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Today’s Issue:
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Inside the Leonard Letter
By: Bill Leonard on: Monday, August 18th, 2008
***The ‘No-Budget’ Budget***
As everybody knows from family or business budgeting, some 85% of spending is the same year after year with some adjustments for inflation. The real decisions are over the remaining 15% of available revenue, when it is available. The California state budget is the same. Except when it is warped by excessive borrowing (which is the current problem), the spending programs grow at a predictable rate. When spending gets out of hand there are major reforms that come together to make changes as we have done with Medi-Cal, welfare, and worker compensation spending in the past. However, most of the state spending is by formula, which is predictable and basically operates continuously year after year.
I propose that the Constitution be amended so that the 85% of the spending plan is done automatically by the Department of Finance, or other state agency. This would no longer permit the majority party in the Legislature to take the budget hostage for their demands on the Governor, and no longer permit the minority party to make demands as a condition of supplying their few votes for the budget. Thus, most all of state work would go on without interruption, legal challenges, or uncertain delays. This automatic level of spending would go into effect July 1st. The Legislature could intervene to make changes, mid-year corrections, or other tweaks, but if they did not act the state would still have a budget.
This does not bar the Legislature and the Governor from using separate bills to make major changes that affect the budget-- like contracting out the state parks system, privatizing the University of California, or reducing Medi-Cal benefits to be no better than state employees get.
By doing this the real fight on new fiscal priorities would switch to separate bills that can be debated and amended and voted on for their merits. If there is a constitutional formula or a statutory appropriation which is proposed to be suspended or revised then it can and should be done by a separate bill that does not hold up the rest of the budget. Other bills might propose new programs or modifications of existing programs. If they require money to be appropriated from the state's reserve funds then they appropriately require a 2/3 majority vote of the Legislature. Since 85% of the state spending is already determined, new programs can only be funded by cutting an existing program or by raising taxes. Tax increases, of course, require a 2/3 vote.
The great debates on priorities for the people of the state will still take place and controversial programs and taxes will still be subject to recorded votes so that the voters can judge the efforts of the Governor and Legislature. However, this will all be done with the basic state programs off the table.
The State Department of Finance, the Legislative Analyst Office, the Joint Legislative Budget Committee, the now defunct Commission of State Finance all have the talent to determine what a baseline budget would be and how to make a reasonable estimate of expected state revenues in order to calculate the automatic 85%.
***Correcting Cogdill Confusion***
Having been misquoted and taken out of context several times over my years in public service, I have empathy when Senate Republican Leader Dave Cogdill tells me that is what happened to him over the issue of proposed state borrowing schemes from local government, which I passed on in last week’s issue. Since then the San Diego Union Tribune has issued a correction.
In a letter to the newspaper, Cogdill explained, “I firmly believe real solutions to the state’s $15.2 billion shortfall do not need to involve tax increases or borrowing schemes….If Democrats insist upon increasing spending, they are going to have to find a way to pay for it. If they choose to use borrowing to fund their level of spending, it is our position that it should be done on a short term basis and include a strong plan to repay that money before the end of the fiscal year. Regardless, any budget solution must also include meaningful budget reform to prevent future deficits.”
I am pleased to have – and to share – the clarification that Senator Cogdill is not proposing borrowing from locals, and I hope all of the legislative Republicans hold this line and that Governor maintains his commitments to local government as well. The state’s budget is a mess, but most cities’ budgets are not. It is harder to get away with massive, ongoing spending hikes on one-time funds, creative bookkeeping and irresponsible borrowing schemes when your voters attend your meetings just down the street at city hall. However, since very few people have the means, free time or patience to observe the state budget process, the people in the Capitol building have been able to wreak havoc.
***Wired’s Inconvenient Solutions for Global Warming***
I have been meaning to share with you Wired Magazine’s suggestions for addressing global warming from the June issue. Wired is a wonderful magazine on information technology. I am not much in the alarmist camp when it comes to global warming, but I credit Wired for bucking the prevailing wisdom on this issue with these shockingly common-sense prescriptions:
A/C is OK. Wired points out it takes a lot less energy cool down a house in Arizona than to keep a house warm in Massachusetts. It turns out that heating a home releases eight times more CO2 gasses than cooling a home does.
