An amazing thing happened on the way to the California recall: Someone spoke the truth about the state’s financial predicament. Billionaire investor Warren Buffett, ballyhooed as a top economic advisor to Arnold Schwarzenegger, told the Wall Street Journal that property taxes in California are ridiculously low.
He’s right. Thanks to Proposition 13 in 1978–an initiative no less stupid than the current recall and also put on the ballot by Republican conservatives–the state lost its most reliable tax base. Voters capped annual property assessment increases at no more than 2%. The property is reassessed at market value when it is sold. This gutted the core funding source upon which every other state relies to provide public services.
To make his point, Buffett compared the taxes he pays on his Omaha residence with those on his home in the ritzy California coast city of Laguna Beach. The tax on his $500,000 Omaha home rose $1,920 this year, compared with a mere $23 on his $4-million California residence.
Schwarzenegger, who is assiduously avoiding talking about any issues lest it upset his anointment as a celebrity governor, let his campaign belatedly announce that he had rejected Buffett’s advice and affirmed his support for Proposition 13.
Of course he did, because for Republicans and many other Californians, Proposition 13 has become sacred text. His rivals to the center and left were even quicker to rebuff Buffett’s common-sense talk: Gov. Gray Davis issued a firm endorsement of the crippling law, and independent recall candidate Arianna Huffington promised “to reverse the trend that has seen an increase in the property tax burden placed on homeowners.”
Huh? What increased burden? California homeowners have again experienced a housing price boom. This has allowed them to take out the untaxed increased equity in their homes through low-interest refinancing and second-mortgage loans that have fueled most of the robust consumer spending that has kept the state from falling back into a recession. The mortgage tax deduction and the $500,000-per-couple gift in tax-free capital gains when the house is sold remain tax boondoggles, resulting in a sharp class division between renters and property owners.
Proposition 13 must be changed because it mainly benefits the rich–most of whom are now running for governor, it would seem. The proposition was sold as salvation for poor widows, but the law makes no distinction between commercial and residential properties, thereby artificially lowering the tax on profitable enterprises. Leave the tax break for homeowners with low and fixed incomes, but Buffett is right–guys like him should pay more taxes than they do.
Hard-line ideological Republicans have tried for three decades to strangle the money supplies of states and municipalities to force cuts in services: public schools open to every child, even the disabled; public transit and roads; clean air and water; public safety and health; emergency preparedness; a functioning judicial system; recreation areas and parks.
Buffett is apparently smart enough to know he is only able to enjoy life in Laguna Beach because massive government expenditures over the last century brought water, electricity and freeways to the parched semi-desert of Orange County.
Last week’s blackout in the Northeast and Canada showed us what happens when we cheat on public expenditures. From the brownouts endured by California at the hands of manipulative corporations like Enron to the Third World state of the nation’s power grids, we are witnessing a meltdown of our underfunded and deregulated infrastructure.
The White House continues to throw billions into fixing Iraq’s power and water infrastructure but ignores the US’s own massive problems. Perhaps the United States should consider invading itself. At home, the GOP mantra has long been that if you can get government out of the energy business, everything will be hunky-dory. That is a false view that dominates Bush’s ideology.
We don’t need to recall Davis, who is not the problem. We do need to re-create a political culture where the role of government is respected and properly funded.