So when you hear anyone say that the level of taxation in a country should be based on the “ability to pay”, be very afraid. These people are not only coming for your money. They’re coming for your economic liberty too. Ultimately, that means they’re after your political liberty as well.

Progressive taxation is the idea the larger your disposable income, the larger percentage of that income you ’should’ pay in taxes. Proponents of it—and these days nearly everyone one is—claim it is more ‘fair.” But let’s be honest and call things by their right names and say what progressive taxation is really about.

Even John Stuart Mill, who favoured it, called progressive taxation “a mild form of robbery.” That’s because progressive taxation is about using the tax code to redistribute wealth. It’s base on the class-warfare idea that the rich get rich illicitly and conspire to keep the riches of society for themselves. It uses the law (coercion) to correct what some people see as the social and economic injustice meted out by the marketplace.

But how people treat private property (and wealth IS private property) determines the character of society. A society that promotes the idea of wealth accumulation and that everyone can get rich is one in which standards of living will rise over time. It doesn’t mean getting wealthy is the only or even the most important ambition in life. That’s a matter of personal choice and values. But it just means that if you want to raise standards of living over time, you should guard economic liberty and not use taxation to punish personal incentives.

The only fair argument for progressive taxation is that indirect taxes (consumption taxes) hit the poor harder than they hit the rich. This is certainly true for taxes on consumption goods. But it is not true for income taxes, most of which the poor do not pay anyway. A tax on Gucci handbags is less onerous than a tax on a slab of beer. But that doesn’t justify the argument that just because you can pay more taxes, you should.

When is it ever right for a man to come in to your home and take what’s yours simply because he’d decided that someone else needs it more? And how is the government arbitrarily deciding to raise income tax rates on only certain citizens, based on their ability to pay, any different? Yet that’s the argument for progressive taxation in the modern world. And most people seem to think it’s fair and just.

Mind you, that doesn’t mean that free people can’t use legislatures to levy taxes in order to pay for projects they believe should be provided by the State, like roads, bridges and other infrastructure. But there is a difference between that kind of public spending and public spending financed by wealth redistribution to achieve particular social and economic outcomes.

How did we get to the point in civil society where a democratic majority that does not pay taxes can, through its elected representatives, legally confiscate the wealth of a minority? Friederich Hayek gives the history in, The Constitution of Liberty.

“As is true of many similar measures, progressive taxation has assumed its present importance as a result of having been smuggled in under false pretences. When at the time of the French Revolution and again during the socialist agitation preceding the revolutions of 1848 it was frankly advocated as a means of redistributing incomes, it was decisively rejected. “One ought to execute the author and not the project,” was the liberal Turgot’s indignant response to some early proposals of this sort.

“When in the 1830’s they came to be more widely advocated, J.R. McCulloch expressed the chief objection in the often quoted statement: ‘The moment you abandon the cardinal principle of exacting from all individuals the same proportion of their income or of their property, you are at sea without a rudder or compass, and there is no amount of injustice and folly you may not commit.’”

“In 1848,” Hayek continues, “Karl Marx and Freidrich Engels frankly proposed ‘a heavy progressive or graduated income tax’ as one of the measures by which, after the first stage of the revolution, ‘the proletariat will use its political supremacy to wrest, by degrees, all capital from the bourgeois, to centralise all instruments of production in the hands of the state.’

And these measures they described as ‘means of despotic inroads on the right of property, and on the condition of bourgeois production…measures…which appear economically insufficient and untenable but which, in the course of the movement out strip themselves, necessitate further inroads upon the old social order and are unavoidable as a means of entirely revolutionising the mode of production.’”

If Marx and Engels are to be taken at their word, progressive taxation was never about fairness. It was about putting production “in the hands of the State” and “revolutitionising the mode of production.” In the world of State-run capitalism, this is what we seem like we’re headed towards.

Now, we can take a step back and ask whether a State-run, union owned Chrysler makes a better car than the shareholder owned management-run Chrysler. It’s a fair enough question. We’d argue that government-built and designed cars are going to be about as appealing as a leather boot for breakfast. But that is not really the point.

The point is that the politicians are lying to you about the goal of progressive taxation. The goal is not to produce more “fairness” or “social justice.” It’s to place the State at the centre of economic production, so it can regulate and tax with impunity.

There is both a psychological and crassly economic motive to this movement to displace the free market with the State as the organiser of economic life. The smarty pants elitists in both political parties, with their ties to union and corporate money, really believe the world would be better off it was run be benevolent bureaucratic despots. Or maybe using coercive taxation to steal from the rich is simply envy-based class politics, a kind of populist theft conducted with the consent of a hi-jacked system for passing laws.

Once you go down this road of socking it to the rich instead of reducing spending, you get higher and higher rates of taxation that eventually shrink the economy. Britain adopted the income tax in 1910 and the U.S in 1913. At the time, the top tax rates on income were 8.25% and 7% respectively. Yet within 30 years, thanks to the Great Depression and the World Wars, those rates had risen to 97.5% and 91% respectively.

