The California Introduction Machine

Much is made during presidential election periods that the state is merely an ATM machine for candidates. As a solid blue state that has not voted for a Republican for the White House since 1988, California is considered safe for whoever the Democratic nominee will be (we’re talking to you, Hillary Clinton.)

Yet, candidates from both major parties come to the Golden State for the gold – dollars for their campaign accounts.

In this coming election, however, at least on the Republican side, the race is wide open. Before GOP candidates can hit up the California ATM machine, many need to introduce themselves to California voters and donors. And that’s been happening now.

Potential Republican candidates have been making the trek to the Left Coast to meet and greet without necessarily asking for money. There have been, and are scheduled, a number of non-fundraising events.

Wisconsin Governor Scott Walker recently made a number of appearances in Orange and Los Angeles Counties. On Monday of next week former Texas Governor Rick Perry will be in Los Angeles and Ventura County for gatherings. Tuesday will find Florida Senator Marco Rubio speaking to Town Hall Los Angeles and a month later at the same venue Ohio Governor John Kasich will make an appearance. Ted Cruz is expected to be back in May and Rand Paul in June.

Carly Fiorina, who should need no introduction to California Republican donors after her U.S. Senate run in 2010, is expected to make the rounds here next month.

With so many potential candidates, California donors want to get to know the candidates before they decide whom to back.

So the mating ritual is in full swing. But let’s not be fooled – in the end its all about the money.

Joel Fox is editor of Fox & Hounds and President of the Small Business Action Committee.

Originally published by Fox and Hounds Daily

CA Tax Freedom Day Comes Late Again

California lags behind much of the country when it comes to high taxes and creating an atmosphere that allows businesses to create jobs.

Another area where California fails to meet the national standard — National Tax Freedom Day. This year, California residents will work nine days longer than the national average to meet their annual tax obligation.
taxes
California’s byzantine tax structure continues to create a difficult economic environment in which to live and work. Unfortunately, Californians must work 123 days to pay their tax bill. We can do better.

Tax Freedom Day, calculated annually by the Tax Foundation, is the day Americans have earned enough money to pay their annual tax obligations at the federal, state and local levels.

This year’s national Tax Freedom Day arrives on April 24. According to the Tax Foundation, Americans total tax bill comes to $4.8 trillion and collectively will spend more on taxes in 2015 than they will on food, clothing and housing combined.

Compared to other states, California’s Tax Freedom Day, which won’t arrive until May 3, is the fourth latest in the nation. Only Connecticut, New Jersey and New York have later dates.

Learn more about Tax Freedom Day at www.taxfoundation.org/taxfreedomday.

Humor and History on Day Tax

“April is the month when the green returns to the lawn, the trees — and the Internal Revenue Service.” So observed Evan Esar, a collector of humorous sayings who understood that humor is the ultimate therapy. All of us need this therapy now that tax time is here.

Fortunately, a rich vein of humor and wry observations exist about taxes to help us through this time.

When tax day comes, most citizens pay what they owe … or what they think they owe. Discovering what you owe can be a challenge. Even one of the century’s greatest geniuses, Albert Einstein said, “The hardest thing in the world to understand is the income tax.”

Humorist Will Rogers put it this way: “The income tax has made more liars out of the American people than golf has. Even when you make a tax form out on the level, you don’t know when it’s through if you are a crook or a martyr.”

Indeed, taxes and golf are comparable. You drive your heart out for the green, and then end up in the hole.

The first income tax in this country was levied during Abraham Lincoln’s administration. Money was needed to fund the Union war effort. That income tax was repealed in 1872, seven years after the war ended.

Later attempts to bring back an income tax were thwarted by the United States Supreme Court, which declared the tax unconstitutional because it represented direct taxation on the citizenry. During the Civil War the Court had ignored this concern.

A constitutional amendment was necessary to establish an income tax. In arguing for such an amendment, proponents asserted that the income tax would only tax the rich. (Sound familiar with some of the tax increase strategies here in California?)

