Gov. Jerry Brown of California announced when he came into office last year that he had found an alarming $28 billion “wall of debt” looming over the state, which had to be dismantled.

Since then, he has slowed the issuance of municipal bonds, called for spending cuts and tried to persuade the state’s famously antitax voters to approve a tax increase this fall.

On Thursday, an independent group of fiscal experts said Mr. Brown’s efforts were all well and good, but in fact, the “wall of debt” was several times as big as the governor thought.

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So people who spend most of their money on groceries and gasoline and electricity ”” usually the poorest among us ”” effectively pay a lower sales tax, because those items aren’t taxed. So do wealthier people who spend most of their money on services ”” from lawn care to attorney fees ”” which also are untaxed. People who spend more of their money on clothing or electronics or restaurant meals or most consumer goods pay a higher effective tax rate because those items are taxed.

Now, there are perfectly legitimate reasons to write exemptions into the tax code. It can make the code more equitable: A sales tax is regressive, because poor people must spend a larger portion of their income than wealthier people, who are able to save or invest more; exempting groceries is one way to make the tax less regressive. Exemptions also can discourage those activities that we as a society want to discourage and encourage activities that we want to encourage; hence, a higher tax on cigarettes, and tax breaks for creating jobs in low-income counties.

The problem comes when the loopholes swallow the whole ”” as they clearly have when twice as many sales are exempted as taxed. The problem comes when the tax exemptions do not reflect generally agreed-upon values, but instead reflect the lobbying power of the favored interests. Or inertia.

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Cash-strapped officials in Europe are looking for a way to ease their financial burden by upending centuries of tradition and seeking to tap one of the last untouched sources of wealth: the Catholic Church.

Thousands of public officials who have seen the financial crisis hit their budgets are chipping away at the various tax breaks and privileges the church has enjoyed for centuries.

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More big U.S. companies are reincorporating abroad despite a 2004 federal law that sought to curb the practice. One big reason: Taxes.

Companies cite various reasons for moving, including expanding their operations and their geographic reach. But tax bills remain a primary concern. A few cite worries that U.S. taxes will rise in the future, especially if Washington revamps the tax code next year to shrink the federal budget deficit.

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What’s the fiercest rivalry in American politics today? There’s Obama-Romney, of course, but try O’Malley-McDonnell””neighboring governors battling across the Potomac River over how best to resuscitate a moribund economy.

Martin O’Malley, Maryland’s liberal Democratic governor, is competing for jobs, businesses and tax dollars with Bob McDonnell, Virginia’s conservative Republican chief executive. Both are rising stars considered potential presidential hopefuls in 2016. Both are Irish Catholics””Mr. McDonnell playfully calls Mr. O’Malley “the big Irishman to our north”””and each leads his party’s association of governors. The two regularly spar on the Sunday talk shows, on the pages of Washington-area newspapers, and over the radio.

Each man seems obsessed with proving that his economic model has outperformed the other’s….

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Shortly after confiding to his countrymen that he had been unable to sleep at night because of all the young unemployed people in his country, Spanish King Juan Carlos secretly hopped aboard a plane and went on a lavish safari to Botswana, where he shot elephants.

When word leaked out this spring, Spaniards were outraged. Newspapers calculated that such hunting trips cost twice the country’s average annual salary. Tomas Gomez, a Socialist party leader, called on the king to choose between his “public responsibilities or an abdication.” Now, critics are calling on him to slash his budget and reveal how he is spending the money.

The backlash against the 74-year-old king is part of a broader soul-searching in Europe about the role and relevance of monarchies as the economic crisis deepens.

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It’s game on. But to understand the contest ”” and the associated scare tactics ”” it’s best to first understand a few unpleasant facts that are not in dispute:

”¢The popular old-age health insurance plan is on a financially unsustainable course. Medicare’s payroll tax and premiums that beneficiaries pay cover barely half the program’s costs, and as Baby Boomers retire, things will get worse. The tab is projected to rise rapidly: 7.6% a year for the doctor-care part of Medicare and 8.8% for the program’s prescription drug benefit, for example. The economy, a rough proxy for the nation’s ability to afford this, is growing less than 2% a year, leaving a huge gap.
”¢There is no painless fix. Both presidential candidates have committed to detailed plans for curbing costs, and no matter who wins, beneficiaries will pay more or get less, likely both. People who say otherwise are deluding themselves. As economist Herb Stein famously said: Anything that can’t go on forever won’t.

