California Legislature Proposes New "Wealth Tax" Plus 16.8% Top Income Tax Rate

Click here to read the original Cautious Optimism Facebook post with comments

“[California Democratic State Assembly Member Rob] Bonta said he would like to see a wealth tax passed in addition to the “millionaires tax” proposed in a bill introduced in late July. AB1253 would add surcharges … …bringing the top rate to 16.8%. California’s top rate today, at 13.3%, is already the highest in the nation.”

“We must consider revenue generation.”

1 MIN READ - The Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff recalls well the recent history of California’s income tax brackets.

1) Up until the Great Financial Crisis the top tax rate for single adjusted gross incomes above $47,000 was 9.3%.

2) In the budget crisis that ensued during the depths of the 2009 recession Governor Arnold Schwarzenegger hinted at a compromise to allow some temporary tax hikes until the recession was over. Sacramento Republicans walked away, all voting no, and Schwarzenegger worked exclusively with majority Democrats to raise taxes on higher incomes.

The rate increase would be “temporary” and rise from 9.3% to 11.3% for incomes over $1 million.

Of course we all know what “temporary” tax hikes mean in government.

3) Well technically Schwarzenegger did keep his promise. The 11.3% rate was indeed temporary, but only because in 2012 Governor Jerry Brown raised the top rate again to 13.3%, easily the highest in the nation. 

The average top state income tax bracket across the 50 states + DC is 5.25%.

4) And now California Democrats are proposing to raise the top rate again to 16.8% on incomes over $5 million, plus a 0.4% “wealth tax” on their net assets, year after year after year.

So with the top federal rate of 37%, California’s top earners would surrender 53.8% of their income before they even get a paycheck. Add to that property taxes on even modest homes assessed at millions of dollars, sales taxes, the Obamacare 3.8% net investment tax, utility taxes, car taxes, tolls, and 0.4% of their net assets, and the Golden State’s highest earners are out close to 60% of their income at least. And the higher their home value and the higher their assets the more their paycheck vanishes.

This doesn’t even address how they’re supposed to raise cash to pay the wealth tax on illiquid assets like land, commercial real estate, or a business.

So you’re a business owner or corporate executive who makes $5 million a year, but you’re lucky to take home $2 million. Meaning every year you work into August for free.

And if you make $5 million a year, moving from California to Texas, Florida, or any of the other zero income tax states nets you nearly $1 million annually just for changing your address. 

But of course a 16.8% state income tax won’t compel anyone to move out. Because Sacramento Democrats said so.

More details at:

https://www.sfchronicle.com/business/networth/article/California-lawmakers-propose-a-15482011.php

ps. The Economics Correspondent would still prefer a 16.8% top income tax rate imposed on California's overwhelmingly liberal populace over House Speaker Pelosi's attempt to extort one or two trillion federal dollars from coronavirus relief bill negotiations to bail out fiscally irresponsible states like her own.

Responsible red state voters shouldn't be forced to bail out blue state fiscal recklessness, and a 16.8% tax bracket would force Sacramento and its voters to deal with the repercussions of their progressive policies: angry taxpayers leaving for redder pastures.

Postscript to the New York Times' Critique of the Gold Standard: Banking Stability Under Fiat vs Gold

Click here to read the original Cautious Optimism Facebook post with comments

2 MIN READ - A quick postscript to the Cautious Optimism Correspondent for Economic Affairs’ recent critique of the New York Times’ own critique of the gold standard. 

Former Obama administration Treasury official and “Car Czar” Steven Rattner recently accused the gold standard of promoting financial instability and bona fide banking crises in contrast to the allegedly more stable fiat money standard managed by central bank technocrats and government regulators.

Perhaps Rattner should have read a little history before writing his column.

“Only five countries experienced severe waves of bank insolvency worldwide in the years 1875-1913.”

“Banking Crises Yesterday and Today" by Charles Calomiris, Columbia University

“According to Calomiris (2010) there were only 10 banking crises worldwide between the years 1875 and 1913, and five occurred in the United States” [1884, 1890, 1893, 1896, 1907: Correspondent’s note]

“Government-Cheerleading Bias in Money and Banking Textbooks” by Nicholas Curott and Ben Thrasher, Ball State University and Tyler Watts, Ferris State University

“Only 34 of those 117 countries [with population greater than 250,000] were crisis free from 1970 to 2010. Sixty-two countries had one crisis. Nineteen countries experienced two crises. One country underwent three crises and another weathered no less than four.”

“Fragile by Design: The Political Origins of Banking Crises and Scarce Credit” by Charles Calomiris, Columbia University and Steven Haber, Stanford University

Summary…

The classical gold standard era: 38 years. Ten crises in five countries. 

The fiat money, central bank-managed era: 40 years. 107 crises in 83 countries.

It’s also worth mentioning that the world classical gold standard of approximately 1879-1914, while not a 100% perfectly free market system, was as close as the entire globe has ever come and would still be considered virtually laissez-faire by today’s regulation-happy politicians and mainstream economists. And the most regulated banking system in the industrialized world during that period by far was the United States. 

Most American banks were restricted from branching beyond their sole headquarters office making it impossible for them to diversify their loan portfolios and depositors.

Banks were forbidden from issuing paper currency without holding 111% the equivalent value of U.S. Treasury bonds—bonds that became increasingly scarce as the federal government paid down the national debt after the Civil War—thus creating regular currency shortages. 

Perverse regulations made the American banking system weak and inherently fragile. Thus it’s no coincidence that the USA accounts for a full half of only ten banking crises that occurred worldwide in the 1875-1913 period.

