More glum economic news today in our latest roundup of the dismal news from the dismal science.
California budget hits the poor hardest
California’s new budget, enacted Thursday by Governor Edmund G. Brown Jr., inflicts grievous injuries on the poorest in the former Golden State, and worse is to come if emergency taxes passed two years ago when the impact of the current crisis first hit home.
And, as the corporate libertarian Orange County Register noted in gleeful editorial, the tax extension — which must be passed by a majority of California voters — seems likely to fail, presuming the proposal actually makes it onto the March ballot:
A new poll by the Public Policy Institute of California says support for Gov. Jerry Brown’s tax proposal dramatically declined among likely voters, from 54 percent to 46 percent, in just two months.
Support for the five-year extension of 2009 increases in some sales, income and vehicle taxes is declining at a rate reminiscent of the speed that Mr. Brown’s predecessor, Arnold Schwarzenegger, lost public support.
The budget bill just signed covers $11.2 billion of a $26 billion shortfall, inflicting the most harm of the poor, the aged, and the infirm
As Shane Goldmacher reported for the Los Angeles Times:
State officials will now begin notifying many Californians that their government benefits are to be cut within 90 days — at just about the start of the new budget year. Come July, welfare grants will be reduced by 8%, and parents will be kicked off the rolls after four years instead of the current five.
Assistance for the elderly and disabled, in their homes and at senior centers, will also be reduced. State-subsidized child care for 11- and 12-year-olds will be eliminated.
Brown sought to use the “painful” cuts he signed to make his case that Republicans should support the plan to ask voters to pay more taxes to bridge the remaining shortfall.
“It’s going to be much, much worse if we cannot get the vote of the people and the tax extensions,” Brown said.
Students walk out to protest program cuts
A massive 18 March protest at one Los Angeles high school already gives an inkling of what lies ahead, an event covered by L.A. Times reporters Richard Winton and Irfan Khan:
At least 1,500 students at Hamilton High School walked out Friday morning to protest layoff notices being issued to some of their favorite teachers.
Students packed the sidewalks around the high school in a show of support for teachers and support staff who were among about 7,000 L.A. Unified School District employees to receive layoff notices recently as the district grappled with cutting its budget.
The district said about 1,500 students participated in the demonstration; others doubled that estimate. The school’s marching band led banner-waving student protesters in a march around the campus before listening to a series of student leaders address the gathering on the need to fight to keep their educators.
Although cuts have not been finalized, the directors of two popular and successful Hamilton programs — the humanities magnet and the music magnet — have been informed by L.A. Unified that their positions are being eliminated.
We note that the cuts are coming where they always do, in programs designed to create well-rounded citizens, rather than technocratic servants of the corporate state.
Americans have lost a major part of their wealth
While the rich are carving out ever-larger shares of the country’s remaining wealth, folks in the middle class are losing theirs.
CNNMoney’s Charles Riley reports:
The average American family’s household net worth declined 23% between 2007 and 2009, the Federal Reserve said Thursday.
A rare survey of U.S. households, first performed in 2007 but repeated in 2009 in order to gauge the effects of the recession, reveals the median net worth of households fell from $125,000 in 2007 to $96,000 in 2009.
Titled “Surveying the Aftermath of the Storm,” the report offers a broad look at how the financial crisis impacted individual households.
It is widely known that the 2008 financial crisis resulted in the vaporization of trillions of dollars in household wealth. But Federal Reserve officials said Thursday the new report offers a look at exactly how hard the recession hit families, and how they reacted.
The numbers paint a stark picture.
Families that owned stock saw their portfolios drop by more than a third to $12,000 from $18,500, on average. The value of primary real estate holdings decreased by an average of $18,700.
And families took on more debt, pushing median total debt levels to $75,600 from $70,300. They also made less money. Media[n] household income dropped from to $49,800 from $50,100.
Ah, but those corporations are doing so well
This from the New York Times’ David Kocieniewski, says it all:
General Electric, the nation’s largest corporation, had a very good year in 2010.
The company reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States.
Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.
That may be hard to fathom for the millions of American business owners and households now preparing their own returns, but low taxes are nothing new for G.E. The company has been cutting the percentage of its American profits paid to the Internal Revenue Service for years, resulting in a far lower rate than at most multinational companies.
Its extraordinary success is based on an aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore. G.E.’s giant tax department, led by a bow-tied former Treasury official named John Samuels, is often referred to as the world’s best tax law firm. Indeed, the company’s slogan “Imagination at Work” fits this department well. The team includes former officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress.
