Big Government has previously covered efforts led by California liberals, including Assemblywoman Nancy Skinner, to force out-of-state, online-only retailers with no physical presence in California to collect and remit California sales tax where they sell into the state, based purely on them advertising with or enabling their store to be accessed via an independent website based in California.  Such efforts are likely unconstitutional.  The most prominent example of such a website would be eBay, the Internet auction giant.

Unsurprisingly, eBay has not been enamored with such efforts which would hit eBay sellers, and has been seeking to work into legislation a threshold designed to ensure that at least some of its out-of-state sellers will not be subject to California sales/use tax collection and remittance obligations where they sell to customers in the Golden State (California-based sellers who sell to Californians are already on the hook).

A possible threshold of $10,000 a year or less in sales to Californians has been reported, but sources say that eBay and/or some of its sellers want that limit raised higher– potentially up to $2 million per year.

EBay has its California sellers engaged in a grassroots lobbying effort aimed at forcing amendments to the legislation, which would defang it.  No doubt eBay sellers located outside of California, who are currently not obliged to collect and remit sales tax on purchases made by Californians, are ecstatic about this. California-based sellers would not benefit from building in a sales threshold, though, especially a high one that could tilt the eBay marketplace distinctly to the advantage of out-of-state sellers. However, their legislators are being urged to make amendments that, if put through, could seriously reduce the already rather pitiful revenues that backers of the legislation claim they would obtain by ramming it through.

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As California Democrats continue to press for an unconstitutional new tax scheme targeting out-of-state, online retailers, it has emerged that an additional two retailers alleged to be backing the effort themselves decline to collect and remit tax on Internet sales made to customers resident in states in which those retailers maintain no physical presence.

Recently, Capitol Confidential reported on what was described by critics as hypocritical behavior on the part of retail powerhouses Target and Bloomingdale’s.  Now, research indicates that Macy’s and Saks Fifth Avenue—both alleged to be lower-profile backers of the so-called “Amazon tax” proposal and both competitors of Overtsock.com, itself a major target of the legislation—engage in the same behavior.

The below screenshot shows an online purchase initiated at Macy’s website by a customer in Nebraska, a state in which Macy’s maintains no physical presence.  The relevant webpage indicates that Macy’s intends to collect and remit no Nebraska sales tax on the transaction.

Meanwhile, this Saks purchase initiated using a zip-code for Arkansas—a state in which Saks has no stores—likewise indicates that Saks intends to collect and remit no Arkansas sales tax on the transaction.

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California tax payers just took a huge punch in the nose from the same actuaries who provided the cover for state politicians to spike public employee retirement benefits. The latest shocker comes from California State Controller John Chiang who yesterday unveiled a new actuarial report that shows California faces another unfunded debt of $59.9 billion to pay for retiree health and dental benefits over the next 30 years.

Controller Chiang highlighted that the unfunded liability grew during the 2010 fiscal year by $8.1 billion; an amount equal to almost 25% of this year’s entire California kindergarten through high school education budget.

Actuaries have aided and abetted the explosion in under-funding of pension and healthcare liabilities for public employee pension plans over the last ten years. With most public employee pension plans fully funded in 2000, a preposterous actuary study gave assurances that the technology stock market bubble of the 1990s would continue its high returns never burst.

The California Governor and the Legislature used the study, paid for by employees who are eligible for retirement benefits, to justify 40% retroactive increases in lifetime pension payments and enhancements of retiree healthcare. During 2008 and 2009, a bogus California actuary study claiming the retiree healthcare plan was over-funded was used to justify waiving mandatory employee contribution increases to cover accelerating healthcare insurance premium increases.

The bulk of this new increase in retiree costs came as the result of the California Public Employees’ Retirement System (CALPERS) actuaries “discovering” after the fact that employees with their new pensions payments spiked and healthcare enhanced are retiring earlier, retirees are living longer, and healthcare costs are increasing faster than the crony projections by the actuary. The new actuary calculations now estimate the total un-funded California retiree costs are about $340 billion.

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Last week, California Democratic Assemblywoman Nancy Skinner announced the introduction of fresh legislation to force out-of-state, online retailers to collect California sales tax– legislation that critics charge amounts to an effort to introduce a new tax in what is arguably already the most heavily-taxed state in the nation.

The move replicates others pursued in years past by Democratic colleagues of Skinner– but notably avoided by Gov. Jerry Brown in his recently announced budget– and by all accounts seems to ignore the overwhelming likelihood that such a scheme would prove unconstitutional if challenged in court (by virtue of the the Quill v. North Dakota decision).

