California's budget crisis is a warning to supply-siders

Clearly California's state legislature has a pro-business agenda, and has had for about 20 years. We are now seeing the combined disastrous effects of recession and "supply-side" tax policy in California, the world's 8th largest economy. California is a bellwether for the U.S. and should serve as a warning to those preaching irresponsible fiscal policy in the name of economic growth.

66% of respondents in a recent poll said that Americans are overtaxed. And teabaggers argue incessantly that we are overtaxed, and that the situation is only getting worse.

That's true -- but only if you're poor! For instance, in California, the bottom 20% of earners pays 11.1% of income in local taxes, whereas California's top 1% of earners pays 7.8%. If you added in FICA for the two groups, the disparity would only get worse.

Check out this amazing post by business writer Michael Mandel which shows the average tax burden for the whole U.S. economy is actually the lowest it's been since 1966.

Even the anti-tax Tax Foundation admits that so-called "Tax Freedom Day" (the day in the year when the average U.S. worker starts earning for himself after paying all taxes) is the earliest it's been since at least 1971.

The answer is not to raise everybody's taxes, but to increase taxes on the rich and corporations, who are paying less than their fair share, historically. Indeed, the U.S. Government Accountability Office reported in 2008 that 72% of all foreign corporations and about 57% of U.S. companies doing business in the U.S. paid no federal income taxes for at least one year between 1998 and 2005. And in 2005 about 25% of the largest U.S. companies paid no federal income taxes despite $1.1 trillion in gross sales. Recently Forbes noted that huge global companies like Exxon and G.E. paid no U.S. income tax in 2009.

Supply-siders and business gurus like JPMorgan Chase's chief executive sleazeball Jamie Dimon respond that if gov't raised their taxes from, well, zero to some egregious number greater than zero, that corporations would simply pass on this cost to consumers and hold it back from workers. But workers are being denied the benefits of pro-business, supply-side tax policy right now!

And indeed, very few have mentioned stagnant wages as a cause of the Great Recession, and not a result: without growth in wages, U.S. households have had no choice but to borrow to finance the 70% of U.S. GDP which is private consumption. Wall Street banks were happy to provide them credit, as long as it was speculatively profitable. Then we all know what happened next.

This liberal for one trusts Big Guvmint more to redistribute their wealth than corporations themselves, who are obviously, inarguably, doing a terrible job of it. Social Security and Medicare make up about half of the federal budget and they are overwhelmingly popular programs that nobody -- left, right, or center -- really wants to cut. They are so important that it's hard to make a rational cost-benefit analysis, because we'd only know how much suffering and privation these programs prevented if we abolished them -- a prospect so frightening, nobody wants to contemplate it.

California's poor pay the highest tax rate

By Martin Wisckol

April 13, 2010 | The Orange County Register

California households in the lowest 20 percent of income pay the highest portion of their earnings when it comes to state and local taxes, according to a new report from the California Budget Project.

Additionally, changes in state tax law have benefited corporations while costing individual taxpayers more, according to the report. And the net income of corporations has grown 411 percent from 2001 to 2008, while the adjusted gross income income of individuals has risen just 27.8 percent during the period.

The report rates California a "moderate tax state," noting that in 2008-09 it ranks 21st in the U.S. in terms of state taxes as a percentage of personal income.

At a time when many Republican candidates are calling for more tax breaks for businesses and lower taxes for individuals, the California Budget Project offers a somewhat different perspective. The CBP has a history of presenting data that often supports policies on the Democratic side of the aisle, but its methodology and research are usually sound.

However, the CBP's latest report does not appear to contradict the GOP mantra that the state's problem is not income, but spending.

Among specific findings:

• The bottom fifth in family income pay 11.1 percent of their earnings in state and local taxes.
• The top 1 percent pay 7.8 percent.
• The state's median wage has risen 25.6 percent from 2001 to 2008.

"Over the past two decades, the cost of funding state services has shifted from corporate to personal income taxpayers. The Department of Finance estimates that personal income tax receipts will provide 53.2 percent of General Fund revenues in 2009-2010, up from 35.4 percent in 1980-81. Corporate tax receipts are expected to provide 10.7 percent of General Fund revenues in 2009-2010, down from 14.6 percent in 1980-81."

The report continues, "New, increased, and expanded corporate tax breaks and the 1996 corporate tax rate reduction are responsible for the decline in the share of state revenues provided by the corporate income tax. Additional corporate tax cuts were included in the September 2008 and February 2009 budget agreements that will result in a loss of nearly $2 billion per year when fully implemented."

Meanwhile, the Tea Party activists say everybody is being taxed too much. Read this story about what's ahead for the movement.