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Most economists surveyed by USA TODAY have little faith a divided Congress will adequately address looming tax increases and spending cuts, significantly hampering economic growth well into 2013.

The standoff in Washington, along with the global economic slowdown, threatens a U.S. economy that otherwise would be gaining steam on a strengthening U.S. housing market and improving private-sector balance sheets, economists say. The survey of 50 leading economists was conducted Aug. 3-8.

Fifty-three percent of those surveyed don’t think Congress will be able to lessen the impact of $560 billion in tax increases and spending cuts, slated to take effect at year’s end, in a way that avoids significant damage to the economy. The Congressional Budget Office says the so-called fiscal cliff would slice up to 4 percentage points off growth next year — causing the economy to contract in the first half — if all the deficit-slicing measures occur at once.

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Fiscal woes that have caused high-profile bankruptcies in California are surfacing across the country as municipalities struggle with uneven growth and escalating health and pension costs following the worst recession since the 1930s.

Budget crunches already have prompted Michigan lawmakers to authorize emergency fiscal managers, and led the mayor of Scranton, Pa., to temporarily cut the pay of all city workers to the minimum wage.

In a majority of the nation’s 19,000 municipalities””urban and rural, big and small””stagnant property tax revenues, less aid from states and rising costs are forcing less dramatic but still difficult steps.

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The most eye-opening and persuasive parts of the book explore the revenue and benefits to be had from cannabis without a single joint’s being lighted. Throughout human history, cultures from Mongolia to Peru have used the non-psychoactive cannabis plant for food, shelter, clothing and medicine. Early drafts of the Declaration of Independence were written on hemp paper, and the covered pioneer wagons that took America westward were made of cannabis fiber. In 1942, cannabis prohibition was suspended because of a shortage in industrial supply during the war, and the government actually encouraged farmers to grow it, using a propaganda film, “Hemp for Victory.”

The place industrial cannabis is not found yet, Fine points out, is in the above­ground American economy, thanks to its listing as a Schedule I narcotic. The Drug Enforcement Administration’s official stance is that it has no medical value at all: “Smoked marijuana has not withstood the rigors of science ”” it is not medicine, and it is not safe.” O.K., Fine seems to say, but tell that to the doctors with evidence of its ability to shrink tumors and ease the effects of chemotherapy; or to the seniors of Orange County who depend on medical marijuana to treat their arthritis, and the doctor who uses it to treat his glaucoma; or to the 30-year-old Iraq war veteran with the shrapnel injuries who thanks God every day for this drug. It is prescription drugs that are now the leading cause of fatal drug overdoses ”” more than 26,000 each year. Also each year, over 23,000 Americans die of alcohol-related causes. None have died from cannabis alone.

As I said, the issue is loaded. And yet the side that has all the load never seems to win in America….

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Quick Stats[:]

As of 2012-06 the civilian labor force was 155,163,000
As of 2012-06 there were 111,145,000 in the private workforce
As of 2012-06 there were 56,174,538 collecting some form of SS or disability benefit
Ratio of SS beneficiaries to private employment just passed the 50% mark (50.54%)

….As of May 2012, the outlays are $756.9 billion annualized. Fewer worker relatively speaking, support more and more recipients with exponentially growing payments. This is supposed to work?

Read it all from Mish’s economics blog (another from the long queue of should-have-already-been-posted material).

Facing the same financial stressors that pushed San Bernardino toward bankruptcy, cities across California are slashing day-to-day services and taking other drastic actions to skirt a similar fiscal collapse.

For some, it may not be enough.

San Bernardino on Tuesday became the third California city to seek bankruptcy protection in the last month and, while no one expects the state to be consumed by municipal insolvencies, other cities teeter on the abyss.

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Stockton, California–This Gold Rush-era port city, an epicenter of California’s agricultural exports, will become the nation’s largest city to seek protection under the U.S. bankruptcy code after its City Council on Tuesday stopped bond payments, slashed employee health and retirement benefits and adopted a day-to-day survival budget.

City Manager Bob Deis likened the process to cutting off an arm to save the body. He is expected to file bankruptcy papers immediately…..

Stockton..[had] been in negotiations with its creditors since late March under AB 506, a new California law requiring mediation before a municipality can file for reorganization of debt. It was the first use of the law, and policy analysts who watched its torturous and tedious progress have titled their report on it “Death by a Thousand Meetings.” Mediations ended Monday at midnight.

