The Future Versus the Austerity Crowd: Why We Must Support Proposition 30

by on August 27, 2012 · 13 comments

in Activism, Columns, Editor's Picks, Education, Government, Politics, Under the Perfect Sun, Voter Guide 2012

Near the end of August, I helped organize the Governor’s visit to City College and stood with him, despite the many fierce disagreements that I have had with Jerry Brown’s policy positions and political judgment.  I did so because it’s not an overstatement to say that the future of our children is on the line this coming November.  While much of the attention will be on the Presidential race at the national level, here inCaliforniathe destiny of our children and the education system is up for grabs.  Specifically, Proposition 30 represents a chance to put a halt to years of cuts to education and vital public services.  If it fails, we will be throwing our kids under the bus.  It’s that simple.

 If Proposition 30, the Schools and Local Public Safety Protection Act, passes it will bring in billions of dollars of revenue for education and public safety.  It does so almost exclusively by taxing the top 1% of earners.  More precisely, those who make $250,000 to $300,000 per year would see a 1% increase in personal income tax, those who make between $300,000 and $500,000 would see a 2% increase, and finally, individuals making over $500,000 a year would have their taxes go up by 3%.  These increases would remain in place for seven years.

Indeed 90% of the revenue raised by Proposition 30 will come from progressive taxes on the top 1%.

Feeling sorry for the top 1%?  Don’t.  They are paying taxes at a lower rate than they did fifteen years ago during the Pete Wilson era.  Then they paid at 11%; today their rate is 10.3%.  Add to that the fact that close to half of their wealth comes not from income but investments.  Rather than creating new jobs, much of their wealth has come from activities that, as Paul Krugman points out, have more to do with “job destruction rather than job creation.” Indeed, over the last few decades they’ve run away with the store.  What’s happened?

As I’ve noted before, a Congressional Budget office report showed that “after-tax incomes for the top 1% shot up by 275% from 1979 to 2007” while the bottom 80% saw their share of income decline.

A Generation of Widening Inequality

Bringing the point closer to home, the California Budget Project (CBP) recently released a study, “A Generation of Widening Inequality,” that indicated the same phenomenon happening here in theGoldenState. In sum, the CBP found that, “a disproportionate share of income gains in recent decades has accrued to the very top of the distribution, in spite of continued productivity gains.  As a result, the gap between the incomes of those at the high end of the distribution and those at the low end and middle has widened significantly.”

A few more lowlights from the report include the facts that:

 *Between 1987 and 2009, 35.5% of the inflation-adjusted income of all Californians went to the top 1%.  That means that $77.9 billion (an amount just less than the size ofCalifornia’s 2011-12 budget) went to fewer than 144,000 people.

 *71.3% of income gains during this period went to the wealthiest 10% of Californians while 2.5% went to the middle fifth of the income distribution.

 *The wealthiest Californians made significant gains while low and middle income Californians lost ground.  Thus the top 1% of Californians increased their inflation-adjusted income by 50.2% between 1987-2009 to reach an average income of $1.2 million.  Even the worst recession since the Great Depression failed to erase this decades-long gain.

 *In contrast, for the middle fifth of Californians, income dropped by 14.8% to an average of $35,000 in 2009, the lowest level since at least 1987.

 *The top 1% of Californians received 18.4% of income in 2009, up from 13% in 1987.  Thus one out of five dollars went to one out of 100 Californians in 2009.

 *In contrast, the bottom 80% received 38.7% of total income, down from 46.6% in 1987.  Thus two out of five dollars went to 80 out of 100 Californians.

 *California has one of the widest income gaps in theUnited States—the seventh biggest gap inAmerica—putting us betweenAlabamaandTexas.  In 2010, 6.1 million (or over 16%) of Californians lived in poverty (including 2.2 million children—over 23% of the total).

 *In contrast 33,900 millionaire taxpayers (or 0.2%) had combined incomes of $104 billion in 2009.  That’s 11 times the income needed to lift every single Californian out of poverty.

