A New Deal For California – Part 2 (Revenue and Democracy)

In Budget Politics, California, Democratic Governance, Economic Planning, Economics, Liberalism, Political Ideology, Political Parties, Politics, Politics of Policy, Progressivism, Public Policy, Social Democracy, Social Policy, Taxes on May 22, 2010 at 6:01 pm

Introduction:

In part 1 of “A New Deal for California,” I argued that Democrats needed to put forward a stronger message about what we wanted to do, a larger vision of what Democratic government would mean for the state, beyond the immediate issue of dealing with our structural inability to pass a budget. Both for practical and political reasons, that vision should include the aggressive pursuit of full employment for all Californians.

That’s a good start, but I don’t think a New Deal can stop there, or rest on a fragmented policy-by-policy case for Democratic rule. Rather, I agree with George Lakoff that we should frame our message around the idea that California is experiencing a crisis of democracy. However, I would push further than Lakoff to argue that democracy isn’t just about majority rule – democracy means both a government that does what the people want, and a government that has the ability to do what the people want. California’s problem right now is that we don’t have either.

Getting to Democracy:

What Democracy Looks Like:

Democracy begins with majority rule – which is why we will need to pass the California Democracy Act, either now or later, in whole or by parts, by any means necessary. Without this, democratic government is essentially hamstrung – the people can pass regulations, but can’t pass the revenue needed to enforce them; we can declare our priorities for spending, but lack the ability to turn our preferences into policy. However, it’s worth asking, would California’s government be truly democratic if majority passed but nothing else changed?

I would argue not – our democracy is in need of structural reforms beyond majority rule, both within and without the legislature.

Inside the legislature, a number of structural faults hamper the smooth exercise of democratic government – the establishment of term limits by Proposition 140 has decimated the capacity of legislators to develop expertise and competence in particular policy areas, allowing lobbyists to “wait out” challenges to their interests by legislators who must rely on other lobbyists for expert advice; and the current practice of budget negotiations undertaken in secret by the Big Five (the governor and the majority and majority leaders from the Assembly and Senate) has led to an undemocratic and unstable process in which negotiations can be reneged on at will and in which leaders can quickly lose the support of their members. At some point, we are going to have to establish at least a partial repeal of term limits if we want a state legislature that has the competence to rule. At the same time, the budget negotiation process should be expanded to include the chairs of the Budget and Appropriations Committees from both the Assembly and the Senate as liaisons to the majority caucus to ensure that the committee process matters and that there is more buy-in from the caucuses as a whole.

At least in part, this will have to involve the establishment of a clean elections system, along the lines of Prop 15. Ultimately, I think that a straight ban on outside donations is not going to work, especially in the wake of Citizens United. What does sound more workable is a system along the lines of the Voting With Dollars proposal: small donations should be progressively matched with public funds, private donations should be done anonymously, and large donations, independent expenditures, and corporate lobbyists should be taxed to fund the public funding mechanism. While Citizens United has certainly impaired the potential for campaign finance to restrict corporate campaign spending, the possibility of using the power to tax to “even up the sides” remains an unexplored option.

Outside the legislature, our system of elections is incredibly dysfunctional. The initiative and referendum process is wide open to capture by wealthy interests and presents the public with such an array of misleading and confusion proposals that it increases voter apathy and actually reduces democratic sovereignty. To begin with, initiatives must be vetted by the state’s legislative counsel (to prevent poor drafting and other errors) and identify the source of any revenues required to be spent; and the legislature should have a chance to amend initiatives (subject to a later referendum). Next, constitutional amendments should require a 2/3rds vote to pass, as should any initiative that would establish new super-majority requirements, but all regular “legislation initiatives” should require a simple majority. To prevent voter fatigue, initiatives should be limited to the general election, proponents should be required four years to resubmit an initiative that is rejected by the electorate, and no more than ten initiatives should be on the ballot each year (the top ten qualifiers would appear on the ballot, whereas any surplus initiatives would go to the front of the queue for the following general election). Finally, to reduce the ability of wealth and power to dominate the initiative process, signature requirements should be raised, the period of signature gathering should be extended to a full year (allowing volunteer-driven efforts a level playing field), and campaign finance should be extended to initiative sponsors and opponents (with mandated disclosure of sponsorships in ads and on the ballot itself).

Finally, California’s elections system should be reformed to not merely allow, but encourage, and ensure a more fully participatory democracy. California elections law should be reformed to automatically register every resident, and to allow for same-day registration – to ensure that everyone who should be able to vote will be allowed to. The flip side of this is that, if we go to such efforts to ensure that everyone can vote, we also have to ensure that everyone will vote by establishing a holiday for both primary and general elections, and if necessary, establishing mandatory voting.

