Once economic crisis gets snarled up and aggravated it often can no longer be resolved by economic means. Then a political crisis emerges as economic classes seek to determine a political resolution to the crisis. By definition, politics is about the struggle for power – to control what happens – and no force is larger in that struggle than classes.

The French Revolution was the classic example. It was precipitated by a long drawn-out budget and tax crisis. Every class, including the king, was in favor of taxation, but nobody could figure how to raise taxes without trampling on the hallowed privileges of each estate. The months of stasis lead to increasing suffering, until women demonstrating at Versailles just decided to kidnap the king. Then things jumped off. Suddenly the budget crisis was subsumed by politics as the newly wealthy bourgeoisie took over and changed everything.

The economics of California’s budget crisis are fundamentally different, but the nexus of events is pushing political resolution onto the stage. At one level, the state’s crisis is a classic “Shock” straight out of the pages of Naomi Klein’s important book The Shock Doctrine. As we will see below, the so-called $24.3 budget crisis is completely manufactured, a direct and deliberate result of policies embraced by both Democrats and Republicans.

California’s crisis is deliberately engineered by corporations. We all remember the last manufactured crisis - the state’s 1999 “Electrical Crisis”  - that was engineered by ENRON and various hedge funds in order to make a hostile takeover of the state’s electrical grid. That little crisis cost the state some $40 billion, money that is still being paid off.

Klein describes how the neo-liberal economic system (ie the global capitalist financial system) created economic crises across the world in order to take advantage of them and privatize public services. She shows in detail how the Bush Administration outsourced the public services of the US government and essentially privatized their delivery.

Governor Schwarzenegger has already illegally seized some $5 billion from the state’s public schools. Now he is demanding $4 billion more. This plays right into the hands of privatizers like Eli Broad and Steve Barr of Green Dot Charters.

On a more profound level, the crisis is being driven by the same objective forces that have created the world financial meltdown. This crisis is a classic overproduction crisis. In this case, so many houses were created that people could no longer buy them, so predatory loans were offered to sucker poor people into thinking that they could get into a home with no money down.  Then mortgages were “securitized” (ie - turned into investment opportunities) that feed a speculative bubble. These scams happened more in California than any other state.

The whole economy is increasingly formatted so that the vastly powerful organizations of speculative capital can “securitize” everything, from health care to water to public education, making the necessities of life into the fodder for billion-dollar bets on the stock market.

This process drives the government to serve the speculators, as has so conveniently been done with the federal bailouts that now total $12.6 trillion and climbing – all in the last 18 months. At every level – federal, state and local – governments are proclaiming the need to get out of the business of helping people. Social services are privatized and farmed out to corporations, who take their profit off the top. First New Orleans, then Detroit. Now California.

The coming privatization of public infrastructure and municipal services is described by ecologist Jo-Sing Yang in November 2008 (www.alternet.org/story/105083/):

“”Privatization of public infrastructure – including water utilities – has been gaining more mainstream media scrutiny recently. For example, the New York Times has recently reported on cities debating issues of privatization of public infrastructure: Wall Street investment banks and investors – such as Goldman Sachs, Morgan Stanley, Credit Suisse, Kohlberg Kravis Roberts and the Carlyle group – are amassing an estimated US $250 billion ‘war chest’ – much of it raised in the last two years – to finance a tidal wave of infrastructure projects in the United States and overseas’, the New York Times reported.

“As the New York Times pointed out correctly, US federal, state and local governments are financially strained with ‘mounting deficits that have curbed their ability to improve crumbling roads, bridges and even airports with taxpayer money’, hence both the voting public and the governments are increasingly open to the idea of privatizing public infrastructure; the crumbling infrastructure is estimated to require at least US $1.6 trillion investment in the next five years to maintain and upgrade according the American Society of Civil Engineers.”

Since the corporations listed above have received trillions so far in the Bailout, we face the irony that they will use this money to seize public services. In essence, tax payers are financing corporations to privatize the government!

Revenues

So is there really a “budget crisis”? Sure there is! That is, if you accept the notion that corporations should never, ever pay taxes.

Before Prop13 passed in 1978, California had tremendous schools, parks and public services. This was paid for by taxes that fell heaviest on banks and corporations, compared to the so-called average tax payer. Since then, the corporate tax burden has steadily shrunk, as the tax burden for state and local services fell on revenue primarily from personal income.

Looking just at personal income (excluding corporations), the wealthiest 1% of Californians pay 7.4% of the state’s tax revenue, while the poorest pat 10.2% (Oakland Tribune, 5-29-09). California’s tax rate for corporations is 8.84%, 9th highest in the country But there are so many loopholes that corporations in 34 other states pay a larger share of the overall state tax than in this state (Oakland Tribune 6-15-09).

According to the California Budget Project, “…in 2001, 72.8 percent (378,344) of the corporations doing business in the state paid just the $800 minimum franchise tax.  Even more startling, over half (52.0 percent, 153,441) of the state’s profitable corporations paid no more than the $800 minimum franchise tax, including 46 corporations with over $1 billion in 2001 receipts (“All Gain, No Pain”, September 23, 2004)  

Simply restoring the taxes on high income personal income and corporations to the level they were under Ronald Reagan would raise $13 billion – that’s 54% of the current crisis.

