Mercury News
12/21/08
SACRAMENTO — One longtime Capitol observer called it the legislative equivalent of the nuclear option.
When legislative Democrats last week unveiled a risky gambit to raise billions in new revenue by exploiting a loophole in the state Constitution, it was more than just a bid to prop up the sagging general fund.
When legislative Democrats last week unveiled a risky gambit to raise billions in new revenue by exploiting a loophole in the state Constitution, it was more than just a bid to prop up the sagging general fund.
The move threatened to realign the balance of power in Sacramento — and strip Republicans of their most important source of political influence, the ability to block tax increases.
"We're going to govern, with or without our Republican colleagues," new Senate President Pro Tem Darrell Steinberg warned repeatedly in recent weeks as negotiations over the state's massive, $40 billion deficit remained deadlocked.
Whether Democrats can get away with that is another matter. Their proposal attempts to do an end-run on one of the most ingrained assumptions of state governance: That any tax increase must be approved by a two-thirds majority, and thus needs at least some Republican votes.
"We're going to govern, with or without our Republican colleagues," new Senate President Pro Tem Darrell Steinberg warned repeatedly in recent weeks as negotiations over the state's massive, $40 billion deficit remained deadlocked.
Whether Democrats can get away with that is another matter. Their proposal attempts to do an end-run on one of the most ingrained assumptions of state governance: That any tax increase must be approved by a two-thirds majority, and thus needs at least some Republican votes.
[THIS SOUNDS QUITE SIMILAR TO THE 'TAXATION WITHOUT REPRESENTATION' EVENTS THAT LED TO SIGNIFICANT TENSIONS BETWEEN ENGLAND & THE AMERICAN COLONIES.]
["'No taxation without representation' began as a slogan in the period 1763–1776 that summarized a primary grievance of the British colonists in the Thirteen Colonies. In short, many in those colonies believed the lack of direct representation in the distant British Parliament was an illegal denial of their rights as Englishmen, and therefore laws taxing the colonists (the kind of law that affects the most individuals directly), and other laws applying only to the colonies, were unconstitutional. Since the 17th century, Parliament had regulated the trade of the British colonies through the Trade and Navigation Acts. Colonists generally accepted these regulations, but when Parliament began in the 1760s to tax the Americans for the express purpose of raising revenue, rather than regulating trade, many in the colonies protested that this was a violation of the British Constitution. The English Bill of Rights 1689 had forbidden the imposition of taxes without the consent of Parliament. Since the colonists had no representation in Parliament they complained the taxes violated the guaranteed Rights of Englishmen. It is unclear who coined the phrase "no taxation without representation". Boston politician James Otis famously used a variation, "taxation without representation is tyranny." See: No Taxation Without Representation, Wikipedia at:
The Democrats' complicated plan would essentially replace taxes with fees, which need only a majority vote. It would generate $18 billion, slightly more than half in new revenue.
But although the plan cleared both legislative houses on near party-line votes, it faces legal and political hurdles, including a threatened veto by Gov. Arnold Schwarzenegger. In one promising early sign for Democrats, the governor did not take issue with the tax proposal itself; instead, he said the plan does not do enough to cut spending and stimulate the economy.
If the governor eventually gets on board, taxpayer groups have promised to sue and go to the ballot to overturn the deal. Steinberg, who took over as Senate leader just this month, said the Legislature's lawyers have assured him the plan will hold up in court, but the matter is hardly clear cut.
One legal expert likened the proposal to an accountant finding clever ways to reduce a client's tax bill.
"The line between tax planning and tax evasion is often paper-thin," said Floyd Feeney, a professor at UC-Davis School of Law. "Whether this is good enough to fit into the tax planning category or is over the line is not an easy question to answer."
Tony Quinn, a Republican political analyst who has worked in and around the Legislature for four decades, predicted courts would not intervene to stop the plan. "They are very leery of getting involved in how the Legislature and governor pass laws," he said.
If courts do give the green light, the political ramifications could be sweeping. Republicans fret this would be the first of many Democratic attempts to raise new revenues by replacing taxes with fees.
"There will be tax after tax after tax," said Sen. George Runner, R-Antelope Valley. "Californians should be scared."
[DURING THE 18TH CENTURY, MANEUVERS LIKE THAT PLOTTED BY CALIFORNIA'S DEMOCRATIC LEGISLATIVE MAJORITY & UNOPPOSED BY CALIFORNIA'S GOVERNATOR, HAD BEEN UNDERTAKEN BY THE BRITISH CROWN AND PARLIAMENT. THEY THEN LED TO POPULAR REVOLTS, & ULTIMATELY, TO THE BOSTON TEA PARTY.][The Americans rejected the Stamp Act 1765 (which was repealed), and in 1773 violently rejected the remaining tax on tea imports at the Boston Tea Party. The Parliament considered this an illegal act because they believed it undermined the authority of the Crown in Parliament. When the British then used the military to enforce laws the colonists believed Parliament had passed illegally, the colonists responded by forming militias and seized political control of each colony, ousting the royal governors. See: No Taxation Without Representation, Wikipedia, supra.]
