OFF WITH THEIR
HEDGE FUNDS
New proposals for taxing the super-rich may be an instant solution for the California budget crisis
After flogging then-Gov. Gray Davis for his "crazy deficit spending," then whipping him in the recall election, Gov. Arnold Schwarzenegger wants you to step in line and vote for a $15 billion bond issue that would essentially shoulder future generations with the debt and interest for this year's budget shortfall.
Next year, we can expect to be down as much as an additional $14 billion, unless cuts are made or taxes are raised, or both. As it is, Schwarzenegger has vowed to stay away from tax increases as long as possible. Instead, he has proposed deep cuts for social services, and $2 billion less for education - putting much of the weight of the budget crises on the shoulders of the middle class, workers, and the poor that rely on such things as state parks, health programs, and subsidized child care. Although he campaigned for tough choices and the end of sacred-cow politics, Schwarzenegger is clearly avoiding the one remedy that might easily get California out of its budget hole: Progressively raising taxes from 0.5 percent to 7 percent on the richest 3.1 percent of taxpayers would raise $13.2 billion, interest-free, now, and burden the very rich only relatively slightly.
There's a small, grassroots movement to get this tax-the-rich proposal on the same March 2 ballot as Arnold's $15 billion beast of burden, a.k.a. Proposition 57. The movement is spearheaded by UCLA molecular biology professor Paul O'Lague and Cal State Long Beach mathematics professor John Bachar. And while the Guv's debt bomb is a stinker with the voters (supported by a little more than one in three), the idea of raising taxes might be a less-bitter pill. A recent report on the state's fiscal crisis by the Public Policy Institute of California states that "71 percent support raising the top rate on state income tax paid by the wealthiest Californians."
"Is this feasible?" O'Lague asks. "It could be if the masses rise up."
Meanwhile, Assemblywoman Wilma Chan (D-Oakland) has her own tax-the-rich proposal in the legislature. Her bill permanently reinstates California's 10 and 11 percent personal income tax rates for those making $133,000 to $266,000 per year. The legislation would raise $2.5 to $3 billion, not enough to fill the budget shortfall, but it's a start.
"When you look at the governor's proposed cuts objectively, they do hit poor people and communities of color the hardest," Chan says. "I would definitely prefer to see us bring in some revenue instead. My bill only affects two percent of Californians, and with the Bush tax cuts these people will still be getting money back, it will just be less. I think it makes sense."
The professors' more ambitious plan calls for raising taxes 0.5 percent for those with an adjusted gross income of $200,000 a year or more, with progressive tax hikes on the rich, until reaching a 7 percent increase for those who make $5 million a year or more. This will net the state $26.4 billion - and likely wipe all our budgetary tears away - over two years. About 97 percent of Californians (a clear electoral majority, O'Lague points out) will not be taxed one penny more than they are now. This is strictly for the relatively ultra-rich.
As it is, the governor's proposed cuts disproportionately affect - some say tax - the non-rich. His proposed $7-billion slice off the budget comes at the hands of subsidized child care, state workers' pension plans, and the Healthy Families program, which covers medical bills for needy kids with cancer and other serious ailments. On the other hand, O'Lague points out, progressively raising taxes on those who make more than 200 grand isn't really going to dent their lifestyles, at least as far the rest of us can tell.
"The upper tiers, they'll be looking at a private jet for $27 million instead of $30 million, or a fixer-upper $7 million home instead of a $10 million one," the UCLA prof says. "Maybe the rich would feel some epiphany. In some senses, the rich have more control over Sacramento than most. Why don't they get together and help more? In terms of dialogue, it's about time Californians pay attention to where the money is."
So why isn't Schwarzenegger going for the seemingly less-painful solution of slightly raising taxes on those who can most afford it? As pundit Robert Scheer put it in his AlterNet.org column, "His kids, after all, are not enrolled in the Healthy Families program." It's possible that the governor doesn't want to alienate the very rich Republicans and "fiscal conservatives" who backed his campaign, not to mention his Brentwood neighbors. Or perhaps Schwarzenegger believes, like supporter Daniel Weintraub, in the right-wing's sacred "trickle-down" theory - that the richest people make wealth for everyone - and is afraid that money will dry up with the squeeze of more taxes. ("They do well, their wealth is shared with the rest of us," writes Weintraub in his Sacramento Bee column. "When they do less well, we also pay the price.") Schwarzenegger's office referred CityBeat to Todd Harris, spokesman for Proposition 57 (and for sister balanced-budget initiative, Proposition 58), for comment, but he could not be reached.
Weintraub argues that since 1998, California's rich have, in fact, gotten poorer, or simply bailed, with the number of million-dollar earners dropping from 44,000 in 2000 to 29,000 the next year, and their tax contributions dropping from $15 billion to $8 billion. This is clearly bad for the state's coffers. But O'Lague says the shifts in wealth have nothing to do with the ability of the Golden State to attract and grow the rich.
"That's blackmail," he says in response to threats of rich-flight. "I think California is a great state and people like it here. The amount they have to pay in taxes doesn't change their lifestyle."
O'Lague says he and partner Bachar were inspired in part by New York Times reporter David Cay Johnston's new book, Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich - and Cheat Everybody Else. Johnston, a Pulitzer Prize winner, argues that the federal tax burden on the super-rich and corporations has been reduced since the postwar era. The top income tax bracket was 70 percent in 1970. Now it's 35 percent, with capital gains taxes falling from 28 percent in 1987 to 15 percent last year, according to Johnston's book. Meanwhile, he states, many wealthy Americans underreport their incomes and hide money in tax shelters and offshore accounts, pushing more proportional tax burden on the rest. ("I do not call for raising, or lowering, taxes on anybody," Johnston told CityBeat. "I just describe how the tax system actually works - and it is not at all as people think or the news media has reported.")
"The rich take things off their tax reports we would never have the opportunity to," O'Lague says. "These people have so much they don't know what to do with it. California ranks 19th in the country in terms of overall taxes, so we're not necessarily overtaxed. Schwarzenegger saying this is the only way we're going to save California is nonsense. It's almost undemocratic to say we only have one option."Published: 01/22/2004
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