Posts Tagged ‘tax cut’



Taxes, Class Warfare and eMeg’s Vast Fortune

Wednesday, October 20th, 2010

Faced with Jerry Brown’s intensifying attacks on her call to end California’s tax on capital gains, Meg Whitman has responded with one of the hoariest political lines in the Republican campaign play book: the Democratic nominee, she says, is engaging in “class warfare.”

Whitman argues that her capital gains proposal, which would eliminate state taxation on sales of stocks, bonds, real estate and other assets, would jump start California’s economy, by keeping the profits from such transactions in the hands of investors, who would channel the money into starting and sustaining businesses, thereby creating jobs.

Brown argues, however, that the tax cut not only would blow a $5 billion hole in a state budget already wracked with huge deficits, but also would prove beneficial only to the very wealthy, including Whitman herself.

In the days since their final debate, when Brown repeatedly charged the big winners with the tax cut would be Whitman and “her billionaire friends,” the “class warfare” meme has been sounded and echoed in quick succession by Whitman spokesmen, by the state party and by the candidate herself, at a Monday appearance in Southern California.

The fact that I would run for governor to enrich myself is ridiculous – all you have to do is to look at how much money I have spent versus how much money I would save. He is so off-base on this. It’s a political stunt. It’s class warfare.

Well and good, but inquiring minds want to know: Why does “class warfare” always only go in one direction?

For Whitman and her allies, taxing profits of investors and the wealthy, in essence, is a wrong-headed, socialist, economic redistributionist notion that strikes at the most fundamental values of American capitalism.

Yet they never portray their own, constant, fierce and unbridled attacks on unions as “class warfare,” no doubt because they are the most selfless of citizens — “I refuse to let California fail” — whose beef with labor represents nothing more than high-minded, good government reform, which they embrace solely for the most civic-minded of motives.

Whitman mocks Brown as “crazy” for even suggesting that economic self- interest might help explain the great personal favor she’s done all of us by deigning to run for governor; after all, Meg notes, she and Griff might only net $15 million a year as a result of her proposed tax cut – a mere bagatelle.

What person in their right mind would spend $140 million to run for governor to save $15 million? I mean it just shows Jerry Brown does not understand math.

How about some Calbuzz math:

According to an in-depth study by our Department of Investment Risk Management Modeling and Abacus Repair, $15 million a year on a one-time investment of $140 million works out to a 10.7% annual rate of return, most likely more than Our Meg could make anywhere outside of those early-peek IPOs she got the inside track on over at Goldman Sachs.

Qui bono capital gains: Despite eMeg’s distaste for “class warfare,” a look at the numbers clearly shows that it is precisely her economic class – the wealthiest 1% of taxpayers – who would reap the outsize benefits of her tax cut proposal. As Michael Hiltzik, the Pulitzer Prize-winning economics columnist for the by-God L.A. Times, has noted:

The real problem with this proposal is that it looks like a pure handout, and a costly one, to the wealthy, a group that includes the billionaire Whitman herself. In 2008, according to figures from the Franchise Tax Board, more than 82% of the $56 billion in capital gains earned by California residents were reported by the top 1% of income earners (those touching about $500,000 or more).

And this, from Hiltzik’s colleague, the redoubtable George Skelton:

Who pays the (capital gains) tax?

–People with adjusted gross incomes exceeding $500,000 pay 82% of the total capital gains tax. For them 38% of their earnings comes from investment profits.

–These $500,000-plus earners amount to only 1% of taxpayers – or about 150,000 returns – but provide 48% of the total personal income tax.

–-People with more than $200,000 in adjusted gross incomes – 4.4% of filers – provide 93% of the capital gains tax.

Whitman says that eliminating the tax would “spur innovation, which we have to own in California.” But, I note, many people realize investment profits merely by buying and selling stock. That hardly induces innovation.

Still, eMeg stands aghast at the shocking suggestion of “class warfare,” though she never hesitates for a second to demonize as “labor bosses” public school teachers who knock down 60 grand, or thinks twice about bashing some poor shlub living on a $25,000 pension after 30 years of mopping floors at the DMV office for “sucking up taxpayer funds.”

How rich is eMeg? Fortune magazine, which just released its annual compilation of the 400 richest individuals in America, pegs Whitman as the 332nd wealthiest person in the nation, with a net worth of $1.2 billion.

Among the 400, there are 84 people who live in California – about 21% of the total – and Whitman sits near the bottom of that list, which makes the wannabe governor only the 74th richest citizen of the oh-so-Golden State.

These 400 people, who represent 0.0000012% of the country’s population,  control about 2.5 percent of its wealth – about $1.5 trillion; thus the Fortune 400 control only slightly less wealth than the $1.6 trillion held by the bottom half of the U.S. population, no doubt most of them avaricious public employees with outrageous salaries and benefits.

Of course, it must be noted that Meg’s cohort of 400 is just the crème de la crème of the upper 1% of taxpayers who have made out like bandits prospered disproportionately over the past decade. Washpost columnist Steven Pearlstein writes:

By 2007, the top 1 percent of households took home 23 percent of the national income after a 15-year run in which they captured more than half – yes, you read that right, more than half – of the country’s economic growth. As Tim Noah noted recently in a wonderful series of articles in Slate, that’s the kind of income distribution you’d associate with a banana republic or a sub-Saharan kleptocracy, not the world’s oldest democracy and wealthiest market economy.