 Hence it’s certainly not time to pity the 1%.  It’s time for them to sacrifice a little for the greater good of our state and the future of our children.

In addition to taxing the rich, it is true that Proposition 30 also raises the sales tax by a quarter of a cent for four years. And while I was a big proponent of the Millionaires Tax because it did not include any sales tax among other advantages, it is now imperative that we get behind the compromise measure, as the consequences of its failure would be catastrophic. As we know, the cuts to education funding over the last several years have been devastating at all levels from kindergarten to the University of California.

Let’s be clear: for 99% of Californians the question is whether they think paying an extra penny when they buy a four-dollar hamburger is worth saving the state’s education system.  If we can move beyond the petty, short-term thinking of the reflexive anti-tax crowd, the long-term benefits of this investment are clear.  For every dollar we spend on higher education, for instance, we get three dollars back.  Money spent on education pays big dividends for a long time.

Nevertheless, there are plenty of folks out there who are penny wise and pound foolish because they’ve been exposed to decades of anti-tax propaganda by the Grover Norquist crowd. But much of this is myth-based thinking.  How so?

As opposed to the constant barrage of blather about California’s “spending problem” that we hear from ill-informed pundits and self-interested ideologues, the fact is that California’s education system is being gutted.  We have seen nearly $20 billion in cuts to education over the last four years.  California ranks 47th in the nation in per pupil spending in K-12 and 45th at the community college level.  Students in the CSU and UC systems have seen their tuition skyrocket to such an extent that we are close to killing the dream of affordable higher education for all Californians.

Inconvenient Fact: State Spending is Down

California, despite claims to the contrary, has not increased state spending over the last ten years.  In fact, when one considers inflation and population growth, spending has actually declined by about 17% during that period.  There have been over $30 billion in cuts to state programs over the last two years and general funding spending has gone down from $103 billion to $86 billion during that same time frame.  Are we bloated with government workers?  No. In that category we rank 48th in the nation in the number of state employees per resident.  So, despite individual examples of governmental waste or bad management, the fact is that the undeniable trend in California’s public sector is severe austerity.

At our community colleges, where I teach, we have seen class cuts hinder our students’ access to education and eliminate jobs for our part time faculty.  We have also seen cuts to many more important programs and the elimination of others.  Across the state, there has been wave after wave of furlough days, pay and benefit cuts, pink slips, and more.  But it can and will get much worse if Proposition 30 fails.

How bad will it be?  Specifically, schools and community colleges will see $5.35 billion in trigger cuts if Proposition 30 goes down to defeat.  In addition to this the University of California will see $250 million in cuts as will theCaliforniaStateUniversitysystem.  Along with these brutal cuts to education, there would also be about $100 million in cuts to public safety agencies like local police departments and CALFIRE.  And after this first round, with no new revenues coming in, more cuts will surely be on the way.  Austerity and diminished expectations won’t just be recessionary reality; they will be the new normal.  In sum, if Californians reject Proposition 30 they are mortgaging the future of the state.

So why the continued fierce opposition to funding education?  After I left City College last Monday I heard Richard Rider, our local version of Grover Norquist, on KPBS unleashing his predictable litany of bogus arguments about how the wealthy are over-taxed, how taxes support the evils of the public sector, how the rich will flee the state in droves if forced to pay a marginally higher tax rate, how California can easily fund education by cutting more in other areas, etc. etc.

 A hammer to impose their ideological agenda

But then, in medias res, Rider accidently told the truth.  He tried to stop himself, but it sputtered out of his ugly word horde nonetheless: “Hopefully one of the good things about an economic type situation is that it forces reform. If, and the other side of that is that if we give more money to the state, reform will not come. We’ve seen this over and over in the local level in the state level if we will reform we first have to say no more.”  Not surprisingly, similar arguments were rehearsed in the UT and elsewhere in the San Diego media landscape.  As one reporter I spoke to after the press conference at City College said to me in defense of his relentless anti-tax questions, “It’s my job to be cynical.”

