely cut forcing families onto the streets and stretching the needs of non profits. Another $100 could be cut from Metro, forcing them stop construction on the Expo Line between downtown and Culver City. And the list could go on and on.
"There is no joy in this resoluation beyond that this is a resolution," LA City Council President Eric Garcetti said about the situation on Wednesday night in a phone press conference. "We're going to see a lot more homeless, a lot more people in ERs."
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How the hell does this happen to the tenth largest economy in the world?
10th largest in one measure, 5th and 7th largest by a couple other measures.
HOW?
Our state is dysfunctional.
We elect politicians who then ask us(the voters) to approve bonds to pay for projects.
Example, in 2004 there was a ballot initiative that would require the state to spend 1% of the general fund on infrastructure. That failed. but in 2006 the voters approved a $100+BILLION bond to pay for infrastructure projects.
What voters don't understand is that for each dollar on a bond it costs the state 2 dollars.
Which is not say bonds are bad. But the state become a mega real estate holding, if you will. Because the state is working off cash flow to pay off debt and pay every day expenses.
If the cash in flow slows, as would happen if the economy stalls, sales tax drop, income tax from businesses and individuals drops, there's no way you can cover the necessary outflows.
The budget flaw was a growth in bonds and a growth in spending. We went from a $70B budget in 2000 to $100B+ in 2008 while increasing the amount of bonds outstanding.
So, to bring back around. The state needs to sell bonds to keep funding projects and cover deficits (Davis got canned for that, Arnold and legislature continued though)but the states credit rating tanked. So selling bonds has become more expensive, people demand bigger yields.
A great note on that, it's CHEAPER to insure a Mexican government bond that a CA government bond.
But then again, US treasuries are the key instruments used to insure both so it's hilarious.
That's a long winded summary of how we got here.
And this proposed solution will not really help.
Increase taxes, charging a tax surcharge and increasing the fuel tax sounds great. But it will back fire.
People will shop less because of sales taxes. The number big item purchases, cars, will drop.
Small business owners will lay off or not rehire because they have to pay more taxes out of their pockets.
Higher income folks will layoff or not rehire house staff because of higher taxes. There have been articles on this already.
And the fuel tax. Once the oil that is stock piled in OK gets pushed through the system, probably by the end of this year, oil prices will climb back towards realistic pricing on $80 per barrel. Wholesale gas right now is about $1.25, and we already pay about 63 cents per gallon in taxes for each gallon of gas, so add the 12 cents plus the additions in sales tax, we’re now talking about 80 cents.
How does that affect us?
The food and products we buy don’t get to the store shelves for free, or don’t get delivered to our house for free. Transportation delivery costs will go up and the consumer always pays for that.
For those people who stay in CA, or are lucky to have a job, the dollar menu and mcdonalds could be a stretch for a while.
IF the government becomes responsible and reduces the budget, and keeps a realistic spending cap, and if voters stop approving bond measures, then the state will be ok.
But I’m sure the POLITICIANS who are trained lawyers listened to all economist and financial professionals who said all the same things I’ve said in greater detail. I doubt it.
Now hold on there, just a minute! There can be no sound reasoning here that involves reducing taxes! TAX THEM ALL!!! TAX THEM ALL TO DEATH!!!!
I didn't say reduce taxes, although certain tax cuts on business would spur growth... check the Obama Spending bill.
What you're saying is going to happen. They are going to tax this state to death.
Check out the article Zach linked... other states will take jobs from us because business that can move will move.
I think the big Medtronics facility next to CSUN is going to leave within the next 2-3 years. It doesn't make any economical sense for a business with more than 50 employees to stay here UNLESS they have to.
Even our farmers are struggling!!!
We have ARMAGEDDON in this state. This state is headed towards a DEPRESSION and no one wants to admit it or address it.
without a plan to spur private growth, private job growth, we are screwed.
It's not like I'm not going to buy groceries and starve my family. It does give a heavier burden for other families who are struggling. In a sad reality that Walmart will continue to earn record earnings from their California branches.
At least the sales tax is not like Chicago.
Who is going to try Colorado now?
What we're watching is the cumulative effect of borrowing and putting off the debt we've accumulated in order to get services and not have to pay for them.
Even trojie has to admit, that isn't sustainable for very long because services cost money. The problem with the state legislators is that age old battle between socialist liberals and and capitalist conservatives. Neither side EVER wants to give any ground.
It's always been helpful to me to view the dynamic between capitalism and socialism sort of like the hot and cold faucets in my shower. I can't abide being in there if the flow from either faucet is too dominant.
The details of the mix is a job that is custom made for democracy. We can vote to adjust the damn thing as we please. The same adjustment capability also helps keep us in the overall comfort range with optimal consistency. Oh sure, there's always somebody bitching that its too hot or too cold. But by and large, nobody is really getting either scalded or frozen.
Except when we are operating in exceptional circumstances, as we are at present with the economy and the creeping economic disparity in the society. Often times when it gets like this, we vote to give the hot water knob an extra twist (see FDR..) to handle the exceptional circumstances.
But it seldom needs to go on forever and in point of fact, it's always better in the middle anyway. Both capitalism and socialism in their unalloyed states are anathema to the human spirit and damn poor ways to run an economy.
But my view is that both capitalism and socialism owe their existence to each other and that the value of the whole when they are combined is significantly greater than the sum of the parts. Without a dollop of socialism, most of the capitalists would have been found hanging from lamp posts long ago. And without the capitalist engine, there is little incentive for the sort of innovation and technology that makes our lives better, not would there be any sort of revenue base to fund the socialist side of the equation.
So, IMO, they are complementary in an odd and ironic way and modicums of both are necessary for a prosperous and stable society.
You had me agreeing with you, and I will agree with you EXCEPT THE FDR part.
He hurt the country before it got better. READ his history. I know MSM and most Americans glamorize him.
He did re-create Wall Street and banking, but everything else he did destroyed this country.
GDP dropped more, and unemployment went higher.
In his 2nd term he tried to make the Supreme Court 11 seats instead of 9 so he could get his way.
If it wasn't for WWII our economy would have never recovered. The allies depended on us for supplies and that gave us the money we needed to get back on track create more jobs, and be able to fight in WWII from 1942 on.
FDR is to democrats what Reagan is to Republicans. Two disastrous presidents with disastrous policies that give the facade of greatness because of their communication skills. If it wasn't for WWII for FDR, the impotency of the Soviets for Reagan, both would have been failures.
But the wings of the two parties embrace both clowns.
I've heard that argument before. I doubt either one of us could prove it either way. WW2 was unavoidable, but I really think the US ecomony would have recovered with or without WW2.
What I think we need to do now is put the same kind of effort into saving our planet as we did 60 years ago saving democracy.
If you've watched Ken Burns' "The War" documenatry on WW2, there is a segment devoted to the state side war effort. Nothing went to waste. An enormous infrastructure was set in motion to recycle and reuse everything. Imagine how many people an effort like that would employ at every economic level. Imagine no more land fills, no more pollution, no floating garbage patch in the middle of the Pacific. Everything recycled and recyclable. Zero waste.
I know you'll accuse me of being overly simplistic about something that is very complex, but it can and should be done.
Trojie, watch this commentary by Rachael Maddow. She produces some dates and statistics that disprove the GOPer claim that FDR's new deal wasn't working.
1933 start of New Deal, unemployment at 33%
1940 start of WW2, unemployment at 15%
and we hadn't even entered the war yet, watch it and weep...
http://www.youtube.com/watch?v=TiqnOYzNgUw
JRB I was about to do something similar. But you beat me too it. FDR was demonstrably better for the country. The problem is that the system was so weakened by decades of mismanagement that even as things improved, it took several years before it was strong enough to stand on it's own again.
FDR and the New Deal ended the depression and saved the country. Any statement to the contrary is either a lie, or the blathering of a gullible idiot.
Yeah, FDR was the savior and Obama is messiah.
First to JBR... I don't watch Maddow just like I don't watch Hannity. If you want to take your news and facts from a partisian hack go ahead, just understand that I don't buy any other crap.
Now, in case some of you can't tell... I work in the financial sector and primarily focus on global macro economics.
FDR's New Deal was multi pronged. His efforts to save the banks worked, not like how JP Morgan did it in 1907 but it still worked. he also restored Wall Street and got people who had no business trading stocks out, but guranteet protection for them if they ever got back in.
Though the banking programs were Hoovers and FDR only expanded some of them.
With regards to numbers and weakened system.
FDR believed in a socialist state and some of his ideas back fired. Libs love him because he created the ultimate government safety net. And there should be a safety net. But he did it at the cost of jobs and and economic prosperity.
Unemployment peeked in 1933 when FDR was president and instituted bank holidays, and massive work stoppages occurred.
The new deal, like Obama's spending bill, created government jobs, massive amounts of peopple working FOR the government. When WWII broke out, 1936, the economy was still shot, but defense industries picked up putting people to work outside of government. unemployment, GDP, producer spending was still at abonimal levels.
In 1941, with a fear of war, the military recruited more. So all those people on the government payroll shifted to the military. As the war started more shifted to the military.
Since you two are so smart, with your PHD in economics with your partisian Maddow love, if there was no WWII, what would all those people be doing for work?
Consumer spending and GDP was still anemic because people knew their jobs were temporary with the govt. Once the damns, roads, and park projects were done... then what?
Without the war those people who went off to fight, and die, would have had nothing.
I guess its something a simple partisan BS eater wouldn't understand.
I guess it speaks volume when you defend FDR and not Reagan, when many Republicans argue Reagan had the same affect. But there's no place for partisanship in history and economics unless you believe it's easier to hear than to research your own facts and findings.
And sorry Ross, I don't lie, and I'm not gullible. But I resepect JRB because he always comes at me with facts when he attacks me but he just came with attacks.
we are in the mess that we are in today because of the New Deal numerous programs that emerged then and still linger on today (and pay for as well).
Biggger Government = Bigger $ to finance and support!!
(that's what we asked for then and that's what
we got now)
We think government sucks yet we still want THEM to take care of us and this is how they pay us back?