Schwarzenegger’s most recent budget scheme increased taxes solely by regressive taxes on working people (Oakland Tribune, April 2, 2009). A regressive  tax requires the poor to pay a greater percentage of their income in taxes than the rich. The budget proposal was also full of “corporate tax breaks and credits, including ones for the film industry and a change in the tax formula that will save businesses hundreds of millions of dollars.” These last ones will cost the state $2.5 billion over 5 years (Oakland Tribune, 5-31-09)

“As services are cut and every ordinary tax payer will have to pay more, it is appalling that major multinational corporations get new tax breaks’, said Lenny Goldberg, executive director of the labor-backed nonprofit California Tax Reform Association.” (Oakland Tribune, 4-2-09)

Numerous polls have shown that some 70% of Californians want to increase taxes on the wealthy, corporations and energy companies that drain the state’s oil and natural gas. In the face of this popular sentiment, Senate President Pro Tem, Democrat Darrell Steinberg opts only for the policies of corporatizing government: “We are going to look for every opportunity to use the crisis to fix the structure of government because it doesn’t work” (Oakland Tribune, 5-31-09). Steinberg uses the current code words (restructure, fix the structure) for privatization.

There’s Plenty of Money

So where is it?

A) Establish an energy excise tax. California alone, of the top 5 energy states (along with Texas, Louisiana, Oklahoma and Alaska) does NOT tax oil companies for the oil and gas they take out of the ground! This alone would solve the lack of income. Arnold floated a 9.9% Excise Tax on petroleum in February, but it is currently off the table.

B)  Establish a split-role property tax. The notorious Prop 13, passed in 1978, has virtually halted the increase of property taxes on corporate for the last 30 years.  The property tax in the state can be increased on property whenever it is sold. However corporate property is seldom sold. It is passed on through mergers, hostile takeovers, securitization scams by hedge funds, etc etc, but it is not taxed.

Separating the property of homeowners and corporations so that the latter can be taxed would raise billions.

C)  Insurance companies in California pay no income tax. This is also true for thousands of corporations, but the insurance companies control our health care. This increases at a rate close to 15% a year, itself a form of hidden tax on working people. Could we possibly find the will to tax these corporate predators????!

D)  California subsidizes the water that is diverted to the huge agribusinesses that control the state’s agriculture. Though price structures are arcane, agribusiness costs for an acre foot (325, 851 gallons) of water can be as little $31 while the Marin Water district pays $500 – close to 200% more. Consumers pay even more. (http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2005/10/23/MNGS9FCR3L1.DTL)

There’s plenty of revenue to be raised here. Higher consumer costs for water are a hidden tax subsidy for corporate water. What about a water excise tax for corporations, since they consume about 65% of California’s water? What about taxing them at the same rates as consumers?

E)  Schwarzenegger’s budget proposals do not touch California’s hugely expensive Prison-Industrial complex. The state’s notorious Three Strikes Law has created the largest jailed population in the world, many for insignificant infractions. This of course costs tens of billions a year, much of which could be saved simply by freeing these people who pose no threat to society, except for their “crime” of being poor.

F)  Corporations receive hundreds of tax breaks similar to  water subsidies. These breaks include reduced taxes for land, sewers, electricity, virtually everything you can think of. If corporations, which claim all the rights, under the law, as legal human beings, were simply taxed equally to humans, there would be no crisis at all.

The day after the Gobernator’s horrendous special election ballot measures failed, he stated that now he will have to cut services because “what else can you do?” There are plenty of ways to get the revenue without cutting human services, but that’s not what’s going on.

The so-called “Budget Crisis” is really the next step towards eliminating the responsibility of government, throughout the country, to provide human services of any kind. The mission of government is openly becoming one of servicing corporations through privatizing how public revenues are used.

These are the politics of Neo-liberalism are coming home with a vengeance. The Race to the Bottom is live and well on Main Street and must follow from the rise of for-profit government. This is what ultra Neo Con, Grover Norquist, meant when he called for shrinking government down to the size that it can be drowned in the bathtub. A new Social Contract is being imposed on America, without discussion, and it isn’t going to be pretty, unless you are rich.

From The Shock Doctrine:  “A more accurate term for a system that erases the boundaries between Big Government and Big Business is not liberal, conservative or capitalist, but corporatist. Its main characteristics are huge transfers of public wealth to private hands, often accomplished by exploding debt, an ever-widening chasm between the dazzling rich and the disposable poor and an aggressive nationalism that justifies bottomless spending on security” (p 15).

This process will continue, through escalating economic and political crises, consuming public education, social security, national parks, public control of water, policing corporate farms to halt disease, etc, etc, until the American people begin to challenge the idea that corporations should control every aspect of life. This requires identifying, isolating and exposing every ideological underpinning of corporate supremacy.

Steven Miller
June 15, 2009

Former Teacher, Oakland Public Schools