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The Leonard Letter:
Recent | Archives
Leonard Letter 5/5/2008
THE LEONARD LETTER
A weekly electronic newsletter about
California government, business and taxes
Bill Leonard, Member
State Board of Equalization
May 5, 2008
Find these stories online at: http://www.billleonard.org/
QUOTE OF THE WEEK
"The hardest thing in the world to understand is the income tax."
--- Albert Einstein
UNDER THE DOME
*** CSBA to Wealthy Californians: Run, Run Away***
I was contacted recently by a California School Boards Association member who was preparing for the group’s May meeting and wanted my comments on the preparatory materials sent out to Association members. At the meeting the Association will on its policy platform, which is essentially the members’ position on the state budget, which the Governor now pegs at $20 billion in the red. The CSBA has already decided that it will oppose a budget that is only balanced by cuts and says it is looking for “additional revenues.” Sadly, to justify looking for more revenue, CSBA points to the Legislative Analyst’s alternative budget that finds revenue by doing away with “tax expenditures” like the home mortgage deduction, the Sales and Use tax exemption on food, employer contributions to pension and health plans. These are the top of the list, they are politically ridiculous, and the remainder of the list does not get us $20 billion.
Another option the CSBA will consider is a higher sales tax. Senate President Don Perata (D – Oakland) has proposed a one-cent increase in the state portion of the sales tax, which by the way is a 16% increase in the tax (6.25% to 7.25%). Remember, this is a tax that must be paid by retailers only. In 1990 the state had roughly 900,000 retailers 18 years later, we have roughly 1 million. This is an 11% increase, which might sound good except the state’s population is up 44% in the same period. Yet, the Democrats are looking to this diminishing class of businesses for more revenue. Our retailers are under siege already. The vacancies in the strip malls will get even worse if this tax increase becomes law.
The materials the CSBA sent out heavily rely on research by Jean Ross and the California Budget Project, which lobbies every year for higher spending and higher taxes. I am in agreement with them on one thing -- that California's high and regressive sales tax results in the poor having the highest percentage of their income going to taxation than any other income group. Jean and I part ways when it comes to what policy change should arise from this information. I say her data show that lower and flatter taxes are both fairer and better for economic growth.
This leaves a higher income tax for wealthy Californians as CSBA’s last alternative.
When California raises taxes on people the liberals define as “wealthy,” the actual collections do not meet expectations. Back in 1991, Governor Wilson bought into the liberal logic for a moment and raised taxes on the upper-income brackets. The following two years, revenues were $1 billion short of forecast each year. Currently, the top one percent of taxpayers in California contributes 40 percent of the state income tax, and the top 10 percent pay 70 percent of the tax.
Our tax system has gotten so hyper-progressive that a single taxpayer can affect revenue estimates. Last year a wealthy taxpayer settled his tax liability for $200 million. How much will a Microsoft buyout of Yahoo investors yield? Hard to say, but what is clear is the state’s spending level is already overly dependent on a few wealthy individuals gaining financial windfalls, and then paying taxes on them. We are fast running out of Californians who can do this.
How did we get here? California had an extraordinary revenue boom in the late 1990s. The subsequent revenue bust in the early 2000s was the result of the popping Internet bubble, and the failure to recognize that revenues were in an unsustainable spike. The personal income tax soared from $28 billion in 1997-98 to a peak of nearly $45 billion in 2000-01, before plummeting to below $34 billion in 2001-02. The state’s fiscal problem has its roots in how we treated this spike in revenue. Had we treated it as one-time money and invested in capital projects rather than committing the state to those lofty spending levels permanently there would not be a budget deficit today.
Instead, as of 2002 the state had a $2 billion deficit and $5 billion more the next. California went from a $5 billion surplus to a $5 billion deficit in just two years, and now it is up to $20 billion and increasing. The state has hit a revenue wall. Spending cuts and budget reform are needed to avoid catastrophe.
AROUND THE STATE
***Fraud Warning***
My email account was hit several times this weekend by a fraudulent email that I worry will trap many people into becoming victims of identity theft. This email uses the IRS logo and a return email address with “irs.us” to make it look legitimate and says that your economic stimulus rebate can be direct deposited into your checking or savings account if you click on the link and follow the instructions. It is a scam. The IRS does not initiate communication with taxpayers through email. If you receive such an email, do not open any attachments or click on any link. Instead, go to the official IRS website and read about how to report such scammers:
http://www.irs.gov/privacy/article/0,,id=179820,00.html
***Inflation Ouch***
There has been much talk lately of inflation. It has been a mostly academic concept for the past several years, but now we are experiencing its bite at the grocery store as well as the gas pump. I found a simple inflation calculator:
http://woodrow.mpls.frb.fed.us/research/data/us/calc/
I punched in 1967 and found that goods for which I had paid $1.00 that year would cost me $6.46 this year. Applying that to state government expenses is even more frightening. The total state budget that year was $4.7 billion. (That is about 1/30th of this year’s state budget.) That would make the growth in state government roughly 4.6 times the general inflation rate. So while you are getting annoyed at having to pay more for milk, rice and flour, ask yourself if you are getting nearly five times the value in state services than you used to.