Organics are not the answer. When modern science is not brought to bear on food production, you get less food. Thus, it takes 25 organic cows to make as much milk as 23 industrial ones. And that is not the worst part. Organic cows’ flatulence is 16 times worse than gasses emitted by industrial cows.
Farm the forests. A tree absorbs roughly 1,500 pounds of CO2 in its first 55 years. After that, it takes on less and less carbon until it dies, rots and all that carbon is re-released in the atmosphere. Since young tree-farms are like factories that suck CO2 out of the atmosphere, Wired says the most climate friendly approach to forests is to cut them down and replant them. Using lumber commercially keeps the carbon in the wood. When these new trees reach their point of maximum carbon sequestration, cut them down, use them to build houses and start again. I will add to this that young trees provide better forage for wildlife.
China is the solution, not the problem. Who is the leader in alternative energy hardware? Yep, China. In 2007 China produced 35% of the global photovoltaic market. Whether batteries, or windmills, or solar -- China will soon be the world leader. By 2010 China is projected to generate 10 gigawatts of green power annually—that is more than half the capacity the world installed in 2007.
Accept genetic engineering. Food production is said to cause more global warming than all the world’s trucks, cars, trains, ships and planes put together. Genomics has been optimizing food crops for a long time. Genetically modified plants need less herbicide and produce much higher yields.
Embrace nuclear power. Coal fired electricity generation releases 520 times the greenhouse emissions than the nuclear alternative (CO2 per kilowatt hour). Going forward we are going to need more energy, not less. This means solar and wind will not bridge this gap for a very long time, if ever. When it comes to clean energy, nuclear power is very hard to beat.
Used cars, not hybrids. Wired says it would take 100,000 miles before a Prius achieves the carbon savings that come from driving a 1998 Tercel.
http://www.wired.com/science/planetearth/magazine/16-06/ff_heresies_intro
Inside the Leonard Letter
By: Bill Leonard on: Monday, August 11th, 2008
***Public Should Demand Dynamic Forecasting***
Within hours of Governor Schwarzenegger’s announcement on Tuesday that he wants to increase the sales tax a smart reporter posted an article pointing out the BoE revenue estimate is almost a half billion dollars a year less than what the Governor claims the tax increase would generate. The difference is the BoE estimate is a dynamic estimate, whereas the Governor’s estimate is static. Static forecasting is the least honest. It assumes taxpayers will have no reaction to tax increases, that people do not modify their behavior when faced with higher costs, which is totally absurd. Since virtually everybody is basing their revenue numbers on these static estimates, our state and local governments are engaging in mass deception. Remember, Pete Wilson’s tax increases in the late ‘90s came in several billion dollars short of static expectations. It should be the government’s sacred obligation to present the most truthful information it can. Static revenue estimates – because they are calculated as if tax increases occur in a vacuum – are known in advance to be wrong and thus betray the people’s trust.
I have posted a simplified “cheat sheet” of the dynamic sales tax increase estimate and impacts:
http://www.boe.ca.gov/leonard/info/SalestaxAnalysisCheatSheet.pdf
***Tax Justice***
A Nevada District Court ruling last week brought some justice to a taxpayer that has been festering for years. California’s Franchise Tax Board had relentlessly pursued former California resident Gil Hyatt. The FTB contended that Hyatt owed back taxes and was only pretending to live in Nevada to avoid paying taxes rightfully due the Golden state. In pursuing this belief, the FTB investigators crossed many ethical lines and demonstrated how tax agents are not held to the same legal standards we demand of law enforcement officers. Tax agents rummaged through his trash without warrants, visited business partners and doctors, and shared his Social Security Number and other personal information with the media. This is outrageous behavior and I call on the FTB to rein in their agents. What really galled me is the FTB testified in open court that this level of harassment was only a typical audit. If true, then the stormtroopers are alive and well at the FTB.
Unlike most taxpayers who are subject to this treatment, Hyatt had the means to fight back. Hyatt invented a microprocessor and was not going to knuckle under to this harassment. He sued the FTB for their agents’ misconduct during the investigation, but the FTB argued that its employees are not only immune from California but Nevada law as well when carrying out their official duties. The case ended up before the U.S. Supreme Court, which sided with Hyatt and sent the case back to the Nevada District Court. Last week the Nevada jury agreed with Hyatt on all the claims he made against the FTB, including their fraud, intentional infliction of emotional distress, abuse of process, breach of confidential relationship and invasion of privacy. The jury awarded $137 million plus $1.08 million for attorney fees and court costs, and has yet to consider punitive damages which could run the total to half a billion of California taxpayer dollars.