Rep. James Monroe Miller of Kansas said, “I stand here as a representative of the Republican Party of the central west to pledge you my word that the great western states will be found voting with you for an income tax. Why? Because they will not pay it!”

It was generally believed that residents of perhaps six wealthy industrial states in the Northeast would pay nearly all of the new income tax.

Well, you can’t fool all of the people all of the time. Editors of The Nation magazine warned at the time: “It is possible for a government to increase repeatedly the rates of such a tax.”

Or as Will Rogers put it: “Noah must have taken into the Ark two taxes, one male and one female. And did they multiply bountifully! Next to guinea pigs, taxes must have been the most prolific animals.”

In 1913 the 16th Amendment was passed, which allowed Congress authority to directly tax a citizen’s income.

The first year under the income tax, 357,598 Form 1040s were filed. Yes, the form carried that famous number even then. (Jay Leno explains Form 1040: For every $50 you earn, you get $10 and they get $40!)

The tax rate was one percent on incomes above $3,000 and rose to seven percent on incomes above half a million. This first income tax affected only one percent of the population.

Before the 16th Amendment, tariffs and excise taxes provided 90 percent of the federal revenue.

By 1920, the income tax was the dominant revenue raiser for the federal government. Middle income taxpayers were hit by the income tax to help fund World War I. Top tax rates eventually climbed to 91 percent before President John F. Kennedy proposed cutting them.

Taxes increase and government expands in times of crisis. Great growth in government and taxes occurred when this country began, during the Great Depression and when at war, particularly, the Civil War, World War I and World War II. American Patriot Thomas Paine saw this clearly at the nation’s founding. “War involves … unforeseen and unsupposed circumstances … but one thing certain, and that is to increase taxes.”

As a people, we have always been wary of taxes. U.S. Supreme Court Chief Justice John Marshall is often quoted from his groundbreaking decision in McCulloch v Maryland (1819): “The power to tax involves the power to destroy.”

However, 109 years later another Supreme Court Justice, Oliver Wendall Holmes, wrote: “The power to tax is not the power to destroy while this Court sits.”

On the façade of the mammoth IRS building in Washington, D. C., other renowned words of Justice Holmes are chipped in stone: Taxes are what we pay for a civilized society.

It should be noted, however, that Holmes made his famous remark in 1904 before the income tax was sanctioned. Taxes at that time took about seven percent of average incomes.

But even in Holmes’ day there were complaints about taxes. Two years before Holmes issued his famous saying, Mark Twain wrote in his notebook, “What is the difference between a taxidermist and a tax collector? The taxidermist takes only your skin.”

Of course, we need money to run the government. The argument is over how much and how it is spent.

Will Rogers recognized the problem in his inimitable way. “Of course we know our government is costing us more than its worth, but do you know of any cheaper government that’s running around? … You can try Russia! There’s no income tax in Russia, but there’s no income.”

Still, today the IRS has hundreds of different tax forms, plus pages of additional information to explain how to fill out those forms. The original Tax Code had 11,400 words; today it has over 7 million.

Despite the complexity, taxes are not avoidable and woe to him or her who tries evasion. Al Capone got away with vice, and he got away with murder, but he didn’t get away with not paying his taxes.

So we have to pay our taxes.

For most of us, however, tax time has us simply agreeing with Mark Twain’s admonishment, “[I] shall never use profanity except in discussing (house rent) and taxes.”

Originally published by Fox and Hounds Daily

Joel Fox is Editor of Fox & Hounds and President of the Small Business Action Committee

Democratic Immigrant Protection Bills Don’t Solve Poverty Problem

Legislative Democrats heralded a package of bills they purport to aid and protect undocumented immigrants. Acknowledging the humanitarian concern behind the package, the plan will do little to help immigrants achieve the American Dream if something isn’t done to provide middle class jobs. Without them, many immigrants here and those attracted by California ‘s largesse are subject to a life of poverty.

