Category: Politics

This week, shopping addicts Obama and Pelosi, spent another $26B on stimulus.  They’d have you believe this is about saving jobs for teachers and firefighters.  But that is such a mischaracterization.

To understand the problem, you first need to fully understand how local unions have bankrupted the states.  This has hit California particularly hard over the past 30 years, but the same drama is playing out in states across the country.  For the full details, go read this article to understand how Jerry Brown enabled public service workers in California to unionize, and how ever since then, California has fallen from grace.

At this point, the Unions have tapped out the states.  In the past, they’ve always been able to squeeze a little more money out of California.  But California has been bled dry.

Recognizing that they’ve exhausted local money, the massive, cash-rich unions are turning to their only available savior:  the federal government.  Unfortunately, Obama and Pelosi are too clueless to know what is happening.

It’s sad to hear this – but it is true.  We pay our public workers too much.  The only solution is to cut pay or to cut workers.  Federal bailouts will not cure the disease.  We need to eliminate unions from our public jobs and start anew.

I voted for Obama for one reason:  I thought he was more likely to get us out of Iraq.  I was wrong.  Obama’s stance was clear: he just needed 18 months to do the job.  That deadline is Tuesday.

There are currently still 85,000-100,000 US troops in Iraq.  All other countries have already pulled out.  Just as under the Bush administration, the objective of our presence in the region is unclear.

And although his campaign promises were to reduce the US war efforts, Obama has also more than doubled US troop levels in Afghanistan in the past year.  If you think this is Bush’s war, you’re wrong.  Obama did this.

Obama’s failure to hold to his campaign promise is just one more reason why he will never again get a vote from me.

Willie Brown, former State Speaker and also former Mayor of San Francisco, made a surprising interview this week.  In an unusual interview,  he acknowledged that his Democratic political agenda is largely responsible the the financial meltdown here in California.

His quotes in the interview are jaw-dropping.  Not only does he admit that the spending policies threw California into massive debt, but he also admits that he, and the other legislators did this without really having tried to analyze the effects of the laws they were implementing.

Here is a nice quote,  "I had actually participated in moving legislation to reduce the retirement age for teachers and I did it with great pride and I created it in my resume as one of my great achievements… Nobody took the time to do the analysis that would have persuaded us we needed to add money to make it work”

Well, that’s good to know.

He goes on to be fairly self-critical, “I may have been one of the key architects of many of the things that have created a challenge for my successors.”

So there you have it – even Willie Brown knows that Democrats are the architects of our problems.  But Brown couldn’t do it alone – it took all of them – much like Obama is doing now – to systematically ignore logic and common sense in favor of grabbing votes by promising to spend money on programs we know we cannot afford.

Last year, Governor Schwarzenegger issued executive order S-15-09 establishing a commission to analyze California’s tax options.  The report came back last September.  It looks very promising to me. 

Highlights:

1. Addresses state revenue stability and broadens the tax base for California.
2. Cuts personal income tax nearly in half for almost all Californians.
3. Cuts sales tax in half.
4. Implements a new tax system (BNRT) which would be ~1.5-4% of net receipts for all business.  This system replaces the current corporate tax of up to 8.8%, which is eliminated.
5. (Optional) Establish a rainy-day fund for dealing with economic fluctuations to further reduce annual financial variances.

Obviously, everyone likes the tax cuts.  But who pays with this BNRT (Business Net Receipts Tax)?  Everyone pays it.

The problem is that if you look at state revenues, we keep increasing income taxes (now the highest in the nation) and sales tax (also the highest in the nation).  But these taxes don’t cover all consumption.  And as consumption trends change over time, the revenues from these streams change.  The commission notes correctly that this is why the government has such feast-or-famine income streams each year.

First, we can look at state revenues.  You can see the rapid growth of the income tax.  You can also see that sales taxes, as a percentage of revenue are dropping.

Next, just what percentage of sales are subject to taxes?  Over time, you can see most business in California is not subject to the tax.  This creates a disproportionately high tax on some industries while there is no tax on others.  And, you can see that spending patterns among Californians change over time.  This is why the current tax system hasn’t been able to keep up with the times.

The critics are upset because the new tax side-steps their current favorite tax-breaks.  Any massive tax change is going to make someone unhappy.  But is the new tax proposal broad and fair?  Absolutely. Nonetheless, critics still cite that the new system gives breaks to the rich.  But that isn’t true.  Who consumes the most in California?  The rich.  The rich will far-and-away pay the most under this system, just as they do today.

I do have a couple of criticisms.  First, I don’t understand the elimination of the corporate tax.  The corporate tax today discourages businesses from choosing California – so eliminating the tax is commendable.  But, I don’t think it needs to be completely eliminated – reducing to 1 or 2% would pacify critics and still leave California competitive.  Second, the exact rate of the tax is a little dodgy.  I’m worried that both the tax rate and the ability to collect are still too unknown.