While General Electric is one of the most skilled at reducing its tax burden, many other companies have become better at this as well. Although the top corporate tax rate in the United States is 35 percent, one of the highest in the world, companies have been increasingly using a maze of shelters, tax credits and subsidies to pay far less.
In a regulatory filing just a week before the Japanese disaster put a spotlight on the company’s nuclear reactor business, G.E. reported that its tax burden was 7.4 percent of its American profits, about a third of the average reported by other American multinationals. Even those figures are overstated, because they include taxes that will be paid only if the company brings its overseas profits back to the United States. With those profits still offshore, G.E. is effectively getting money back.
Such strategies, as well as changes in tax laws that encouraged some businesses and professionals to file as individuals, have pushed down the corporate share of the nation’s tax receipts — from 30 percent of all federal revenue in the mid-1950s to 6.6 percent in 2009.
But where are the profits coming from?
As we noted earlier, sixty percent of all those Chinese goods folks fume about are actually coming from factories producing goods for American corporations.
The news is getting worse for companies still producing in the U.S., as Agence France Presse reports:
Lower demand for machinery and defense equipment prompted a fall in US factory orders in February, the Commerce Department said Thursday, dashing hopes for a rebound after start-of-year blizzards.
New orders for big-ticket items — such as planes, computers and cars — fell 0.9 percent during the month, led by a 4.2 percent drop in machinery orders.
That shocked economists, who had expected orders to rise.
And another form of production falls
One thing folks can’t import — at least not yet — is new housing. But that industry has been taking a huge hit, as banksters tighten up lending requirements and folks already underwater on their home loans find it impossible to move.
New U.S. single-family home sales unexpectedly fell in February to hit a record low and prices were the lowest since December 2003, a government report showed on Wednesday, suggesting the housing market slide was deepening.
The Commerce Department said sales dropped 16.9 percent to a seasonally adjusted 250,000 unit annual rate, the lowest since records began in 1963, after an upwardly revised 301,000-unit pace in January. Sales plunged to all-time lows in three of the four regions last month.
Economists polled by Reuters had forecast new home sales edging up to a 290,000-unit pace last month from a previously reported 284,000 unit rate. Compared to February last year sales were down 28 percent.
Meanwhile, inflation continues to soar in Britain
From Larry Elliott, economics editor of The Guardian:
George Osborne was handed a double dose of unwelcome pre-budget news on Tuesday when official figures showed inflation leaping to 4.4% and public borrowing hit its highest February level since modern records began in 1993.
With the chancellor putting the finishing touches to his second package of fiscal measures, the rise in inflation put additional pressure on the Bank of England to raise interest rates while the deterioration in the public finances put paid to City hopes that borrowing in 2010-11 would significantly undershoot the government’s £148bn target.
The disappointing economic news increases the chances of a cautious package from Osborne on Wednesday. The setback to the public finances gives the chancellor even less scope for budget giveaways and he will see a tough fiscal stance as necessary to prevent the Bank from raising interest rates.
Meanwhile, another tax deduction is under attack
No, they’re not going after yacht depreciation or corporate travel.
The Grand Inquisitors of the GOP are going after abortions, this time on your Form 1040:
Under a GOP-backed bill expected to sail through the House of Representatives, the Internal Revenue Service would be forced to police how Americans have paid for their abortions. To ensure that taxpayers complied with the law, IRS agents would have to investigate whether certain terminated pregnancies were the result of rape or incest. And one tax expert says that the measure could even lead to questions on tax forms: Have you had an abortion? Did you keep your receipt?
In testimony to a House taxation subcommittee on Wednesday, Thomas Barthold, the chief of staff of the nonpartisan Joint Tax Committee, confirmed that one consequence of the Republicans’ “No Taxpayer Funding for Abortion Act” would be to turn IRS agents into abortion cops — that is, during an audit, they’d have to detemine, from evidence provided by the taxpayer, whether any tax benefit had been inappropriately used to pay for an abortion.
The proposed law, also known as H.R. 3, extends the reach of the Hyde Amendment — which bans federal funding for abortion except in cases of rape, incest, or when the life of the mother is at stake — into many parts of the federal tax code. In some cases, the law would forbid using tax benefits — like credits or deductions — to pay for abortions or health insurance that covers abortion. If an American who used such a benefit were to be audited, Barthold said, the burden of proof would lie with the taxpayer to provide documentation, for example, that her abortion fell under the rape/incest/life-of-the-mother exception, or that the health insurance she had purchased did not cover abortions.