Green Tax, Blue Tax, Old Tax, New Tax

As the legislature takes its recess from the stalemated trench warfare that has replaced a budget process, it makes sense to look at California's tax structure as a whole. The Republican rallying cry of "no new taxes" (while they clearly also dislike old taxes) unfortunately tends to legitimize our existing hodge-podge of counterproductive taxes.

Lets start with what is wrong. First, California has high personal income taxes, and derives much of its income from those income taxes. Because income is relatively volatile, especially at higher income levels, the level of tax revenue is extraordinarily hard to predict. When you cannot predict your income, it is almost impossible to come up with an accurate budget (especially given legislators' tendency towards extreme optimism that they will be able pay for every program that anyone wants). Warren Buffett warned Schwarzenegger about this, to no avail. In addition, the incentive created by high income taxes - reduce your income - is rather backwards.

Second, California has high sales taxes. In some counties they approach 10%. In a consumer-driven economy, this again creates a reverse incentive from what we want for economic growth, by discouraging purchasing of items in California. It also puts a huge burden on lower-income Californians, as a larger proportion of their money gets swallowed up by taxes on essential items.

Because local governments rely heavily upon sales tax revenue, they also have a perverse incentive to favor development of auto malls and big box retail, which are ugly and bad for small local businesses and the environment, but generate the most sales tax revenue. Housing, parks, schools, libraries, and mixed uses are discouraged.

Third, California has low or no extraction taxes. We have no oil severance tax, so the big oil companies can pull a lot of oil out of the ground under California (and reap huge profits) without paying for it. Alaska and Louisiana don't seem to have a problem with oil severance taxes - the oil companies are still pulling out oil and still making a very nice profit, but the states get something out of it. California is still the fourth-largest oil producing state, but it gets nothing for its oil. California could easily add an oil severance tax with no adverse consequences.

Let's move on to what is mixed. Under Proposition 13, long-time homeowners get much-needed protection against property taxes escalating to astronomic levels, which is good. But land speculators, real estate developers, and commercial landlords - all of whom profit from increased property values - essentially get a free ride. They get to reap the benefits of rising property values without bearing a corresponding tax burden, so their business is basically being subsidized by everyone else.

Let's look at solutions. The first few are obvious, based on the problems identified above. We should significantly reduce personal income taxes and sales taxes, and add an oil severance tax. For property taxes, we should keep the Proposition 13 cap on taxes on a primary residence, while allowing taxes on commercial properties (and second and third homes) to float with property values.

To make up for the lost revenue, while simultaneously creating better incentives, we can add taxes that create positive incentives, and that people can reduce - or even avoid - by making choices that benefit everyone.

Given the increasing scarcity of water in California, a water extraction tax would create an incentive to save water by increasing its cost. The proceeds could be used to fund water projects instead of relying on state-issued bonds. Under this approach, the biggest water users would pay the most for water infrastructure, which is fairer than using bonds that are paid for by all taxpayers regardless of their water use. If you don't want to pay the tax, you can use less water.

Similarly, an increased car tax, with the proceeds used to pay for highway projects, would be helpful. Those who own more cars and more expensive cars would pay more for highways, which again is fairer than having all taxpayers pay through other taxes. Car use has been heavily subsidized, and this is a way to make cars bear some of the costs they impose on everyone else. Some of the proceeds could also go toward defraying the health care costs caused by cars and their emissions.

A carbon tax, or a proxy for a carbon tax, would create appropriate incentives for Californians to reduce their carbon footprint. The proceeds could be used to begin adapting California's infrastructure for the impacts of global warming.

A tax on toxic chemicals and pesticides would create incentives to reduce their use, and the proceeds could be used to defray the health care costs (particularly cancer) that they cause.

Finally, the legalization and taxation of marijuana would provide a substantial new income stream to California.

These tax changes would reduce the tax burden on most Californians - your income taxes and sales taxes would go down a lot, and the property taxes on your home would stay the same. You would pay more for water, gas, your car, and things made with toxic chemicals - but you would gain the ability to reduce most of those taxes by using less.

These changes would also refill the state coffers, allowing us to again fund the quality programs we should be providing to our residents. We are a rich state, and we should be embarrassed that we are pleading poverty and claiming to be unable to pay for schools, infrastructure and social services. With a little common sense, we can feel - and be - truly rich again.

Arnold Plays, State Workers Pay

Arnold Schwarzenegger has decided to withhold the pay of some 200,000 state employees, including janitors, prosecutors, file clerks, and prison guards. He claims that he is required by law to not pay the employees in the absence of a state budget. But he makes an exception for those bargaining units that have accepted a deal including pay and pension cuts.