“Thus in the space of a single generation,” Hayek writes, “what nearly all the supporters of progressive taxation had for half a century asserted could not happen came to pass…All attempts to justify these rates on the basis of capacity to pay was, in consequence, soon abandoned and supporters reverted to the original, but long avoided, justification of the progression as means of brining about a more just distribution of income.”

How much a man should reasonably a pay to the State was no longer an economic question about his ‘ability to pay.’ It was revealed as the purely political decision it always was. Or as Hayek says, it’s “an attempt to impose on society a pattern of distribution determined by majority decision.”

That’s what we meant by the character of society. Do you want to live in a country where over 50% of a man’s income can be taken from him simply because the majority votes for it? In that kind of country you want to live in, where you have no real property rights and you don’t have equality before the law.

Upward income mobility is undermined in this kind of society. People don’t try to get rich because there’s no point in it if your gains are going to be confiscated. The net result of decades of progressive taxation is lower capital formulation, more consumption, less production, and ultimately a lower standard of living for everyone.

In that society, your only means of social and economic advancement is based on your personal connections and political patronage. Not surprisingly, in that society, politicians exercise enormous power. And decisions are not made by businesses that aim to offer consumers better products and services at lower prices; they are made by politicians who aim to cement their electoral position by favouring certain constituencies.

Progressive taxation has nothing to do with fairness, justice, or equality. It is unfair, unjust, an unequal. But hey, if that’s the kind of country you want to live in, or if you’re someone who’s getting the check instead of writing it, that might not seem like such a bad deal.

We’d just advise you to prepare for a lifetime of dependency on busybody politicians who become increasingly grasping, moralistic, and intrusive. If you’re a free man, you’d better pack your bags and look for some other luckier country.

This is not to glorify getting rich as the most important thing in this world (or any other world.) It isn’t. And there are much more important things in life. Whether you choose to pursue material gain is up to you.

And just as a government should not use the tax code to punish the rich, it ought to quit tinkering with it and providing so many deductions and rebates that allow anyone with a good accountant to avoid paying large income taxes. A much simpler taxation system based on consumption would be fairer for everyone and it would force the government to finally live within its means.

Of course that probably won’t happen. Ever. But it would be nice to think so. In the meantime, a society that discourages wealth creation and capital formation through so-called progressive taxation is eventually going to make itself a lot poorer and a lot less free.

Regards,
Dan Denning
Australian Daily Reckoning

May 15, 2009

Progressive Taxation, an Assault on Liberty was originally featured on Whiskey and Gunpowder

Is it just a simple matter of “voting all the bums out” — as a few signs advocated?

I don’t believe in man qua corporation as having a soul — and that’s a sticky snaggle for libertarian conversions in my book. We’ve got these corporations on our hands. Lots of them. And we’re saving them right now. Of course, we don’t wanna, because in the world according to Darwin, they don’t deserve it. And that’s what a couple of signs said.

Yet other than taxes, what pitchfork have we with which to attack this capital gains-loving Marie Antoinette of Manhattan? If one were to write Revelations today, one could send the Whore of Babylon with Roman corruption and kings at her breast into early retirement. The Whore of Manhattan, we’d make, with Blankfein and Vikram, sucking away.

Examine this pseudo-biblical snatch from Network and its corporate demon, Arthur Jensen:

“Am I getting through to you, Mr. Beale? You get up on your little 21-inch screen and howl about America and democracy. There is no America. There is no democracy. There is only IBM, and ITT, and AT&T, and DuPont, Dow, Union Carbide, and Exxon. Those are the nations of the world today. What do you think the Russians talk about in their councils of state, Karl Marx?…We no longer live in a world of nations and ideologies, Mr. Beale. The world is a college of corporations, inexorably determined by the immutable bylaws of business. The world is a business, Mr. Beale. It has been since man crawled out of the slime. And our children will live, Mr. Beale, to see that…perfect world…in which there’s no war or famine, oppression, or brutality. One vast and ecumenical holding company, for whom all men will work to serve a common profit, in which all men will hold a share of stock. All necessities provided, all anxieties tranquilized, all boredom amused.”

You see, tea baggers, We the People are not the Geneva-loving Rousseau’s Corsica or Poland, starting with a new constitution afresh. We have no democracy. We have only the media, chattel of the corporations that are hoping to eek one last ounce of profit from the old dead horses called newspaper and broadcast TV. Why do you think we see so much of Obama on our late night and Geithner on our sacred Sunday mornings?

How do I know that Mr. Jensen’s speech is not what pure libertarianism would look like if thrust atop this ugly, brutish state? Would I be happy there? Would I be tranquilized?

I’m thinking the best you and I can do, dear reader, is defect…make nice paper-dollar profits on the IBMs and Dows and their tiny brethren…and depart after turning it into gold. Go somewhere with cheap land…and buy cattle, sheep, goats.