So there you have it: the austerity club digs budget deficits because they can use them as a hammer to impose their ideological agenda.  Richard Rider, the UT, and the folks who don’t believe in government want to starve the beast (and much of the local media are happy to parrot their arguments with little context or interrogation).  Shrink government (in this case our schools) until it’s small enough to drown in a bathtub, blah, blah, blah–our kids be damned.

Why worry about the size of a kindergarten class or a young person’s debt leaving college when gutting education spending might enable you to go after teachers’ pensions or privatize big swaths of education spending so the moneyed interests can profit from it? Hey, why take the pressure off when you’re winning the war against big government?  Soon they may really be able to drown “it” in a bathtub, but the thing they’ll be snuffing out along with “it” is hope for our kids’ future.  That’s not “reform”: it’s child abuse in the service of a stale right–wing ideological jihad.

So let’s say “no” to those who would murder the future in the service of a mean-spirited social Darwinist project and “yes” to Proposition 30 and the promise of California’s young people.  This is too important to be cynical.  Vote with the better angels of your nature.

 

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Jim Miller

Jim Miller, a professor at San Diego City College, is the co-author of Under the Perfect Sun: The San Diego Tourists Never See and Better to Reign in Hell, and author of the novel Drift. His most recent novel on the San Diego free speech fights and the IWW, Flash, is on AK Press.
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{ 12 comments… read them below or add one }

avatar Soquel Creek August 27, 2012 at 9:40 am

Governor Brown’s Proposition 30 is the WRONG solution for the problems affecting California. VOTE NO on PROPOSITION 30.
http://goo.gl/SBX4f

Comment shortened by Editor. No, you’re not coming in here and posting a bunch of links. All the arguments & links posted are available in the above url.

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avatar bob dorn October 3, 2012 at 9:18 am

Thank you, editor.

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avatar Murtaza August 27, 2012 at 10:31 am

1. In the repeated attacks on the size of California’s government, what gets lost is that a majority of the state budget is spent on education and public safety. And this spending has not kept up with the rate of growth. Over the last three decades, the General Fund spending is currently at it’s lowest level, compared to the size of the economy. So the state is being shortchanged. As a result, education is being shortchanged too, with our state ranking at 35th in the nation on education spending per pupil.
http://goo.gl/S3rZi

2. For those complaining that businesses are leaving California because of it’s tax climate, there is a major omission that makes this claim misleading. Homegrown businesses form the backbone of California’s economy, so our business birth and growth are the key drivers. The impact of business relocations on employment is negligible. http://goo.gl/6nLh3
What makes businesses create and grow? Our education and quality of life. And long-term projections show that if we keep our fundamentals strong, California will recover and lead the globe. http://goo.gl/sAkZU
That said, we must close the tax loopholes that allow corporations (incl Apple) to feed off California’s intellectual infrastructure, yet locate jobs in Texas, Nevada or China.

3. It is true that the statutory income tax rates for the rich in California are high; but it is also true that high sales tax rates dilutes the progressive nature of state taxes. The effective tax rate for the 1 percents in California is 7.4% compared to an effective tax rate of 10.2% for the bottom fifth. This is because of tax breaks for the rich in capital gains, and tax rakes for the poor in retail sales. http://goo.gl/OdArF
One way to avoid the volatility and dependency of the school system on the rich is to tax financial transactions (as we tax the lottery) that do not produce anything tangible except Wall Street profits.

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avatar Soquel Creek August 27, 2012 at 11:20 am

Murtaza, unless I’m missing something, there is no tax break for capital gains in California. Unlike the federal government, there is no distinction between ordinary income and capital gains in California.

I’m intrigued by your idea of taxing financial transactions “that do not produce anything tangible except Wall Street profits.” I’m assuming that you would somehow distinguish between “useful” investment and “profiteering” investment. I can’t wait to see THOSE rules.

