States Raise Taxes, Issue Bonds, Invent Non-Solutions

by: Michael Shedlock

Mayor Daley says "Only One Choice".

Mayor Richard Daley proposed a whopping $293 million increase in taxes, fees and fines Wednesday, including a 15 percent jump in Chicago's property-tax levy, among the biggest in the city's history.

If the City Council approves the plan, Daley will have raised property taxes more in this budget than he has in his previous 18 years in office combined. Until now, the mayor has liked to boast that since he was elected in 1989, he has limited property-tax increases to an average of about 1 percent a year.

"I know that many Chicagoans are struggling to make ends meet and facing economic uncertainty, which made developing this budget all the more difficult," the mayor said.

"The Civic Federation is in shock and awe," said Laurence Msall, president of the organization. "We are shocked because of the enormity of the proposed property-tax increase. . . . We are in awe because of the huge overall increase in the budget he proposed—increasing the city's spending by $700 million, or 12 percent over the last two years.

The city is now joining the state, Cook County and other units of government in a multifaceted push for more money, said Jerry Roper, president of the Chicagoland Chamber of Commerce.

"It's positioning us for a tax revolt," he said.

"I've never seen such a rush for money in the 15 years I have been doing this job," said Roper of the Chicagoland Chamber of Commerce. "It has just been incredible. They all just say, 'I'm not the city,' and the city says, 'I am not the county,' and the county, 'I am not the state.' "
Chicago Proposed Tax Increases
  • The Chicago Board of Education approved a $74.2 million 15% jump in its property-tax levy.
  • Double the telephone tax used to fund the city's 911 center to $2.50 a phone line a month.
  • Doubling of the city's 5-cent-a-gallon tax on gasoline. Alderman Edward Burke: "The one good part of that tax is that 50 percent of it is paid by the airlines."
  • Homeowners would pay an additional $45 next year in water and sewer fees.
  • Fees on phone users.
  • Increased taxes on beer, wine and liquor.
  • Increased taxes on those who lease cars, office equipment and other items.
  • Larger real estate developments would have to pay a new fee of 15 cents a square foot to build their projects.
  • Owners of big sport-utility vehicles would pay $120 for city stickers, up from $90.
  • A new 10-cent tax would be imposed on every bottle of water sold in the city.
Michigan Taxes Rise - Applause Breaks Out

A government shutdown in Michigan ended Monday October 1 with with an agreement to raise taxes and make structural changes in public employment benefits.
The state Legislature agreed early Monday to raise the income tax and expand the sales tax to services in a deal with the governor that quickly ended a partial state government shutdown. Applause broke out in Democratic Gov. Jennifer Granholm's office when the final vote was announced at 4:18 a.m. The deal prompted Granholm to call off the partial shutdown of government that began at 12:01 a.m.

"This budget agreement is the right solution for Michigan," Granholm said in a statement. "We prevented massive cuts to public education, health care and public safety while also making extensive government reforms and passing new revenue. With the state back on solid financial footing, we can turn our focus to the critical task of jump-starting our economy and creating new jobs."

[Mish comment: The "right solution" is going to cost Michigan more jobs. This tax increase sure does not put Michigan "back on solid financial footing". Pray tell how does a tax increase ever jump start an economy?]

The Legislature agreed to raise Michigan's income tax rate from 3.9 percent to 4.35 percent and expand the 6 percent sales tax to some services. Granholm signed both measures. Structural changes to state government — including the management of teacher and other public employee benefits — also are part of the package.

[Mish comment: Look for more of the same in years to come. Many promised benefits are simply not going to happen]

The tax increases should erase most of a projected $1.75 billion deficit in Michigan's next budget. The final budget for the new fiscal year will include $440 million in spending cuts, including no inflationary funding increase for public universities and community colleges, Granholm said.

Michigan already has the nation's highest unemployment rate — 7.4 percent in August — and just went through a two-day strike involving the United Auto Workers and General Motors Corp. Disrupting services from state parks to road construction risked further upsetting an already unsettled public.

The Senate split 19-19 twice, forcing Lt. Gov. John Cherry to cast the tie-breaking vote in favor of the income tax bill and expanded sales tax to cover some services.

[Mish comment: It will interesting to see what happens in the next election to those who voted for this tax increase]The California Non-Solution

California elects to postpone the problem by issuing bonds for everything under the sun. In August the California budget was signed, allowing bond sales to resume.
California Gov. Arnold Schwarzenegger signed a $145.5 billion budget, nearly two months behind schedule, and the state treasurer said the state was now ready to go ahead with new bond sales.

"And with a final budget, we can now start the process of selling bonds the remainder of this year to finance infrastructure projects, stem cell research and other crucial programs.

California's state and local spending have continuously gone up in recent years. According to the Tax Policy Center, state and local governments spent amounts equal to 20.6 percent of residents' personal income in 2005, up from 18.4 percent a decade ago and 16.4 percent in 1987.
Schwarzenegger's latest proposal is to float $9 billion in water bonds.
Gov. Arnold Schwarzenegger unveiled a $9-billion bond package Tuesday that would pay for three new or expanded dams and amount to an unprecedented level of taxpayer financing for water projects.

The bond proposal also breaks with historical water development in California, where most major water projects have been financed by the federal government or specific water users -- not by taxpayers at large.
It's one thing to float a bond bill, it another to get actual funding. The website Buy California Bonds was setup to help things along.
Welcome. Thank you for visiting Buy California Bonds.

As Treasurer, I am responsible for managing all of the State’s bond sales. I want to make it easy for individuals to make these investments – and pay the same price as large, institutional investors. This website will show you how to buy infrastructure and stem cell bonds, as well as shorter-term bonds that help the State maintain its cash flow.

The bulk of these bonds will help finance infrastructure projects. California voters have approved the issuance of more than $65 billion of bonds to improve and build new schools, roads, housing, parks and levees. Over the next few years, the State will be selling these bonds to raise the money to build these projects. By investing in these bonds, you will help turn the projects you approved at the polls into reality – adding to our quality of life and the vibrancy of our economy.
Just for grins I decided to click on the latest bond offering. I found the California Stem Cell Research and Cures Bond Act has a closing date of October 11, 2007.
California voters approved the California Stem Cell Research and Cures Bond Act (also known as Proposition 71) on November 2, 2004. The Act authorizes the State to issue up to $3 billion of general obligation bonds to make grants or loans to fund stem cell research, research facilities and for other vital research opportunities.Note: the Stem Cell Offering is now closed. I started writing this a few days ago expecting more tax proposals. In that regard Daley did not disappoint.

Why would anyone vote for proposition 71? And given that the wording is "up to $3 billion of bonds", why doesn't the treasurer fund nothing for this silly proposal? Apparently the voters in California think there are no ramifications down the road for issuing all these bonds.

Unlike the US government, state governments are required to have a balanced budget when it comes to spending. It's too bad the same rule does not apply to the U.S. as a whole because that would stop a lot of stupid projects like building bridges to nowhere right at the outset. If taxes had to be raised to pay for the war in Iraq, perhaps it would not have been fought. There would certainly be more calls to leave Iraq now if taxes had to be raised to pay for the ongoing effort.

At the personal level, wages are not rising to meet expenses and jobs are getting tighter. At the state level, budgets are bound to come under the strain of falling property values and sales tax shortfalls in a major way. At the corporate level willingness to finance operations via junk bonds is going to dry up. And fiscal policy at the national level is simply a joke. Something has to give in a major way. Raising taxes and expecting applause is not the answer. Ignoring the problem while spending away is not the answer either. More on taxes at the national level is coming up.