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UncategorizedMedia misses: Taxes, the economy, and Harvey Milk

Media misses: Taxes, the economy, and Harvey Milk

Consumer spending is flat because the middle class has no money. Duh.
Consumer spending is flat because the middle class has no money. Duh.

By Tim Redmond

AUGUST 18, 2014 — Yes, I listen to NPR. KPFA, of course, but also NPR. That makes me an Old Liberal Leftist, I suppose, but there are worse things to be. My kids tease me about it and when we’re in the car, they argue; Vivian likes Kelly Clarkson, Michael likes rap. When they can’t agree and they fight over the radio, they have to suffer the fate of all warring parties: They both lose. The dial goes back to … NPR.

So I was tuned into Kai Ryssdal (who got his start as a KQED intern), and he and his all-star panel of brilliant economic analysts (Linette Lopez from Business Insider and the Wall Street Journal’s Sudeep Reddy) were talking about why the US economy can’t seem to recover.

The thesis: Some 70 percent of our economy is consumer spending. Consumers aren’t spending enough. That’s because they don’t have any extra money, since salary growth and income for the vast majority of the country have been flat for a long time.

Unmentioned, but clear from the discussion: The One Percenters have taken all the growth in the entire economy for the past 30 years. You know, since Reagan.

So Ryssdal and Lopez and Reddy wrangled around with the question for a while. Lopez said that corporations aren’t going to increase pay until demand picks up. Reddy said the stock market was doing fine but the vast majority of Americans were not – and “until that fixes itself ”and the rest of the country catches up to the very rich, the stagnation is going to continue.

Ryssdal: What are the odds of that happening?

Lopez and Reddy: Pretty much zero.

Let’s stop here for a second. “Until that fixes itself.” Think about that comment for a minute. Because it’s at the heart of why so much economic talk is so much nonsense these days.

Ryssdal let it go. He said nothing except, you know, don’t hold your breath, and then the segment ended.

Weak, Kai: Doesn’t pretty much everyone who listens to NPR know by now that the economy CAN’T fix itself? Isn’t it about time for even these moderate journalists to acknowledge that the problem wasn’t created by the Invisible Hand of Adam Smith, and it won’t be solved by markets “fixing themselves?”

The wealth inequality isn’t caused by technology; it’s caused by government policy. Always was, always will be. Reagan changed the direction of American economic policy, cutting taxes dramatically less for the rich and eliminating anti-poverty programs, and nobody since him has dared to shift course. (Doesn’t help that Wall Street now finances both major parties at the national level.)

Repeat after me: The government has to fix this. Or it will never get better. We can argue how to do that (me: raise tax rates on the One Percent) but unless we acknowledge our problem, we are all just wasting our breath.


And on to Harvey Milk.

The Chron had a lot of fun pretending there’s a fight over whether Milk would support today’s anti-speculation tax, which is on the ballot as Prop. G., but in the process missed an interesting back story.

In 1978, in a previous era of real-estate speculation, Milk proposed what could best be called an “excess profits tax.” He wanted the city to take 80 percent of the profit when a building is bought and sold within a year, to discourage “flipping.”

Flipping was a problem then; it’s a much bigger problem now.

I was at the tenant conventions where this was discussed. I wrote about it. There was nothing secret about what tenants proposed – they wanted, in essence, the same legislation that Milk had proposed. The original version of the anti-speculation tax that came out of those conventions would have taxed the profit from the quick sale of property.

But it turns out there’s a flaw in that plan: California strictly limits the ability of cities to raise some kinds of taxes. By some (possibly most) interpretations, a tax on profits would count as an income tax, and the state pre-empts local government from passing income taxes.

So after talking to the City Attorney’s Office, which issued a cautionary memo, the supervisors who put this on the ballot, and the tenant lawyers who helped draft it, decided to go with a different proposal, one based on real-estate transfer taxes.

That’s not as clean as a profits tax, but it would largely accomplish the same goal.

The best way to discourage speculation is to take the profit out of it. The best piece of legislation would be one that taxed the difference between the price an investor paid and the price he or she sold it for at 80 percent if the sale occurred within a year, 60 percent at two years, 40 percent at three, and so on. Buy a property and either live in it or rent it out for the long term, fine; buy it as a speculative commodity, the city takes most of your money.

That would be exceptionally effective.

In this case, faced with a possible lawsuit by speculators and pretty bad state laws, the tenants decided to use a more blunt instrument, the real-estate transfer tax, one of the few tools cities have for controlling speculation. The Prop. G tax applies to the entire price of a property, not just the profit. If the state gave us more authority, we in San Francisco could pass better tenant-protection laws. In the meantime, supporters say, you can’t let the perfect be the enemy of the (very) good.

“No tax is absolutely perfect,” Matt Dorsey, a member of the Democratic County Central Committee who voted to support Prop. G, told me. “There are always winners and losers. But on balance, for the good of the city as a whole, I voted for this because it’s the right way to go.”

So here’s where it gets fascinating.

The Supreme Court decision controlling state and local taxes, Weekes v. City of Oakland, came down in 1978, at the same time Milk was proposing his law. Back then, before the Prop. 13 era, the supervisors and the mayor could enact a tax without a vote of the people. But the laws around income and profits taxes were exactly the same.

The city attorney back then was a guy named George Agnost – a conservative who was never supportive of tenant rights. So how did Harvey Milk get away with pushing a measure that appeared to conflict with state law?

Nobody really remembers. So let’s, um, speculate:

The city attorney rarely tells supervisors that they CAN’T introduce a law. The office just issues warnings that a bill might lead to an expensive (and risky) lawsuit. With Agnost known as a pro-real-estate guy, Milk and his allies may have just decided to ignore his warnings and go ahead with the proposal anyway. It wouldn’t be the first time that progressives took that path with Agnost – and often, they were proved right when the dire warnings out of the right-wing City Attorney’s Office never came to pass.

These days, activists and supervisors tend to trust City Attorney Dennis Herrera to give honest advice and not to be a shill for downtown and the landlords. So his note of caution was taken more seriously. (The city really does run better when the people who run it can trust their lawyer.)

Back to the Chron:

Wiener said if he’d been on the board back then, he probably would have voted for Milk’s legislation. But he still thinks it’s a stretch to say that it’s nearly identical to Prop. G and that Milk would have been a big supporter of the current effort.

I texted Wiener and asked him about that comment. He’s a prolific texter, with way better fingers than me (amazing, his long, detailed texts have no typos) and here’s what he said:

“I’m aware of that, and I’m in no way suggesting that the change was malicious or in bad faith. But regardless of the rationale, the fact is that it’s a very different tax than what Harvey proposed (in addition to not exempting seniors like Harvey did and extending to five years Harvey’s three.) … This tax will massively screw people whom no one wants to go after and who haven’t done anything wrong.”

I disagree, but either way, Wiener, a former deputy city attorney, knows that the reason this is a different tax is that the law isn’t on our side. He still doesn’t like it, but he got the point that the Chron missed.

I never met Harvey Milk. But from what I hear, he was a pretty pro-tenant guy, who most likely would have taken his cue from the entire organized affordable housing and tenant community in San Francisco – a very large and diverse group of people who don’t always agree on everything but who are completely, 100 percent united in support of Prop. G.

Cleve Jones, who was one of Milk’s closest allies and aides, told me he doesn’t remember the specifics of the anti-speculation tax in 1978, but he remembers this: “Harvey repeatedly said, in public and in private, that we have to do something about the speculation.”

He added: “I have to admit I get a bit annoyed when people pretend to know what Harvey Milk would have thought or would have done about something. But in this case, we don’t have to speculate at all. We know exactly what Harvey would have done.”

No Ouija Board needed: He’d support Prop. G.

Tim Redmond
Tim Redmond has been a political and investigative reporter in San Francisco for more than 30 years. He spent much of that time as executive editor of the Bay Guardian. He is the founder of 48hills.
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  1. Nobody is poorer just because your neighbor is richer.

    If anything a neighbor who generates success and prosperity will create jobs and opportunities for his neighbors.

    Oh, and the transfer tax doesn’t have a hope of surviving a legal challenge. It is blatantly discriminatory and a clear taking.

  2. The only honest explanation I’ve seen for the 30+ unit cap is that dangerous, large-scale, corporate property owners would expend resources to stop it from becoming law. Call me a cynic, but I wouldn’t be surprised if this law will somehow benefit them the most.

    And as usual it’s much easier for local politicians and activists to punish small property owners and investors so they can *seem* like they are helping.

    Thank goodness State Law supersedes city law…

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