By the way, lawyers hate the proposal.  Why?  Because the services they sell, which are currently untaxed, would now be taxed.  Don’t be surprised if a lawyer says he hates it.

Unlike most politicians who live in denial, Schwartzenegger is willing to admit that California is on the same path as Greece.  Unless we change, we know we’re in trouble.

There are two potential answers to California’s budget problems:  cut spending or increase revenues.

The problem is that we can’t increase revenues.  With unemployment in California is at 13% right now, we simply don’t have the workers to tax.  But even if we did,  we already have the highest sales tax of any state in America.  We also have the highest personal income tax rate of any state for middle-class people (9.55% of everything over $50K!).

If you break down the state budget, it comes down to two choices:
      a) cut education
      b) cut welfare type programs

Unfortunately, we have to finally decide on one or the other.  We can no longer afford both.  Which do you want?  Cut education further than we’ve already cut it, or cut entitlements?  Schwarzenegger knows what he is doing.  If you don’t approve of his current plans, you can’t blame him for cutting education.

As the IMF prepares to hand $150B to Greece, you’ve got to wonder what they are thinking.  Greece has demonstrated that it is a financial mess.  When you lend someone money, you’ve got to see a path where they can pay you back, right?

First there is the issue of spending.  Greece has been spending crazy amounts of money for decades.  While the IMF hopes to require spending cuts, what confidence can any investor have that Greece will implement them?  Sadly, the Greeks have been caught lying about their finances in the past.  How do you lend money to a country where the leaders are fraudulent?

Second, there is the issue of revenue.  The IMF wants Greece to raise taxes on its people.  That seems like a good idea, except that Greece has had policies of not enforcing their own tax code for years.  Why would any investor believe that Greece will suddenly change, and that its people will finally start paying their bills?

So for you would be lenders out there, Greece has huge risk both in terms of cutting its spending and also in terms of increasing its revenues.  In my view, lending money with any expectation of payback is simply wishful thinking.  It’s not going to happen.

Finally, who are the lenders then?  Well, as usual, it all comes back to the United States.  While the US isn’t getting the full  $150B for this one, the US contribution as being part of the IMF will be a staggering $39B.  That’s right, while the Greeks are selfishly protesting tax increases in the streets and not even paying their own taxes, America is going to take another $39B loan to help them out.  Nice.  For the record, that means every working American gets a bill for ~$278.

You can guess what I think:  let them fail.

The problem with the Obama administration rewards failure and punishes success.

• When the financial industry failed:
  Obama was there to bail them out.
• When GM failed:
  Obama was there to bail them out.
• When homeowners over-extended and failed to pay mortgages: Obama was there to bail them out.
• When Americans failed to find jobs:
  Obama bailed them out with extended unemployment.

But what happens to the Americans that managed to succeed and make money rather than lose it?  Obama chastises this group as the greedy, evil rich people.  And to punish these people for being successful, Obama increases their medicare taxes, increases their income taxes, increases their capital gains taxes, limits their itemized deductions, and even hopes to implement a windfall tax if you’re just too damn successful.   That’s 3.8% + 3-4% + 5% + reductions in itemized deductions.  So in addition to the over 50% that you already pay in taxes, Obama wants to take another 12.8%!

And don’t forget – the state of California plans to increase taxes too…

Let’s put incentives in for being a benefit to the system rather than benefits for being a drain on the system.

Jerry Brown, the former California Governor and current California Governor hopeful, was on site at Google yesterday.  I attended the 1 hour talk where Eric Schmidt played a soft Charlie Rose.

At the end, I asked a softball question myself.  And I got a politician’s answer.

I asked, “California taxes – are they too high, too low, or about right?”  Brown initially pointed out that during his administration as Governor of California, there were no new taxes (1975-1982).  Then he went on to talk for quite a while, and basically said he didn’t think we should raise taxes, but he didn’t think that state financed programs should pay the price of the $11T of wealth lost due to the Wall Street debacle.  (He implied that the state’s budget problems are related to that, which is at least partially true)

Sadly, Gov Brown wasn’t completely truthful with me.  A quick search through Google reveals an article dated Sept 18, 1981 which proves that Brown did at least increase one tax.  I don’t really mind so much that he had a tax increase in 1981.  But he was quite emphatic in his reply to my question that he had never raised taxes as Governor.  Ok – he embellished.

So, to summarize his politician’s answer:   he doesn’t want to raise taxes, and he doesn’t want to cut programs.  He didn’t actually answer my question, and in his reply he didn’t stick to just the truth.  It wasn’t a horrible lie, and could even be chalked up to a minor mistake.  But isn’t this what we expect from politicians these days?  Nobody really expects him to just be straightforward anymore.

As for me, I liked Brown’s overall talk.  I won’t vote for him, though.  We need serious change in California, and the existing bureaucrats have proven they can’t do it.  I don’t know if CEOs and business people can do it (obviously actors can’t do it), but Brown loses the vote because he’s been a career politician too long.  Is that age discrimination on my part?  Ha!  Call the EEOC!