[John Hancock Circular Letter Signed Protest - No Taxation Without Representation (Signed September 14, 1768)]
Steinberg has as much as conceded that Democrats will use the tactic again if it proves successful. And GOP legislators would be powerless to stop it.
Quinn said Republicans made a serious strategic mistake by not engaging with Democrats on taxes. Instead, they proposed a budget heavily dependent on spending cuts while refusing to consider tax hikes.
That prompted the Democratic majority to pursue what Quinn called "the nuclear option." If successful, it would leave Republicans powerless to push through any of the government reforms they want.
"Republicans are reaching the point," he said, "where they will not be relevant to the political process."
Indeed, when budget negotiations resume, legislative Republicans will find themselves on the outside looking in as Democrats and Schwarzenegger work to resolve their differences.
GOP legislative leaders seemed almost resigned to that fact. But they suggested at the same time that if the courts fail to step in, voters would have the last say, as they often do in California. Conservative interest groups are already gearing up for an initiative battle to invalidate the Democrats' move.
Said Senate Republican Leader Dave Cogdill: "People like the checks and balances that are in place now".
However it turns out, the Democratic proposal certainly shook up what had become a paralyzing debate in Sacramento.
"There hasn't been a really interesting idea in the budget discussions for a long time," said Phil Isenberg, a former Democratic state legislator and Sacramento mayor. "This is very interesting, and I mean that sincerely."
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Schwarzenegger Says He Won't Back Democratic Budget Plan
The governor says the $18-billion plan calling for higher taxes and spending cuts doesn't go as far as he'd like to stimulate the economy. The state may run out of money in early February. [THE GOVERNATOR SOUNDS LIKE A TRUE EUROPEAN TAX & SPEND SOCIALIST]
By Jordan Rau and Patrick McGreevy
From the Los Angeles Times
The governor says the $18-billion plan calling for higher taxes and spending cuts doesn't go as far as he'd like to stimulate the economy. The state may run out of money in early February. [THE GOVERNATOR SOUNDS LIKE A TRUE EUROPEAN TAX & SPEND SOCIALIST]
By Jordan Rau and Patrick McGreevy
From the Los Angeles Times
December 19, 2008
Reporting from Sacramento — Gov. Arnold Schwarzenegger on Thursday rejected an $18-billion plan the Legislature passed to ease the state's financial crisis through higher gas, sales and income taxes and cuts to schools and healthcare. [???]
Schwarzenegger, who for weeks has exhorted lawmakers to act to forestall a cash crisis, vowed to veto the package after Democrats used a series of legal maneuvers to push through $9.3 billion in taxes without any GOP votes. He called on legislators to return to the negotiating table.
It was not the taxes -- or the tactics Democrats used to pass them -- that Schwarzenegger said troubled him. He complained the plan did not go as far as he wanted to stimulate the economy.
[THE GOVERNATOR WANTED THE CALIFORNIA LEGISLATURE TO IMPOSE HIGHER TAXES & FEES???]
"I need exactly what I recommended [for my] recovery package," he told reporters an hour after the Senate and Assembly concluded voting following a tense legislative session. "I think they should stay here, work some more on this budget."
Schwarzenegger said the Democratic plan -- which would speed up financing for more than $3 billion in public spending on construction related to hospitals, streets, housing, flood protection, parks and transit -- was "bogus." He said the state also needs to ease environmental rules that can delay such projects and allow a greater role for private contractors in public building.
[THE GOVERNATOR SEEMS FRUSTRATED & CONFLICTED: ON THE ONE HAND HE IMPOSES INDIRECT TAXES THROUGH A PRECEDENT-SETTING CARBON CAP & TRADE CLIMATE CHANGE LAW; ON THE OTHER HAND, HE DOESNT' LIKE IT WHEN THE 'GREENIES' BLOCK HIS INITIATIVES. AAARNOOOLD, IT'S TIME TO WAKE UP & SMELL THE COFFEE! WHAT KIND OF PUBLIC SERVANT ARE YOU REALLY??]
He also complained that it did not include an additional $1.2 billion in cuts to the state workforce and welfare programs.
"They thought I would sign it, that they could put the pressure on," he said.
The governor's move comes as the state is projected to run out of cash as early as February. And it came a day after the state's financial straits forced officials to stop payments for nearly 2,000 public works projects. The suspension of that money could make it impossible for lawmakers and Schwarzenegger to jump-start construction even if the stimulus measures the governor seeks are passed.
