Critics say law will exacerbate $54 billion deficit, economic downturn
California Democrats allocated $20 million in a recently passed budget to enforce a controversial labor law that some experts say has hampered the state’s economy and pandemic response.
The budget, which passed the Democrat-controlled state legislature on a party-line vote, provides $20 million to enforce Assembly Bill 5 (AB5), a law that limits employers’ ability to classify workers as independent contractors. The money is divvied up between three state agencies—the Department of Justice, Department of Industrial Relations, and Employment Development Department—to conduct audits, carry out prosecutions, and levy fines and penalties on employers. Republican assemblyman Kevin Kiley said that ramped up enforcement will only hurt businesses struggling in the wake of statewide shutdown orders tied to the coronavirus.
“That’s what the money is for, specifically—to go after small businesses and independent contractors at a time when they’re struggling more than they ever have before,” Kiley told the Washington Free Beacon.
The budget provision comes as the state faces an impending $54 billion fiscal deficit. Democratic governor Gavin Newsom revised his initial $222 billion budget proposal in May, saying that he would fund only the “most essential priorities.” The $20 million allocated to enforce AB5 survived the chopping block in the $143 billion budget passed by the assembly and state senate. Newsom, who did not respond to a request for comment, slashed education funding and said that first responders would be “the first ones to be laid off.”
The budget proposal sparked criticism from House Minority Leader Kevin McCarthy (R., Calif.), who said that the proposal will hurt his constituents. He called the multimillion-dollar allocation for enforcement “disappointing, but not at all surprising.” He criticized state leaders for misplacing their priorities and refusing to adapt to the economic challenges brought on by the pandemic.
“Gig economy workers have felt the ramifications of this legislation for months now, and the coronavirus pandemic has only made securing work that much more difficult,” he told the Free Beacon. “California’s independent contractors deserve a government that can adapt to unanticipated challenges, not one that exacerbates problems by continuing to pursue a half-baked idea.”
Democratic leadership in the state assembly and senate did not respond to requests for comment.
Newsom in April rebuffed calls from state and federal legislators, small business owners, and more than 150 economists to suspend AB5, touting the law as an example of the state’s national leadership. Under AB5, employers must meet strict requirements in order to classify their workers as independent contractors. Its 2019 passage led to widespread layoffs as businesses struggled to afford the increase in legally imposed labor costs. Experts argue that the law has made it nearly impossible for unemployed workers to take on temporary jobs from home, further exacerbating the economic downturn caused by the pandemic. More than 5.4 million Californians have filed for unemployment—more than the population of 28 states.
“You’d think at a time when we shut down small businesses for months, we’d be doing everything we can to help them out,” Kiley said. “It’s a failure to understand the need of the moment, which is to propel economic recovery, to help small businesses get back on their feet, to promote workers.”
Reallocating the $20 million set aside to enforce AB5 would hardly alleviate the state’s budget shortage—the Los Angeles Police Department alone has spent $40 million in overtime pay for officers handling ongoing Black Lives Matter protests. But according to Pacific Research Institute fellow Kerry Jackson, Newsom’s refusal to suspend AB5 has contributed greatly to the fiscal crisis, and stricter enforcement will only exacerbate the problem.
“The pandemic lockdown dried up tax revenues because so many jobs were lost. Some of the lost revenues could have been made up if those who’d been laid off had been able to work as independent contractors,” Jackson told the Free Beacon. “But the law made it illegal for them to work. So no work, no income tax revenues.”
While Monday’s budget is unlikely to be signed by Newsom in its current form, the governor’s own budget proposal also includes $20 million to enforce AB5, meaning the money is unlikely to be cut. Kiley said that Democrats’ unwillingness to budge on the law reflected the power of special interest groups in the state—AB5 was written by the AFL-CIO, the country’s largest federation of labor unions.
“Unfortunately, so far there hasn’t been any movement towards doing away with the $20 million or redirecting it somewhere else,” Kiley said. “It shows how influential these special interests are, that the governor and the legislature will not budge, no matter how strong the arguments are for doing things differently.”