***Election Trivia***
David Crosson, Executive Director of the California Historical Society, recently posed these fun trivia questions about U.S. elections given that three Senators are in the race for president right now. Find the answers later in today’s newsletter.
1. Who was the last sitting U.S. Senator to be elected president?
2. How many sitting U.S. Senators have been elected president?
3. When was the last time that two U.S. Senators faced each other in a November presidential election?
TAX TIPS
***Joining the 21st Century***
It may be several years into the new century, but the Board of Equalization is finally getting with the available technology that can improve efficiency and save money, both for the government and taxpayers. Beginning in June, the BoE will begin notifying groups of taxpayers that they need to transition to electronic filing of tax returns. In phases, the BoE will stop mailing paper returns to various groups of sales and use tax filers. Different groups of existing filers, and all new permit holders, will receive notices (both via mail and electronically) with notice of the new e-filing requirement, directions about how to register electronically and explain the opportunity for a one-year exemption from the requirement. A year ago, the BoE ran a “toss the paper” campaign to test run our e-services and about one-fifth of those contacted switched to e-filing. From that test, we have improved our e-filing services and are ready to handle e-filing in greater quantity. If you files sales and use tax returns by mail now and want to get a jump start on our e-programs, go to this link to learn more:
http://www.boe.ca.gov/submenus/eservices.htm
or call 1-800-400-7115 for more information and directions. The Board’s district offices are offering one-on-one help to taxpayers who want details. You may find your local district office on this list:
http://www.boe.ca.gov/info/phone.htm
I have been pushing e-services to save businesses money and to make the tax returns easier to file, more accurate, and add the ability to verify that the return has been filed through the use of computers and the Internet.
MISCELLANY
***A Good Read***
Have you ever known someone who commands respect and exudes authority by just standing there? That is the George Washington who emerges from Joseph J. Ellis' book “His Excellency.” Although Washington has lots of quotes in the history books, his mantle of leadership derived from his quiet action rather than his eloquent pontification. In the Revolutionary War he led by recruiting Virginia troops, then taking them to Boston to push the British out. At the Constitutional Convention, he led by serving as chair of the body even though he seldom spoke and did not vote. Ellis portrays the quality of Washington’s character in such actions and demonstrates that listening, then acting, is stronger and more commanding leadership than exhortations and gestures.
As always in a good read, I learned some new facts. Of the founding fathers who were slave owners, Washington was the only ones to free his slaves, which he did in his will. His death in 1799 was probably caused by a throat infection that today would be cured by one round of antibiotics. He believed in the future of the United States as a great free nation and backed up that belief by investing every dollar he had in land in Virginia and in what is now Ohio and Kentucky. These investments made him one of the wealthiest of the founders, but such investments were risky because a British victory would have wiped out that ownership even if he managed to save his life. For this man pledging his life, his fortune, and his sacred honor in the cause of freedom was a triple threat, and it is worthwhile to read about him in this enjoyable book.
***Election Trivia Answers***
1.
2. The last sitting U.S. Senator to be elected president was John F. Kennedy D- Massachusetts.
3. Only two: Kennedy and Warren G. Harding R- Ohio. (Both of them died in office.)
4. No Senators have ever run against each other in the general election. In 1920 Harding ran against Governor James D. Cox of Ohio, and in 1960 Kennedy ran against Vice President Richard Nixon.
BOE AND LEGISLATIVE DATES
May 5-May 27, 2008 --- Any registered voter may apply to the county elections official for an absent voter's ballot.
May 13-15, 2008 --- Board of Equalization meets in Culver City.
May 16, 2008 --- Last day for policy committees to meet prior to June 2 (J.R. 61(b)(7)).
May 19, 2008 --- Last day to register to vote in the June primary.
May 23, 2008 --- Last day for fiscal committees to meet and report to the floor bills introduced in their house (J.R. 61 (b)(8)). Last day for fiscal committees to meet prior to June 2 (J.R. 61(b)(9)).
May 26, 2008 --- Memorial Day.
May 28-29, 2008 --- Board of Equalization meets in Sacramento.
May 30, 2008 --- Last day to pass bills out of house of origin (J.R. 61(b)(11)).
June 3, 2008 --- Primary Election.
June 15, 2008 --- Budget Bill must be passed by midnight (Art. IV, Sec. 12(3)).
June 24-26, 2008 --- Board of Equalization meets in Sacramento.
June 26, 2008 --- Last day for a legislative measure to qualify for the Nov. 4 General Election ballot (Elec.Code Sec. 9040).
June 27, 2008 --- Last day for policy committees to meet and report bills (J.R. 61(b)(13)).
July 3, 2008 --- The Legislature’s Summer Recess begins upon adjournment, provided the Budget Bill has been passed (J.R. 51(b)(2)).
July 4, 2008 --- Independence Day.
July 8-10, 2008 --- Board of Equalization meets in Sacramento.