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The new rules could hit pension plans in states like Illinois and New Jersey particularly hard, and even raise borrowing costs for certain municipalities, analysts say. “This could be the event that incites a bigger policy response than what we’ve seen so far,” says Matt Fabian, managing director at Municipal Market Advisors, a research firm.

The exact impact of the new rules by the Governmental Accounting Standards Board isn’t clear. According to researchers at Boston College, pension liabilities at 126 state and municipal pension plans would jump by roughly $600 billion, or about 18%. The estimate is based on 2010 financial data and doesn’t reflect the stock market’s recent rebound or moves by many U.S. states to rein in pension costs.

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State and local governments are keeping the tightest lid on spending in three decades, even though tax revenue is rising again and powerful interest groups are asking for more money.

he tight budget controls represent a sharp reversal from several years ago when states struggled to control spending, despite a drop in tax collections, and got a $250 billion bailout from the federal government. Today, both Republicans and Democrats are rejecting spending requests even from traditional allies — police, businesses, teachers, doctors and others — and keeping budgets balanced as federal aid recedes.

“We’re seeing some incredibly significant examples of groups not getting what they want,” says Scott Pattison, head of the National Association of State Budget Officers. “There doesn’t appear to be that much pushback. Maybe there’s an acceptance that cuts have to occur.”

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How much money does the U.S. government forgo by not taxing religious institutions? According to a University of Tampa professor, perhaps as much as $71 billion a year.

Ryan Cragun, an assistant professor of sociology, and two students examined U.S. tax laws to estimate the total cost of tax exemptions for religious institutions ”” on property, donations, business enterprises, capital gains and “parsonage allowances,” which permit clergy to deduct housing costs….

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After clinching Spain’s €100 billion bank bailout, Prime Minister Mariano Rajoy flew to Poland on Sunday for the Spanish team’s soccer match, declaring “this matter is now resolved.”

Not so fast, prime minister.

On Tuesday, Spain’s long-term borrowing costs soared to their highest level since the country joined the euro zone. Investors have apparently concluded that the rescue is potentially a much better deal for the banks and their shareholders than for the government, its taxpayers and bondholders.

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Every generation has an incentive to borrow money from the future to spend on itself. But, until ours, no generation of Americans has done it to the same extent. Why?

A huge reason is that earlier generations were insecure. They lived without modern medicine, without modern technology and without modern welfare states. They lived one illness, one drought and one recession away from catastrophe. They developed a moral abhorrence about things like excessive debt, which would further magnify their vulnerability.

Recently, life has become better and more secure. But the aversion to debt has diminished amid the progress. Credit card companies seduced people into borrowing more. Politicians found that they could buy votes with borrowed money. People became more comfortable with red ink….

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Although they have rented it out to a restaurant for the past five years, the owners of one building in Aspe have never paid property tax. Nor have they ever paid tax on the apartments that house two of their employees. But that may be about to change. Last week, the city’s government voted to partially rescind the exemption that the Catholic Church, landlord of those three properties and another eight more in town, has long enjoyed. And thanks to the crisis that threatens to upend Spain’s economy, it’s not the only place demanding change.

Three different laws, including a 1979 agreement with the Vatican, exempt the Catholic Church from paying property tax in Spain. The same provision holds for other recognized religions and non-profit organizations like the Red Cross, yet because Catholicism is the dominant religion in Spain, and because the Church’s holdings there are so vast (España Laica, a pro-secularism group, estimates that were it not for the exemption, the church would annually owe 2.5 to 3 billion euros in property taxes), critics have long argued that the arrangement is part of the preferential treatment granted the Catholic Church. It’s only now, however, with austerity measures bearing down and a European bailout looming, that anyone has thought to put that criticism into action. Economic pressure, in other words, may well accomplish what 33 years of democracy have not.

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An essential element of Greece’s recovery plan has been to collect more taxes from a population that has long engaged in tax avoidance. The government is owed 45 billion euros in back taxes, tax officials in Athens said, only a fraction of which will ever be recovered.

To understand the difficulty, just talk to Nikos Maitos, a longtime official in Greece’s financial crimes investigation unit.

When he and a team of inspectors recently prowled the recession-hit island of Naxos for tax evaders, a local radio station broadcast his license plate number to warn residents.

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“I voted for [Walker] in 2010 because I realized we have to do something about the deficit. I voted for him in the recall because I don’t believe recall elections are meant for what they’re doing with it,” said Katy Tomlanovich, who teaches at Northeast Wisconsin Technical College. She said recall elections should be reserved for politicians who commit gross malfeasance, not for those who make unpopular decisions.

