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Today’s Issue:
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Inside the Leonard Letter
By: Bill Leonard on: Monday, February 08th, 2010
***Payroll Tax Credit a Start***
First, the California payroll numbers in my last email need correcting. On top of the federal deductions, the correct calculation for California withholding for a single person making $45,000 with no deductions is roughly $41.25 withheld for SDI, along with $159.98 for state income tax withholding, all told (federal and state) the worker is left with just $2,720 out of a gross pay of $3,750. The corrected item is posted here in its entirety:
http://www.billleonard.org/ll.php?show=358
Again, a temporary suspension of these taxes would be a more direct stimulus for hiring than scatter-shot spending programs. Either option is not cheap, but if the goal is to increase employment, it makes abundant sense for government to do what it can to lower the cost of labor directly.
Rather than tax credits and other such indirect attempts to encourage employment, the federal government should directly cut its payroll taxes. The President’s new proposal is really not new and really not very productive.
***Projections Moving Faster than the Trains***
In the face of the state's perpetual budget crisis, some Californians are beginning to regret their votes in favor of the $9.9 billion high-speed rail bond last year. Even though proponents of the train have now admitted the bond was only a down payment on the actual cost to build the system, the numbers that were projected are changing—and all in the wrong direction.
The business plan released by the train's advocates last month show the dramatic differences in what the voters were told and what reality is. For example, the price of a ticket from San Francisco to Los Angeles is now projected at $105, up from the previous $55 estimate. That new number changed the ridership predictions: now 41 million annual riders by 2035, down from last year's prediction of 55 million passengers by 2030. The cost for building the train system has also grown. The proponents had been thinking $33.6 billion (2008 dollars) but have revised upward to $42.6 billion. Recently, the Obama administration announced $2.25 billion in funding for the project. Proponents said federal money would be used to close the gap between the voter-approved bond and the ultimate cost, but this is a drop in the bucket and still will not work.
You can read the plan for yourself here:
http://www.cahighspeedrail.ca.gov/library.asp?p=8200
This is the train to nowhere and California could really use that $9.9 billion for more immediate, important and better projects.
***Pray the News***
My friend, Joe Walsh, advocates that believers use the newspaper and television news as the starting point for their prayers. Indeed, the troubles and disasters of the world are all over the news and there are lots of people in need of prayer. He has now sponsored a campaign for California-- not political, but statewide nonetheless. He is asking for volunteers to sign up, at least one in each of the state's 25,000 voting precincts, to pray for California and its people.
Those interested can find out more at: http://www.ccnews.org/index.php?mod=Story&action=show&id=5537&countryid=207&stateid=6
Two announcements last week have prompted me to think about the important things in life and reflect more than usual on the value of prayer. First, Governor Schwarzenegger's Secretary of Education, Glen Thomas, announced his resignation in order to care for his 96 year old mother. May God bless him in that mission. And then later in the week Congressman George Radanovich lost his wife, Ethie, to cancer. The Congressman had announced just a month ago that he was not seeking re-electing in order to spend more time with his ill wife. Our prayers are with the Congressman and his family.
As much as we all criticize politicians for their mistakes and bad ideas (and they deserve it), it is also important to note that they are accountable to the same challenges and issues that affect everyone.
Inside the Leonard Letter
By: Bill Leonard on: Monday, February 01st, 2010
***Want Job Growth? Lower the Cost of Labor***
As far as the “jobs, jobs, jobs” mantra, we can spend with borrowed money, which is not popular with voters, or we can look at what is right in front of our noses. To stop the hemorrhaging of jobs, the obvious thing for government to do is lower the cost of labor by cutting back on payroll taxes paid by employers and workers.
I plugged in data for an imaginary California worker making $45,000 a year who is single with no deductions and here is how it breaks out:
Gross pay (per month): $3,750
Federal income tax: $543
FICA (social security): $232.50
Medicare: $54.38
So already out of a gross pay of $3,750, this hypothetical Californian has over $829 taken out by the federal government before he gets a dime. But we need to add California’s payroll taxes.
California has four State payroll taxes which are administered by the Employment Development Department (EDD). They are Unemployment Insurance and Employment Training Tax, which are employer contributions, and State Disability Insurance (SDI) and Personal Income Tax (PIT), which are withheld from employees' wages.
