Steve Lopez

This Bitter Pill Is Too Hard to Swallow

Like all good Californians, I guess I'm supposed to open my mouth and take my medicine next week at the polls.

Gov. Arnold Schwarzenegger has been telling us this is the way it has to be, and U.S. Sen. Dianne Feinstein is one of many Democratic pushovers who agree that Proposition 57 is the way to fix what ails us.

If Californians fail to pass the $15-billion bond measure, they warn in their fear campaign, we'll face Armageddon. All the Prop. 57 cheerleaders love using that word.

Well, guess what.

I don't want to take my medicine. And I particularly don't appreciate having someone try to ram it down my throat.

Reasonable people can certainly conclude that Prop. 57 is an acceptable way to begin digging out of our horrible mess. But I'm tired of being told it's the only way, particularly by a flip-flop governor who campaigned as a committed critic of borrowing.

Schwarzenegger, the anti-special interest candidate, will be in New York this week at a $500,000-a-plate dinner. He wants to make sure he can bankroll the estimated $10-million blitz of Prop. 57 ads we'll be forced to endure between now and March 2.

You won't see any ads from the other side, because all the big money is lined up in support of Prop. 57, which should tell you all you need to know.

If there were an ad for the other side, it'd go something like this:

Remember the last time you and your family had trouble balancing the books?

Chances are, you did what all of us do. You cut back a little, you logged a few hours of overtime or found some other way to boost your income, and you reluctantly pulled out the credit cards as a last resort.

Gov. Schwarzenegger wants to use credit cards as a first option, running up an ungodly debt that would saddle you and your children with the tab for years to come.

Why? Because his wealthy friends on Wall Street and in California will make out like bandits under his plan, while middle-class and low-income families get the short end of the stick.

As state Treasurer Phil Angelides explains, Prop. 57 would be almost entirely paid for by a portion of the existing sales tax, which means middle- and lower-income families would fork over a higher portion of their incomes than the wealthy. They'd also get whacked when $1.2 billion worth of that sales tax was diverted annually from existing services to pay off Prop. 57.

The cuts "won't come from repair service on yachts," Angelides said. Lower and higher education, health care and other programs vital to working families will take the hit.

So far, Californians seem to be wise to the ruse. A poll last week showed only 38% support for Prop. 57. But who knows what 10 days and $10 million worth of shilling by a movie star can accomplish?

In the event Prop. 57 tanks, Angelides, a Democrat, has offered up a Plan B. The only problem I have with it is that it isn't Plan A.

Angelides would do some cutting, borrow less and pay it off faster, and raise money from two taxes.

One is an existing 1/4-cent sales tax that would be used to retire Prop. 57 debt under Schwarzenegger's plan. The Angelides alternative would draw on that 1/4 cent for just three years, as opposed to at least three times as long under Prop. 57.

The other tax would temporarily hike the top income bracket on the wealthiest Californians.

If anyone in that group is planning to call up and scream at me about your unfair burden, cancel your subscription or send me three-hanky stories about the hard work it took to get to the top, I'm asking you to hold off until at least the next paragraph.

Angelides' plan would raise taxes to the precise levels used by former Republican Govs. Ronald Reagan and Pete Wilson.

Individuals making $140,000 and couples making $280,000 would go from 9.3% to 10%. Individuals making $280,000 and couples making $560,000 would go from 9.3% to 11%.

That doesn't sound to me like a tragic amount of suffering, especially when you take the following into consideration:

"When you restore the Reagan-Wilson 11% tax bracket," Angelides says, that raises $2.4 billion in one year and affects roughly 1% of the population. The "same 1% gets $12.76 billion worth of federal tax cuts this year," by Angelides' accounting.

"What's happening here," he says, "is that taxes we used to have under Wilson and Reagan and Clinton at federal and state levels have been washed away, and that's part of the reason we have today's problems."

You haven't heard any of this, naturally, from Schwarzenegger or the lackey, star-struck Democrats who've been carrying his water on Prop. 57.

Darkness is on the horizon, and they've barely got time to warn us of the coming Armageddon.

Taxing the Wealthy

So what would you say if I told you there is a way to wipe out the entire state budget deficit, and it wouldn't cost one red cent for the vast majority of Californians?

We wouldn't have to turn kids away from college, kill transportation projects, leave cops and firefighters in the lurch, or take a stick to children, the elderly and the lame.