Immigration reform is a Federal issue but California’s Democratic legislative leadership chooses to take the issue on to the extent that they can with this package of bills. There are many concerns associated with the bills worthy of serious questions and doubt, not the least of which is the immediate cost. Leading the cost concern is Senator Ricardo Lara’s SB 4 that would add 1.5 million undocumented immigrants to the already stressed Medi-Cal roles.

Putting the cost question aside for the moment, as well as the implication that the laws likely would serve as a magnet to draw even more undocumented immigrants to California, an important question is if these proposals become law will the immigrants the laws are designed to assist continue to be prisoners of California’s poverty prison?

California leads the nation in the number of people trapped in poverty. Many are immigrants in the country illegally. Without creation of good paying jobs many likely will remain victims of poverty.

The push for minimum wage increases is not the real answer to the poverty problem. Modifying regulations and cutting taxes to promote small business is one solution. Offering incentives to encourage the capital investment needed to create manufacturing jobs that pay middle class wages is another.

Taking the major step to encourage middle class jobs is the best thing the state can do for all California’s residents.

Joel Fox is Editor of Fox & Hounds and President of the Small Business Action Committee

Originally published by Fox and Hounds Daily

CA Following Massachusetts Model When It Comes To Voters & Voting?

New statistics show a big jump in “no party preference” voters in California while registration in both major political parties has declined. While this change in voter registration mirrors some national trends, California may be heading boldly in the direction of another thickly populated blue state – Massachusetts.

In California the recent report from the Secretary of State shows Democrats make up 43.1 percent of the registered voters, Republicans 27.9 percent, while independent registration gained more than two full percentage points to 23.5 percent or a nearly 12 percent overall gain.

VotedMany observers predict it is only a matter of time before voters who do not declare affiliation with any political party will outnumber Republicans.

That’s the way it is in Massachusetts. In fact, unaffiliated voters outnumber both major parties combined in the Bay State. Independents make up 52.5 percent of the Massachusetts voter roll, Democrats 35.7 percent and Republicans 11.1 percent. Like Massachusetts, the majority of independent voters lean toward the Democrats assuring heavy majorities in the state house. The Massachusetts House has 125 Democrats, 35 Republicans; the Senate has 34 Democrats and 6 Republicans. No threat to supermajority there.

But the similarity ends at the executive office door. Over the past 25 years, only one Democrat has been elected governor of Massachusetts. Or to put it another way, over the past quarter of a century Republicans have won five of seven gubernatorial elections in Massachusetts. Democrat Deval Patrick just concluded his second term in office. Charles Baker, the fourth Republican governor to be elected over that time period, replaced him.

Is this a sign of hope for California Republicans that they might again capture the top statewide office? Could it be that voters want a check on a one-sided government?

No one will accuse Jerry Brown of being a Republican. However, a number of political observers have suggested Brown is the best Republicans could hope for to occupy the governor’s chair in this blue state.

The trend toward independent voters capturing a larger segment of the voting rolls will probably intensify when the already authorized Election Day registration kicks in. It is quite likely that a majority of those who register the day of the election will choose the No Party Preference label.

Further increasing the No Party Preference portion of the roll would be the effort to mandatorily register all eligible voters as proposed by Secretary of State Alex Padilla and Assembly member Lorena Gonzalez.

More than 27 percent of the eligible voters have not registered to vote in California. If a voter who had no interest in registering to vote is required to register the odds are many of those voters will choose to be classified as independents so the percentage of independent voters will grow.

However, it is not certain that the percentage of voters participating at an election will grow. In fact, the opposite is likely to happen. If voters who have no desire to register are added to the rolls automatically will many of them actually vote? The theory that participation will increase dramatically under this effort probably can be filed under the “You Can Lead a Horse to Water but You Can’t Make it Drink” philosophy.

Joel Fox is Editor of Fox & Hounds and President of the Small Business Action Committee

Originally published by Fox and Hounds Daily

Politics Behind 16-Year-Old Voter and Mandatory Vote Proposals

In San Francisco, Supervisor John Avalos proposes that 16-year-olds should vote. In Cleveland last week, President Barack Obama suggested mandatory voting was a transformative idea worth considering. One can’t help but sense political agendas at work.