So far, California has spent $8.8 million pursuing Hyatt for a $49 million tax bill (only $7.4 million of actual taxes, the rest is penalties and interest). And now California taxpayers are on the line for more than $138 million because of our tax agents’ arrogance and misconduct. I am pleased Hyatt won. I hope that tax bureaucrats everywhere have learned their lesson about respecting taxpayer rights and I hope that the FTB does not appeal this decision thus exposing California taxpayers to even more legal fees.
***From Russia, No Love***
If you sent me an email last week I may not have received it. My account was overcome by a spam attack from Russia. Although my computer people and internet service providers have now blocked the attack, I cannot be sure I have recovered all legitimate emails. Emails were coming in from Russia at a rate of about 1,000 per hour during the attack. The idea is to deny my web site and email of the ability to conduct its regular business. This is just one example of how America is not well prepared for cyber warfare. If I did not respond to a note you sent, please resend it.
***A Bad Budget Idea***
Last week I commended the Senate Republicans for offering solid solutions to our state budget problem and pointed my readers to a website featuring those ideas. Then I learned that Senate Republican Leader Dave Cogdill had been talking about the idea of borrowing local government funds to help bail out the state. This is a bad idea. The state has a poor record of using local government money, including funds set aside for transportation and policing, for state purposes, leaving local governments holding the bag. Voters grew tired of the theft and passed ballot measures requiring the state to keep its hands out of the local cookie jar except in emergencies. By “emergency” I do not believe the voters meant the state’s failure to get its own financial house in order. I believe voters were thinking more along the lines of a major earthquake or other natural disaster. Now legislators are talking about borrowing this local money and then paying them back with bonds sold against future earnings of the California Lottery.
So, the idea is to borrow money that voters appropriately intend for use by their cities, then borrow more money to pay that back and then hope that enough people gamble in the future to pay that back. It is crazy talk, but if my friends in the Senate Republican Caucus honestly believe if it is a viable budget option, then their web page touting their budget ideas should at least mention it.
Inside the Leonard Letter
By: Bill Leonard on: Monday, August 04th, 2008
*** Schwarzenegger Stuck in the Past on Oil***
Last Wednesday Governor Schwarzenegger joined the Governors of Oregon and Washington at a public event to announce their united opposition to new offshore oil drilling. It has been noted many times the Schwarzeneggers are still mindful of the 1969 oil spill off the coast of Santa Barbara, which some credit with starting the environmental movement worldwide.
That is all well and good, but oil production technology has come a long way since 1969. The thing that is rarely mentioned in these discussions is that oil companies do not want oil spills. The 1989 Exxon Valdez spill off Alaska cost Exxon $5 billion in fines and $2.5 billion for clean-up and economic mitigation in Alaska. The spill caused Exxon to slip from being the number one oil company in the world to number three. In short, oil spills are terrible for oil companies. Unlike government, companies like Exxon take it very seriously when they lose lots of money. There is so much irony in elected officials protecting us from oil spills when oil companies have more than enough incentive to so already.
Alternative energy is wonderful. To the extent it is affordable, go for it. However, it is the height of unreason to exclude new oil sources from our energy portfolio; especially considering we have great private American companies that are willing to go get it. In doing so they will remit even more taxes than the $59 billion paid in 2004, $2.2 trillion in excise taxes alone over the last 25 years. Oil companies also pay billions more to the federal government in royalties from leases. Gasoline and diesel is taxed yet again. We ought to be thanking this industry for their huge contribution to public services, and doubly thankful their profits are not funding terrorism.
http://www.taxfoundation.org/publications/show/1168.html
Deroy Murdock had an excellent column last week in National Review Online in which he shared some priceless data on oil spillage. He notes that Senator Feinstein is correct that U.S. offshore drilling is not perfectly clean. Since 1980, among the almost 12 billion barrels of American oil extracted offshore, 101,997 barrels spilled. That is a .0001 percent pollution rate. According to the United States Minerals Management Service, some 620,500 barrels of oil ooze out of the ocean floors every year. Thus, Mother Nature is 95 percent more of a polluter than man is.