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avatar Murtaza August 27, 2012 at 11:33 am

Soquel, Performance pay, such as stock options and nonequity incentive plans, that meets the IRS requirements for the “performance-based” exception is fully
deductible. Salary, bonuses, and stock grants are deductible but subject to a limit of $1 million. http://www.epi.org/press/corporate-tax-deductions-executive-pay-cost/
Bottom line is that the total tax rate for the 1 percenters is much below the 9.2% claimed by opponents of Prop 30.

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avatar Charles August 27, 2012 at 3:05 pm

The performance pay deduction has nothing to do with individual taxation. It has to do with corporate taxes. Corporations are not allowed to recognize non performance based pay that exceeds $1 million when they calculate their taxable income. Doesn’t impact the individual tax filing in any way.

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avatar RB August 27, 2012 at 12:30 pm

Here are the California numbers….no Austerity Here!
http://goo.gl/Dkr0j

What these numbers show is in the 11 years before this downturn the general fund doubled or increased at a rate of 6.5% per year with the current tax rates. We need more people working not higher taxes and less employment.
What you see is total California spending over the last 15 year has doubled even with the recession.
Also of interest, over the last ten years , state employment is up 9+%.

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avatar Susan Duerksen August 27, 2012 at 12:59 pm

All voters should read this important and information-packed column. The future of our children is the future of all of us.

Like Jim, I would have preferred the Millionaires Tax without a sales tax increase, but we must pass this compromise to maintain funding for public education. It’s truly an investment, a highly worthwhile and necessary expense to maintain our quality of life. And yes, even the wealthiest Californians will feel the bumps if we don’t have an educated workforce in a few years; they need to start paying their share.

Soquel, you need to offer an alternative solution if you want to be taken seriously.

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avatar RB August 27, 2012 at 3:13 pm

Here is an alternative.
Fund the schools first. Let the hundreds of other state agencies split what is left.

Fund the schools fully before you fund a bullet train in the middle of the desert.
Fund the schools fully before your fund the hundreds of state agencies, commissions, and boards.
Fund the schools fully before you hire another state employee outside of education.
Fund the schools fully by giving education what is required under Prop 98.
Fund the schools fully before giving raises to Assembly and Senate staff.
Fund the schools fully before you allow state departments the ability to have secret accounts to hide money (See Parks).

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avatar Ernie McCray August 28, 2012 at 10:50 am

If we truly value our kids we’ll do the right thing and pass Proposition 30.

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avatar JEC August 28, 2012 at 4:05 pm

“The liberty of a democracy is not safe if the people tolerate the growth of private power to where it is stronger than their democratic state. That, in essence, is fascism”.
FDR – April 29, 1938 speech to Congress. FDR provides a lesson in political governance. Our government does not work well. Why should it. We keep electing people to run it who openly declare their hostility to it. Perhaps it’s our diversity sending us off in a hundred directions. To me it looks a lot like herding cats with our priorities differing based on what we know. So like a pertulant parent with a college drop out is the solution to just toss them out on their ear – so to speak? To hell with them, screw government! Our government, remember. That Constitution we swear to defend; the ideals of democracy. It’s our government you’re so eager to toss out. At least it once was. At least that’s how the founders say it. Could it be that a reason our government does work so well is that it’s been weakened to the point it can no longer act effectively. This is a fight over the Power of the State? Taxes, gun control, regulations (environmental or otherwise) central GOP issues, usually packaged with anti-government rhetoric. Newt Gingrich created the “Starve the Beast” plan in the late 80’s – choke off revenue (taxes) and government will collapse from within but in truth giving birth to our gigantic national debt. The GOP has been pursuing that strategy ever since, and winning with it. Winning by selling a free lunch. Get now, don’t pay at all. Proposition 30 is a small effort, a limited vision moving in the right direction and it’s not perfect. Who is?

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avatar bob dorn October 3, 2012 at 9:26 am

If we could only get a .025 of a penny for every 200,000-share flash buy and sell of the brokers. I know, I know, pretty soon we’d be legislating an increase in a financial transaction taxt to .05 of a penny, and that would be socialism. Gimme the slippery slope.

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