Despite Supervisor Avalos’ argument that 16-year-olds are old enough to drive and pay taxes, the real question is do they have enough experience and understanding of the world and government to vote? A question for the president, should we mandate that people vote who pay no attention to public affairs and have no desire to vote?

San Francisco Chronicle columnist Debra Saunders unsettled Avalos when she asked him if 16-year-olds are mature enough to be allowed buy cigarettes and alcohol. If they have the reasoning and ability to make good decisions, then why not? Avalos objected. The key sentence in Saunders’ column:“To say that someone should have the right to vote, Avalos assured me, “It’svery different from saying someone is adult.”” (Italics by Saunders.)

The columnist also pointed out that if the issue was that a 16-year-old could vote because he or she is affected by city services, then Saunders herself, as someone who works in the city and is affected by those services should vote although she does not live in the city.

Similarly, Wall Street Journal columnist Peggy Noonan questioned the wisdom of mandatory voting. Calling the mandatory vote idea “the worst and most mischievous political idea of the year” Noonan wrote, “Making those who don’t care about voting vote will only dilute the votes of those who are serious and have done their democratic homework.”

Saunders charged that the 16-year-old vote proposal was designed to allow “the left wing of the city’s left wing is to retain their ebbing power in City Hall.” Clearly, supporters of the idea believe 16 and 17 year olds will vote to support their agendas. These youngsters will still be in school under the tutelage of influential instructors and living at home where surveys show a great majority of youngsters follow parents thinking on public affairs and are yet to become independent thinkers.

I’m sure the president is aware of that old saying attributed to Winston Churchill, “If you are young and not liberal, then you have no heart; but if you are old and not conservative, then you have no brain.” Whatever the truth in that sentiment, conventional wisdom is that the young support the liberal position and statistics show for the most part, the young rarely vote. Mandate that they vote, suggests the president. Is it possible that the conventional wisdom occurred to supporters of the mandatory vote idea?

While we should want all to study public affairs and to vote when they are legally qualified to do so, the proposals here are motivated not so much as changes to enhance better government as they are to gain a political advantage.

Originally published by Fox and Hounds Daily

Joel Fox is Editor of Fox & Hounds and President of the Small Business Action Committee

Follow the Big Money as it Ripples Through L.A.

Los Angeles’ major daily newspapers this weekend each had separate stories that reflected big money in Los Angeles and, in a way, the two stories are connected.

The Los Angeles Times reported than many Silicon Valley entrepreneurs were spending big bucks for Los Angeles area real estate. We’re talking on the high end about $70 million for a custom mansion in Beverly Hills. One realtor said the techies are buying second, third or fourth homes on the West Side of Los Angeles and the beach communities in the $2 to $5 million range.

The Los Angeles Daily News reported on the top salaries of employees of the Los Angeles Unified School District. The article focused on the dismissed Superintendent John Deasy and his $440,000 paycheck. Of note, number five on the list was an elementary teacher who took in $235,000, much of it in unexplained “back pay.” The top ten annual salaries were at $200,000 and above.

Infusion of high tech money into the real estate market means increased property taxes for Los Angeles County. It also makes you think of the trouble long time residents would be in with their property taxes if the pre-Prop 13 property tax system were in place. Dramatic increases in property sales prices would ripple through the community increasing property valuations and thus taxes for all.

The top dollars for educators comes with an additional price tag. Teachers’ union officials, currently in tough negotiations with the LAUSD over pay increases, will use the information about top administrators’ salaries in their quest for more money. High pay for administrators and wage increases for teachers will lead to larger pension obligations for the district.

Will the buying splurge and increased housing payments raise enough tax revenue for the schools to offset the teacher salary demands and increased pension obligations? It’s all connected. My suspicion is the school demands for money will still fall short of the new revenue so the debate over more taxes will continue.

Originally published by Fox and Hounds Daily

CA High Taxes Drive NFL Players to Other States … Teams

Last month, prompted by the efforts to build a Los Angeles football stadium and lure an NFL team, I commented on how Proposition 13’s tax vote provisions were influential in the moves and countermoves on the stadium debate over public funding. But, the state’s sky-high income tax also is a factor when individual players consider accepting free agent contracts with California teams.

When All-Pro tackle Ndamukong Suh decided to leave the Detroit Lions he considered an offer from the Oakland Raiders. However, he ended up accepting an offer from the Miami Dolphins for $60 million.

A commentary on the sports website ESPN made the following point:

Florida doesn’t have any state income tax, so in order for the Lions and the Raiders to match the after tax net earnings on a $60 million guarantee, the Lions would have had to pay Suh approximately $64.9 million and the Raiders would have had to pay $70.1 million, said sports tax specialist Robert Raiola, senior manager at the accounting firm O’Connor Davis in New York.

The California Taxpayers Association published a more detailed examination of California’s tax rate on NFL player contracts:

All teams in the National Football League operate under a league-imposed salary cap, but because the cap ($143,280,000 for 2015) is not adjusted for states’ differing income tax burdens, California teams are at a disadvantage because the Golden State has the highest income tax rate in the nation. “Teams in states with low or no income tax have a huge advantage in that they can offer vastly more money to prospective free agents. The difference between teams in Washington, Texas, Tennessee, and Florida, where no state income tax is levied, versus those in California, which takes a whopping 13.3 percent, is staggering – $19.1 million. To put that difference in perspective, $19.1 million after taxes is more than any player in the NFL has ever earned per year, meaning teams in taxless states can essentially afford a California roster plus the most expensive player in NFL history on top of that each and every year.”

The state’s income tax may even cost sporting events to take place in California. While boxers Manny Pacquiao and Floyd Mayweather have finally decided to duke it out this coming May in Las Vegas, there was serious talk of a Pacquiao-Mayweather fight back in 2009. At that time, the Los Angeles Staples Center arena offered a $20 million site fee to host the event. As I wrote in my Fox and Hounds column at the time,Pacquiao’s business advisor threw cold water on the offer.

Noting that Paciquino would have to pay millions in taxes to California under the current 10.55% top tax rate, the advisor said the fighter didn’t want to fight in California when there were alternatives in no income tax states like Texas and Nevada.

And now the California tax rate is up to 13.3 percent.

Originally published at Fox and Hounds Daily

Joel Fox is Editor of Fox & Hounds and President of the Small Business Action Committee

Top 5 Taxes You May See on 2016 Ballot

Last June, I wrote a column forecasting from least likely to most likely the tax increase measures that might be on the November 2016 ballot given the conversations going on then.

Time for an update.

As is nearly always the case in the political world, situations and strategies change. What’s being discussed most heavily today is not necessarily what will be pushed to the ballot for voters to decide in 2016.

By measuring fact, rumor and innuendo I’ll offer my reading of the top five tax possibilities for the November 2016 ballot.

First, a word about those that did not make the list this time. Previously, a soda tax was on the list but that possibility seems to have faded for the moment. Instead, advocates are considering labeling sodas with more information about the sugar content.

There is a constant buzz about restructuring the entire tax system and that has been heightened by the introduction of a bill by Senator Bob Hertzberg that would re-do the tax system, cut some tax rates, and introduce a service tax. Hertzberg hasn’t developed the plan in full as yet. Both the left and the right have attacked the idea. However, he also is working closely with the Think Long Committee, which has the resources to qualify a measure for the ballot. As of now, the idea is not ready for consideration.

To the list, then:

  1. OIL SEVERANCE TAX. Previous Ranking #3.

Whether the oil severance tax initiative moves forward depends on one man – hedge fund billionaire Tom Steyer. He said he would rather work through the legislative process but the bill would unlikely pass the legislature. Steyer also is said to be interested in promoting an initiative that would require a two-thirds vote in local communities to approve fracking for oil. While he has the resources to do more than one measure, the odds are he would focus on just one, if any.