So if we add another $41.25 withheld for SDI, along with $159.98 for state income tax withholding, the worker is left with just $2,720 out of a gross pay of $3,750. It boggles my mind that workers are not rising up in protest. Think of all the people who are scrimping to save $20 here and there to make ends meet. Imagine what a temporary holiday from withholding taxes would do compared to various stimulus programs tried so far. I find it obvious that allowing workers to keep the money they make would relieve a lot of angst and provide major stimulus to the economy.
This has a direct effect on the cost of labor. If payroll taxes were not so high, employees could get higher take home pay at less cost to the employer. So employers could afford to hire more people while increasing take-home pay for all workers.
As far as withholding taxes employers pay, already mentioned are Unemployment Insurance and Employment Training tax. Add to that workers’ compensation expenses which vary but add significant cost for employers.
I am urging a temporary suspension of these payroll taxes. But going forward, Republicans should begin a dialogue with workers in this country. Yes, the government performs many vital and important functions, but I submit if you ask someone who makes $3,750 a month but only sees $1,553 of it, that worker will probably not believe he is getting as much from the government as the government gets from him.
***Here's an Example***
Last week the Los Angeles Area Chamber of Commerce was touting the success of a particular tax break, tax credits for film production. Supposedly 60 film productions that were threatening to leave the state stayed here and generated $710 million in spending, including $310 million of direct wages. On the one hand, it is good that the state recognized that high taxes were driving jobs out of state. On the other hand, the state picked this one industry to help on taxes, leaving countless other employers and their workers to pay our state's high taxes. Tax credits are just too narrow and everyone suffers when the government picks winners and losers. Instead, government should lower everyone's tax rates; that would be the ultimate tax break.
http://www.lachamber.com/index.php?src=blog&srctype=detail&blogid=46#comments_section
***Private Park Possibilities***
In the midst of a $20 billion state budget deficit, we need to look at all creative options for reducing state expenditures. We are not the only state in this fiscal mess—though we do take honors for having the biggest hole in our budget. Arizona recently announced that it will be closing many of its state parks because it does not have the money to keep them open and operating. Governor Schwarzenegger made a similar announcement last year and there was predictable public outrage at the idea of losing the use of some cherished California recreation.
The response to Arizona's announcement is instructive. Warren Meyer, the owner of Phoenix-based Recreation Resource Management, suggested that the state parks slated for closure "could easily be kept open to the public under private concession management." His company already operates entire parks for the U.S. Forest Service and says that because he can run the operations at a lower cost than the government, he is able to make a profit and pay the government an annual fee.
California should consider contracting with the Warren Meyers of the world. We could keep our unique recreational resources open to the public, maintain them properly and generate income for the state.
http://www.goldwaterinstitute.org/article/4204
Inside the Leonard Letter
By: Bill Leonard on: Monday, January 25th, 2010
***Threats to Proposition 13***
A single newspaper reporter has sparked an inquiry into whether golf club property should be re-assessed every time their members turn over more than 50%. The L.A. Assessor strangely thought enough of the question that he requested the Board of Equalization provide a legal opinion. It has been settled law that neither golf course properties nor anyone else's property shall be reassessed unless the property is sold. Nevertheless, the BOE lawyers are working up an opinion.
For those who think this is just about the country club set, I issue a warning. Golf clubs are simply California corporations. If they can be reassessed without a sale then any and every corporation in California can be reassessed without a sale. Any increase in property taxes to a business will certainly be followed by an increase in prices to their customers.
***Republicans Need to be Humble & Empower the People***
It is clear the voters are engaged and angry. I say one thing they pine for is more humility from elected representatives. The atmosphere calls out for political leaders who are well grounded in reality. Independents who are coming back to the GOP are doing so because the Democrats are topping the collective baloney meter. America considers itself under assault by those who hold the reins of power and they are rallying to the idea that the whole enterprise of government is a cancerous lesion that hurts more than it helps.
I suggest Republicans engage the angry voters by modifying their rhetoric to be more humble and to acknowledge that America’s greatness is entirely owed to the freedom of its citizens. I cringe when I hear electeds of either party say that government needs to create jobs. Even the imperial, "we must create jobs" does not sit well. Why? Because the voters know that elected officials do not create any jobs except government jobs. When elected officials, all of whom have a job, engage in the claim they are the font and source of jobs it is off-putting to people who do not have a job. Face it: if the government could, indeed, create jobs, then there would be no unemployment. Recycling tax dollars around and around to stimulate the economy is not only making voters cynical, it is making them hopping mad.