Paying for Democracy:

While we’re sizing up institutions for failure, we shouldn’t leave out one of the major problems – the California electorate itself.* California’s electorate suffers from two major problems of thinking – the so-called “Two Santas” belief that we can have high levels of government services and low taxes at the same time (while at the same time being opposed to deficits and debt), and what I call a “Government/Program Blindspot.” This last concept  attempts to explain why voters simultaneously express a lack of trust in government and opposition to higher government spending, while at the same time showing a deep level of support for many if not most government programs and a desire for increased funding for those programs. What I believe is the case is that voters have a conceptual block that separates the abstract entity of government (where popular prejudices about waste, fraud, and abuse, overpaid bureaucrats, and the superior efficiency of corporations hold), and the specific programs that make up the government (where people really like programs that help them and that fulfill their values of a good society). In this sense, it’s not actually contradictory for teabaggers to scream “get government out of my Medicare!” – because to them, those are two separate entities.

* to be fair, California’s voters are not unique in these problems, but super-majority requirements exacerbate these tendencies. It’s also the case that California voters are at least on some level willing to pay higher taxes (or at least for the rich to pay higher taxes) for better services - it’s just that this willingness is highly fragile and depends enormously on the political context and narrative that voters faced.

What this means is that progressive Democrats in California have to redirect our rhetoric over the budget from an abstract case for balanced budgets and good government (which people support, but in the rather hazy apathetic way that people support anti-littering campaigns) to a concrete case for progressive taxation and progressive programs.  Obviously the major barrier to this is Prop 13 and the power of anti-tax and anti-statist thinking in the electorate, which is why (assuming for the moment that 2/3rds is not dealt with) we need to build up to a direct challenge to Prop 13 orthodoxy.

The first tactical step, meanwhile, is to raise revenues while acting to restore economic growth. Reversing corporate tax cuts ($2.5 billion a year) and raising excise taxes (on alcohol ($.5 billion), cigarettes ($1.2 billion a year), oil extraction ($2 billion a year), and should the legalization initiative pass, marijuana sales ($1.3 billion a year)) make for as good politics on tax increases as you are likely to get – the electorate is in a very anti-corporate mood, not very happy about drilling, and tends to prefer “sin taxes” to other forms of taxes. These changes would raise around $7.5 billion a year, or about 40% of the budget deficit.

The next, more difficult step is to retain the 1.15% Vehicle License Fee, and eventually restore it to the 2% as it was before Schwarzenegger blew a hole in the state budget, and bring that approximately $3 billion a year back into the Fund. As can be seen in the 2003 recall, the VLF is tricky politics and will not be easy to finesse. However, one giant step that could be taken to change this tax politics is to to progressivize the Vehicle License Fee. Not only would this make it a lot easier to raise future revenues, but it would also set an important precedent for future actions on property taxes.

Together, these steps would help to meet the immediate crisis, but also begin to change the larger politics of taxation. However, to move beyond the immediate defensive to the longer-term push for progressive government, we’re going to have to think strategically.

The first strategic step is to link taxation and spending – because anti-tax rhetoric only works as long as it can exploit the Government/Program Blindspot to sidestep the fact that people like government programs and tap into the latent anti-statism that gets non-rich people to vote against taxing the rich. What I advocate is that we – purely as an accounting measure – subdivide our taxes (property, income, corporate income, capital gains, sales, etc.) into specific policy taxes, and the general fund into separate policy funds. In other words, you would have a separate Health Care Tax, Education Tax, Transit Tax, Environment Tax, and so on, which feed into a Health Care Fund, Education Fund, Transit Fund, Environment Fund, etc. This change could be packaged in with a progressivization of property tax rates, sales taxes, and other flat-rate revenue sources, which further shifts the politics of taxation.

The advantage to this system is that it completely short-circuits the Government/Program Blind-spot and reorients taxation and budget politics around specifics. People might not like paying taxes, but they really like health care and education and transit, and so on, and therefore would evaluate political debates about “should we raise the Health Care tax to fund more research hospitals for children’s cancer research” or “should we raise the Education Tax to reduce class sizes” differently from “should we raise TAXES to pay for BIGGER GOVERNMENT.” It has the same effect on budget debates – cutting the General Fund budget by 10% allows people to imagine cuts falling on imaginary waste, fraud, and abuse; cutting Children and Seniors Assistance by 10% makes the human consequences of budget cuts real and immediate.

The second strategic step, as I have discussed before, is the establishment of a State Reserve Bank. A State Reserve Bank, for those unfamiliar with the concept, is the result of the state chartering a public bank, and instead of placing its reserves, tax revenues, deeds for public lands, and so forth in a variety of state banks (as most states do), it puts all of them in the public bank to act as the bank’s capital base.  The bank then acts like a reserve bank, using the power of “fractional reserve lending” (i.e, that a bank can generate much more money in loans than it keeps in its vaults, thus multiplying many times over its actual reserves, as long as it keeps back a portion to redeem deposits) to generate loans, act as a local “lender of last resort” (thus buttressing the work of the Federal Reserve and FDIC during credit crises), and (this is the key bit) allowing the State to borrow money in order to deficit spend in a recession.