Newsom has until June 30 to sign the budget into law.
Congress spent too much money trying to keep the economy afloat during what looks to be the increasingly ill-advised coronavirus lockdown. The effort to flatten the curve to keep hospitals from being overwhelmed quickly transformed into something more that is only now, and mostly in the so-called red states, easing up.
To cushion the blow, the House and Senate passed, and President Donald Trump signed legislation distributing trillions of dollars, many of which had little, if anything, to do with COVID relief. One of the most objectionable, one that distorted the labor market badly, was the provision guaranteeing a “temporary” $600 weekly bonus on top of regular unemployment payments for workers state government decided needed to stay home in the interest of public safety.
For more than a few of them, that bonus lifted their unemployment income above what they’d been making on the job. Stories about the difficulties involved in getting these people to come back to work are already legion and will continue to be so, especially as House Speaker Nancy Pelosi and the Democrats have made the extension of unemployment benefits and bonuses a priority for the next round of relief.
If there’s a more stupid idea out there, it’s hard to find. Paying people to stay home is about as silly as paying farmers not to grow anything—yet that was a hallmark of U.S. agricultural policy starting with the Great Depression and continuing through to the Clinton years, when Newt Gingrich’s Contract with America Congress put a stop to it. At least for a while.
Unfortunately, foolish ideas abound among legislators, even well-meaning ones like former House Ways and Means Committee Chairman Kevin Brady. The Texas Republican, who is now the committee’s ranking member, is proposing a $1,200 back-to-work bonus to get the economy moving again.
His plan, which he’s calling the Reopening America by Supporting Workers and Businesses Act of 2020, would cost less than some of the items on Pelosi’s wish list, but that may be the only thing about it that’s virtuous. Brady says he’s “trying to help Main Street businesses rebuild their workforce by turning unemployment benefits” into an incentive for workers to return to the job.
He says that will accelerate the economic recovery. Call me doubtful. As Nobel Prize–winning economist Milton Friedman and others have consistently argued, the money that comes out of the private economy does not produce as much growth as the money that never leaves it. The Brady plan is a circular exercise, with the government taking money from the earnings of workers and businesses through taxes and then giving it back to them as a “re-employment benefit.
Outside Washington, the argument that the answer to the problems created by subsidizing unemployment lies in a program to subsidize re-employment would be met with silent stares—justifiably so. Letting the bonus expire, as it will do under current law, would be a good fix in the short-term, but politicians need greater guts than many of the current crowd seem to have to oppose the extension of unemployment benefits when so many of them have filed for them since mid-March.
The difference between now and what is usually the case, however, is that in the main jobs are there for the taking. The unemployment we’re currently experiencing results from the COVID lockdown, not a business downturn that occurred for any of the usual reasons. Bolder, braver initiatives are called for.
One that’s one the table, which some in the White House like but the bean counters at Treasury hate, is a partial payroll tax holiday running from March 1 (when the lockdown started to approach peak levels) and the end of the calendar year. All in, including the deductions for Medicare and Medicaid along with what’s taken out for Social Security, that gives business owners a little over 15 percent of wages up to $137,000 out of which they can incentivize workers returning to work on broad terms and still have something left to help cushion them from the economic blow the lockdown caused.
The arguments against this plan are few and come mostly from the usual suspects. Some say it would jeopardize the health of Social Security, but as the so-called “trust fund” is mostly an accounting fiction, most of the money comes from general revenue. Others argue it would add precipitously to the deficit, which may be but not by more than what Brady, Pelosi or anyone else is proposing. Most of the politicians who hate it do so because it means they’re not in the position to ride to the rescue by passing out relief. That’s a silly reason to reject a good idea. Help the country. Do the payroll tax holiday legislation. Then go home.
Former Congressman Robert Francis “Beto” O’Rourke isn’t exactly setting the world on fire with his campaign for the Democratic presidential nomination. In an Emerson College poll of Democratic caucus-goers in Iowa conducted before and after the debate this week, his support was so low, it didn’t even register. The man who was once considered the liberals’ best hope for retaking a U.S. Senate seat in overwhelmingly red Texas is running so far in back of the pack, he’s in danger of falling out.