The public understands the source of our nation’s wealth comes entirely from the wonderful mechanism of voluntary exchange of good and services, not from politicians. Government can help by providing for public safety, essential infrastructure, a court system, and upholding certain inalienable rights, like private property, self defense, etc. But pretty much everything else government does distorts the market away from the voluntary actions of individual consumers. This distortion results in fewer goods and services at higher prices. Health care is a good example. The more that government piles on mandates and increases its role, the more health insurance premiums go up and up. In contrast, the eye surgery procedure, Lasik, which is not covered by insurance or government subsidy, gets less and less expensive and the quality has gone up by leaps and bounds. When consumers are directly tied to the price of a good or service, they are more discriminating about it, and the result is they get more of it, the quality improves, and it gets less expensive. If only our health care system had as little interference as Apple Computer enjoys, health care consumers would likely be as pleased as they are with their iPhones. It is the absence of state interference in the voluntary actions of consumers that is the key to a growing, dynamic economy across the board.
Republicans need to look at government’s share of the cost of labor and the tax burden of workers. There is nothing more stimulating for both the economy and the morale of America’s workforce than lowering the cost of labor for job creators, and allowing workers to keep more of what they worked for.
Inside the Leonard Letter
By: Bill Leonard on: Tuesday, January 19th, 2010
***The Perfect Issue***
After listening to a clip (thanks www.calcliptv.com ) of the hearing on Assemblyman Logue's bill to suspend the state's Anti-Global Warming Act (AB 32) until the economy is better, I am convinced that there is no more perfect issue for politicians than global warming. Strike that --than global climate change. Now strike that -- than man-induced global climate change. Unlike early childhood education programs where you have to wait 13 years to measure if they worked or not, with the man-induced global climate change issue you will have to wait a century or two to know who was right. No politician voting today will ever be held accountable for being wrong on this issue.
It is really a faith-based issue. One side places their faith in the principle that man has caused a terrible problem that the planet is unable to accommodate, and that man must fix it. The other side places their faith in a planet that has absorbed planet-wide catastrophes in the past and will continue to do so in the future. Science is being used by both sides to justify conclusions, but in reality legislators' positions are more of an indication on where they place their faith than in any number of data sets by climatologists.
Not only will we never know who is right, but, like all faith-based issues, this becomes emotional very quickly. To the trucker whose truck is sidelined because he does not have the new climate approved motor it is an issue of his ability to support his family versus keeping a few pounds of carbon dioxide out of the air. People will make sacrifices based on faith, but those who are demanding those sacrifices of others have an extra burden to make sure that the sacrifices are worthwhile. Logue's common sense bill simply asks that those sacrifices be postponed until the economy is better able to handle them.
The video is here:
http://www.youtube.com/watch?v=1FO8-LBPMhg&feature=player_embedded
***On Federal Funds, the Governator is Right***
Since I last wrote that Senators Feinstein and Boxer (whom I commended for their blunt honesty) have shut the door on helping California balance its budget, Speaker Pelosi and Republican Congressman Nunes have jumped on also. While I know that California needs to solve its own problems and I know that Schwarzenegger is looking for money to avoid cuts, all of our federal officials should look into the mirror. In that mirror they will see that they have caused California to spend more state tax dollars to fund federal mandates and programs that Congress is unwilling to pay for.
Schwarzenegger, and every Governor before him in recent times, has pointed out the audacity of the federal government mandating programs on the states and then not paying for them. Just because the Governor is desperate does not mean that what he is saying is not the truth.
California is expected to spend just under a billion dollars for incarcerating illegal immigrants in the current fiscal year. The federal government will only pay $90 million, less than 10 percent.
The federal government has never covered many of its mandates, like Special Education Services. To cover these obligations, the federal government should be providing at least another $1 billion a year.
California also receives much less funding for its Medi-Cal program than other states because the formula for federal reimbursement is based on per capita income. The internet billionaires and high profile entertainment people living in California skew our income statistics enough that California only gets 50% reimbursement, where Florida gets 57% and Texas gets 60%. If the formula was bases strictly on population, California would get an additional $1.8 billion per year from the federal government.
In short, the Governor is right. His list is here:
http://gov.ca.gov/index.php?/fact-sheet/14125/
Inside the Leonard Letter
By: Bill Leonard on: Monday, January 11th, 2010
***The Best Idea Out There***
While attending the State of the State speech I learned more about Assemblyman Chuck DeVore’s (R-Irvine) new proposal to overhaul the state’s oil royalty system and open up California’s coast to more oil extraction. This is the timeliest and potentially most helpful proposal for bridging the deficit I have yet seen. The big payout would be in the first year, but it would increase employment and corporate revenues long into the future.