Twice now I've mentioned the proposal by two professors to put a temporary surcharge on wealth, and each time, readers have wondered if there's a petition they can sign.

Not yet. But let me give you the background.

"When we heard Arnold Schwarzenegger say the only way to do this was with a $15-billion bond measure, we wanted to come up with an alternative that wouldn't substantially change the lifestyle of any Californian," says Paul O'Lague, who teaches molecular biology at UCLA.

O'Lague and his pal John Bachar, who teaches statistics and probability at Cal State Long Beach, have been studying income taxes and wealth distribution for years, and hosting salons to hash out their ideas.

They came up with a proposal that puts a surcharge on California residents with an income above $200,000, including a joint filing in which husband and wife make that much combined.

The surcharge would start at 0.5 percent for light heavyweights making $200,000, and climb to 7 percent for bombers hauling in $5 million a year or more. All told, this $200k-plus group accounts for just 3.1 percent of all tax returns, but has 35.9 percent of total personal income in the state.

The surcharge would generate a fat $13 billion a year, because California has more millionaires per capita than any state. (And Golden State billionaires, who account for more than one-fifth of the nation's billionaires, have a net worth of $102.9 billion.) "How much money can you spend on yourself?" asked Bachar. He echoed his colleague's point that for the state's aristocracy, the hardship of a surcharge could mean having to settle for a $9.5-million mansion instead of a $10-million estate.

As some readers said, people making $200,000 aren't exactly rich in this day and age, and they're right.

But in 2000, Bachar said, 6,455 Californians made $5 million or more, and the average in that group was $15.6 million. We lost some of those millionaires after the dot-com crash, but we've gained some recently.

Not everyone turned cartwheels when I first mentioned O'Lague and Bachar's cage-rattling idea. I heard from the growing legions of trained chimps that can't get through a day without saying "no new taxes," even in a state that's in the middle of the pack in taxation.

Others called me a dope for a plan that would drive millionaires out of the state. But not all of them would leave. And if enough of them did, maybe it would burst the real estate bubble so more people could afford a house.

I also heard from readers telling me about all the hard work that goes into striking it rich. Some of them carped about having to keep shelling out for society's laggards and dregs.

First of all, for the super rich, a good chunk of their income doesn't come from working up a sweat. It comes from capital gains, dividends, stock options and other non-aerobic activities.

These folks have got shelters and deferrals and all sorts of tricks the average Joe doesn't have. Because of it, they control more of the nation's wealth than ever, but their share of taxes has been dwindling for roughly 20 years.

If you don't believe me, I refer you to a former colleague, David Cay Johnston, who has a new book on the subject. The title, not exactly subtle, is "Perfectly Legal, the Covert Campaign to Rig Our Tax System to Benefit the Super Rich -- and Cheat Everybody Else."

Johnston saw my reference to O'Lague and Bachar and called to say that in 2000, the 27,000 richest Americans had as much income as the bottom 96 million combined. And the gap is growing.

"The rich really are getting richer and the poor poorer," said Johnston, who writes about taxes for the New York Times. His book is filled with examples of the tax burden being shifted from the famously rich to average blokes.

No mystery there. Money, in the form of campaign donations, buys access. And access has meant that corporations and the wealthiest Americans have umpteen ways to shrink taxable income.

"The richest 1 percent are taxed more lightly than the middle class" when you add up all their tax and investment advantages, Johnston writes. "The same data show that the poor are taxed almost as heavily as the rich are -- and even more heavily than the super rich."

It seems all the more reason to consider the O'Lague/Bachar plan here in the Golden State.

To pick a California millionaire entirely at random, let's take Gov. Arnold Schwarzenegger, who's asking us to pay for a $15-billion bond measure and billions more in interest. For the sake of discussion, let's guesstimate that he made $15 million for the Terminator movie and other ventures.

He'd have a 7 percent surcharge, or a mere $1 million, added to his tax bill.

Would Schwarzenegger have to sell the mansion in Brentwood?


Would he have to sell the jet or the fleet of Hummers?


Would the kids get yanked from private school?


The same is probably true for the rest of the state's thousands of millionaires.

Look, we don't have to balance the entire budget on their backs. But doesn't a combination of less borrowing, fewer program cuts and some tax hikes make more sense than what's being proposed?

Schwarzenegger and the rest of the high rollers would barely notice the sacrifice.


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