Current political developments in California highlight the gaping chasm that divides the established political process – which is routinely mislabeled as “democratic” – with the positions embraced by the vast majority of Californians.
Unfortunately, California is to the United States as Greece is to Europe: both are fiscal basket cases. California has been suffering major budget deficits long before the Great Recession smashed the real estate bubble and drove it further into debt. But the underlying causes of its chronic fiscal problems are seldom mentioned in the corporate media.
The Great Recession is surely a contributing factor. But more importantly there has been a steady shift of tax revenue away from corporations and the rich – the “people” who can most afford to pay – and onto the backs of working people.
In the late 1970s, for example, Proposition 13 was passed which limited property taxes for homeowners and corporations. However, because of various loopholes, the proposition has been far more beneficial to corporations than to homeowners, resulting in a major loss of revenue for the state and a downward slide in corporate taxes.
Then in the 1980s the state inheritance tax was abolished, which constituted a huge boon to the rich. The New York Times reported (April 16, 2011, Elizabeth Lesly Stevens, “The Idle Rich Should Give Something Back: Taxes”): “Consider this: If each Californian could bequeath no more than $2 million, a 100 percent tax on the surplus estate assets would wipe out the state’s entire budget deficit.”
Even back in 2003 The New York Times was reporting on declining taxes for corporations across the country and particularly in California:
“Tax sheltering has cost states more than a third of their revenue from taxes on corporate profits, a new study showed yesterday, adding to the severe strain on state finances across the country.” And the article added: “In the 1980s 9 percent of corporate profits were paid to states. This number had declined to less than 6 percent by 2001…” (David Cay Johnston, The New York Times, July 16, 2003).
All these developments have coalesced to produce a perverse tax structure in California: the poor pay at the highest tax rates while the rich pay at the lowest rates. The bottom fifth pay at a 11.1 percent tax rate while the top 1 percent pay only 7 percent.
And these tax trends have in turn contributed to growing inequalities in wealth: during the past three decades the incomes of the wealthiest 1 percent of Californians grew by 81 percent while the income of the bottom 20 percent dropped by 11.5 percent (San Francisco Chronicle, April 1, 2011).
But on those rare occasions when politicians propose raising taxes to reduce the deficit, they fail to mention these staggering trends. Instead they engage in incessant clamoring about “shared sacrifice” and a “balanced” approach. With this as his mantra, Democratic Governor Jerry Brown initially proposed a temporary tax measure that would have raised taxes on everyone. It included a regressive one-half cent sales tax increase that would have burdened the poor far more than the rich and a mere 1 percent increase in the taxes on those making over $250,000 and a 2 percent increase on those making over $500,000.
But what Brown was not expecting was a fight-back mounted by one of the teacher unions. California Federation of Teachers (CFT) proposed its own ballot initiative – the Millionaires Tax – that would have only raised taxes on the rich by raising their rates 3 percent on those making over $1 million and 5 percent on those making over $2 million. Their initiative polled much better than Brown’s.
Under intense pressure, CFT’s leaders eventually capitulated and agreed to drop their initiative and instead opted for a dubious compromise version brokered with Brown. The compromise would reduce the sales tax to one-fourth cent and raise tax rates 1 percent on those making over $250,000, 2 percent on those making over $300,000 and 3 percent on those making over $500,000.
It is not clear this compromise measure will pass because of its ambivalent nature. It currently has the support of 56 percent of likely voters, 58 percent oppose “a key part of it – the quarter-cent sales tax increase (San Francisco Chronicle, May 26, 2012). When CFT’s Millionaires Tax was a contender and was polled, it had 62 percent support.
Thanks to the Occupy Movement, people are becoming increasingly aware of the growing inequalities in wealth and the underlying declining tax burden on the rich. Hence, they have offered strong support to initiatives that target only the rich and have rejected regressive taxes such as sales taxes.
And this tenuous support has led Jerry Brown to resort to his terror tactic, intended to strike fear in the hearts of the public. He has told the people of California that if they do not support this new compromise tax proposal, then automatic trigger cuts will go into effect that will brutally slash the budget of public education on all levels. According to the same Chronicle article, this threat has evoked hatred: “They [likely California voters] also hate the automatic spending cuts to public education if voters reject the Brown’s tax plan. And we mean hate – 72 percent oppose these trigger cuts.”
If democracy ruled, the sales taxes would be reduced, taxes on the rich would go way up, and our schools and social services would be fully funded. But thanks to the influence of the 1 percent and the politicians they subsidize, the people of California are being terrorized into voting for a measure they actually in part reject.
Ann Robertson is a Lecturer at San Francisco State University and a member of the California Faculty Association.
Bill Leumer is a member of the International Brotherhood of Teamsters, Local 853 (ret.). Both are writers for Workers Action and may be reached at firstname.lastname@example.org.