But if he can't pay employees in the absence of a budget, then how can he pay the ones that took his deal? This isn't law - it is heavy-handed extortion: sign the deal, or don't get paid.

And a big part of the deal - raising the pension retirement age for new employees - does nothing to deal with the current budget mess. It won't have any significant effect for 20 years or so.

Schwarzenegger is trying to play the political power "game," by using the current crisis to extract concessions from "the other side." He has lost sight that real people are more important than petty partisan "victories." The livelihoods of 200,000 Californians and those who depend on them are at stake - that is not a game, even if Schwarzenegger wants to pretend it is by using them as pawns.

This latest move only confirms that Schwarzenegger has failed as a manager, a governor, and a leader.

Insurance Companies To Save The Environment?

The main complaint against environmental regulations is that they cost money. For most regulations, this is simply not true. Environmental regulations generally try to prevent one business (or individual) from shifting costs to other businesses or individuals.

Let's look, for example, at a regulation that requires toxic waste to be treated and properly disposed of, rather than dumped into a river. It is true that treatment and proper disposal will cost more for the producer of the toxic waste, but just dumping it in the river will raise costs for others.

People who eat fish from the river, or drink the water from the river, will have adverse health effects, causing them to incur increased health care costs, costing their health insurer more money, and perhaps costing their employers productivity. Water companies using the water will incur increased treatment costs. Commercial fishermen will get lower quality catches, and once the pollution problem becomes known, will have trouble selling their fish. Recreational uses of the river, such as kayaking and water skiing, will decline, harming businesses that cater to those uses.

In this scenario, the total cost of the environmental regulation is clearly less than the total cost of no regulation. It only costs the polluter more.

A related argument is that if California imposes environmental regulations, competitors in other places, such as Nevada or China, will gain an advantage, because those places allow companies to shift their environmental costs onto others.

First, there are obvious environmental and logical problems with this argument, which resembles the child's complaint, "But Andrew's mom lets him play with matches and gasoline." Second, those other places should be considered to be engaged in unfair competition. In essence, they are subsidizing polluting industries by shifting the costs onto the more general populace, like a hidden tax.

We should not tolerate such practices that not only disadvantage clean businesses, but that also degrade the environment. California should require that all products sold here, regardless of where they are made, are manufactured using process that meet the same environmental standards. This would not only protect the environment worldwide, but would also provide an incentive for businesses to locate here.

So why would insurance companies save the environment? It seems like the health insurance industry has a lot at stake here. Our failure to clean up vehicle and industrial emissions results in increased rates of asthma and lung cancer. Our extensive use of pesticides results in more cancers, plus skin, eye, and nervous system problems.

These all cost the health insurance companies money, so they should be supporting stringent environmental protection laws and regulations. Maybe their shareholders should be asking them why they are not doing more to protect the environment, our health, and their bottom line.

Or maybe we just need to protect our environment by ourselves, and for ourselves, our communities, and our children.

No Nuke Left Behind?

The Kerry-Lieberman "American Power Act" was just rolled out amid much fanfare. It attempts to address climate change and create a national energy policy out of the vacuum of the Bush years. While the bill is a start, it is not a strong start.

The bill would enact a complicated version of a cap-and-trade system, which has plusses and minuses. Simplicity is not one of them, and Kerry-Lieberman appears to take this to an extreme, separating out different sectors (e.g. industrial, electric generation, transportation) for different treatment.

It would also boost federal (read: taxpayer) subsidies for nuclear power, which is already getting huge subsidies. You could buy an awful lot of solar panels for the money that we are giving to the nuclear industry now, and this bill would just give them even more.

The allocation of allowances is also problematic. It appears that a large number of allowances will be given away (to the electric generation section) for free, and the bulk of those would be given to the most polluting generators, who would be getting subsidized by (the ratepayers of) the cleanest generators. So California would be paying for the midwest coal states to clean up their act.

In the Washington tradition of providing something for everyone, but especially those who might oppose the bill, there are incentives aplenty for coal states, such as taxpayer funding for carbon capture and sequestration, even though a real carbon price should create a market incentive for the private sector to finance this.

There is a complex smorgasbord of offshore oil drilling provisions, designed to provide something for both pro-drilling and anti-drilling states, while also bribing states with lease revenues to encourage them to be pro-drilling.