http://article.nationalreview.com/?q=YTA1MTBlMjdhMjM4NWU4NDczN2IxM2RkNGExNWRjMDM=
In light of this, is it nor rather pathetic that Governors Schwarzenegger, Gregoire, Kulongoski, as well as Senators Boxer and Feinstein fancy themselves our protectors? When Obama was quoted last fall talking about rural folk clinging to religion rather than reason, he could easily have been describing his own and Governor Schwarzenegger’s misguided environmentalism.
***Budget Deadline +35***
As the summer marches forward without a budget in sight, the public face of the crisis has boiled down to Democrats saying they want to raise taxes and the Governor and Controller fighting over whether to pay some state employees minimum wage to preserve the state’s cash. Clearly, neither of these points is sufficient to solve this year’s budget puzzle much less fix the state’s structural and political problems that lead us to this stand-off year after year.
One place I see the type of solutions that do promise to help dig us out of this nightmare on a permanent basis is on the Senate Republican Caucus budget website at:
http://cssrc.us/web/96/default.aspx
The Senate Republicans offer several plans, for education, economic recovery, budget reform and government reform. The two points from the budget reform plan that deserve the most attention right now are these:
1) Establish a Spending Cap. Year after year, California finds itself in this same situation because spending has outpaced revenue. Sensible spending caps would provide for government growth at a responsible rate, and at the same time protect taxpayers from out of control state spending.
2) Create a Rainy Day Fund. When the economy slows down, or when disasters strike, it makes sense to have money put aside to cover the costs of these unforeseen, yet inevitable events. Unstable government funding only puts vulnerable Californians at risk and creates the bizarre situation of state government ripping off local governments and special funds to force a balance.
These are the common sense approaches to a spending plan that every Californian needs to live by, whether regarding their household budget or the state’s coffers. It does not matter what one makes if one spends too much, and everyone, no matter how poor or wealthy, needs to have a savings account. As we get closer to running out of cash and pressure mounts for a solution, legislators and the Governor need to focus on these long-term ideas, not quick fixes that will leave us in this same situation again.
ISSUE FOCUS
***Bridge to Success***
The story about drop-outs prompted Rick Piercy to write me and remind me of the Bridge Program. The program was designed by teachers who saw a disappointing number of students not pursuing higher education because of very surmountable obstacles. The program works with students to make sure they know about and are prepared for the opportunities available in colleges, particularly community colleges and training programs. To watch a very short video that demonstrates the power of this program go to:
http://k16bridge.org/index.html
I commend all those involved in helping students take advantage of all that is offered.
Inside the Leonard Letter
By: Bill Leonard on: Monday, July 28th, 2008
***Hyper Progressive Taxes are Self Defeating***
Last week I offered a dynamic revenue estimate for a one cent sales tax increase, which can be found here:
http://www.boe.ca.gov/leonard/info/Dynamic%20Sales%20and%20Use%20Tax%20Revenue%20Impacts.pdf
This week I offer some thoughts on the Personal Income Tax program. There is new discussion on raising rates on the top 1% of earners. This would be a serious mistake. Two weeks ago, liberal George Skelton pointed out in the LA Times one of the reasons. California’s hyper-progressive tax structure, or tendency to make wealthy people shoulder the greatest share of the tax burden, is a major part of our current deficit. When you rely on a relatively small group of people to deliver so much, when something happens to members of this group, the effects are magnified. Skelton’s example of this is in 2000, the peak of the dot-com craze, the top 1% of earners paid 49% of the California income tax. Two years after that bubble imploded, the top 1% paid only 37%, and we have been in deficit ever since because we counted on revenue that never came in.
According to the latest figures, the top 1% is back to shouldering almost half (48%) of the state’s income tax burden. In calendar year 2006, 14.1 million California income tax returns were filed with the Franchise Tax Board. 1.9 million had adjusted gross income above $100,000. This group paid a whopping 83% of the total ($36 billion) even though they comprised less than 14% of the returns filed. Roughly 120,000 Californians had an AGI of over $500,000. This group comprised less than 1% of California’s returns, but paid 46% of the income tax.