Now, he’ll have to pander to the single-issue constituencies within the Democratic Party, as well as the punditcrats who fell in love with him during his Senate bid, for enough support to keep his campaign afloat.
That’s probably why he answered unhesitatingly and in the affirmative when CNN’s Don Lemon asked in a recent forum, “Religious institutions like colleges, churches, charities—should they lose their tax-exempt status if they oppose same-sex marriage?”
To be fair, he probably didn’t think about the question very thoroughly before answering. He didn’t consider all the implications inherent in his response for a nation like ours, which was founded, in no small way, as a sanctuary for those seeking religious liberty. But answer that way he did, and he has to accept he’ll be criticized for it.
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O’Rourke’s answer reminded me of another political leader who, centuries ago, when confronted with an unresolvable conflict with the church over a different issue regarding marriage, chose to take matters into his own hands.
It’s a complicated story, central to the storyline of the Academy Award–winning film A Man for All Seasons, that’s not as well-remembered as it should be. In brief, King Henry VIII, unable to obtain a papal annulment of his marriage to Catherine of Aragon, broke with Rome and established the Church of England with himself as the head. He then moved into the second of the many marriages for which he is infamous.
While this schism horrified church leaders and Catholics who continued to profess allegiance to Rome, others went along quietly, if not gladly, for economic reasons. Henry, as he moved forward to consolidate his control, seized church assets, bringing valuable land and other properties under royal control or, to put it more bluntly, taxed them into submission.
This is precisely what CNN’s Lemon proposed, and O’Rourke supported, despite this country’s long history of tolerance on matters of individual conscience and religious doctrine. The so-called separation of church and state, a phrase that appears nowhere in the U.S. Constitution but comes instead from a letter on the subject of religious liberty written by Thomas Jefferson to a congregation of Baptists in Danbury, Connecticut, exists to protect the church from the state and not vice versa.
Religious organizations are part of the dynamism that makes the nation what it is. It’s an observation going back as far as Alexis de Tocqueville, if not further. They are a vital part of the national fabric and perhaps the only ones strong enough and well-funded enough to compete with the state in the delivery of what we now consider essential social services. Like the government, religious groups run hospitals, provide for the poor, educate the young, care for the old and engage in other activities without which the country might grind to a halt.
That they can do as much as they do to improve Americans’ lives is in part because they are largely free of the burden of taxation imposed on individuals and businesses. To force them to turn over funds that would be used for good works, as punishment for not getting with the rest of the cultural elites on the doctrinal matter of the nature of marriage, would constitute an enormous constitutional and cultural overreach. Yet O’Rourke went there, even if he did later clarify his position, walking it back outside the area of doctrine and into the bright light of matters related to the delivery of public services. Can other Democrats who want to be president be all that far behind?
It used to be said that what was once called the “religious right” wanted to use the power of the government to impose its views on everyone else. Maybe—though I always found the allegation specious. Now, the pendulum is swinging. It is the secularists, whose views O’Rourke initially endorsed (again, one hope’s without thinking), who appear to be driving the train in a way that could have profound implications for the future of America.
The US House of Representatives is getting closer to voting on the Butch Lewis Act, which failed to pass last year. While a number of provisions in the current version of the legislation make it an unworthy solution, the truth is the problem it attempts to address is real and the legislation even with its flaws does create the opportunity to amend and improve it so that a serious financial crisis can be avoided. Conservatives should consider this an opportunity.
Many multi-employer pension and defined pension plans are now on the brink of failure. They carry over $600 billion of unfunded liabilities and are dangerously close to failing. Millions of retired Americans in states like Pennsylvania, Wisconsin, Michigan, Minnesota, Ohio, Nevada, Florida, Colorado, Maine and New Hampshire could lose their retirement. If that happens, they will be thrust onto the welfare rolls and the fruits of their life’s work will be lost.