Other aspects weaken the bill further. The timelines are slow, with the industrial sector not being covered at all until 2016. The bill appears to allow for huge amounts of potentially questionable "offsets," where you can offset your emissions by doing something like planting trees or capturing cow farts.

This is just a quick preliminary take, as the bill will come into clearer focus as folks start to wade through its roughly 1000 pages. It will also undoubtedly change as the various interests line up to reshape it in their favor.

Like a toddler's first step, the existence of the bill is significant, but it does not take us very far.

Waffling Toward Totalitarianism

Eric Holder, speaking for the Obama administration (which is going seriously wobbly in the face of Republican accusations of being soft on terrorism), announced that the administration will consider modifications to the Miranda rule for terrorist suspects:
http://www.washingtonpost.com/wp-dyn/content/article/2010/05/09/AR2010050902062.html

Joseph Lieberman would go farther, and strip Americans of their citizenship if they were tied to terrorism: http://www.nytimes.com/2010/05/05/nyregion/05arrest.html

One big problem: who is a "terrorist?"

Is it an art professor in Buffalo, making art with bacteria?
http://rochester.indymedia.org/newswire/display/21161/index.php
http://www.thenation.com/article/terror-hysteria-gone-absurdist

Or is it a Jewish college student, planning to protest the Republican National Convention?
http://www.commondreams.org/headline/2008/10/14-0

How about a graduate student in Idaho running a website for a Muslim charity?
http://seattletimes.nwsource.com/html/localnews/2002097570_sami22m.html

While these may not be the type of people who the change is aimed at, they have all faced terrorism-related criminal charges, and would be subject to the same law.

Anyone who has watched American television, with its plentiful cop shows, probably knows the Miranda warning better than the Pledge of Allegiance, so it seems unlikely that this new erosion of rights would actually accomplish anything, especially since there is already a public safety exception to Miranda. It is scary, however, how willing the Obama administration is to give away (or perhaps take away) even more rights just to appease right-wing attack dogs. But that is what happens when polling comes before principles.

Glenn Beck, of all people, in discussing the suspect in the botched Times Square bombing, actually showed a better grasp of Constitutional law than Holder (Columbia Law School) or Lieberman (Yale Law School): “He has all the rights under the Constitution. We don’t shred the Constitution when it’s popular.”

If Oil Drilling Can Do This, What Could a Nuclear Plant Do?

Given the ongoing disaster of the BP oil spill in the Gulf of Mexico, how much should we trust claims that nuclear power is totally safe? Maybe less than we thought.

The problem is that the potential scope and scale of a nuclear disaster, such as Chernobyl, is so huge that our minds don't really believe it. Our nuclear reactors in California have been operating for decades, and they have not melted down or blown up or spawned multi-headed livestock. Check out this article explaining why most California homeowners do not have earthquake insurance, despite the likelihood of a large quake: http://articles.moneycentral.msn.com/Insurance/InsureYourHome/why-you-may-be-in-disaster-denial.aspx

But the owners and operators of nuclear power plants, who would normally be on the hook if a reactor melted down, have insurance. And they have a federal law that limits their liability, and that provides for federal indemnification (read: taxpayer bailout) if the liability goes above that limit. It is called the Price-Anderson Act. http://www.eoearth.org/article/Price-Anderson_Act_of_1957,_United_States

Even that bastion of environmental protection, the Cato Institute, complains about how this is just one of the massive subsidies given to nuclear power: http://www.cato.org/pub_display.php?pub_id=3134

Oh, and the nuclear power industry gets government (taxpayer) loan guarantees, too: http://www.ucsusa.org/assets/documents/nuclear_power/nuclear-loan-guarantees.pdf

So we are subsidizing the nuclear power industry in a number of ways, including paying for part of their insurance, or more precisely, making it so that their insurers do not have to cover the full cost of a nuclear disaster - because we do.

If nuclear power was really so safe, would it need this protection against liability? If nuclear power was really so safe, would it need us to subsidize its insurance costs? If nuclear power was really so safe, why would it be asking us to pick up the tab if there is a disaster? There isn't really going to be a disaster, is there?

Environmental Disaster Continues to Grow

The destroyed oil drilling rig is continuing to spill oil, but not just 42,000 gallons a day - more like 200,000 gallons a day: http://news.yahoo.com/s/ap/us_gulf_oil_spill

In addition to 11 lost lives, this is turning into an environmental catastrophe, and appears likely to be an economic disaster as well, with its potential effect upon fisheries and other resources.

This spill has shown the vacuousness of the claims that "drill, baby, drill" is an energy policy. Let us hope that BP can and will use all of its resources to stop the leak soon.