DeVore’s is the only idea that creates an ongoing revenue source without raising anyone’s taxes, and would create thousands of jobs. You can check out the full plan here: http://www.chuckdevore.com/news.asp?artid=210
DeVore's proposal would allow more drilling but imposes a 40% royalty on the value of the oil and gas at the time of extraction. The measure also provides an option allowing bidders to pre-pay royalties on the value of the oil at the time a bid is accepted at a 20% rate, creating an incentive for leaseholders who believe oil prices will increase to pay the state royalties immediately. In addition, the bill includes a prepayment option for existing onshore leaseholders through which they may lock in their current royalty rate, generally 15-25%, by paying the state royalties on the gas and oil's current market value.
DeVore’s revenue estimate of $14 billion in the first year is based on $70 oil. Oil closed above $80 last week. Add to that California’s corporate tax rate of 8.84%, which would yield $2-3 billion more from the increased activity.
***Budget Plan B***
I am so grateful to Senators Feinstein and Boxer for quickly attacking Governor’s Schwarzenegger’s plan to get increased federal aid. They killed it; it is dead. My concern was that the entire special session on the budget would be spent wasting time asking our federal representatives for help. Now that will not be necessary. The Governor proposed a Plan B if the federal aid did not appear, and it is now time to implement Plan B. It entails a great dismantling of the welfare state and would actually balance the state’s budget by real, permanent cuts in spending.
Feinstein and Boxer declared that California made its own troubles while totally ignoring their own poor immigration policy and the numerous federal mandates they created. I would be curious to know what they think the California trouble is. Do they support cutting excessive spending? Or do they think that California taxes are not yet high enough?
In any event, thanks for such a speedy response so that the Governor can now focus on cutting spending.
***Public Safety has to be Number One***
It is the very first principle of government to provide for public safety. This is the bedrock of civilization. It is both a prior and much more fundamental responsibility of government to provide for public safety than it is for education. The Governor’s proposal for a constitutional mandate to spend more tax dollars on higher education than on prisons is not even a good bumper sticker slogan. There are private alternatives to state sponsored higher education. The alternative to public safety is anarchy and the unraveling of 400 years of civilization.
***The Pony, the Pig, and the Dog***
The Governor told a delightful story to the Joint Session of the Legislature regarding the animals at his home. It seems that the pet pony and the pet pot-bellied pig work together to knock the dog’s food canister off the kennel then using feet, hooves and snout, they pry the lid off to get to the food. The Governor’s message: if my pony and pig can co-operate like this, then certainly the Governor and the Legislature can cooperate.
But I got to thinking about the dog. His food was gone, taken without his permission. So who is the dog in the Governor's analogy? I am hoping it is not me and the millions of other taxpayers who lose our canisters of food every time the Governor and the Legislature cooperate on taxes.
Inside the Leonard Letter
By: Bill Leonard on: Monday, January 04th, 2010
***Buckle Up. A Very Big Year is Coming***
Last week we learned that valley Republican Congressman George Radanovich is retiring and he has endorsed Senator Jeff Denham (R-Merced) to be his replacement. Denham was actively campaigning for the 25th Assembly District but is now expected to run for Radanovich’s seat in Congress. As Radanovich shows, your candidate may not be your candidate by the time the candidate filings take place.
The Governor will release his proposed Budget for 2010-2011 this week. There are few gimmicks left. There is no escaping that California has over $100 billion in expenditures while having an $85 billion revenue stream. Ignoring this for eight years is what is driving the state to insolvency. It got so bad last year that outgoing Department of Finance Director Mike Genest said that he looked into whether California could go back to territorial status so it could better deal with its debts. Absent a very robust turnaround in the economy, this year will be even worse. One of the early things to watch is whether the Department of Justice will continue to ignore the cuts to their budget and run out of money this spring. The head of the Department of Justice is Attorney General Jerry Brown, the likely Democratic nominee for Governor. His budget mismanagement could play big in the fall campaign.
One serious question is whether 2010 will be the year Governor Schwarzenegger faces the reality that his aggressive global warming politics is pretty much the worst-timed and ill-fated bandwagon of all time, or will he continue to defend it as part of his legacy. The bill he championed and signed, AB 32, will be so draconian to California’s economy when it is implemented that even leftists will be able to attack it. This issue is not the most important facing Californians.