After all, who among us really has the nads, the arms, or sufficient belief in mankind to rewrite the social contract of these United States?

(Hush, Texans like Rick Perry, we hear your clamor…but do we believe it?)

How the Rest of the World Sees Tea Baggers

Always ask: What do our fellow nation-states make of all this? After all, what is diplomacy but a massive PR campaign? And how will we know which country will harbor us gold-bearing exiles the best?

Here’s a headline courtesy of Agence France-Presse: “Anti-Barack Obama ‘Tea Party’ Protests Mark U.S. Tax Day.” The article juxtaposed the words “modest crowds” with “several thousands.” It admitted the protest had a “catchy theme,” but questioned the strength of the “mostly Republican forces” whose party has “been in disarray since Sen. John McCain lost the White House” — a party whose senior figures “appear lukewarm” to the tea parties.

Maybe that’s just because they have issues with verbal jokes that mix them up with “tea bagging” — the sex act — which we all laughed about the morning after. Strategically, there’s no reason for the Republicans to ignore the voice of the Ron Paul fringe, which is getting louder…they’re still doing worse than Obama in Gallup polls, and they’re up for re-election first.

We all know it’s good to ride the faux-populist express…Just look at who ran it straight up to the door of the White House last year.

I know die-hard Dems who voted Reagan into office his first year…for fiscal conservatism, and fiscal conservatism alone. Look how well that turned out! Running from one platform and party to the other is as dizzying as a dog chasing its own tail.

Americans need to stop being twits first and foremost. Posthaste, Patriot…keep your brain for yourself!

Regards,
Samantha Buker

April 21, 2009

Why Tea Won’t Work This Time was originally featured on Whiskey and Gunpowder

You go into a feed store (wonderful smells, fascinating merchandise, nice folks, and sticker shock wherever you look.  Are you up to $2500 saddles?  An average price, nothing special… how about fencing at five thousand a mile?  And up.  Mostly up!), and you can have a good, rousing, patriotic conversation on every aisle if you want to make an opening remark…the price of antibiotics (animals’ make ours look cheap), or the astounding increase in wire and T-post prices (non-precious metals) during the last year…or the probable effect on future feed costs from a crashing economy.

THEY AIN’T NO LIB’RULS IN SMALL TOWN BARBER SHOPS.  In small towns purt’ near ever’body knows ever’body else and either employs, works for, or trades with ‘em.  We are tied to the land and our small social groups, and charity really begins at home.  We have no patience with the shiftless but pour out our bounty at times of birth, death, and catastrophe.  I traveled extensively in six western counties of Texas in ‘08 and saw precisely three Obama signs:  one each in front of the shabbiest house in two small towns, and one in the little storefront that housed the Obama campaign in a small county seat.  Democrats control local politics firmly (backlash against Reconstruction), but they are quite conservative at that level.  Mebbe it takes critical mass before Demmies go really goofy…or perhaps hometown boys and girls get led astray by slick city mice.  Probably both.  We’re too busy trying to keep our land and businesses in the family to want to tell other people how to wash apples at th’ county level.

THEY AIN’T NO LIB’RULS IN GROCERY STORES.  Hoo, boy, are there not.  This is something that will grow as supplies decrease and prices increase.  Now you still see the occasional liberal tee-shirt, but more and more people are focusing on their own problems in survival and are not really sympathetic with those who toil not, neither do they spin.  It is frustrating to have to be careful about what we put in our carts because we know how much money is in our purses, and annoying to watch people buying luxuries with food stamps.  Did you ever notice that those paying with our money are usually pretty nicely dressed and wearing good jewelry?  Well, if somebody paid our grocery bills we could buy Boar’s head ham and cheeses, too.  We’re the ones who know we have to choose, have to know the difference between what we can afford and what we can pay for, and have to make decisions on what is most important to us.  If we buy that very expensive ham, something else has to be foregone.  The welfare crowd doesn’t have that problem, nor do the illegals, for the same reason.

THEY AIN’T NO LIB’RULS IN HONKY TONKS ‘CEPTIN’ TH’ DIXIE CHICKS!  One uh th’ gang commented that he hadn’t had any good political discussions in upscale bars recently.  That’s ’cause th’ chardonay and sushi crowd doesn’t know much about traditional values, how money is made, how the monetary system is supposed to work, or anything except influencing public opinion and insider deals.

You git in tuh a great honky tonk lahk Willie’s Broken Spoke, in Austin, and yew don’t run into th’ welfare crowd, th’ illegals, or th’ politics of envy–although Congress is certainly doing its best to recruit us over the AIG mess which was all their doing.  Ain’t nobuddy thar but good ol’ boys an’ their ladies havin’ fun, an’ we don’t hold with tearin’ down the Constitution, amnesty fur illegals, or anythin’ else much goin’ on in DC.  Don’t you go burnin’ our flags or spittin’ on our Bibles, ’cause it ain’t safe.  Ladies will thank you fur openin’ doors an’ look startled if you address a letter to “Ms.  Farmerswife.”   “Mizz” is how we pronounce “Miss,” and “Mizz-rus” means the gal’s married.  We ain’t got no other honorifics, ‘cept courtesy “Aunt”  an’ we like th’ ones whut we got.  We don’t usually know sexual deviants unless we meet ‘em when visitin’ in th’ big city, an’ nobody has a problem with “Merry Christmas!”