The Economics Correspondent’s original critique of the New York Times’ uninformed gold standard column can be read at:

http://www.cautiouseconomics.com/2020/07/monetary-policy-14.html

For voracious readers the Economics Correspondent highly recommends Calomiris and Haber’s “Fragile by Design” which provides detailed introductions to the banking histories of the United States, Canada, England, Scotland, Latin America, explores the regulatory roots of the 2008 Great Financial Crisis, and analyzes the conflicting experiences of financial stability and crisis among the world’s nations.

https://www.amazon.com/Fragile-Design-Political-Princeton-Economic/dp/0691155240

Left Coast Correspondent: Video Reveals San Francisco Residential Parking Woes

 Click here to read the original Cautious Optimism Facebook post with comments

A Tenderloin alleyway

1 MIN READ - As CO readers know, the Cautious Optimism Correspondent for Left Coast Affairs and Other Inexplicable Phenomena is quite familiar with the People's Republic of San Francisco. So here's a good one minute visual of what a $4,000-month one bedroom gets you.

Click at:

https://www.facebook.com/watch/?v=2698392343783954&extid=RVzsJb423ywQBybt

Utilities not included but sewage is free, pets not allowed but no shortage of two-legged strays looking for a home.

The Left Coast Correspondent feels it necessary to point out that many parts of San Francisco remain fabulously beautiful and that this alleyway looks like the city's worst of the worst—likely the notorious Tenderloin District or possibly 6th Street south of Market.

However the problem is spreading.

Even before the Covid came to the Bay Area tents were springing up near Japantown, and since the pandemic exploded tent cities and needle-littered sidewalks have dotted the once well-decorated Castro District.

The Left Coast Correspondent's more high dollar area is so far untouched, but city officials have given their blessing to homeless tent cities in his district albeit a good twelve blocks away in a commercial corridor, safely out of sight of the rich liberals' mansions.

Nevertheless, this is what decades of liberal/socialist policies have reduced the beautiful City by the Bay to. And remember, San Francisco liberals and progressives never promised they would simply "keep up" with cities in red states. Rather they set out to demonstrate that true enlightened left-wing values could produce a society beyond anything conservatives imagined possible.

No question they've done that.

ps. First thought that passes through conservative/libertarian's mind upon viewing: "My God, what a sewer San Francisco has become!"

First thought that passes through San Francisco liberal's mind upon viewing: "Is the BMW driver white? Yes, we can accuse him of callously honking due to his white privilege!"

Congressional Democrats Propose Fed Third Policy Mandate: Fixing Racial Income Inequality

Click here to read the original Cautious Optimism Facebook post with comments

1 MIN READ - The Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff believes this is the next-to-last thing either the Federal Reserve or the U.S. economy need… one place above a Stalin/AOC 2020 presidential ticket.

Federal Reserve Chairman Jay Powell

From the Washington Post:

“Congressional Democrats introduced new legislation on Wednesday that would make reducing racial inequality in the U.S. economy an official part of the Federal Reserve’s mission.

“The Federal Reserve Racial and Economic Equity Act requires the central bank to take action “to minimize and eliminate racial disparities in employment, wages, wealth, and access to affordable credit.”"

“It would be the first major change to the Fed’s mandate since 1977 and would significantly alter the central bank’s focus. The Fed’s current mandate from Congress is to keep prices stable and maximize the number of Americans with jobs.”

“Presumptive Democratic presidential nominee Joe Biden recently released a similar proposal calling on the Fed to “aggressively enhance” its monitoring and targeting of “persistent racial gaps in jobs, wages, and wealth.” This latest bill in Congress goes a step further by explicitly requiring the Fed to work to close the gaps."

“The legislation was written by Sen. Elizabeth Warren (D-Mass.) on the Senate Banking Committee, Sen. Kirsten Gillibrand (D-N.Y.) and Rep. Maxine Waters (D-Calif.), chairwoman of the House Financial Services Committee.”

(Correspondent’s commentary) The Fed’s “dual mandate” of price stability and full employment is already controversial enough, the two policy objectives often deemed in conflict with one another especially when combined with the central bank’s unwritten third mandate of “financial stability” which it failed to achieve in the 1970’s inflation era, the 1990’s S&L crisis, and the 2008 financial crisis.

But whatever sliver of a chance the Fed has of meeting its conflicting mandates would be thoroughly shattered if forced to adopt “racial economic and credit equality” as its third official and fourth unofficial objective.

A proposal requiring the Fed to make race-based monetary and regulatory policy decisions would have been considered unthinkable even just ten years ago, a brazen attempt to stamp social engineering upon about the most color-blind institution left implementing government economic policy. But in 2020, the idea has crept its way into the mainstream of an increasingly radicalized and left-leaning Democratic Party, achieving Congressional bill status this week.

CO readers know the Economics Correspondent is no fan of the Fed, but this proposed legislation would make an already bad institution worse… much worse. 

If passed, the Correspondent believes the practical application of the law would produce Congressional oversight Democrats (think Maxine Waters) constantly pressuring the Fed for lower interest rates for longer periods of time, and demanding the Fed use its regulatory powers to force banks to lend more to uncreditworthy minority borrowers.

In case that two-pronged strategy doesn’t sound familiar, it’s precisely the formula that inflated the mid-2000’s housing bubble and precipitated the 2008 financial crisis and Great Recession which, ironically enough, resulted in widespread foreclosures and layoffs for minorities and ultimately further widened the racial wealth gap.

Read details in the Washington Post at:

https://www.washingtonpost.com/business/2020/08/05/fed-racial-inequality-democrats/