Finally, the June and November elections will determine California’s direction for the new decade. The 80 State Assembly and 20 Senate races along with 53 Congressional seats and 4 Board of Equalization positions will be the last before the 2011 redistricting takes place. The Republicans will have a competitive primary featuring Insurance Commissioner Steve Poizner, former colleague Tom Campbell, and E-bay executive Meg Whitman battling all the way up to the June 8th primary. The winner will likely face Jerry Brown, who will have tremendous money to spend as well if he continues to have no opponent in the Democratic primary. With respect to national politics, the malaise is already looking severe enough that U.S. Senator Barbara Boxer (D) will face a serious challenge from colleague Chuck Devore, and former executive Carly Fiorina. If that is not enough politics then consider than dozens of ballot initiatives are seeking to be qualified for the June and November ballots, including a really terrible one sponsored by utility giant PG&E.
***Liberals: Be Careful What You Wish For***
Last Wednesday the Federal Ninth Circuit Court of Appeals again denied the opponents of traditional marriage demands to see the private correspondence of their opponents during the Proposition 8 Defense of Marriage campaign. I applaud the Court's protection of our Bill of Rights. Our private communications should remain private. Sometimes I cannot comprehend what the left is thinking. How could it not occur to them if private correspondence is made public for one side in a campaign then it will become public for all sides. Apparently, they are seeking to show that some supporters of traditional marriage are also anti-homosexuals. So what? I assume that some supporters of homosexual marriage are also anti-Christians.
Do we really want to cross into the territory of the brave new world of reading minds and policing political correctness?
These sentiments tell me our democracy cannot survive without a culture that appreciates our tradition of civics. First, the right to petition your government, or your fellow citizens, should not result in forfeiture of Constitutional rights or harassment. Even worse, it is not hard to see that some on the left want to have the power to screen peoples' personal judgment and then decide such people cannot participate in politics if their attitudes are found unacceptable. The outrageousness of this ought to be more broadly spoken against. Hundreds of thousands of Americans have died defending these rights for all citizens.
***Hard Numbers; Numbing Facts***
I looked over the state Legislative Analyst's recent report about the fiscal outlook for next year. I certainly was not expecting any good news, but I at least expected a realistic view of the dire situation the state is in. I was stunned by what I saw. The LAO is projecting a 14.5% increase in expenditures next year over this year. Go ahead, read that sentence again: he is saying the state will spend 14.5% MORE money next year than this year.
In part that is because many of the sneaky "savings" games the Governor and Legislature have played will expire. No more borrowing from cities, stealing from redevelopment agencies, or shifting state employees' December payday into the next calendar year. At the same time, federal stimulus money will expire and our state's debt service will soar.
http://www.lao.ca.gov/2009/bud/fiscal_outlook/fiscal_outlook_111809.aspx
To put this into perspective, consider these figures distilled in a recent issue of Political Pulse: In 1990-91 the state spent $1,350 per person. By the current fiscal year, that was up to $2,644 per person. Have you seen double the benefit from the state since 1990? Political Pulse says that if the state had limited its spending in those years to the average Consumer Price Index and population growth, our current surplus would be in the neighborhood of $15 billion. Instead, that figure represents just a portion of our deficit.
I came across some other numbers that help explain how such an insane situation developed. According to my estimates, only about 34% of California residents pay income taxes. So if you look at your neighbors on either side of you, only one of you actually paid into the state coffers via income tax. Unbelievably, there are 4.4 million MORE people registered to vote than people who paid income taxes. Now, not all of those registered actually cast ballots, but it provides insight into the dynamic that is crippling our state. When there are more takers than givers, the system cannot work and California's system is not working in many, many ways.
Some people look at these numbers and facts and lament that there is nothing to do but wait for the inevitable collapse of the state. But that is not only extremely unlikely, it is irresponsible. It is as irresponsible for an individual who cannot pay his current bills to run up all his credit cards figuring that he will "just" declare bankruptcy and be done with it, sticking someone else with his bills. We know that debt service has first call, then education, on all state funds, but to continue to accrue debt is reckless because that debt will be paid even if we shut down every state spending program. We simply must cut spending and programming and services or whatever you want to call the outflow of money. We must stop the budget smoke-and-mirrors that allow one year to look okay while pushing the pain into the next fiscal year. Cut first, cut now.
http://foxandhoundsdaily.com/blog/joe-mathews/5991-the-default-walters-and-skelton
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