You look at one uh them thar fancy charts whut shows how th’ country’s divided up, all purty in red with disfiguring blobs like De-Troit, MY-ami, an’ Washin’ton, an’ coastal strips in blue, an’ you’ll see maht’ quick that th’ disagreement between th’ Nawth an’ th’ South has expanded to that between th’ city fellers an’ th’ country boys.  We’re still fighting (sorry, “fahtin’”) ovuh th’ same thangs:  tariffs, taxes, big government vs. small, laissez faire, standin’ on our own two feet instead of on our neighbors’ wallets, States Rights, killin’ our own snakes, the Good Book, an’ sech lahk.  (DJ’all git that?  “Like,” if’n you don’ savvy mah lingo.)  We don’ want no gummint subsidies an’ we don’ think y’all should pay our mortgages.  We don’ want tuh support anybuddy though they ain’t no kinder hearts in th’ universe.

We’s ’bout divided equally in population and on policy ‘twixt the Red an’ th Blue, but th’ Damnyankees (Yes, that’s all one word.) are still stackin’ th’ ballot boxes an’ stid o’ writin’ to y’all Ah should be out ’splainin’ tuh people why th’ Democratic party they’s addicted to ain’t been around for a mahty long spell.  Habits er good when we’s talkin’ ’bout sloppin’ th’ hawgs, but they ain’t no reason tuh vote for uh bunch uh scallawags an’ carpet baggers what er pushin’ th’ Lib’rul agenda.  We jes’ ain’t got ovuh bein’ mad at Lincoln, Sherman, an’ Beast Butluh, thass all.

Hay-ul, no, Ah ain’t makin’ fun uh mah frens an’ neighbors, mo’ lahk mah seff.  We tawk funny ’cause we like it, an’ tuh remind ah-sevs that we ain’t th’ problem heah an’ we’uh dag-nabbed tarred uh havin’ socialism thrust upon us an’ bein’ beggared fer a bunch uh useless slime an’ payin’ fur votes tuh keep Pelosi, Reid, Maxine Waters, Ted Kennedy, an’ Ron Dellums in office.  Don’t believe in welfare, but if them folks gonna git somethin’ fur nothin’ leastways they could do is clean our houses an’ gummint buildin’s, or be th’ ones holdin’ them traffic signs ’stead uh payin’ ovuh twenty bucks an hour fur sich services.

Ah done give up appologizin’ fur bein’ South’n.  Ain’t gonna make no more jokes ’bout how Ah flies th’ Stahs an Bahs ’cause it amuses th’ hands.  It does, but Ah likes it too.  Ah’m fed up with income- an’ soul-destroyin’ regulation thass drahvin’ us outta business, an’ what’n tarnation made th’ Feds thank that outlawin’ are raht t’ feed ourselves an’ others should be a crime in th’ name of “food safety?”  Hey, anybody you know evah git sick from eatin’ at home?  Didn’t think so.  Evah have any problems with home-canned vegetables?  ‘Course not.  Th’ problems come out uh heavily regulated an’ inspected restaurants an’ factories.  Had a fren, oncet, back in mah college days, heir to uh big corporation.  (Hey, got me three uh them pay-puhs whut says DEE-gree on ‘em, but common sense counts thuh most, that an’ th’ bonnie blue flag.)  Aftuh a summah spent learnin’ th’ bidness in the Phillipines warn’t nuthin’ would git Lon tuh eat Daddy’s best-known confection.  Seems he took a real dislike tuh th’ gi-gantic bugs an’ rats what infested th’ factories.

Restrictin’ food perduction ain’t ’bout nuthin’ but pertectin’ agribusiness an’ controllin’ crowds should it come tuh “insurrection,” as th’ Feds’ull call it.   ‘Bout tahm ya’ll got serious about wass goin’ on an’ reflectin’ on a gummint that dun’t want yuh t’ have no more’n two weeks’ food in yore house.  ‘Bout tahm t’ question how cum them varmints got they eyes on our guns agin’ an’ whah they ain’t much ammo available an’ that costs three tahms whut it did last year.  Thank Gawd we’uh “one shot–one squirrel” types, not prone t’ sprayin’ bullets ’round like th’ SWAT guys do, or we’d be ovuh-run with squirrels, ‘possums, ‘coons, bob cats, an’ othuh pests.  Dang if it don’ cost a dolluh evah tahm Asia shoots a wild hawg.  Plus tax, uh cos.’