Even those who don’t have such pensions, are at risk. The 2008 housing bubble that triggered a huge economic slowdown, impacted everyone — not merely those whose mortgage was foreclosed upon. And we spent the next five plus years in economic turmoil and that was used as an excuse to grow the government. So we paid twice — first with the economic downturn and lost jobs and second, when government spending and debt grew dramatically and government’s penchant to over regulate drastically expanded.
President Trump could ensure his reelection in 2020 and conservatives in the House could insure a return to the majority as well — if they can fashion a sustainable, conservative fix to the pending multiemployer pension plan crisis.
In 2016, Trump won a number of states narrowly — states like Pennsylvania, Wisconsin, and Michigan. In those states and many others — Ohio, Colorado, Nevada, Minnesota, Maine, New Hampshire and Florida — there are millions of citizens who are participants in multi-employer pension plans. Each of these potential voters has family and friends which only multiplies their electoral influence. By stepping in and averting this potential economic pitfall, Trump would win millions of blue collar voters in key states. Likewise, GOP congressmen who had a difficult year in 2018, could find themselves swimming with the current and regain the majority if they can take the opportunity to use the Butch Lewis Act as a starting point to address the multiemployer pension plan crisis in a conservative and sustainable way. Even Senate Republicans could see their majority grow if they move helpful legislation.
In Pennsylvania, there are more than 493,000 participants in multi-employer pension plans. In Michigan, there are more than 440,000 multi-employer pension participants. In Wisconsin, there are almost 150,000. Ohio has almost half a million. Florida has more than 340,000. Colorado has almost 200,000. In Maine, more than 50,000. In Nevada almost 135,000. In Minnesota, more than 278,000.
In each case, those numbers could either expand upon Trump’s 2016 victory, or flip a state that he narrowly lost in 2016, to make it part of his expanded victory in 2020. And once you account for family friends and relatives, those numbers only increase the potential for an impressive reelection victory.
For GOP members of Congress, this provides a powerful way to win the support of working class voters and pave the way to reclaiming the majority in the House and help the Senate preserve and grow its majority.
It may be tempting to leave this problem to fester and then let some future President and Congress deal with it when this pending crisis becomes a full blown, current crisis. But that’s dangerous and risky. The far Left has repeatedly signaled that they won’t let a “crisis go to waste.” They will use any crisis as an excuse to grow government, bust the budget and further smother economic opportunity with burdensome regulations. So solving this now is actually the conservative thing to do. It protects taxpayers and it can keep government growth in check.
A workable and permanent solution will include a number of important principles. First, the affected pension plans must be reformed by requiring them to meet more rigorous and realistic actuarial standards. Second, the reform must engage all the stakeholders to share in the costs, including at least temporarily, the retirees — rather than passing off the costs to taxpayers. Third, modest loan guarantees must be authorized to help pension plans that make the required reforms. This will allow them to get through their short term cash crunch and get back on a firm actuarial footing when the loans would be fully repaid. Fourth, the Pension Benefit Guarantee Corporation (PBGC) must be reformed to make it function as a real insurer where risks and cost balance out. If nothing is done, the PBGC will be bankrupt within 6 years — leaving taxpayers to make good on its promises which will cost hundreds of billions.
If President Trump and GOP conservatives become the champion of a wise pension plan solution like this, they can easily win re-election in 2020, regain the House majority, and expand their Senate majority. That is why the Butch Lewis Act with all its problems, presents conservatives with a real opportunity to fashion a solid conservative solution that benefits all Americans.
By Tripp Mickle • Wall Street Journal
Apple Inc. AAPL 1.65% said it would pay a one-time tax of $38 billion on its overseas cash holdings and ramp up spending in the U.S., as it seeks to emphasize its contributions to the American economy after years of taking criticism for outsourcing manufacturing to China.
The world’s most valuable publicly traded company laid out its plans Wednesday in a statement that was full of big-dollar figures, though it said that much of the money reflected Apple’s current pace of spending.
Apple said it would invest $30 billion in capital spending in the U.S. over five years that would create more than 20,000 jobs. The total includes a new campus, which initially will house technical support for customers, and $10 billion toward data centers across the country. It also will expand from $1 billion to $5 billion a fund it established last year for investing in advanced manufacturing in the U.S.