Not only would the state reserve bank be important for boosting employment levels and spurring on the recovery, but it would also help with the state’s budget position. California spends about $5 billion a year in interest on its debt, in no small part because of Schwarzenegger’s use of bonds as an alternative to raising taxes in the pre-recession period, but also because California’s bond rating has been hammered by corrupt and ideologically-biased ratings agencies that have different standards for states that are effectively immortal (who have been repeatedly downgraded), than for corporations like Lehman Brothers and AIG who kept high-grade ratings even as their liabilities-to-assets ratio fell into the Marianas Trench.

The third strategic step would be to set up social welfare policy as social insurance as much as is possible. I’ve already discussed how California can set up a mass-scale jobs program as a Jobs Insurance system, both for practical reasons (social insurance creates an independent fund that would rescue programs from the 2/3rds trap) and for political reasons (social insurance creates a public acceptance of “earned rights” that makes anti-welfare politics almost impossible, and engenders broad support for universal benefits). There is no reason why California’s social welfare network could not be so reconstituted (as long as we are careful to make social insurance premiums progressive in nature): Cal-Works could be easily folded into Jobs Insurance, IHSS (in-home supportive services) and SSI/SSP (Supplemental Security Income, State Supplementary Payment) could be re-organized into a state-level Social Security analogue (again, shifting from contingent benefits to benefits secured by right); a state-level child care insurance program could similarly subsume existing child assistance programs; and so on.

When these strategic steps have been taken, then progressives can move directly on overall tax levels and Prop 13 directly, because they would have already shifted the terrain of debate so dramatically that the old politics of taxation and spending would no longer function.

Conclusion:

In the end, as Clifford Geertz suggested, politics is about telling stories. Because as progressives we tend to share a common belief in the overall goals and purposes of dynamic government, we have a tendency to speak in wonkish terms about the empiric merits of the things we care about. However important these things are in government, in elections, we have to learn to talk about a larger vision for what we want for this state.

Talking about taxes as a measure of the fairness of our society, and the budget as an expression of California’s values would be greatly aided by the policy changes suggested above. But we have to make the case publicly, and it’s not something we do often enough or well enough – one of the exceptions to this was a speech I heard a week ago when Das Williams spoke at a Jerry Brown campaign event at UCSB.

Williams talked about many of the same policies as Brown did – higher education, the environment, investments in working families – but he was able to bring them together with a call for higher revenue by talking about them as elements of a California Dream of universal opportunity, and redirecting the debate over revenue into being about paying for opportunity for all instead of for the few.

That’s the kind of politics we need.

About these ads
  1. Hey Steve, should there be a link to Das’s talk in there? Can’t seem to click on anything…

  2. […] budget stability – as opposed to self-defeating quests for balance via austerity. In part 2, I studied how the quest for a more perfect democracy is inextricably linked to a renewal of […]

  3. […] as either a net loss to the taxpayer (or outright theft by movement conservatives), and the government itself as a kind of black hole into which taxes disappear. The progressive alternative to this rhetoric that has yet to be […]

  4. […] state governments, lacking the counter-cyclical capacity to undertake Keynesian stimulus or the political will to raise taxes in a recession, have cut spending, furloughed workers, and cut pensions and pay. And the results could not be […]

  5. […] policy’s reflection of longstanding cultural values of work, but also I believe because it makes visible the bilateral nature of democracy inherent in all forms of social insurance. When welfare programs […]

  6. […] about the idea of  linking taxation to spending as a way to break down what I call the “Government/Program Blindspot” – by shifting the way that people think from the abstract idea that taxes flow into […]

  7. […] generally), but I think this shows how difficult it will be to thread the needle of the “Program/Government Blindspot” and the prevalence of austerity thinking, even if we link taxation to […]

  8. […] As I’ve discussed before, a major reason for this stalemate is ultimately due to how people think about public policy. In reality, neither progressive or conservative ideologies are hegemonic within the American electorate. Instead, public opinion is very much a mix of contradictory and paradoxical tendencies – we want to spend more money on the poor, but are opposed to welfare; we think foreign aid should be cut to a level that’s several times larger than current spending. […]

  9. Sorry to beat a dead horse here, but I wonder if you have considered voting system reform. I have yet to see a post about proportional representation on this blog, and it seems to me that PR is really quite important to re-democratize America.

    • PR doesn’t work so well in non-parliamentary systems. It also requires a robust coalition-building culture.
      Not that I’m against it, I just think it’s not as much of a silver bullet as people think.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow

Get every new post delivered to your Inbox.

%d bloggers like this: