Friday, February 13, 2015

Los Angeles: when cutting business taxes makes sense

As a progressive Democrat, you might not normally expect me to be in favor of cutting business taxes. One exception? My home city of Los Angeles and "gross receipts tax" it imposes on businesses. The gross receipts tax is, well, pretty gross. It taxes businesses not on their profits, but simply based on how much they collect on their invoices. Simplistically speaking, all business that collect, say, $1 million in invoices are taxed on that basis, regardless of how high their operating expenses are.

Needless to say, this unfairly penalizes businesses in industries with low profit margins, as well as businesses that invoice for a high amount of passthrough expenses. Let's take the marketing research industry, for instance: standard practice for focus group facilities is to pay the people who come in to do their focus group projects, and then invoice the clients for the amount of money they spent. In some cases, the incentive money can comprise the majority of the invoice, and yet it's a passthrough expense: the facility makes no money on it, but because it still counts toward gross receipts, the city can assess taxes on it. This leaves the facility two options: either to eat the cost of paying taxes on money it doesn't make, or to try to make up the difference by raising prices elsewhere and thus putting it at a competitive disadvantage. In either case, it makes operating a service business within Los Angeles more uncomfortable than it should be, and in the marketing research industry, the gross receipts tax has been a factor for focus group facility owners in whether to locate a business within Los Angeles proper, or pick a neighboring city like Santa Monica or Culver City instead.

Thankfully, Mayor Eric Garcetti is changing that. From a recent release:
LOS ANGELES -- Mayor Eric Garcetti today signed his business tax cut plan into law and received the endorsement of the influential Los Angeles Business Council for his plan to increase L.A.'s minimum wage.
"Together with the City Council, we are taking a strategic approach to creating jobs and opportunity for Angelenos. Cutting our business tax will entice more businesses to stay, come and hire in L.A., and responsibly raising the minimum wage will inject significant spending into our neighborhood businesses," Mayor Garcetti said. "I'm proud to have the support of the Los Angeles Business Council, which represents such a broad cross-section of L.A. businesses."
"Today, we are taking a significant step to helping our economy grow," said Council President Herb Wesson. "We want to do everything we can to retain and bring business to the City of Los Angeles. We also want to help our residents earn a decent wage, and today I'm pleased we're making progress on both."
"With today's cut to our business tax, we are shattering the myth that Los Angeles is a bad place for business," said Councilmember Paul Krekorian, who chairs the Council's Budget and Finance Committee. "And this is just the first step. We are committed to further reforming our business tax to make it cheaper, more predictable and less arbitrary. Tax reform like this works, and I'm confident it will help grow our economy and create more jobs for Angelenos."
Mayor Garcetti has made job creation and support for businesses a cornerstone of his back to basics agenda. L.A.'s business tax is the highest in the county, making our city more expensive and less attractive to do business in, while the current minimum wage leaves even full-time working people below the poverty line, which is a drag on our overall economic recovery.
The business tax cut represents a 16 percent overall reduction over three years, saving L.A. businesses a total of $90 million. The cut takes the top tax rate from $5.07 per $1,000 in gross receipts to $4.75 in FY 2016, $4.50 in FY 2017, and to $4.25 in FY 2018.


Now, I'm not suggesting that this tax cut will end up paying for itself. But eliminating the gross receipts tax and replacing it with something that is less punitive towards businesses with a lower profit margin will definitely increase business development and reduce any competitive disadvantage Los Angeles faces compared to its neighbors.

Combined with the minimum wage increase that's on track for passage, it looks like the city's economic future is getting brighter for everyone under Mayor Garcetti's leadership.

Thursday, February 12, 2015

Maybe the Western States Petroleum Association should take a cue from the CEO of Shell?

The Western States Petroleum Assocation has been spending big on lobbying in California:
The Western States Petroleum Association (WSPA) topped the oil industry spending with a total of $31,179,039 spent on lobbying since January 1, 2009 at the time of Barrett’s report. Chevron was second in lobbying expenses with a total of $15,542,565 spent during the same period.