THEY AIN’T NO LIB’RULS in small town banks.  They ain’t no Lib’ruls cat fishin.’  Don’t think they’s many Lib’ruls in small town lie-berries, jes’ ladies wantin’ tuh keep th’ computers from bein’ used for porn-ography.  Probly ain’t no Lib’ruls in th’ Boy Scouts, lease-wise not at Eagle Scout level.

Ya’ll thank this ovuh whahl Ah stots ovuh an’ whips out twenny or thutty thousan’ wuds on whah th’ South was rot.   We wuz, y’know.  Had a perfect raht tuh git shet uh dictatorial gummint an go are sep-rut ways.  All we wanted was uh simple little no-fault dee-vorce an’ Lincoln an’ his bunch dun turnt it intuh a shootin’ mattah.

Save yo’ Corn-federate dollars.  No, not because th’ South’s gonna rise agin, fer shoe-uh, but ’cause they got IN-trinsic value, unlike Bernanke Ben’s counterfeit.

Regards,
Linda Brady Traynham

March 31, 2009

There Ain’t No Liberals in Feed Stores was originally featured on Whiskey and Gunpowder

The chief criticism is that the government should not be entrusted with any additional power to tax, for all the usual reasons.  With this point, I agree wholeheartedly and enthusiastically.  So why propose a tax?

The reason for the tax is to address a problem, one of unprecedented proportion and importance.  This problem is that we are now at peak oil – from here on out the world’s oil production will be declining.  This will, at the very least, hobble our economy, since our economy rides on the shoulders of energy consumption.  Immediate action is required to minimize later catastrophic suffering.

As natural market forces drive the cost of oil through the roof, you can be sure that the government will be ready to help out, with all kinds of regulations that distort the market, such as CAFE regulations, public transportation projects, and rationing.  Rather than all this counterproductive government meddling, a gas tax that exploits market forces directly would stimulate all the desirable capitalistic impulses with a minimum of governmental meddling and bureaucratic drag and a maximum of positive effect.

A second criticism is that the tax will not help the poor or save the environment.  While I disagree with this view, this was never the motivation for the proposal.  The motivation for the tax is to anticipate the inevitable escalation of the price of oil, in order to give us the needed time and the motivation to adjust to limited oil.  The fact that it helps the poor (and the majority) serves as a political sweetener.

As to not helping the poor, the “net-positive” gas tax is a financial win for the 60 percent of households with the least income, with a net gain of over $2,000 for those in the lowest decile.  It is hard to believe that this tax would not help the poor.

A third criticism is that reduced U.S. consumption due to the tax would decrease the worldwide price of oil, which would in turn slow foreign alternative energy research.  I can only see this as a benefit.  It would reduce the effective price of gasoline to U.S. consumers, lower than they would be paying without the tax, and it would give U.S. industry a competitive advantage in alternative energy research.

A fourth criticism is that the poor will suffer because they won’t be able to manage their windfall gain from the tax.  This is insulting to the poor, because being poor does not imply being stupid.  But to the extent that it might carry some truth, having a gas tax rebate should be considered as a valuable learning experience.

A final criticism is that the higher price of gasoline caused by the tax will be disruptive to businesses.  To the extent that this criticism has validity, we should act now, preemptively, with a net-positive gas tax, to avoid the impact of later calamitous price hikes.

Global oil production has now peaked and is now in a state of permanent decline.  Thanks to our relatively free and open market, the price of oil has largely been pegged to the cost of production rather than to the value of consumption.  We should ask ourselves what the value of consumption truly is, for this is where the price of oil will soon be heading.  What is the most you would be willing to spend for a gallon of gasoline?  $10, $20, $30, …?  Or alternatively, who needs to be killed in order to keep the price of gasoline affordable?  Think about it.

Regards,
George Doddington

March 30, 2009

A Response to Criticism of a “Net-Positive” Gas Tax was originally featured on Whiskey and Gunpowder

State Samples

• California
• Georgia
• Florida
• Michigan
• Massachusetts
• Illinois

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Boston.com is reporting, “Google Stock Boom Boosts California Coffers”:

“Someday, this era may simply be known as The Google Years. California, whose budget revenue slides up and down like a yo-yo with changes in capital gains and stock options, is once again counting on outsized income tax filings from a handful of tech executives to help balance its budget.

“For this wave, California can largely thank Google Inc.

“After cashing in more than 9 million shares valued at $3.7 billion last year, 16 Google insiders will owe the Golden State as much as $380 million in taxes — enough to cover the salaries of more than 3,000 state workers.

“Taxes paid by Google founders Sergey Brin and Larry Page account for nearly half the amount. There is virtually no way for them or other California billionaires to escape a 9.3% state capital gains tax or a recent voter-approved 1% tax on the wealthy to underwrite the state’s mental health programs.

“‘On behalf of a grateful state, I’ll be happy to wash their windows or mow their lawn,’ said H.D. Palmer, spokesman for California’s Department of Finance…

“Mega-sized tax filings from Google executives began flowing into state coffers in earnest in 2006, two years after the company went public. The receipts helped fuel a multibillion-dollar tax windfall last spring that allowed Gov. Arnold Schwarzenegger to pour money into roads, classrooms, and other popular programs, pleasing political enemies and helping smooth his path to re-election.

“Schwarzenegger’s good fortune, it turns out, did not end there.

“As Google’s stock topped $500 in 2006, company executives continued to sell hundreds of thousands of shares each month, according to an analysis of insider transaction data provided to The Associated Press by research firm Thomson Financial…

“Although the company is helping push capital gains revenue above historical averages, state finance experts say they are not overly concerned that the latest tech boost is another bubble ready to burst and wreak havoc with the state budget.

“According to the state’s latest figures, capital gains and stock options accounted for nearly 14 cents of every tax dollar collected in California in the fiscal year that ended last summer. Similar numbers are expected this year. That’s nearly double the percentage two years ago, following the dot-com bust…

“‘I admit, I’ve been looking at those insider trading sheets almost daily. It’s amazing; day after day, millions and millions of shares,’ said Brad Williams, senior fiscal forecaster for the state’s nonpartisan Legislative Analyst’s Office. ‘It’s not all attributable to one company, but Google is a big sign that we’re going to see capital gains again this year and that the budget won’t be as bad as it could be.’”

Two Questions

Ah, yes, The Google Years. Not to spoil the party, but I have two questions:

1. Is this sustainable?
2. California is in great shape, right?

Let’s leave the first question for the optimists. But with all of this money pouring in, California must be in great shape, right?

In an attempt to answer the second question, please consider the San Francisco Gate article “California Short $1 Billion in Tax Revenue, Controller Says”:

“Personal income tax receipts coming into the state in January fell $1.3 billion below Gov. Arnold Schwarzenegger’s revenue estimates in the spending plan he released last month, the state controller said Tuesday.

“The lower-than-expected revenue raises questions about whether Schwarzenegger will reach his stated goal of eliminating the state’s net operating deficit in the budget year beginning in July.

“The governor’s proposed 2007-2008 budget assumes tax revenue in the current budget year would grow by $1.1 billion, or 1%. In the coming fiscal year, Schwarzenegger also assumed a $6.8 billion boost, or 7% increase.

“‘Tax payments are down about $1 billion, and we don’t yet have the source of that decrease,’ said Controller John Chiang, holding a news conference at the state’s tax-collection center, where 2006 tax returns have begun to trickle in.

“Chiang speculated that the state’s slumping housing market might be a cause of the revenue decline. He also said revenue other than personal income tax rose in January, leaving the state short about $710 million for the month…

“During a press conference touting his plan to overhaul health care in California, Schwarzenegger on Tuesday dismissed news of January’s lower tax receipts. He said it would not affect his policy ambitions on health care reform.

“‘Revenues go up and down,’ he said. ‘I am very optimistic. Our economy is doing well and businesses are doing well, so I am very optimistic’…

“In addition to the uncertain tax revenue, Schwarzenegger’s $143.2 billion budget relies on other risky revenue assumptions, analysts say.

“The governor’s budget assumes increases in property tax revenue and higher income from a rebounding housing market in the second half of 2007.

“It bets that the legislature will immediately approve gambling compacts that it refused to pass last year, bringing more than $500 million in projected revenue to the state.

“Schwarzenegger also assumed the state will win appeals in two court cases that it already has lost at the superior court level. Those two cases could take another $1.1 billion out of the governor’s balanced-budget equation if the state does not prevail.”

Schwarzenegger Rolls the Dice On

• Improved gambling revenue
• Rising property taxes
• Continuation of Google income
• Winning 2 appeals cases it has lost twice
• Increasing payroll tax revenue
• Higher income from rebounding real estate market.

Bear in mind that Schwarzenegger needs that lotto parlay just to break even with projections. Like all gamblers betting with someone else’s money, Schwarzenegger had this to say: ‘I am very optimistic. Our economy is doing well and businesses are doing well, so I am very optimistic.’

Georgia

The Atlanta Journal-Constitution is reporting, “Revenue Drop May Hit Budget”:

“Georgia’s disappointing tax collections over the past six months have some lawmakers worried that the state may not raise enough money to pay for Gov. Sonny Perdue’s proposed $20.2 billion budget.

“Perdue is requesting a more than 8% increase in spending, from $18.6 billion this year to $20.2 billion for fiscal 2008, which begins July 1. Part of that increase will be funded with surplus money raised last year. And administration budget officials say the state should take in enough to meet the governor’s spending plan. However, most members of the General Assembly recall 2003 and 2004, when they had to slash spending, raise cigarette taxes, and gut the state’s rainy day fund to make ends meet.

“‘They worry an economic slowdown will force them to cut spending again if tax collections don’t improve. You’ve always got a concern in the back of your mind — this year more than others — about whether we are basing this [budget] on good numbers,’ said House Appropriations Chairman Ben Harbin (R-Evans).