However, Skinner’s legislation is also being challenged on the basis that it would not, contrary to backers’ assertions, help put a substantial dent in the state budget deficit or eliminate or minimize the need for deep budget cuts in order to close it.  In fact, using Skinner’s own numbers, it appears that the institution of a so-called “Amazon tax” would strip away a mere 1.1 percent of California’s budget deficit:

(image via Americans for Tax Reform)

Critics say even the minuscule prospective “help” that might be afforded by the institution of Skinner’s new tax with regard to closing the Golden State’s budget gap may represent a “best-case” scenario: Were the new tax instituted, online retailers could well end their affiliate programs, thereby denying affiliates a revenue stream that enabled them to contribute over $100 million to California’s coffers in 2009.

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Finally; it seems we may have a Congress that takes seriously the urgent need to rein in the unsustainable deficits and the accumulation of public debt that so threaten the future well being of the nation.  Thank goodness for the most energized electorate in recent memory.  Its collective ire translated into large Republican gains in the Congress . . . gains that were largely attributable to the fact that the GOP made this subject the centerpiece of the 2010 campaign.  Woe is the politician who forgets why he or she was sent to Washington.  President Obama seems also to have gotten the message because he too talks the talk of fiscal prudence.

In addition, at the state level, Republicans had a net gain of six governorships and 19 state legislature changes in which they gained 650 legislative seats.  Clearly, most of the several states now have political leaders who heard, loud and clear, a message, and an expectation, that they must begin reducing the cost of government.  In 2010 and 2011, forty‑four states, that’s 88% of state treasuries, face budget shortfalls.  The combined budget gap for 2010 and 2011 is astronomical, estimated by several economic studies to exceed $350 billion.  California, with one of the nation’s highest sales tax (at 6.25%) and a top income tax rate of 10.56% (highest in the nation) according to the Wall Street Journal faces a budget shortfall of $42 billion in 2011 with a like amount projected in 2012, a whopping 22.2 percent of its total budget.  Bloomberg Businessweek projects $20 billion plus deficits through 2015.

As if this was not enough, California faces a $500 billion shortfall in public employee pensions with which elected officials have saddled their tax-paying constituents.   The once “Golden State” is not alone in its fiscal woes.  Illinois faces a budget gap of $13 billion in 2011.  On January 11 the Illinois legislature at the urging of Governor Pat Quinn passed a “temporary” 67% increase in the state’s personal income tax and hiked the corporate tax rate from 4.89% to 7%, prompting newly elected Wisconsin governor, Scott Walker, to invite businesses located in Illinois to come across the state line to relocate in Wisconsin.  Moreover, even after these enormous increases, the state still faces a $7 billion shortfall, probably to be covered by more borrowing, assuming there are those willing to lend the state money.  Another fiscal basket case is New York, which according to U.S. News Politics is staring at a projected $8.2 billion shortfall for fiscal 2011, as well as substantial unfunded pension obligations.

Let’s turn the spotlight, again, to California, a state whose citizens seem to be in denial about their plight.

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Ten years from now university economists will analyze Federal Reserve Chairman Ben Bernanke’s recent presentation to the U.S. Senate Budget Committee as the successful turning point in American economic policy from a focus on demand side consumption spending to supply side production investment.

As Bernanke clearly stated:

“We need to think about making investments for the future as opposed to simply spending our seed corn on current needs. So thinking about government programs, we should ask the question, will this provide benefits in the future.” …

“On the tax side, I don’t think it’s really very controversial among economists that rising rates, combined with a multiplication of exemptions, deductions, credits and so on, leads to a tax code which is very complex and can distort economic decisions.”

For the last decade our nation’s economy grew at an above average rate of 3.8% rate, tax revenue grew at the average rate of 2.5%; but government spending exploded at 13.7% growth rate. Fed Chairman Bernanke’s new found appreciation for getting government out of the way of the private sector only comes after America’s government debt burden has reached a Greek like 127% of our economy. With gold soaring, unemployment at record highs and serious efforts underway to eliminate the dollar as the world’s reserve currency; the US is clearly in trouble. To put the debt in personal terms, the US government debt burden equals $103,692.20 for every working American.

The Chairman’s rejection of bailouts nullified the intensive lobbying efforts by California and other state and local municipalities for a Federal debt guarantee. Having run-up over $3.5 trillion of municipal bond and pension obligation debts in the last decade, state and local governments are now facing widespread defaults. Newly inaugurated California Governor Jerry Brown, who many blame for passing legislation 30 years ago that permitted the Golden State to become the perennial poster child of deficit spending, just announced a six month moratorium on all state borrowing.

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We’re now 25 billion dollars in the red in California.  The governor along with his Democrat controlled legislature will never do the right thing. They’re the same folks who brought you this mess.  When Governor Brown was previously the governor he signed the Dills Act in 1978 that gave civil servants the right to collective bargaining.  He did this on his very first day in office as governor.  This revolutionary enactment was the beginning of the end or our state. Now, with the power of government labor unions unchecked, state employees, now the largest unionized force of any state, have controlled the legislative agenda for the past 30 years.  Their sweetheart pension plans are a marvel to their political strength and are unmatched anywhere in the private sector.  This is why although state workers’ pensions are the single largest problem in this budget crisis, Brown has not even mentioned it in his new “reform” proposals.   He has however mentioned tax increases, or as he calls them tax “extensions”. A two-thirds margin of Californians overwhelmingly opposes tax increases as a solution.

Here’s the problem, notwithstanding a current state budget deficit of 25 billion dollars, the state has 700 billion dollars in unfunded pension liabilities.   This is ticking time bomb. No matter how much we cut and balance today’s budget, we will never catch up and meet the needs of the ridiculously high unfunded pensions.  This is the problem.   Brown’s budget may take away state workers’ cell phones and some social services dollars, but seriously, big deal.  This is just more smoke and mirrors. It just kicks the can down the road. This will not solve our major structural problem.

Legalizing online poker, taxing marijuana (both proposed) and taxing air (already passed through cap and trade) will not solve the budget problems.  The latter is a way of taxing the few manufacturing industries still dumb enough to be creating jobs in California.  If they hadn’t got the memo earlier, this bill should be a neon sign. Get out of Dodge.  We don’t see many folks clamoring for yet cleaner air, but we see millions looking for work.

Our legislature has been hallucinating for decades. They didn’t see the current budget crisis coming?

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California State Treasurer Bill Lockyer is absolutely right to scoff at accusation in the Wall Street Journal that California is the “the Lindsay Lohan of states”. Ms. Lohan is currently in Court Ordered rehab at the Betty Ford Clinic, whereas wily California is still “at large” and making lots of new Ponzi scheme promises to pay existing municipal bondholder with future borrowings.

Treasurer Lockyer in his Op Ed crows that California has approximately $89.4 billion in revenue and only $36 billion mandated as priority to pay schools, leaving “$53.4 billion available to pay debt service on bonds — more than eight times the $6.6 billion of interest payments the state will need to make this year.” But he conveniently forgets to tell readers that those interest costs are headed to $9 billion, pension costs will double to $8 billion, the State budget has a $24 billion expected shortfall over the next 18 months; and the State must by law pay back $27 billion in short term borrowing from State agencies.

California does have many similarities to Ms. Lohan. Both were America’s premier child stars, but over the last fifteen years they have increasingly been overwhelmed by their addictions. For Ms. Lohan, the addiction is cocktails and drugs; for California, it is shopping and spending. Psychiatrists explain that addictive behavior is any behavior that has become the exclusive focus of a person’s life and physically, mentally, or socially and harms the individual and or others. The addictive behavior produces beta-endorphins in the brain, which makes the person feel “high.”

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California leaders including Gov. Arnold Schwarzenegger have reportedly agreed a new budget deal, but as the state attracts jeers for its lateness in taking concrete steps to pass a budget, some are booing its leaders for their willingness to sign off on tax hikes when it is being reported that California is owed about $1.4 billion in tax revenue already collected by businesses from consumers, but never remitted to the state.

The LA Times reports:

California is owed nearly $1.4 billion by auto dealers, restaurants and other businesses that collected sales taxes from buyers but didn’t pass the money along to the state — a situation that is aggravating California’s budget crisis.

The tab is up about 25% from a year ago and has almost doubled since 2007, state records show.

That money could make a significant dent in the state’s $19-billion budget gap. Watchdog groups say the state’s failure to collect it is particularly galling because much of the tax money has already been paid by consumers — it just hasn’t been turned over by merchants to the state Board of Equalization.

“All of us want people to pay the tax they legally owe before lawmakers go looking to raise taxes,” said Jean Ross, executive director of the California Budget Project, a Sacramento nonprofit that advocates for lower-income Californians.

Indeed, reports indicate that Republicans in the Golden State have reluctantly signed off on one tax increase as a possible pathway to getting more tax cuts included in any budget.  According to the Sacramento Bee, as of last week, GOP leadership had agreed to a delay in implementation of a net operating loss (“NOL”) deduction originally intended to begin this year until 2012– a move that would supposedly bring in about $1.4 billion.

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“I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.”
Thomas Jefferson

As you probably know, a budget crisis has stymied California legislators for nearly three months. In case you missed it, California is $19 billion (and growing) in the hole and no one seems to have a real solution to the problem. For the Democrats who control the Senate and State Assembly, the way out lies in canceling tax breaks to increase revenue. For the minority Republicans and Governor Schwarzenegger, it means making cuts to state funded programs to decrease spending. Both suggestions are short-sighted and lacking real reform- only temporary measures that will leave us no better off next year.

On the ballot this November in California are two propositions that are worth mentioning in the discussion about the condition of California’s finances: Prop 25 and 26. On the surface, Prop 25 seems like the perfect way to end the budget stalemates that have become so common in California and so devastating to the economy. Scratch through the shiny gloss about increasing government accountability and you will find a bill that is designed to give legislators more power to pass a budget filled with gimmicks and pet projects.

Proponents point to the provision that legislators won’t get paid if a budget doesn’t pass, which hardly matters. Eliminating the super-majority provision means lawmakers will be able to pass any budget they want- even if they know it has no chance of getting past the governor’s office. This proposition does nothing more than put a mask over the real problem facing the budget: we don’t have any money left to spend.

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Today, California is set to exceed its own prior record with regard to budget tardiness, as it heads into its 85th day without a budget.

Legislative leaders flew to Los Angeles Wednesday to meet with an ailing Arnold Schwarzenegger, who places blame for the impasse with the Legislature, whose Democrats have a budget proposal of their own—one packed with tax hikes.

Here are just some of the increases the Democrats are seeking:

• A $1.8 billion middle-class tax increase focused on personal income taxes and car tax to be accomplished via a “tax swap”;

• A $1.2 billion business tax hike to be accomplished via the delay in use of business Net Operating Loss deductions and “Carryback” provisions;

• An $842 million tax increase on oil production.

California Democrats are also reportedly looking to incorporate a provision into the budget whereby out-of-state, online retailers who advertise with websites based in the state would be forced to collect and remit California sales tax.  This is despite their prior attempt at getting such legislation passed– which some experts say could have been done more simply outside of the budget– having failed, and despite such a tax plan being unconstitutional.

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Just as a frog will jump out of a hot frying pan, but will sit in water that slowly goes from cold to hot until he cooks to death; California’s politicians have sat quietly as the accumulation of chronic budget deficits bubbling up from an uncomfortably warm problem to a scalding hot crisis.  Even the release of Governor Schwarzenegger’s $19.1 billion budget deficit projection for the coming July fiscal year appears to have failed to bludgeon the state’s political establishment into action to avoid a looming credit rating downgrade to sub-prime that would set off a Greek style default on steroids.

The media, after months of missing the potential consequences of a Greek default, have now become focused on the similarities between California and Greece.  Both do owe gobs of money, have huge budget deficits, massive unfunded pension liabilities and can’t print their own money; but California’s situation is worse!  The California economy is 5 times larger than the Greek economy.  Los Angeles alone is twice the size of the $356 billion Greek economy.  Greece is less than 2.5% of the European Union (EU) economy, but California is over 13% of the US economy.  From 2000 to 2008, the Greek economy grew at 3.1% annually, the second fastest growth in Europe, whereas California’s growth of 2.3% during the same period was only slightly better than the rest of the US.  Greek unemployment just hit a crisis 12.1%, unemployment in California is 13% and has been above Greece’s since the start of the year.

What started out a month ago with Greece having trouble making a $10 billion debt payment has mushroomed into a worldwide liquidity crisis.  Germany and France have been forced to lead a $1 trillion bailout.  Even the U.S. was required to kick in $50 billion to the support International Monetary Fund’s contribution.  For a few days this block-buster financial backstop calmed the bond markets and allowed short-term interest rates across Europe to decline, but by the end of the week Greek interest rates were headed back up.

Chief Executive Josef Ackermann of Deutsche Bank, Germany’s largest financial institution, said last week he was “doubtful whether Greece will really be in a position to achieve” the repayment of the emergency loans.  However, he went on to stress that Athens had to be propped up, because if it fell, it would lead “with great certainty to a spillover to other countries,” sparking “a type of meltdown,” he added.  Ackermann’s comments are all the more surprising because they follow recent reports that Deutsche Bank itself is preparing to provide €500 million ($625 million) in loans to Greece on the same conditions as those set by the German government.

Last September the state of California sold $8.8 billion of prime rated short term debt to investors at an interest cost of 3%, similar to rates Greece was paying before the threat of default sent the rate to 24%.  The Governor Schwarzenegger’s new budget projections indicate that California will need to borrow $12-15 billion just to get through the fall.  Given that state’s economy is five times larger than Greece, if California is downgraded to sub-prime this fall and the crisis spreads to  municipalities and other states, it might take up to a $5 trillion bailout to stabilize the situation.

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