Taxes: March 2009 Archives

I've been asking around and it seems that most Californians don't know that the budget deal that fires so many teachers also has a huge tax cut just for big, multi-state and multi-national corporations.

But it's true. Last month's budget deal that fires teachers, cuts essential government services, and guts the investments that bring future economic benefits also has a huge tax cut for the largest of corporations. While this part of the deal has been kept pretty quiet, the LA Times had a story, Business the big winner in California budget plan. From the story,

The average Californian's taxes would shoot up five different ways in the state budget blueprint that lawmakers hope to vote on this weekend. But the bipartisan plan for wiping out the state's giant deficit isn't so bad for large corporations, many of which would receive a permanent windfall.

About $1 billion in corporate tax breaks -- directed mostly at multi-state and multinational companies -- is tucked into the proposal.

But wait, won't a big corporate tax cut cause companies to come to California, creating jobs? No, they are already here and it will drive them away, because it is paid for by firing teachers.

A study by the nonpartisan Public Policy Institute of California, released in 2005, found that most companies decide where to locate based not on tax breaks but on factors such as the availability of a highly educated workforce. California's proposed plan would cut spending on higher education by hundreds of millions of dollars.

So how did this happen? This was part of the deal to get a few Republican votes. And why did the Republicans want this so bad? Because they understood who really elected them.

If you look at the independent expenditure reports for the 2008 California election you'll see a massive amount of last-minute money. For example, in the 19th Senate District, a political action committee (PAC) named "Californians for Jobs and Education" put almost $1 million into just one race: $570,653 into defeating Democrat Hannah-Beth Jackson, and another $373,778 to help elect her opponent, Republican Tony Strickland. When you look this group up on ElectionTrack you learn that this money came from corporations like Arkansas' Wal-Mart, Blue Cross of Ohio (Ohio?), Reliant Energy, major real estate companies, and from other PACs.

Now it gets interesting. Many of the contributions to that PAC came from other PACs, especially one called Jobs Pac. When you track down Jobs PAC you find that it is a conduit for huge, huge amounts of money coming from large corporations like Philip Morris, ATT, Chevron, Safeway, Sempra Energy, Verizon, big insurance companies, big pharmaceutical companies, big real estate companies ... and other conduits like the Chamber of Commerce.

Why did these huge corporations put so much money into California state elections? Because we let them, and because of the return on investment they receive from tax cuts like the one that is forcing us to fire so many of our teachers.

There is a key lesson to learn from this. When it comes time to choose, that is when you can really see who is for or against something -- where their priorities really are. And in this case, when push came to shove, in the end who did the conservatives come through for? The large corporations. They danced with the ones that brung them.

There was a positive response to the idea from last week's post, No Schools For You, that suggested,

"If an Assembly or Senate representative demanded cuts to schools, fire, etc. then the schools, fire, etc. in that representative's district receive the entire cut!  This would be an honest application of representative democracy, allowing the citizens of an area to be governed according to their wishes without it affecting all of the citizens in the state."

Seriously, the leaders of the Assembly and Senate should make the few Republican holdouts an offer: if they think government services to the state's citizens are such a bad idea they should stop insisting on so much spending in their districts!  They say that government spending is a problem, why can't they take those Republican governors who are refusing to accept any stimulus money as role models and refuse any state spending in their districts.  Their constituents can then show their overwhelming support for the anti-government ideology that their elected representatives espouse.

Several years ago, then-Senator Phil Gramm of Texas - a Republican - was one of the loudest to complain and complain about spending and "pork" and "earmarks" in the federal budget.  What is called "pork" and "earmarks" are special appropriations of funds by the Congress for specific projects in specific districts: a museum, science lab, agricultural study or bridge that is badly needed is funded by our government.  This is what Republicans call "pork" -- government doing things that citizens need.  Well the biggest, most expensive project in the country at the time was the Superconducting Super Collider, a massive physics lab being built under the ground in Texas, employing hundreds and keeping many construction businesses going.  Well, when it came time to cut some spending the Congress took Senator Gramm at his word and killed the project.