“Sen. George Hooks (D-Americus), longtime former Senate Appropriations chairman, said, ‘Obviously, the governor and his economist are banking on a tremendously aggressive, strong economy. Indicators now are that the economy is not growing that strong.’

“Lawmakers who run the legislature’s appropriations committees closely watch revenue collection reports. And they have noticed the slower growth — particularly in the net sales tax take.

“Most of the state’s revenue comes from income and sales taxes, both of which are an indicator of the strength, or weakness, of the economy. ‘It’s just strange we haven’t had a good month [of collections] since July,’ said Senate Appropriations Chairman Jack Hill (R-Reidsville).

“Shelley Nickel, director of the Office of Planning and Budget, said she thinks Perdue’s estimate of how much money the state will collect during the upcoming year is ’still fairly conservative.’

“However, Alan Essig, executive director of the Atlanta-based Georgia Budget and Policy Institute and a former state budget analyst, isn’t so sure. ‘It seems to me they [Perdue officials] are forecasting a better economy than what we have today,’ Essig said. ‘It seems very optimistic to me.’

“‘It’s just strange we haven’t had a good month [of collections] since July,’ said Senate Appropriations Chairman Jack Hill.”

No, that’s not what is strange. What is strange is that few see the recession that is staring them smack in the face. On the other hand, Alan Essig, unlike Schwarzenegger, is not clueless: “It seems to me they are forecasting a better economy than what we have today. It seems very optimistic to me.”

Illinois

The (Illinois) News Gazette is asking, “With Healthy Revenue, Why Is State Looking at Tax Increases?”:

“There are some interesting numbers in the latest report from the Illinois Commission on Government Forecasting and Accountability. The bottom line is that the state’s revenue numbers are very healthy, and that Illinois doesn’t look like a state with financial troubles.

“But government receipts unfortunately tell only part of the story. The other side of the ledger apparently is so bad that all sorts of fundraising schemes — an income tax increase, expanding the sales tax to include services, a gross receipts tax, selling the state lottery, selling the Illinois Tollway, and expanding legalized gambling — are being discussed by state lawmakers. Illinois’ biggest financial problem, as it has been for years, isn’t the result of meager revenue, but aggressive spending.

“Personal income tax collections are up 8.2%, corporate income tax revenue has grown 18.3%, sales taxes are up 4.2%, and public utility tax revenue is up 6.6%. Overall state revenue, even including a steep 12% drop in state lottery sales, is up 7.1%. In other states, governors would rejoice at economic growth like that. But in Illinois, that isn’t enough to overcome discussion of more tax increases or asset sales.

“Before lawmakers get ahead of themselves this spring with heated debate about revenue enhancements, they should stop to consider the effect that their overspending and their indifference to responsible fiscal management has had on the state’s financial condition. The reason Illinois’ budget is billions of dollars in the red can’t be blamed on weak revenue. Instead, it’s the fault of weak-willed political leaders who haven’t been able to spend within the state’s means.”

Illinois seems to be firing on all four cylinders, yet it still does not have its financial act together.

Illinois Proposals

• Raise income taxes
• Sell the state lottery
• Sell the Illinois Tollway
• Expand legalized gambling.

Is Illinois in any shape for a downturn if it needs to do those things when personal income tax collections are up 8.2%, corporate income tax revenue is up 18.3%, sales taxes are up 4.2% and public utility tax revenue is up 6.6%? Let’s face it, Illinois is a basket case, just as is California, if it cannot make ends meet with those windfalls.

Michigan

The South Bend Tribune is reporting, “Michigan Taxpayers Have Seen State Tax Bills Drop.” That seems like great news, but let’s look at the fine print:

“Shrinking tax revenue also has made it more difficult to balance the state budget. A shortfall of around $800 million exists this year, and the deficit in next year’s budget could be $1 billion or more.

“In the previous four years, the state wrestled with more than $4 billion in shortfalls. Tax cuts passed beginning in 2000 — including cuts in the single business tax, which expires at the end of the year — have chopped state revenue by $1.4 billion a year, according to state Treasurer Robert Kleine.”

Michigan is losing jobs, home prices are sinking, foreclosures are rising, and the state has a huge budget deficit. This is not exactly a pretty picture.

Florida

The St. Petersburg Times is reporting, “People Are Screaming for Relief”:

“Gov. Charlie Crist on Tuesday called for sweeping property tax reductions, seeking to deliver quickly on a second campaign promise and setting the stage for a fight with cities, counties, and school districts…

“At city and county halls across Florida, Crist’s call for widespread property tax cuts got an icy reception.

“‘Maybe he hasn’t thought this through,’ said Tampa City Council member Linda Saul-Sena.

“She said Crist’s proposal essentially caps local government revenue growth at 3% a year at a time when cities and counties are facing increasing pressures to provide services while grappling themselves with rising costs of insurance, health care, gasoline, and other essentials.

“‘I don’t see how we’re going to provide the basic services that our citizens expect,’ Saul-Sena said…

“Clearwater Mayor Frank Hibbard said he wanted to fully realize the long-term ramifications of major property tax law changes. He said the inequities that now exist in the Save Our Homes law were not evident when it was enacted 15 years ago.

“Hillsborough County Property Appraiser Rob Turner said he feared that cities and counties would simply raise their tax rates to offset the lost revenue.”

People are screaming for relief, huh? So the proposal is to just keep spending while cutting taxes? Sorry, only the federal government has the right to magic tricks like that. Florida, you have to decide to cut spending or raise taxes. Which is it? Then again, you can do what Schwarzenegger has done and mortgage the next umpteen years worth of revenue into state bonds while rolling the dice on an improving economy.

What I find most interesting is the Save Our Homes law seems to be backfiring. This, of course, is more proof that government programs over the long haul do exactly the opposite as intended.

Save Our Homes

Please consider this special report on Save Our Homes:

• “The Save Our Homes constitutional amendment doles out its benefits unevenly. Even among neighbors, the difference in annual taxes can be thousands of dollars”
• “The program that was supposed to save little old ladies from being forced from their homes has turned into a cash cow largely for the rich”
• “New owners in modest neighborhoods often pay the same tax bill as millionaire homeowners near the beach”
• “Some Florida property appraisers say illegitimate and fraudulent homesteading are among the largest problems they face, resulting in tens of millions of lost tax dollars every year.”

Massachusetts

The Boston Globe is reporting, “Lottery Revenue Drop Worries Officials”:

“The Massachusetts State Lottery, after years of increasing sales of scratch tickets and other games, is experiencing a substantial decline in revenue, setting off deep concern on Beacon Hill.

“According to figures filed with the governor’s office, revenues fell $71 million, or 3.8%, during the first five months of the fiscal year.

“State Treasurer Timothy P. Cahill is expected to brief legislative leaders today on the most recent sales figures.

“But some lawmakers already worry that Massachusetts residents are too tapped out by fluctuating gas prices to continue their regular lottery habit.

“The state lottery has been one of the most successful in the nation and has generated billions of dollars for cities and towns. Municipal officials are especially alarmed by the revenue decline.

“‘This is critical funding,’ said Sen. Karen E. Spilka, a Democrat who represents Framingham, Natick, and five other towns. ‘My communities are hurting…I don’t want there to be a deficit and then for us to have to tell our cities and towns the funding isn’t there.’

“Through November, sales were down for all lottery games except Keno, which was up 3.5% from the same time last year. The sharpest decline was in MegaMillions sales, which were off 47.7%. A former official attributed the decline to smaller jackpots; last year, there were three $100 million prizes…

“If lottery revenues don’t rebound, it will make it even more difficult for Gov. Deval Patrick to close an estimated $1 billion deficit in the next fiscal year’s budget. Yesterday, Patrick asked each of his agencies to identify 5-10% in savings within their budgets.

“Communities are already counting on this year’s lottery aid; it’s unclear whether the state would have to make up any shortfall.

“‘The lottery right now is extraordinarily important to cities and towns,’ said Geoffrey Beckwith, executive director of the Massachusetts Municipal Association, which represents communities across the state. ‘We’re hoping that the lottery sales rebound. It’s something we’re watching very closely.

“But he said communities shouldn’t assume the lottery will continue to grow indefinitely…

“Michael Widmer, president of the Massachusetts Taxpayers Foundation, called declining lottery sales ‘a serious short- and long-term problem facing the state and cities and towns.’

“‘To have this major source decline after years and years of growth adds further to the dilemma facing the state’s political leaders,’ he said. ‘I’ve looked at the numbers, and the shortfall has been steady month to month. Every month, I’ve seen a shortfall.’”

Lottery Summation

• Massachusetts residents are hit too hard by gas prices to continue their regular lottery habit
• If lottery revenues don’t rebound, it will make it even more difficult for Massachusetts to close an estimated $1 billion deficit in the next fiscal year’s budget
• The lottery right now is very important to Massachusetts cities and towns
• Illinois is considering selling its state lottery.

Lottery playing is perhaps another significant shift in psychology. The masses simply can no longer afford to waste even a few bucks a week on dreams of a big payoff. This is coming at a time when cash-strapped cities and states are struggling to meet budgets and are dependent on that revenue.

Meanwhile, rising property taxes have people screaming for relief in Florida, a state whose property values, ironically enough, are crashing. And California is banking on an entire series of unlikely events, including rising property taxes, gambling revenue, and a recovering real estate market.

Are there any states in the country remotely prepared for a recession hitting this year? If so, which ones? When the recession does hit, states are going to have to choose between two very painful options: raising taxes or cutting services. The former will have people screaming, and the latter will throw more people out of work. Either way is going to be painful. We are in for some very rocky times ahead.

Regards,
Mike Shedlock ~ “Mish”

February 20, 2007

State Tax Revenues was originally featured on Whiskey and Gunpowder