From July 1 to September 30 alone, the oil industry spent an unprecedented $7.1 million lobbying elected officials in California “with a major focus on getting oil companies out of a major clean air regulation,” said Barrett.
The "major clean air regulation in question is AB32, the 2006 law that allowed the California Air Resources Board to establish a cap-and-trade program that caps allowable carbon emissions and requires polluters to purchase credits from the state. It's a focus for oil companies now because AB32 was implemented gradually: at first, the credit purchase requirement only applied to stationary emitters. But on January 1 of this year, wholesalers of liquid fuels became subject to the program, causing oil companies to go all-in to try to get the program delayed or repealed.

So far, they have very little to show for their efforts. And if the CEO of Shell has his way, they'll stop trying:
“You cannot talk credibly about lowering emissions globally if, for example, you are slow to acknowledge climate change; if you undermine calls for an effective carbon price; and if you always descend into the ‘jobs versus environment’ argument in the public debate,” Mr. van Beurden plans to say.
Now, I'm not normally the type of person to go around thanking a big oil CEO, but credit goes where credit is due here. It's time for the oil lobby to stop externalizing the cost of their pollution. It's time for them to stop creating a false dichotomy between the environment and jobs. And it's time for them to acknowledge their role in climate change and work to minimize it. Let's hope WSPA is listening in.

California Senate District 25: Why is Anthony Portantino touting support from a virulent bigot?

Political people who say bigoted crap on the internet tend not to last too long in politics. Witness, for instance, the case of Ethan Czahor, recently let go from Jeb Bush's presidential campaign because of his racist, homophobic and misogynistic comments on twitter and on his personal blog. Some observers were uncomfortable, perhaps not without justification, that a campaign staffer was being held to such an accounting for views he shared as a college student. But what if the person who spewed the online bile isn't just a campaign staffer, but is currently the mayor of a city with 200,000 people? And moreover--if you were running for office yourself, would you want to tout the endorsement of someone who had posted some of the vilest filth that YouTube comments have to offer? Doubtful, unless you're former Assemblymember and current State Senate candidate Anthony Portantino.

Before we continue, let's meet the mayor in question: Zareh Sinanyan, who last year became the mayor of Glendale, a city nestled between Los Angeles and Pasadena in the foothills of the San Gabriel Mountains. As a candidate for city council back in 2013, Sinanyan had gathered an impressive amount of support from elected officials: not just Portantino, but also Los Angeles Councilmember Paul Krekorian, former Los Angeles City Controller Wendy Greuel, and current Los Angeles Mayor Eric Garcetti, who was at the time City Council President. In early March, however, an enterprising local blogger discovered that Sinanyan had, over the preceding several years, left a vile history of racist, sexist, homophobic and Islamophobic comments on YouTube. And by vile, I mean vile. For example:

 

 When the story broke, most elected officials distanced themselves from Sinanyan and withdrew their endorsements. One exception? Anthony Portantino. There is no record from any media outlet anywhere of Portantino withdrawing his endorsement of Sinanyan in the wake of the latter's disgusting diatribes.

Now, maybe a more forgiving person would just assume that Portantino missed the whole scandal. Not likely, given how well known it was that he was preparing for a run for the 25th State Senate District. So why am I bringing it up now? Because Portantino just sent an email to his list containing a video announcing endorsements from local mayors. And on that video is none other than Zareh Sinanyan of Glendale.

So why bring it up now? Honestly, I haven't been keeping up with politics in the San Gabriel Valley. The Sinanyan scandal occurred in March of 2013, when I was knee-deep volunteering on Eric Garcetti's run for mayor of Los Angeles. Before that video, I didn't even know that Sinanyan had won a city council spot in spite of his racist rants, much less that he had been appointed mayor. But Portantino of all people should know better than to have accepted and promoted Sinanyan's endorsement. Back when I was the campaign manager for Speaker Emeritus John Perez' campaign for State Controller, I often found myself going head-to-head at endorsement meetings with Portantino, who was supporting Perez' opponent and current Controller Betty Yee. Portantino would argue that much of his support for Yee was owed to his desire to see a woman in statewide office to set a positive example for his daughters.

I don't disbelieve him in that. But the least he could do would be to set a good example himself--not just for women, but for the LGBT community and all the people insulted by Sinanyan--by rejecting this endorsement, rather than sacrificing his principles for political expediency.

Wednesday, February 11, 2015

Is King v. Burwell part of a long con?

Over at New Republic, Brian Beutler has an outstanding piece about the farcical three-ring circus surrounding the standing issues for the technical plaintiffs in the King v. Burwell case that is threatening subsidies for those with plans on the federal exchange. Even more interesting, though, is the history of the efforts of the ideologues in the case to find some avenue to declare the Affordable Care Act unconstitutional. Viewed through that lens, it seems like the entire point of the case might be a strategy to get the whole law thrown out by the courts. Here's Beutler:
Credit for identifying the five-word phrase at the heart of the legal challenge goes to a lawyer named Thomas Christina. Unlike today’s conservatives, he allowed for the narrow possibility that his interpretation was incorrect—or at least the outgrowth of a legislative snafu. “This could be an unintended consequence,” he explained in his AEI presentation. “We’re not going to really know much until at least the spring of next year when there are proposed regs. But the lesson appears to be that there will be no tax credits for taxpayers who live in non-capitulating states, which is really quite extraordinary.”

Extraordinary not because it traced a path by which Republican governors could destroy the law by sitting on their hands, but because it was too coercive and thus vulnerable to a Constitutional challenge.

“This is dangling cash in front of voters,” Christina said. “I mean, really, you will end up in exactly the same place, whether you knuckle under or not, with one important difference, which is you won’t get re-elected if you turn down free money that might otherwise have been paid in the form of tax credits to your citizens. Nobody would be foolish enough to pick door number one. That I think—it fits very comfortably in what I’ve posited is this non-interference principle.”

For a time, Jonathan Adler—one of the conservative lawyers most closely associated with the subsidy challenge—bought into this line. He wrote that “under most conditional spending statutes, states may risk losing direct financial support if they fail to follow federal dictates. Here, however, it is state citizens who lose a financial benefit if their state does not act. This structure could create potential coercion concerns insofar as the Dole test focuses on whether the relevant conditions ‘interfere[] with the state’s sovereign accountability.’”

Only when the IRS announced it would issue subsidies universally did Adler and his partner-in-crime Michael Cannon—a CATO institute libertarian—change course. Where conservatives once argued the subsidy condition might be unconstitutionally coercive, they set about to force the government to make good on that very coercion. For a time, Cannon treated their reading of the law as the result of a “glitch.” Eventually the difficulty of undoing the ACA by exploiting a "glitch" dawned on them.
To summarize: Christina and Cannon thought they had an angle to challenge the ACA if the turned out that the law required states to set up their own exchange to get the subsidies. turns out that when the IRS wrote the guidelines on subsidies, that angle went out the window: because the federal exchange got subsidies, there was no state compulsion, and therefore, no possibility for a court challenge on coercion grounds. Now, however, Cannon and his pals are trying to get the Supreme Court to say that, yes, the law did intend to coerce states, and that the IRS rule granting subsidies is illegal under the technical text of the ACA.

Let's suppose that plaintiffs prevail in the case and rule that federal exchange subsidies are illegal. There will be massive disruption to the health insurance system, obviously, but let's move past that. Congress won't do anything to pass a fix and guarantee the legality of subsidies on the federal exchanges. But even if states do step in and fill the void, guess what? It tees up unconstitutional coercion argument for Christina and Cannon as a pathway to destroying the entire bill.

Viewed in this light, it's possible that the entire point of the King v. Burwell case isn't just to try to hobble the law by throwing its regulatory structure out of whack--instead, it's just an intermediate step toward one final court challenge that could kill the whole thing.

Gavin Newsom for Governor? How about no.

California Lieutenant Governor Gavin Newsom opened a campaign account to start fundraising to succeed Jerry Brown as Governor in 2018. My thoughts? How about no: Don't get me wrong: I respect Newsom for taking a stand on marriage equality long before it was popular or convenient. But his record on other issues is much more dicey. He flip-flopped on California High-Speed Rail at a time when the program was in dire straits and needed all the support it could get. In 2008, he ended San Francisco's sanctuary city policy for juvenile undocumented immigrants. His record on renter's rights is spotty at best. He sided with Rick Perry in the ideological cold war between Texas and California on taxation and job creation (which California is winning, by the way). And in a move that progressive activists won't easily forget, Newsom endorsed Ro Khanna in his right-leaning effort to unseat longtime progressive Congressman Mike Honda. Newsom will be formidable, obviously. He has name ID and will be able to raise significant money from the tech circle and venture capital. But progressives will be thirsting for a viable alternative.

