Explaining Southern California's economy

The DeBord Report on 'America Now with Andy Dean'

I did my weekly Economy Report on "American Now with Andy Dean" a day early this week — Thursday rather than Friday. Andy very kindly informed me that the first step to leaving the liberal matrix is admitting that you have a problem, but I think I need to know what the other eleven steps are before I'm fully prepared to go down that road. In any case, we ran through the business news of the week, which included President Obama's budget; General Motors' record 2012 profit and Mitt Romney's view of the bailouts; the thorny question of whether "carried interest" income earned by folks in the financial sector should be taxed as regular income; and the whole dustup over Starbucks policy toward gun owners.

Listen in! It was a snappy discussion, as usual. I come in about halfway though.

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California's budget: Hostage to the rich

California Budget

Rich Pedroncelli/AP

Gov. Jerry Brown discusses the cuts he has already made to help reduce the state's budget deficit from nearly $20 billion last year to a gap of about $9.2 billion as he unveiled his proposed $92.5 billion 2012-13 state budget at a Capitol news conference in Sacramento, Calif., Thursday, Jan. 5, 2012. California faces a smaller budget deficit in the coming fiscal year but will require nearly $5 billion in cuts to public education if voters reject Brown's plan to raise taxes in the fall.(AP Photo/Rich Pedroncelli)

The Los Angeles Times' Anthony York reports on a...disagreement between the Legislative Analyst's Office and California Gov. Jerry Brown. Brown's budget plan, released prematurely last week, calls for tax increases that would generate almost $7 billion in additional revenue each year, bringing the state deficit down to zero in five years — the time frame for the tax hikes.

Not so fast, says the LAO: it will only be $4.8 billion in 2012-13, then $5.5 billion thereafter.

Here's York:

The wide discrepancy is the latest split over numbers between the administration and the Legislative Analyst's Office. Last November, the Legislative Analyst's Office released a revised estimate for the state’s current budget picture. Less than a month later, Brown’s department of finance came back with estimates that were $1.5 billion higher than the Legislative Analyst's Office numbers.

In its analysis Monday, the Legislative Analyst's Office said that predicting just how much Brown’s tax measure would bring in is difficult because it is dependent on income taxes from upper earners. That money varies wildly from year to year.

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California's 'structural deficit': What does it mean?

California Gov. Jerry Brown released his 2012 budget plan yesterday. It contains a lot of numbers, but one set of them is especially important: the size of the "structural deficit." The 2011-12 fiscal year is projected to end up $4.1 million the red. If there are no new taxes or cuts to spending in 2012-13, as Brown has proposed, the shortfall is expected to be $5.1 million. That makes the total deficit for 2012-13 $9.2 billion. 

The chart above shows what this looks like over time. 

So what exactly is a structural deficit? Basically, it's the deficit you can't escape. Here's a snappy defintion, from DaveManuel.com:

In a structural deficit, things are so out of balance that a country (or state, or municipality, etc.) will post a deficit regardless of how well the economy is doing. In a strong economy, revenues (tax receipts, etc) rise due to increased economic activity (more jobs, more spending, etc). With a structural deficit, the strength of the economy is irrelevant - a deficit will be posted regardless.. 

How do countries get rid of structural deficits? 

1. Cut spending. 

2. Raise revenues (usually through tax increases). 

Neither of these options are too appealing for politicians, which is why many structural deficits continue to linger. 

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Brown budget makes case for California tax increases

Jerry Brown Introduces January California Budget

Justin Sullivan/Getty Images

California Gov. Jerry Brown revealed his 2012 budget today — earlier than his office had planned, due to an error or technical glitch that caused the budget to be posted prematurely on the Department of Finance's website.

The budget doesn't really sugar-coat the challenges that the state faces, although as the L.A. Times points out, the deficit situation has improved greatly:

[The budget] paints a better fiscal picture than just a year ago, when the state faced a $26-billion deficit. Brown's budget anticipates closing the current gap through a combination of spending cuts and the tax increases, which would kick in at year's end, providing $4.4 billion in revenue.

Ah, the tax increases. Brown laid them out back in December, when he published an open letter on the governor's website. I posted on the plan at the time:

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Jerry Brown's tax proposals: Will they solve California's problems?

California Governor Jerry Brown Unveils State Pension Reform Program

Max Whittaker/Getty Images

SACRAMENTO, CA - OCTOBER 27: California Governor Jerry Brown announces his public employee pension reform plan October 27, 2011 at the State Capitol in Sacramento, California. Gov. Brown proposed 12 major reforms for state and local pension systems that he claims would end abuses and reduce taypayer costs by billions of dollars. (Photo by Max Whittaker/Getty Images)

Yesterday, Gov. Jerry Brown laid out his tax proposals for California voters in an open letter at the governor's office website. Brown wants to go straight to the voters, via the ballot initiative process. The plan is fairly simple:

My proposal is straightforward and fair. It proposes a temporary tax increase on the wealthy, a modest and temporary increase in the sales tax, and guarantees that the new revenues be spent only on education. Here are the details: 

• Millionaires and high-income earners will pay up to 2% higher income taxes for five years. No family making less than $500,000 a year will see their income taxes rise. In fact, fewer than 2% of California taxpayers will be affected by this increase. 

• There will be a temporary ½ cent increase in the sales tax. Even with this temporary increase, sales taxes will still be lower than what they were less than six months ago.

• This initiative dedicates funding only to education and public safety—not on other programs that we simply cannot afford. 

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