These numbers are from the Franchise Tax Board’s Annual Report for 2006:
http://www.ftb.ca.gov/aboutftb/annrpt/2006/2006AR.pdf
As I have argued many times, going after wealthy people by raising taxes makes the wealthy change their behavior. When people’s wealth is not secure, they hide, hoard, and consume it -- or move -- rather than put it to work in pursuit of greater gains. At the root of all this is the basic fact that wealth is created only one way -- by private production, not government spending. One phenomenon we ought to cheer is the incredible growth in the number of households making more than $1 million a year. In just three years (2000-20003), American millionaires nearly doubled from 181,000 to 354,000. Since rich people pay a lot more taxes, and create wealth by investing and starting businesses, the best tax policy is one that does not impede the growth of the number of wealthy people.
UNDER THE DOME
***Be Wary of More Bond Debt***
The Legislative Analyst’s Office has released its analysis of this fall’s ballots measures.
http://www.lao.ca.gov/laoapp/ballot_source/propositions.aspx
While the reading on the individual policy matters is interesting, the most relevant information for voters is the primer on state bond debt. Four of this fall’s measures propose using bond financing for various projects: Prop. 1 offers $9.95 billion for high-speed rail; Prop. 3 offers $980 million for children’s hospitals; Prop. 10 offers $5 billion for renewable energy; and Prop. 12 offers $900 million for veterans’ home loans. The first three of those are General Fund obligations, while the Cal-Vet money would be paid back by mortgage payments. The amount of interest paid on Props. 1, 3 and 10 would be about double their face value. The LAO estimates that when all the bonds are sold, the total annual budget cost would be about $1 billion. You can read more about bond financing, the state’s debt-service ratio and current bonded indebtedness here:
http://www.lao.ca.gov/ballot/2008/bond_11_2008.aspx
Every voter should understand the full financial impacts of bond financing even then they consider the causes worthy. Then again, given consumer debt levels, people have just become accustomed to credit card financing in their personal and public lives.
ISSUE FOCUS
***Return to the Double Nickel, No***
I have seen a spate of e-mail and websites lately exploring options for increasing gas mileage. Driving slower is certainly one option, but now some Federal nannies want to make it the law. The idea is to threaten states into adopting a 55-miles per hour maximum speed or else lose their share of highway funds needed for safety and congestion relief. This is not only too much centralized power, it is not fair to the motorists of those states who pay their 18 cents a gallon to the Federal government like everyone else.
It is a silly idea, and one I hope it is abandoned quickly. The Wall Street Journal’s Stephen Moore points out that while the Senator suggesting the idea may be willing to drive slower to save gas, but that “The vast majority of Americans surely are not. The original 55 mph speed-limit law, enacted in October 1974 after the OPEC oil embargo as a way to save energy, was probably the most despised and universally disobeyed law in America since Prohibition. In wide-open western states, driving at 70 mph or even 80 mph on miles upon miles of straight, flat, uncongested freeways is regarded as a God-given right. In the 1970s and '80s, the federal speed limit was a daily reminder of the intrusiveness of nanny-state regulation.”
You can read Moore’s full piece here:
http://www.climatechangefraud.com/content/view/1771/225/
***Global Warming Hysteria: Start ‘Em Young***
The Heartland Institute is a think tank I have used for good research for many years. I have been impressed by their clear thinking, solid principles, and straightforward approach to ticklish issues. Thus, I enjoyed a recent issue of their School Reform News in which Maureen Martin relates a dispute between the Institute and a class of sixth graders from David A. Brown Middle School in Wildomar, California. Martin encourages readers to looks at the letters as evidence that “some teachers are trying to brainwash schoolchildren with global warming alarmism.” Indeed. Read the students’ letters here:
http://www.heartland.org/pdf/22921.pdf
Martin summarizes: “The students said they learned about global warming by reading 10 articles about it. None of the articles, however, was about the science of global warming. Many described terrifying consequences that supposedly will result, convincing the students all living things--including all human beings--will be dead in 10 years.” The students believe that Heartland is actually encouraging the destruction of the earth’s climate by examining the scientific claims of global warming activists.
For example, one student wrote: “I do not think that what you are doing is right because you are telling people that global warming is not a crisis. If this is not a crisis, how come floods have occurred in asia, Mexico, and India. Plus, how can you explain why the glacier glaciers are melting. They can’t melt themselves, because they are in the coldest region in the world.” Needless to say, Heartland reproduced the students’ letters without correcting grammar, spelling, etc. Martin cites California’s science framework that directs teachers to explain to students that “Scientists are deeply knowledgeable about their fields of study but typically are willing to admit that there is a great deal they do not know. In particular, they welcome new ideas that are supported by evidence.” The parents of these students may also wish to avail themselves of the state’s language arts framework to discover whether it is reasonable to expect that their children should be able to capitalize and punctuate sentences by the sixth grade.
The students should also be directed to additional articles about global warming, including news like this:
“A former global warming alarmist and creator of the model that measures Australia's compliance with the Kyoto Protocol says that while global warming is real, there is no evidence that the main cause is carbon emissions. David Evans says that C02 emissions play — at most — a minor role.
“Evans writes in The Australian newspaper that if global warming was caused by C02, scientists would have found hot spots about six miles up in the earth's atmosphere over the Tropics. Evans describes those hot spots as the signature of the greenhouse effect. He says scientists have been trying to locate them for years using thermometers attached to weather balloons.
“But he says years of research ‘show no hot spot — whatsoever’ adding that ‘an increased greenhouse effect is not the cause of global warming.’”
http://www.foxnews.com/story/0,2933,388004,00.html
Inside the Leonard Letter
By: Bill Leonard on: Monday, July 21st, 2008
*** Sales Tax Hike Analysis Available***
In remarks last Thursday, the Governor announced that raising the sales and use tax is something he is considering. Since my department collects the tax, I recently asked our chief economist to prepare a dynamic revenue analysis of an increase in the sales and use tax. A dynamic analysis seeks to predict how a tax increase would affect economic activity, and thus provide a more realistic idea of the revenues that will actually come in. A static estimate assumes the policy change will have no economic effect and is a simple calculation.
The state’s static revenue estimate for a one percentage point increase in the sales tax is $6 billion per year. The dynamic estimate I requested takes into account how the increase would affect economic activity over time and concludes the state would actually take in $5.69 billion, which is over $300 million short of the state’s official (static) estimate. This would be an ongoing year over year shortfall once the effect of the tax hike filters through the state’s economy. This is eerily familiar territory for those who remember Governor Wilson’s tax increases came in $1.8 billion short of static estimates over the first three years.
The new estimate concludes the tax hike would also result in more than 50,000 jobs lost in California from the reduction in economic activity. I have posted the revenue analysis here:
http://www.boe.ca.gov/leonard/info/Dynamic%20Sales%20and%20Use%20Tax%20Revenue%20Impacts.pdf
***Spending Proposition 10 Money***
I have written before about Senator Dave Cox’s idea to recover a half billion dollars a year from First Five California to help balance the budget. The First Five program uses cigarette taxes to fund early development and non smoking programs for kids in their first five years. This is money from Proposition 10, the 1998 Reiner initiative that levied a massive cigarette tax and created 59 state and county bureaucracies to distribute the money. In short, Cox found these county programs were not only misusing the money but they have hoarded almost $2.5 billion unspent since 1999. Since the money is mostly county-controlled it is difficult for the state to oversee. Cox wants to redirect all future revenues -- around a half billion dollars a year -- to the state’s Healthy Families and Medi-Cal programs, covering 200,000 kids who are currently eligible but not enrolled in the program. As for the $2.5 billion that is available to be spent now, Cox’s proposal gives 50% to schools and the other 50% to those city and county offices that are headed by elected officials who are accountable to the public. More on the Cox plan here: http://cssrc.us/web/1/news.aspx?id=4210
Some Republicans are opposing the Cox plan and rallying around the status quo. Shawn Steel, Republican National Committee member-elect, penned a column for www.dailybulletin.com in which he argued that Orange County is running their program well, and as long as a bad tax is on the books, Steel thinks that letting locals spend it is a better alternative than Cox’s proposal.
http://www.dailybulletin.com/search/ci_9872119?source=email
Adam Probolsky was on a similar wave length on the OC County blog a couple weeks ago. He thinks the Cox proposal is about getting more people hooked on big government services and is a bad idea.
http://www.redcounty.com/orange-county/2008/06/following-his-razorthin-win-ov/
In short, both Steel and Probolsky want local control rather than giving more revenue to a bloated state bureaucracy. Regardless of the mismanagement at many county programs, Steel wrote that Orange County’s First Five Commission, “consistently receives top marks for effectiveness and efficiency…” However, the dirty secret is that many of these county First Five programs are targeted at children of illegal aliens. What I would like to know is whether the Orange County First Five program is offering services to illegal immigrants.
The Cox proposal would divert $600 million a year from the Prop. 10 account and direct these to Healthy Families and Medi-Cal programs that have clear income and residency requirements. Cox’s plan would also eliminate the waste and abuse found in 58 county commissions, including Orange County to the extent it is funding programs for illegals.
***Cashing in on High Gas Prices***
With the drain of your wallet at the gas pump, some government accounts have been swelling. When the price of gas goes up, the amount of taxes collected rises, too. A reader was curious about just how much so I had the amounts graphically assembled:
http://www.boe.ca.gov/leonard/index.htm
The total amount of motor fuels taxes received by California state and local government in 2000 was $2.1 billion. By 2007 it was up to $4.3 billion. The debate is this: is that new tax money coming out of your budget, or are you shifting your spending from other taxable items to gasoline? The statisticians and I disagree on this. They believe you are simply shifting your spending by buying fewer taxable items (clothes, restaurant food, etc.) to pay the higher gas price, including the tax. I believe there is a shift in spending going on, but that it is just as likely to be from non-taxable items, say your premium cable package or movie tickets, or to go further afield, maybe even less food and medical services. You end up cutting costs in one area, but those savings are more than eaten up in the higher gas tax due on each fill-up.
***Best Budget Quote***
USC Professor John G. Matsusaka caught my eye this week with his LA Times commentary on the state budget. After noting that state government is spending a “whopping” 40% more money this year than just four years ago, he concludes: “Voters are criticized for wanting more services yet being unwilling to pay higher taxes. That is unfair; Californians have repeatedly demonstrated their willingness to fund valuable programs. But if spending can go up 40% and most of us can’t discern any difference, can we blame voters for being hesitant to put even more tax money in the hands of the state?”
Read the full commentary here:
http://www.latimes.com/news/opinion/la-oe-matsusaka17-2008jul17,0,7957570.story
Inside the Leonard Letter
By: Bill Leonard on: Monday, July 14th, 2008
***Higher Taxes on Producers Yields Less Revenue***
Stephen Moore gives a preview of the latest data release from the IRS, which show the Bush tax cuts continue the trend of transferring the tax burden to the wealthy and productive. Moore’s sources say for the first time in memory, the richest 1% paid more than 40 percent of the income taxes. The top 50 percent paid 97 percent of all federal income taxes.
Moore notes this is not enough for Barack Obama who wants another $130 billion from the top 1 percent. The Obama campaign says his proposal would only affect 1.3 million Americans, out of 128 million. This sounds attractive to a lot of voters who are not faced with paying the higher tax. What these voters should think about is when taxes are raised on the highest earners, the end result is income shifting and reduced investment to the point the rich pay less taxes than before. Moore cites a Columbia University study that in 1970, when the highest tax rate was 70 percent, the top 1 percent paid about 17 percent of the taxes. Now that the top rate has dropped to 35 percent, the top 1 percent is paying 40 percent of the taxes. This all becomes so clear when one considers that wealth is created only one way – by production. When the wealth producers are taxed the end result is less production and less tax revenue.
In a wonderful book “The Victory of Reason,” Rodney Stark illustrates this brilliantly: “When rulers concentrate on exacting the maximum amount from those they control, their subjects become notably avaricious too, and respond by consuming, hoarding, and hiding the fruits of their labor, and failing to produce as much as they might.”