All told, Apple said it would directly contribute $350 billion to the U.S. economy over the next five years, with the bulk—about $55 billion this year, for example—coming from ongoing spending on parts and services from U.S. suppliers. That number also includes the federal tax payment and capital spending.
by David French • National Review
I’m starting to think that all too many Democrats believe that private citizens and private corporations don’t actually own their private income or their private property.
Otherwise, how can we explain the Democratic insistence, repeated endlessly over the last 24 hours, that Republicans somehow are poised to execute a grand “heist” by cutting corporate and individual tax rates, granting an estimated 80.4 percent of taxpayers an average tax break of $2,140.
The rhetoric was remarkable, and the hysterics weren’t confined to fringe figures on the left.
Here’s House Democratic leader Nancy Pelosi:
“Shamefully, Republicans were cheering against the children as they rob from their future and ransack the middle class to reward the rich #GOPTaxScam”
— Nancy Pelosi (@NancyPelosi) December 19, 2017
By Heather Wilhelm • National Review
Ah, the holiday season. It’s a magical time, bursting with joy and merriment, the laughter of children, jolly parties, twinkling lights, mildly terrifying mall-dwelling Santas . . . and the faint sounds of caterwauling blue-state politicians shrieking that the GOP tax bill signals the end of civilization as we know it.
Can you hear it? Fire and brimstone! The weeping and gnashing of teeth! According to Nancy Pelosi, this reshuffling of government regulations amounts to “Armageddon” and “the worst bill in the history of the United States Congress.” California governor Jerry Brown labeled the tax bill “evil in the extreme.” According to Bernie Sanders, the proposal amounts to “class warfare” and “one of the greatest robberies in American history.” In terms of sheer melancholy drama, comedian Patton Oswalt might win the prize: Because of the GOP tax bill, “there’s no America now. Not the one we knew. Sorry, feeling real despair this morning.” Continue reading
by Lawrence Kudlow, Stephen Moore, Arthur B Laffer, and Steve Forbes • Investor’s Business Daily
President Trump and Republican leaders in Congress must act with much more urgency and decisiveness on tax cuts.
In recent weeks the tax cut agenda seems stalled out and the delays and indecision are negatively affecting growth and the stock market. We hear that a tax plan from the White House may not come until the fall and may not even pass Congress until 2018 – if at all.
Is it any wonder that investors are getting jittery? The stock market had priced in much of the anticipated benefits to business, wages and profits, which accounts in no small part for the $3 trillion rise in equity values and the surge in business and consumer confidence after the election. Now the confidence is waning. Continue reading
IRS tax code totals 2.4 million words and additional regulations total 7.7 million words
by Ali Meyer • Washington Free Beacon
“One often overlooked issue in tax reform is complexity,” the report states. “For decades, the tax code has become more and more detailed, with thousands of additional pages of statutes, regulations, and case law. This added complexity imposes a real cost on the U.S. economy.”
The Internal Revenue Service (IRS) tax code in 1995 totaled 409,000 words and since then it has increased to a total of 2.4 million words.
In addition to the tax code, there are 7.7 million words of tax regulations and there are 60,000 pages of tax-related case law, which accountants and tax lawyers use to decide how much their clients must pay. Continue reading
$2,883,250,000,000: Federal Taxes Set Record Through August; $19,346 Per Worker; Feds Still Run $530B Deficit
By Terence P. Jeffrey • Investor’s Business Daily
The federal government raked in a record of approximately $2,883,250,000,000 in tax revenues through the first eleven months of fiscal 2015 (Oct. 1, 2014 through the end of August), according to the Monthly Treasury Statement released Friday.
That equaled approximately $19,346 for every person in the country who had either a full-time or part-time job in August.