Put another way, as the Center on Budget and Policy Priorities did in boiling down the same economic trends in a 2009 report:

Two-thirds of the nation’s total income gains from 2002 to 2007 flowed to the top 1 percent of U.S. households, and that top 1 percent held a larger share of income in 2007 than at any time since 1928, according to an analysis of newly released IRS data by economists Thomas Piketty and Emmanuel Saez.

During those years, the Piketty-Saez data also show, the inflation-adjusted income of the top 1 percent of households grew more than ten times faster than the income of the bottom 90 percent of households…

The last time such a large share of the income gain during an expansion went to the top 1 percent of households – and such a small share went to the bottom 90 percent of households – was in the 1920s.

1928 – now that was a helluva’ year.

Why it matters: All this talk of class warfare – the horror, the horror! — would be little more than fodder for Marxist whining sessions or kvetching by petty and jealous-minded souls who lack the innovative imagination, spirit and perseverance needed to make themselves fabulously wealthy in the entrepreneurial manner of, say, Calbuzz, a privately-held partnership, plenty of free parking.

Turns out, however, there are some practical reasons that this wealth concentration business is a real bummer, even for those of us who long ago left behind their obsession with dialectical materialism. Pearlstein again:

There are moral and political reasons for caring about this dramatic skewing of income, which in the real world leads to a similar skewing of opportunity, social standing and political power. But there is also an important economic reason. Too much inequality, just like too little, appears to reduce global competitiveness and long-term growth, at least in developed countries like ours…

The biggest problem with runaway inequality…is that it undermines the unity of purpose necessary for any firm, or any nation to thrive. People don’t work hard, take risks and make sacrifices if they think the rewards will all flow to others. Conservative Republicans use this argument all the time in trying to justify lower tax rates for wealth earners and investors, but they choose to ignore it when it comes to the income of everyone else.

It’s no coincidence that polarization of income distribution in the United States coincides with a polarization of the political process. Just as income inequality has eroded any sense that we are all in this together, it has also eroded the political consensus necessary for effective government…

Political candidates may not be talking about income inequality during this election, but it is the unspoken issue that underlies all the others.

And thank you for that.

Ting: Split the Property Tax Rolls to Increase Fairness

Tuesday, July 21st, 2009

philtingFew issues in California politics are as incendiary as Proposition 13, so when San Francisco Assessor Recorder Phil Ting said he wanted to make the case on Calbuzz for altering how the famous tax cut initiative handles commercial and residential assessments, we said go for it. Here’s his offering — one in an occasional series of discussions about reform in California.

By Phil Ting
Special to Calbuzz

Lately there’s been a lot of talk about the need for substantial change in dealing with California’s budget.  And while I am a strong proponent of improving efficiency and accountability in government, I also recognize that fundamental reform only comes when we confront the sacred cows of our political system.

Now is the time to reconsider the most sacred cow in California politics — Proposition 13 — the 30-year-old taxation scheme that has handicapped our state’s revenue stream and forced draconian cuts to some of our most vital state services.

Some people aren’t ready for this. Certain Proposition 13 defenders have argued against reform, noting that property tax revenues have risen 800 percent since the time of Proposition 13’s passage. But this figure is misleading: it fails to account for 30 years’ of inflation and a 63-percent growth in California’s population.

Using a similar metric, the cost of tuition at the University of California has risen by 1,000 percent in the same time period, from $720 to $8,020, according to the California Postsecondary Education Commission. It’s clear that when put into context, a rise in property tax dollars flowing to the state since the 1970s is hardly sound reasoning for dismissing a discussion about substantial reform.

A good reason to discuss reform is that when first passed, the proponents of Proposition 13 touted the protections it offered California homeowners. But today, the biggest beneficiaries of Proposition 13 are large companies and corporate landowners.

Proposition 13 actually opened up vast loopholes for corporate landowners to evade property taxes and shifted the tax burden to individual homeowners. This shift also brought about a dramatic decline in overall revenue stream from property taxation.

For example, 30 years ago in San Francisco, commercial property owners contributed 59 percent of property tax revenues and residential property owners contributed 41 percent. Today, we see a virtual flip: commercial property owners contributed just 43 percent of property taxes in 2008 while residential property owners contributed 57 percent.

As corporate property owners contribute less to revenue, dollars lost through Proposition 13′s tax loopholes handicap our ability as a state to educate our children, keep our streets safe and invest in important infrastructure projects.

To begin to address this problem, I have begun to organize a grassroots campaign of Californians who are behind a split roll system. Thousands have already been mobilized. Our group, “Close the Loophole” would split the property tax rolls — assigning unique tax levels to corporations and homeowners and leveling the property-tax playing field.

According to a recent analysis by the State Board of Equalization, taxing commercial properties at market rate would result in $7.5 billion dollars a year in additional revenue.  This reform would continue to keep homeowners in their homes but would also make corporate land owners pay their fair share and bring needed revenue into the state.

While instituting a split roll is not an immediate panacea for our state’s $26 billion deficit, it would certainly help close the gap. Californians are fed up with an education system that is one of the worst in the country, cities and counties that are struggling to provide even the most basic services and political gridlock in Sacramento that has forced our state to the brink of insolvency.

We deserve better. If we are serious about moving California out of this economic and political morass, we need to consider reforming all the sacred cows, including Proposition 13.