NOTABLE DATES/ HISTORY
Thanks to www.learncalifornia.org for the state history dates.
May 5, 1960 --- Caryl Chessman was executed at San Quentin State Prison. It was among the most controversial executions in the state's history. Chessman was convicted in 1948 for 17 counts of kidnapping, rape, and robbery and sentenced to death. From death row he wrote four books, including “Cell 2455, Death Row,” which was hailed by capital punishment foes. He received numerous stays of execution, but was eventually put to death. Ironically, Governor Pat Brown, who allowed the execution saying his hands were tied, was an avowed opponent of capital punishment.
http://en.wikipedia.org/wiki/Caryl_Chessman
May 6, 1882 --- President Chester Arthur signed the Chinese Exclusion Act into law. This act virtually barred immigration from China to the United States. The United States in the 1870s and 1880s was suffering from one of its most severe economic recessions. The Chinese were seen as a scapegoat for these conditions, especially in California where their population was the greatest. The act is just one of many forms of anti-Chinese policies in the U.S. at that time. Within a year of the Act, immigration from China drops from 40,000 in 1881 to just 23.
http://www.pbs.org/weta/thewest/resources/archives/seven/chinxact.htm
May 7, 1879 --- Voters adopted the State's second constitution on this date. The economic depression of the 1870s led to the calling of a Constitutional Convention in 1878. The convention brought together numerous and competing interests for reform and for that reason there was little agreement throughout the convention. One theme found throughout was the anti-Chinese sentiment of the period. The new constitution was filled with details and when adopted was the longest constitution in the world. It has been amended hundreds of times including major revisions in the 1960’s designed to reduce the length and eliminate the racial biases.
http://www.leginfo.ca.gov/const-toc.html
May 8, 1869 --- The completion of the first transcontinental railroad was planned this day. The Central Pacific's special train of dignitaries arrived at the tent town of Promontory, Utah Territory, on schedule, but the train of Union Pacific officials was delayed because of a track washout and a labor dispute. The track crews waited two days, until May 10th, for the official ceremonies (see May 10 below), but Sacramento and San Francisco went ahead and started the celebration on Saturday as scheduled and continued the party through Monday.
http://cprr.org/Museum/Our_First_Century.html
May 8, 1945 --- V-E Day (Victory in Europe Day) officially goes into effect on the day after Germany surrendered unconditionally to Allied forces. Read Churchill comments on the occasion here:
http://www.winstonchurchill.org/i4a/pages/index.cfm?pageid=428
May 9, 1934 --- Members of San Francisco's International Longshoremen's Association went on strike. They were joined by unions representing sailors, masters and mates, marine engineers, and stewards, in protest to a hiring system that discriminated against pro-union workers. In all 3,500 men went on strike, shutting down Pacific coast shipping. The strike would become among the most violent in California history.
http://www.californiahistory.net/9_pages/hard_strike.htm
May 10, 1869 --- After 19 years of statehood, and six years of track construction, California's physical isolation was at last ended when the Central Pacific Railroad from Sacramento and the Union Pacific Railroad from Omaha met at Promontory Summit, Utah Territory, north of the Great Salt Lake. The driving of the last spike was telegraphed from coast to coast, symbolizing the triumph of technology over nature, and achieving the dream of Manifest Destiny. The railroad confirmed the United States as a continental nation, and redirected the country's attention from divisive North-South issues that had triggered the Civil War toward optimism about the settlement of the West.
http://www.linecamp.com/museums/americanwest/western_clubs/transcontinental_railroad/transcontinental_railroad.html
May 11, 1880 --- Conflicts with the railroad were common in the 19th century, but the one at Mussel Slough in Tulare County was deadly. A shoot-out occurred between a U.S. Marshall and land settlers. The marshal was there to evict settlers from Southern Pacific Railroad land. The landholders had been promised cheap land by the railroad, but in fact were charged excessive rates about ten times that promised. In protest they formed the Grand Settlers League to protect the land they though they owned.
http://gazissax.best.vwh.net/barbary/bartime3.html
GENERAL TAX INFORMATION
For answers to your general tax questions, call the Board of Equalization information center. Customer service representatives are available to help you from 8:00 a.m. to 5:00 p.m. Pacific time, Monday through Friday (except state holidays).
Toll-free number: 800-400-7115
TDD service for the hearing impaired
TDD phones: 800-735-2929
Voice phones: 800-735-2922
To reach the Taxpayer Rights Advocate’s office for assistance with any BOE issues, see http://www.boe.ca.gov/tra/tra.htm, or call toll-free 1-888-324-2798.
HOW TO CONTACT ME
Bill Leonard, Member
State Board of Equalization, Second District
Email: bill.leonard@boe.ca.gov
Northern California Office:
400 Capitol Mall, Suite 2340
Sacramento, CA 95814
Telephone: (916) 445-2181
Fax: (916) 327-4003
Southern California Office:
4295 E. Jurupa Ave., Ste. 204
Ontario, CA 91761-1428
Telephone: (909) 937-6106
Fax: (909) 937-7044
SUBSCRIBE INFORMATION
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