Tomlanovich said she plans to vote for Obama in November but cast a ballot for the Republican on Tuesday. “Scott Walker is actually doing something about [spending], and I think he should be allowed to serve the rest of his term.”

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Everyone seems to have an opinion on what the vote in Wisconsin means for national politics.

But beyond the issue of whether Scott Walker’s survival puts Wisconsin in play in November, his victory represents an example of the way politicians in our most pressed states are sorting themselves as they confront this long fiscal downturn. Increasingly they fall into two camps: those willing to undertake tough reforms in the face of severe fiscal restraints that don’t appear likely to improve anytime soon, and those who continue to put off the difficult decisions even as their states’ balance sheets deteriorate and investors grow wary of their budget instability.

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The nonpartisan Congressional Budget Office (CBO) said Tuesday that unless lawmakers act to prevent scheduled tax increases and spending cuts at the end of the year, a recession will likely result in early 2013.

Early next year income taxes are set to go up when the Bush-era tax rates expire. Automatic spending cuts totaling roughly $109 billion triggered by last August’s debt-ceiling deal are set to hit. Meanwhile, payments to physicians under Medicare will be slashed.

CBO projects that these and other elements of the so-called “fiscal cliff” will cause the economy to contract as demand dries up.

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Defense contractors have slowed hiring. Tax advisers are warning firms not to count on favorite breaks. And hospitals are scouring their books for ways to cut costs.

Across the U.S. economy, anxiety is rising about the potential for widespread disruptions after the November election, when a lame-duck Congress will have barely two months to resolve a grinding standoff over taxes and spending.

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California is facing a much deeper budget deficit than expected due to weak tax revenues and slow progress in cutting budgets, Governor Jerry Brown said on Saturday.

Brown said the shortfall for the fiscal year ending on June 30 now stood at $16 billion, up from a previous estimate of $9.2 billion made in January.

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…it is tempting for progressives to dismiss complaints about redistribution of wealth as ignorant or hypocritical, as in many cases they probably are. Yet all naïveté about public budgets aside, a strong presumption in favor of being able to keep the money you earn is a valuable and powerful thing. Progressives who embrace the concept of wealth redistribution on egalitarian grounds, or who join the refrain of “tax the rich” as the main solution to our fiscal and economic problems, tend to miss the many ways in which economic unfairness can remain untouched or even affirmed by redistributive policies….

It’s important to focus rhetoric and activism on making the rich “pay their fair share”””especially during this austerity season, in which the practical alternative is watching services for the poor dramatically cut….

This can’t, however, be the final analysis of redistributive policies. Throughout the Old Testament, inequality itself is hardly the only issue. There is also the question of fair access to the means of making a living””which, in the Old Testament world, means fair access to land ownership.

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The last major overhaul of the tax code took place when a Democratic Congress, working with Reagan, passed the Tax Reform Act of 1986. It simplified the code, decreased individual tax rates, increased corporate taxes and significantly reduced the number of exemptions, deductions, credits and loopholes. The reform also set the tax rate for capital gains at about 23 percent, which was reduced dramatically to around 15 percent as part of the Bush tax cuts.

Ever since the 1986 reform was passed, Congress has been systematically chipping away at the tax code, adding literally thousands of changes and additional tax benefits, exemptions and loopholes, junking up the tax code and making it more complicated and less fair.

“It’s out of control, says Eugene Steuerle, an Urban Institute economist. “They keep throwing junk in the tax code which adds to the deficit.”

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Almost nine out of 10 charity bosses fear big donations from wealthy backers will be hit by Chancellor George Osborne’s cap on tax relief for charitable donations, according to a survey.

The findings of the survey of 120 charity chief executives and senior executives conducted by the Charities Aid Foundation (CAF) will intensify the pressure on the Government to rethink its plans unveiled in last month’s Budget.

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(The full title is: “White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You”)–KSH

What was the main difference between Great Britain and France? It -wasn’t the size of their national debts: at the time of the French Revolution, Great Britain’s debt per person was much larger than France’s. The difference was politics. In Great Britain, the political system was dominated by elected representatives who supported an activist government and were willing to endorse the taxes necessary to pay for its resulting debts. In France, the government did not have the legitimacy necessary to raise the money to service its smaller debts. And although its tax rates were lower than Britain’s, the problem of taxation without representation was an important cause of the Revolution.

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