It is also up about $198,425,330,000 in constant 2015 dollars from the $2,684,824,670,000 in revenue (in inflation-adjusted 2015 dollars) that the Treasury raked in during the first eleven months of fiscal 2014. Continue reading
by Stephen Moore • The Washington Post
It was 40 years ago this month that two of President Gerald Ford’s top White House advisers, Dick Cheney and Don Rumsfeld, gathered for a steak dinner at the Two Continents restaurant in Washington with Wall Street Journal editorial writer Jude Wanniski and Arthur Laffer, former chief economist at the Office of Management and Budget. The United States was in the grip of a gut-wrenching recession, and Laffer lectured to his dinner companions that the federal government’s 70 percent marginal tax rates were an economic toll booth slowing growth to a crawl.
To punctuate his point, he grabbed a pen and a cloth cocktail napkin and drew a chart showing that when tax rates get too high, they penalize work and investment and can actually lead to revenue losses for the government. Four years later, that napkin became immortalized as “the Laffer Curve” in an article Wanniski wrote for the Public Interest magazine. (Wanniski would later grouse only half-jokingly that he should have called it the Wanniski Curve.) Continue reading
Rather than trying to ban the practice, why can’t Obama address corporate tax reform?
by Charles Krauthammer • National Review
The Obama administration is highly exercised about “inversion,” the practice by which an American corporation acquires a foreign company and moves its headquarters out of the U.S. to benefit from lower tax rates abroad.
Not fair, says Barack Obama. It’s taking advantage of an “unpatriotic tax loophole” that hardworking American families have to make up for by the sweat of their brow. His treasury secretary calls such behavior a violation of “economic patriotism.”
Nice touch. Democrats used to wax indignant about having one’s patriotism questioned. Now they throw around the charge with abandon, tossing it at corporations that refuse to do the economically patriotic thing of paying the highest corporate tax rate in the industrialized world. Continue reading
President Barack Obama says it’s “not fair” and “not right” for U.S. companies to set up overseas to avoid taxes. Except when it benefits him politically.
The president calls these companies “corporate deserters.” He says they are “still using all the services and all the benefits of effectively being a U.S. corporation,” but have “just decided” to go through the “paper exercise” of corporate inversion, in which U.S. companies with foreign subsidiaries can reduce their tax bill by becoming foreign companies with U.S. subsidiaries.
“I think it’s something that would really bother the average American,” he said recently, “the idea that somebody renounces their citizenship but continues to entirely benefit from operating in the United States of America just to avoid paying a whole bunch of taxes.”
Many companies are planning to flee the country because the United States of America has the highest corporate tax rate — 35 percent — in the developed world. It simply makes sense for them to do so. They are obligated to shareholders to be as competitive and profitable as possible. Continue reading
Federal tax revenues continue to run at a record pace in fiscal 2014, as the federal government’s total receipts for the fiscal year closed April at $1,735,030,000,000, according to the Monthly Treasury Statement.
Despite this record revenue, the federal government still ran a deficit of $306.411 billion in the first seven months of the fiscal year, which began on Oct. 1, 2013 and will end on Sept. 30, 2014.
In the month of April itself, which usually sees the peak tax revenues for the year, the federal government ran a surplus of $106.853 billion. While taking in $414.237 billion in total receipts during the month, the government spent $307.383 billion.
In fiscal 2013, the federal government also ran a one-month surplus in April, taking in $406.723 billion during the month and spending $293.834 billion, leaving a surplus of $112.889 billion. Continue reading
Our corporate tax rates are far too high. The rate kills investment and job creation and it makes us less competitive with other nations who have had the good sense to lower their tax rates. Germany has cut its rates almost in half in the last 25 years. Socialist Sweden has cut its by more than one half. And Ireland has cut its rates by almost 75%. We, on the other hand, have raised our corporate tax rates over that time period — leaving us with the highest rates in the industrialized world.
It is no coincidence that our unemployment rate is historically high and our labor participation rate is historically low. It is also no coincidence that our economic growth rate is painfully slow and far too low.
We realize that there will not be any meaningful tax reform or lowering of the tax rates this year. But the idea that the Senate Finance Committee might consider extending some legitimate tax deductions for manufacturing that actually make profits and employ people, but killing others means that the Senate plans to raise taxes on some american corporations at a time when the economy is weak, employment numbers are bad and taxes are already too high. This is bad policy! Continue reading