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<H1 class=articleTitle><FONT size=2>Where did Brown find the recent 6.6 billion
dollar bump in the state budget? It turns out that it from the recent
tax receipts as part of the existing tax structure. So where did all of
this "extra" money come from?</FONT></H1>
<H1 class=articleTitle><FONT size=2>California's RICH have
made BILLIONS over the last year while the rest of us have been
slashed and burned. </FONT></H1>
<DIV class=articleTitle><FONT size=2><STRONG>The rich have made
most of their profits on the stock market, no doubt by cashing in
artificially inflated holdings in the big banks and other taxpayer
subsidized corporations floating neck-deep in our
money.</STRONG></FONT></DIV>
<DIV class=articleTitle><FONT
face=Calibri>---------------------------------------------</FONT></DIV>
<H1 class=articleTitle>Wealthiest Californians underwrite Brown’s budget</H1>
<DIV class=articleAttrib>
<DIV class=byLine>By <A
title="http://www.capitolweekly.net/author.php?_c=zpt6oro1gyp089&1=&xid=3
CTRL + Click to follow link"
href="http://www.capitolweekly.net/author.php?_c=zpt6oro1gyp089&1=&xid=3">John
Howard</A> | <SPAN class=articleAttribDate>05/19/11 12:00 AM
PST</SPAN></DIV>
<DIV class=byLine><SPAN class=articleAttribDate></SPAN> </DIV>
<DIV class=byLine><SPAN class=articleAttribDate><FONT face=Calibri><A
title="http://www.capitolweekly.net/article.php?xid=zppmna0ccbl1ns
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href="http://www.capitolweekly.net/article.php?xid=zppmna0ccbl1ns">http://www.capitolweekly.net/article.php?xid=zppmna0ccbl1ns</A>#</FONT></SPAN></DIV>
<DIV class=byLine><SPAN class=articleAttribDate><FONT
face=Calibri></FONT></SPAN> </DIV></DIV>
<DIV class=articleShareBar>
<DIV class=shareBar>A startling, multibillion-dollar flow of cash into the state
budget appears to be evidence that California’s economy is on the
mend.</DIV></DIV>
<DIV class=articleBody>
<P><BR><STRONG>In reality, what’s on the mend is Wall Street: The surge of an
estimated $6.6 billion in cash is being driven in large measure by California’s
wealthiest taxpayers who sold stock and other assets and paid income taxes on
their proceeds.</STRONG> </P>
<P><BR><STRONG>It is a relatively small number of people, but they affect
California’s financial health disproportionately.</STRONG> The level of
unemployment in the state and the travails of the housing industry – two
critical barometers of economic health – are largely untouched by the state
budget’s spending. Currently the jobless rate is about 12 percent and the
housing market is uncertain. <BR>But the budget is affected dramatically by the
income taxes paid by the wealthy.</P>
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<P> </P>
<P><STRONG>Capital gains receipts were up by 60 percent in 2010 over the year
before and they likely will climb another 45 percent in 2011 – more than
doubling in two years</STRONG> – according to the Brown administration. Tax
experts believe a Silicon Valley resurgence is partly fueling the cash boon, but
the increase appears to be more widely spread than the cash bonanza of more than
a decade ago. </P>
<P><BR>The unanticipated revenue is desperately needed by the cash-strapped
state struggling with a shortfall now put at $10 billion – nearly a third of the
estimate five months ago. The shortage has been reduced mostly by some $11
billion in cuts.</P>
<P><BR><STRONG>Fewer than 1 percent of California’s 14.8 million tax returns –
perhaps 119,000 returns, those with $500,000 or more in adjusted gross income,
or AGI – accounted for about 82.5 percent of all capital gains paid by personal
income tax payers in 2008, or about $3.8 billion of the total $4.5 billion
collected, according to recent figures. </STRONG></P>
<P><BR><STRONG>In a dramatic contrast, taxpayers with AGI of less than $100,000
– that’s about four out of every five taxpayers – reported about 4.1 percent of
all capital gains.</STRONG></P>
<P><BR>The 2009 and 2010 proportions are expected to be comparable. But it is
likely that of the $6.6 billion in unanticipated revenue half to two-thirds
represents capitol gains income.</P>
<P><BR>“The higher up in wealth, the greater the proportion of income that comes
from capital gains,” noted Jean Ross of the California Budget Project, an
independent nonprofit group that studies the impact of state budgets on
working families and others.</P>
<P><BR><STRONG>The surge in capital gains revenue reflects transactions that
generally – although not exclusively – are the provenance of California’s most
affluent taxpayers, because their income is derived not only from salaries but
from buying and selling stock.</STRONG></P>