The Stephen Moore article in the Wall Street Journal can be found here:
http://online.wsj.com/article/SB121555916730437401.html?mod=opinion_journal_political_diary
***Window on the War***
If you do not have a friend or relative serving in Iraq, you may not be hearing about all the good our troops are accomplishing there. I had the opportunity to read an email this last week from a young man who has served in state government previously and when not posted abroad lives in my home county, San Bernardino. I wanted to share with you his thoughts because we must spread the word about what is really going on. From Lieutenant Paul Chabot, U.S. Navy, serving on the ground in Iraq as an Intelligence Officer with a Joint Special Operations Task Force:
“Great things are happening in Iraq. And I’m not saying that just because I’m here. Every single day I can see the progress being made, not only with our fight against Al Qaeda, but also with the living conditions for the citizens of Iraq and the progress with infrastructure, government, Iraqi military and police. My view on Iraq has changed. Before I arrived I BELIEVED we had to be here. Now that I am here, I KNOW we have to be here. A little tip – don’t believe what the mass media back home portrays of the war. I often watch a variety of news channels and rarely see them report on the significant progress made (every single day) but are so quick to report when isolated attacks on U.S. and Coalition Forces occur. This provides for a very unfair picture of the reality in Iraq and it’s a disservice to our Nation. The very simple truth is this: If Al Qaeda is left to grow in Iraq, then Iraq will fail as a nation and will become the world’s #1 training ground and exporter of terror, and terror finance, worldwide – and they will yet again have the U.S. homeland in their sights, as they have promised all along. We will not let this happen – so long as we stay the course here in Iraq and dispel Al Qaeda of their once imagined victory over the U.S. and continue to build the Iraqi system which one day will stand on its own two feet. Leaving any sooner would be catastrophic . Today, we are looking down the barrel with our sights set on the remnants of Al Qaeda – but left unchecked, like the drug terror organizations in Mexico, will rebound with a vengeance.”
***Toss Up States***
Many are starting to make electoral vote predictions. The Washing Post has an interesting web site that lets you make predictions. See:
http://www.washingtonpost.com/wp-srv/politics/interactives/campaign08/electoral-college/
If you highlight the list of 2008 swing states there are a total of 111 electoral votes. These 10 states are: Colorado, Florida, Iowa, Minnesota, Missouri, Nevada, New Mexico, New Hampshire, Ohio and Virginia. These states and their electoral votes will determine the Presidency. This is what I mean when I recommend ignoring all national polls. Only pay attention to these states and to the intensity of these voters’ interest in the candidates. The real value right now is in understanding the voters of those states and how strongly they are leaning to which candidate. In their actions is the outcome of November.
***Malaise, Revisited***
Last week former Senator Phil Gramm’s said that our country is in a “mental recession” and that we have become a “nation of whiners.” Senator McCain quickly distanced himself from those comments. It reminded me of 29 years ago this week, when President Jimmy Carter donned a cardigan and delivered an Oval Office address that has haunted him ever since. On July 15, 1979, Carter’s talk about the attitude of the country, his own administration and the needed steps in energy policy came to be known as the “malaise speech.”
He never used the term, though it had been used by his adviser, Pat Caddell, whose memo inspired the President’s remarks. Caddell’s assessment was that Americans were down in the dumps because of rising gas prices, other woeful economic news, the Vietnam war, the assassinations of RFK, Martin Luther King Jr. and JFK. Carter said, “The threat is nearly invisible in ordinary ways. It is a crisis of confidence. It is a crisis that strikes at the very heart and soul and spirit of our national will. We can see this crisis in the growing doubt about the meaning of our own lives and in the loss of a unity of purpose for our nation. The erosion of our confidence in the future is threatening to destroy the social and the political fabric of America.”
Vice President Mondale had strongly urged President Carter to ignore Caddell’s bleak assessment. Mondale explained, “I argued that there were real problems in America that were not mysterious, that were not rooted in some kind of national psychosis or breakdown, that there were real gas lines, there was real inflation, that people were worried in their real lives about keeping their jobs.” Mondale was right.
It is much the same today. Americans do not want to hear proclamations about whining and mental recessions. They want to know that their leaders understand that they are paying more for groceries than last year, driving less because they cannot afford it, and concerned about what’s next. McCain instinct to distance himself from Gramm’s comments is correct; now he must do more. He must offer inspiring policies and propose changes. If he learned from the attitude that sunk Carter, he must do more than simply step away from Sen. Gramm.
If you want to revisit the whining click here: http://www2.volstate.edu/geades/FinalDocs/1970s&beyond/malaise.htm
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