Posted by rflacks on:
The holidays being over, we can now resume worrying about the state of the world.
Worry one: health care outcome
I'm more than ever worried about the health care bill. We'll certainly get some kind of reform passed. The worry is that the senate version will prevail in the final mark-up. That bill contains several political time bombs. Bob Herbert highlighted one big one: the plan to tax ‘cadillac' health plans as a way to finance health care subsidies. His NY Times piece last week points out that inflation will have the effect of including many working class families among those whose health benefits will be taxed: the net effect is likely to be a reduction in their benefits. And the wonks who created this tax benefits are assuming that when employers reduce benefits to avoid the tax increase they will be replace the benefit loss with bigger paychecks. I think you can sort of sense the dubious character of these assumptions-and likely political fallout!
The house bill finances health care reform by raising taxes on the super-rich. That's the approach Obama advocated during the election campaign. The house bill also embodies larger subsidies for lower income people and a shorter time period before benefits kick in.
The public option provisions of the house bill provide so little to so few, that many progressive activists (including Jacob Hacker, godfather of the public option concept) aren't pressing for its inclusion in the final bill.
There's still time to make the final healthcare measure decent, by demanding that the house version prevail at least with respect to the issues of financing and subsidy. And, by the way, the senate bill embodies some very significant controls over insurance companies' profits and rules that must preserved-even if it isn't clear how they'll be enforced.
If the final bill ends up threatening the existing benefits that people are getting while forcing everybody to buy insurance from weakly regulated mega corporations, recent poll data suggests that the congressional Democrats will be losing a lot in the 2010 elections.
Worry two: the failed state of California
Meanwhile, here in California we are entering a governor's race that exemplifies the virtual collapse of viable government here. There's only one Democrat announced: Jerry Brown. Once upon a time, Jerry could be counted on to articulate advanced ideas for social reform (though always making sure, in his words, to' paddle on the right after paddling on the left.' ) The biggest single need right now is for someone to take the lead in favor of a tax structure that might help solve the state deficit. Jerry Brown has not said a single word about that, or, I think, about the fiscal crisis itself.
Lenny Goldberg, who runs the Tax Reform Association, is the leading and best progressive analyst of tax matters. He's recently spelled out ten ways to plug tax loopholes that, cumulatively, could close the fiscal gap. I offer you his list:
1. Enact an Oil Severance Tax at 9.9% ($1.2 billion): California is the only state, and the only place in the world, that does not tax oil production. 9.9% is the rate proposed by Governor Schwarzenegger. Contrary to oil industry propaganda, California has the lowest tax on oil in the nation-about 60 cents/barrel-when it should be $6-$7 per barrel at current prices. This tax will have no effect on the price of gasoline or on oil production.
2. Eliminate Secret Corporate Tax Loopholes ($1.7 billion): As part of the September 2008 and February 2009 budget agreements, the Legislature passed new corporate loopholes in secret-loss carry-backs, credit sharing, and elective single-sales factor. These take effect in 2011. Contrary to the Governor's rhetoric, it is not a "tax increase" to repeal these before they go into effect, and they are egregious new loopholes, benefitting mostly the largest corporations, that the state can ill afford.
3. Broaden Sales Tax Base to Include Untaxed Commodities ($2 billion or more): There is virtually unanimous agreement that our sales tax base is too narrow. The Governor has supported broadening it, and the first steps should include entertainment, admissions, parking, golf and skiing, hotels (i.e. the temporary rental of space) and digital products-all of which are commodities easily subject to tax. Beyond that, sales taxes on telecommunications, cable and satellite would generate $2 billion more.
4. Reinstate Top Income Tax Brackets to 11% ($4 billion now, growing to $6 billion in out-years): The top 1% of earners earn an unprecedented 25% of income in California! While that may go down a little due to the recession, the recovery of the stock market means capital gains for the wealthy are likely to recover, while ordinary incomes in a slow economy are not. State income taxes have no impact on the location of the wealthy or investment in California, and this revenue will grow faster than economic recovery.
5. Close Corporate Property Tax Loopholes ($2 billion): Statutory definitions of change of ownership are thoroughly loophole-ridden. CTRA research has been identifying numerous cases where properties have not been reassessed at market value following a change in ownership. We estimate that tightening corporate property tax loopholes would raise $2 billion. The legislature can act by statute to close this loophole, potentially by a majority vote in a two-step approach.
6. Maintain Vehicle License Fee (VLF) at 1% ($1.3 billion): The VLF is supposed to be an in-lieu property tax, but was cut from 2% to .6%. A long-term resolution of this issue would put the VLF at the Prop. 13 rate, 1%, slightly below the current 1.15 temporary rate, beginning in 11-12.
7. Close Useless Corporate Tax Loopholes ($1 billion): Enterprise zones have been demonstrated to have no impact on jobs ($500 million). Avoidance of capital gains on commercial property sales-so called like-kind exchanges-are driven by federal, not state considerations ($350 million). Placing offshore tax havens in the water's edge stops blatant tax manipulation ($150 million). Impact on economic decisions: zero.
8. Increase Tobacco and Alcohol Taxes ($2.4 billion): Taxing products with negative impacts on society has positive effects. Enacting a tax at 10 cents/drink generates $1.4 billion, and proposals for increased tobacco taxes have been keyed at generating $1 billion as well.
9. Improve Tax Collections ($2 billion initially, less on-going): Governor Schwarzenegger vetoed majority vote legislation which would have provided an initial $2 billion in improvements in collections, including withholding on independent contractors, tightening nexus (Amazon issue), and proposing a bank records match. That amount would fall as others, above, phase up.
10. Lower current sales tax by ½ cent ($2.5 billion): The temporary1-cent sales tax increase will expire July 2011. Lowering the sales tax by ½ of that should grow to $3 billion, particularly with a broader base. This could phase down by ¼ cent/year as the state's fiscal condition recovers.
Many of these tax changes have little or no negative economic impact. To the extent there is any negative impact, it will be vastly overwhelmed by the negative impact of a state unable to finance infrastructure, that allows its higher education system and schools to deteriorate, that forces cutbacks in local government, and that shreds its safety net for its poorest citizens.
A political resolution for the new year: let's mobilize for this agenda