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<P> </P>
<P>“Sure, there’s some recovery in the economy, there’s more payroll and people
are getting more jobs, but that’s not really what’s going on here. The huge
amount of this money is capital gains. It’s probably 60 percent of the $6.6
billion,” said Lenny Goldberg of the California Tax Reform Association, a
labor-financed group that seeks the closure of corporate tax loopholes, among
other goals. </P>
<P><BR>“There have been jobs, but the main recovery has heavily been in the
stock market,” he added. “The stock market has gone from 6,500 in 2008 to about
12,400 now.”</P>
<P><BR><STRONG>For those earning more than $500,000, capital gains accounted for
about $1 in every $4 earned. For those between $100,000 and $200,000, the
percentage was dramatically different: Capital gains income represented about $1
in every $100 earned.</STRONG></P>
<P><FONT face=Calibri>[important]</FONT><BR><STRONG>The wealthy few aren’t the
only ones paying income taxes. But they are the few paying huge amounts of
taxes, even though the percentage of their income devoted to taxes can, in many
cases, be shielded by a sophisticated use of tax laws and come in lower than
that of the average taxpayer.</STRONG></P>
<P><FONT face=Calibri></FONT><BR>The fact that California’s volatile budget
depends on the performance of California’s wealthiest taxpayers is not
new. Tied to income levies that fluctuate with economic conditions, the
state budget drifts with the ebb and flow of income tax revenue.
</P>
<P><BR>The timing of the collections also was a surprise this year.</P>
<P><BR>At the end of April the state was $5 billion ahead of the revenue
collected at the end of April last year. That is a critical index of recovery,
said David Kline of the California Taxpayers Association, which generally views
tax cuts as a way to stimulate business activity.</P>
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<P> </P>
<P>“That‘s the big difference between last year’s collection at this time and
this year’s collections,” he said. “We are collecting a lot more just in
personal income tax alone.”</P>
<P><FONT face=Calibri></FONT><BR>“The assumption is that this will continue
through 2011 and 2012, and that’s huge. Unemployment is still high and it
remains to be seen the outlook for long-term improvement, but certainly this is
a good sign that the state is collecting billions of dollars in new revenue
under the existing tax rate.”</P>
<P><BR>The health and future of the economy is difficult to pin down, but serves
as the underpinning of Brown’s – and any governor’s – recast budget that he
unveiled this week.</P>
<P><BR>Improving by fits and starts from more than three years of recession, the
state’s economy is the big player in Brown’s budget blueprint, which will
require two-thirds votes in the Legislature because it contains proposals to
extend existing taxes. Brown, who has declared he wouldn’t raise taxes without
public approval, envisions going to the November ballot in a referendum.</P>
<P><BR>Less than half the state’s surprise cash is in hand, but the expectation
of budget writers is that it’s coming - a significant flow but not enough to
erase the deficit or prevent long-planned, deep cuts.</P>
<P><BR>An income tax surcharge, which appeared likely only weeks ago, is being
put on hold for at least a year. His proposal to abolish enterprise zones also
was halted, at least temporarily, because of opposition in the Capitol. Brown
acknowledged that “we didn’t have the votes.”</P>
<P><BR>Driven in part by the unanticipated revenue, the Democratic governor
proposed giving schools about $3 billion more than he earlier sought. </P>
<P><BR>In all, he proposed some $89 billion in spending for the 2011-12 fiscal
year that begins July 1, and nearly half that amount goes to education.</P>
<P><BR><STRONG>The heaviest cuts in the budget were made in developmental
services and social services, including Medi-Cal, welfare assistance, mental
health services and a $420 million hit to In-Home Supportive
Services.</STRONG></P>
<P><BR>Among the surprise cuts was the elimination of the California
Postsecondary Education Commission. </P>
<P><BR>The Brown administration said abolishing the 37-year-old panel would have
little impact on higher education policy, although the commission has been
closely identified with California’s Master Plan for Higher Education and has
served as a policy and research resource for decades.</P>
<P><BR>Another elimination: The California Unemployment Insurance Appeals Board,
which for years has served as a haven for top political appointees and was
created through a bipartisan agreement.</P></DIV>
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