  1. SURPLUS! NO NEW TAXES. Previous ranking: Unranked

Okay, this is obviously not a tax increase measure. However, with the recent announcement of one billion unexpected dollars in the state treasury many experts predict that the state budget will have a surplus of two billion dollars or more. Under such conditions, some observers suggest new taxes won’t fly with the voters, so why try? A lot will depend on the fiscal situation heading into next year’s budget, but even if the economy holds steady and the budget is in good shape, it is hard to imagine there won’t be at least one tax increase measure on next year’s ballot. Still, the chances are more likely today than they were a year ago that a surplus could stall the tax increase movement.

  1. SPLIT ROLL. Previous ranking: #2

While there is still an on-going grassroots effort to promote a split roll property tax requiring business property to be taxed on a different basis than residential property, big players have yet to commit to funding such an initiative. Certainly, there would be big money spent to oppose such a measure so both sides are considering the issue carefully. The school establishment would have to step up to support a split roll and consider how a property tax on the same ballot with an extension of the Prop 30 taxes will play. Also, a school bond measure may be on the ballot attracting attention from the school folks. A couple of sources tell me a little air has come out of the split roll effort, so while it certainly hasn’t gone away, it drops to #3.

  1. CIGARETTE TAX: Previous ranking: #4

The possibility of a cigarette tax on the ballot has moved up simply because some of the items in front of it moved down in the rankings. There really hasn’t been a change in the emphasis of a cigarette tax by proponents. They will try the legislative route but if unsuccessful will consider going to the ballot where they were very close to passing a measure the last time they tried. No Lance Armstrong on their side this time, which is a good thing, although they’ll miss the money his group donated.

  1. EXTENSION OF PROPOSITION 30. Previous ranking: #1

No change here. Many insiders believe Proposition 30 would be the easiest tax to pass since it is already levied. Especially if the sales tax piece is removed, many voters would not directly feel the tax’s pinch. All the spending interests may not be happy since schools get most of the money, but extending Prop 30 still stands as the most likely tax measure to be on the ballot. The biggest question: What will Governor Brown say about continuing the “temporary tax?”

Joel Fox is Editor of Fox & Hounds and President of the Small Business Action Committee

Follow Joel Fox on Twitter @1JoelFox1

Originally published by Fox and Hounds Daily

CA Jobs are Booming, But What Kind of Jobs?

First the good news on the job front: California is leading the nation in job creation. Job growth in the Golden State last year increased by 3.1% while job growth in the rest of the nation settled in at 2.3%. And with 67,300 new jobs created in January alone, the state’s unemployment rate dropped to 6.9% from 7.1%, the lowest in nearly seven years, although still higher than the national unemployment figure of 5.5%. Still, the January California job gains made up 28% of all jobs created in the entire nation.

Yet, wage growth is not keeping pace, especially in populous Los Angeles County. Low paying jobs make up a large share of the job increase in the county and elsewhere.

According to Jordan Levine of Beacon Economics in L.A. the cost of hiring middle class workers in California is expensive. The reasons Levine mentioned in a Long Beach Press Telegram report were regulations and environmental laws that have driven up the cost of doing business and the cost of housing. It becomes difficult for businesses to meet the higher wages needed to keep middle-wage workers.

“It really comes down to the cost of living,” Levine said. “If you look at who’s moving out, it’s people making $50,000 or less.”

So while the legislature looks for solutions to housing costs to help create affordable housing through tax credits and fees, legislators also should consider how past regulations and laws have driven up the cost of housing and look for ways to ease up on those rules.

Beyond that examination, the legislature should go further and see how regulation reform could add to job creation in the middle class.

As the California Business Roundtable noted not long ago, “By a large margin, California’s regulatory environment is the most costly, complex and uncertain in the nation. No other state comes close to California on these dimensions.”

Let’s hail the increase in jobs that is occurring now and celebrate California’s recovering economy. But, now is also the time to take steps to continue job growth and make moves that encourage businesses to generate more middle class jobs.

This piece originally ran on Fox and Hounds Daily