Democrats accused the governor of keeping the state in financial jeopardy over fringe issues. The projects that Schwarzenegger would like to see privatized or fast-tracked and the program cuts he wants implemented, they say, make up only a tiny fraction of overall state spending.
"We gave him an $18-billion gift, and he tossed it down the toilet," said Sen. Mark Leno, (D-San Francisco). "This is more about his ego than what is good for the state."
Despite the veto threat, many in the Capitol expect some version of the package to survive.
Legislative leaders late Thursday had not sent their bills to the governor's desk, according to Capitol staffers involved in budget discussions and are planning to reopen talks with the governor's office in coming days.
"When the bus is about to go over the cliff, you don't just pump the brakes once and give up," said Democratic strategist Jason Kinney. "You keep pumping until the bus stops."
If some version of the plan is eventually signed into law, it could still unravel.
Several Republican lawmakers and antitax advocates said they would file a lawsuit charging that the plan violates Proposition 13's provision that all tax increases require a two-thirds vote of the Legislature.
They also threatened to launch a referendum to overturn the proposed increase in the 13-cent-a gallon gas tax, which is scheduled to take effect in February.
"Let's just have the signature gatherers stand at the gas stations and see how long that takes to get the signatures on a referendum," said Jon Coupal, president of the Howard Jarvis Taxpayers Assn.
Qualifying the referendum would require 433,971 signatures. Once they were collected and validated, the increase would be suspended pending a vote of the electorate.
Legal experts said it was unclear whether courts would overturn other parts of the Democrats' package in the event that the governor were to sign it.
The proposal would raise $9.3 billion by increasing sales taxes three-fourths of a cent. It would add a surcharge of 2.5% to everyone's 2009 state income tax bill. It would also require businesses to withhold taxes on payments above $600 made to independent contractors, as they are now required to do with salaried employees.
In addition, it would cut $7.3 billion from schools, healthcare and other programs. Their package would nearly halve the state's budget shortfall, projected to reach $41.8 billion in the next 18 months.
The Democrats circumvented Republicans through a number of novel maneuvers that took advantage of the legal difference between taxes and fees [TO BE DISCUSSED IN LATER ENTRIES TO THIS BLOG] and skirted the need for a two-thirds vote of the Legislature, which is normally required for tax hikes. A two-thirds vote would have required some Republican support, but GOP lawmakers have vowed not to raise taxes. On the floors of the Senate and Assembly, Republicans said the Democrats showed contempt for voters and an unprecedented subversion of California's Constitution.
"Once this approach is adopted, there will be tax after tax after tax," said Sen. George Runner (R-Lancaster).
[“Historians of the colonial era are virtually unanimous in concluding that the American Revolution was fought over private property and the English refusal to apply to their own colonists the great constitutional principle of England: legitimate taxation of privately owned resources can derive only from the people’s elected representatives. Said John Wilkes, Lord Mayor of London, during this time, ‘If we can tax the Americans without their consent, they have no property, nothing they can call their own.’” See: O. Lee Reed, Exclusive Private Property is Indispensable to Brazil’s Economic Development, International Journal of Economic Development Volume Eight, Numbers 1-2 (Sept. 2006) at pp. 5-10 at p. 7 (2006), at: http://www.itssd.org/White%20Papers/ijed-8-1-2-reed.pdf , cited in Lawrence A. Kogan, US Private Property Rights Under International Assault, Presented at the Tenth Annual National Conference on Private Property Rights of the Property Rights Foundation of America (Oct. 14, 2006) at: http://prfamerica.org/speeches/10th/USPrivatePropertyRightsUnderIntlAssault.html ].
Senate GOP leader Dave Cogdill (R-Modesto) said the Democrats' holiday message to voters was, "We certainly hope you got most of your Christmas shopping out of the way . . . because you've got another big bill coming."
Democrats said the Republican alternative, to make $22 billion in cuts, almost half of that in school spending, would ruin the basic functions of California's government and intensify the state's economic troubles. They said GOP intransigence on tax increases had given them no other option.
"We have a fiscal crisis, and if we do not act, the No. 1 job killer in the state will be the fiscal crisis," said Assemblywoman Noreen Evans (D-Santa Rosa).
For some Democrats, the act of bypassing Republicans appeared almost cathartic after years of frustration on both sides over negotiating state spending plans. GOP lawmakers have routinely blocked budgets.
"Today, democracy reigns in the state Legislature," said Sen. Gil Cedillo (D-Los Angeles). "Today, we end the tyranny of the minority. No longer will we be captured by ideologues who don't respond to their responsibility."
[ACTUALLY, SENATOR CEDILLO, TYRANNY WILL REIGN IN THE CALIFORNIA LEGISLATURE IF THE DEMOCRATIC MANEUVER, WHICH IS TANTAMOUNT TO 'TAXATION WITHOUT REPRESENTATION', IS PERMITTED TO GO THROUGH.]
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