So I think that it would be a very good idea to ask the Republican anti-tax ideologues to put up or shut up.  Give them the opportunity to put their (take away the) money where their mouths are.  If you want spending cuts, let us cut all the spending in your districts -- or please shut up.

Your thoughts?  Leave a comment. 

Here is an idea for solving California's budget crisis.

What if the California legislature temporarily budgeted for districts according to the wishes of the district's legislators.  If an Assembly or Senate representative demanded cuts to schools, fire, etc. then the schools, fire, etc. in that representative's district receive the entire cut!  This would be an honest application of representative democracy, allowing the citizens of an area to be governed according to their wishes without it affecting all of the citizens in the state.

Wait, you say, why should only certain districts be punished with cuts?  Why should only a few citizens shoulder the burden of balancing the budget through cuts?  The answer is because those are the people who elected the extremist minority who are forcing the cuts, while refusing to ask the rich to pay their fair share and actually cutting taxes for huge corporations.  (Yes, the budget "solution" included a huge tax cut for the Wal-Marts and Exxons.)

With this plan the residents of Santa Clarita (the right-wing bastion of northwest LA County) could get their wish to have no schools, police, road maintenance, firefighters, etc. while the residents of San Francisco could keep their government services.  And the residents of both areas would have what they want.

Or, at least, they would have the opportunity to understand just who they elected.

Here we go again with the "corporate taxes are passed along to the consumer" lie. Instead of telling the public about harm to the public interest from budget cuts, teacher layoffs, privatizing public resources, police cutbacks, etc., instead we hear about how taxing the rich is a terrible thing.

What am I talking about? See The Tax Foundation - Tax Foundation TV, Radio Ads Show That Corporate Income Taxes Cost the Average American Household $3,190. They have a couple of ads their corporate funders are paying them to run.

And of course there is the usual scholarly proof that we should all give ever more money to the corporate rich,

"Research from the Congressional Budget Office shows that in a global economy where capital is highly mobile but workers can't easily move abroad, workers end up bearing the brunt of corporate taxes. In 2007, Economist William Randolph found that 70 percent of corporate tax burdens fall on employees through lower wages and productivity, while the remaining 30 percent fall on company shareholders."

Taxes are not a cost that can be "passed on to the customer." Taxes are calculated as a percentage of profits, after all costs are figured in. A well-run business charges the most it can get for its product or service. If the business has competitors it has to price its product or service in some relationship to competing products or services. Were a business to add to to prices to cover taxes this would increase the price above what had been determined to be the optimal price! If a company were able to raise prices to cover taxes the it would mean the company was previously negligent in not pricing as high as the market would bear.

And if the company was negligent, then increasing prices to cover taxes would increase profits, which would increase taxes, which would require an additional price increase, which would increase profits which would increase taxes. Etc. - you get the picture. It's a silly idea.

In the same way, a properly-run business has as many employees as it needs. When profitability caused them to apy taxes, it means they employed the correct number of people to realize that profit, and certainly are not going to lay someone off because they made a profit that was taxed.

But one step further on this. A corporation itself is neutral on taxes. After all, a corporation is just a bundle of contracts, and doesn't really have interests any more than a chair has interests. It is the owners who have interests and it is a good idea to think about any "passing on" involving corporate taxes is that it can lower the amount of money that is "passed on" to those people at the top of the economic ladder. Realizing this changes the way the brain understands the problem here. The fundamental question then becomes WHO is benefiting from our economy, and our legal infrastructure that creates and protects corporations. It really is about which people are getting the cash, and seen in this light, this idea of lowering or elimminating corporate taxes takes on a new meaning.

This ad plays on public misunderstanding of taxes - a misunderstanding previously created by the same crowd. (Similar to the idea that if you earn a penny over $250K all of your earnings are taxed at the higher rate.) So it is like a further step in a strategy of creating increasing ignorance, so that you can further harvest the public... (Why can't WE think in terms of multi-stage strategies, but to instead increase public understanding and appreciation of democracy?)

So, when will we start hearing about the harm caused to the public interest by reduced taxes on corporations and the rich causing us to lay off teachers, cut police and firefighters, defer infrastructure maintenance, etc.? When do we hear about how this hurts, instead of always about how taxes hurt the rich?