Tuesday, February 10, 2015

Hospital Corporation of America brief eviscerates King v. Burwell plaintiffs

The Hospital Corporation of America is the country's largest private medical care provider. As such, their main objective is to have a health care system with a competent, consistent regulatory structure with as many people insured as possible so that they access care in the most cost-efficient and least burdensome manner possible. This stands in stark contrast to the plaintiffs in the King v. Burwell case, who are trying to outlaw subsidies for the 6.5 million people (just so far) on the federal exchange. HCA submitted a marvelous Amicus Curiae brief on behalf of the government documenting the positive effects of the Affordable Care Act in terms of policy. And as far as the plaintiffs' legal argument? The basic message is, "you guys can't really be serious":
Without subsidies, the goal of near-universal coverage would be impossible. Not only would many newly uninsured Americans be stripped of coverage, but the likely effect of the ACA as interpreted by Petitioners would be an overall increase in the uninsured in federally-facilitated Exchange states relative to a pre-ACA baseline. Supra pp. 18–23. It cannot be that Congress’s “comprehensive national plan to provide universal health insurance coverage,” NFIB, 132 S. Ct. at 2606 (op. of Roberts, C.J., joined by Breyer & Kagan, JJ.), was actually a plan to take coverage away and destabilize insurance markets. Indeed, “[i]t defies logic to think that Congress would disregard [these] real-world consequences.” Northwest, Inc. v. Ginsberg, 134 S. Ct. 1422, 1430 (2014).
For the plaintiffs, though, it's kind of like a Cards Against Humanity draw: "In the CATO institute's new court case, it turns out that 'Congress's comprehensive national plan to provide universal health insurance coverage was really just 'a plan to take coverage away and destabilize insurance markets' all along." On a side note, it's especially delicious to see a major corporation telling a bunch of right-wing ideologues to shove off because the Affordable Care Act has been so good for business.

A basic King v. Burwell question for Michael Cannon

When oral arguments come up in the King v. Burwell case, there's one basic question I would love to see a justice ask of CATO hack Michael Cannon. It would go something like this:
If, as you argue, the Affordable Care Act wanted to force states to set up their own exchange in order to qualify for subsidies, then why the the law authorize a federal exchange in the first place?
Seriously. What's the point of creating a fallback that isn't actually a fallback? This whole thing has the convolutedness of a bad action movie script.

Monday, February 09, 2015

HHS press release puts King v. Burwell in stark relief

Charles Gaba of ACA Signups fame shared a press release from the Health and Human Services Department on Daily Kos yesterday that underlines just what's at stake in the King v. Burwell court case:
For instance: Moments ago, the HHS Dept. of the United States sent out this press release, touting the fact that about 6.5 million people who selected private policies via Healthcare.Gov for 2015 (about 87% of the 7.5 million total confirmed via the federal exchange) qualify to receive tax credits to help cover the cost of their health insurance premiums. The average tax credit for those 6.5 million people is $268/month, or $3,216 per year.
Now, let's do some math on this. If King v. Burwell is decided in favor of its Cato Institute proponents, it will remove all tax subsidies from those who have signed up for qualified health plans under the federal exchange. As of now, with not quite a week left in the open enrollment period, there are 6.5 million people who qualify for an average annual subsidy of $3,216 this year. That comes out to a $20.9 billion tax hike on lower- and middle-income Americans, to say nothing of the systemic havoc it will wreak on the health care system and the number of people who will die because they could no longer afford health insurance. Gaba estimates that the number of subsidy-eligible participants on the federal exchange will end up somewhere near 7.3 million when all is said and done. Presuming the average subsidy remains the same, you would then be looking at a tax hike of roughly $23.5 billion, along with a concomitant increase in deaths and premium death spirals.

Supporting this lawsuit just to deny President Obama a policy success is a really evil thing to do. I'm not quite sure how Michael Cannon can look himself in the mirror every morning.