QUOTE OF THE DAY

City Journal: The Pension Fund That Ate California

After spending years dogged by unpaid debts, California labor leader Charles Valdes filed for bankruptcy in the 1990s—twice. At the same time, he held one of the most influential positions in the American financial system: chair of the investment committee for the California Public Employees’ Retirement System, or CalPERS, the nation’s largest pension fund for government workers. Valdes left the board in 2010 and now faces scrutiny for accepting gifts from another former board member, Alfred Villalobos—who, the state alleges, spent tens of thousands of dollars trying to influence how the fund invested its assets. Questioned by investigators about his dealings with Villalobos, Valdes invoked the Fifth Amendment 126 times.

California taxpayers help fund CalPERS’s pensions and ultimately guarantee them, so they might wonder: How could a financially troubled former union leader occupy such a powerful position at the giant retirement system, which manages roughly $230 billion in assets? The answer lies in CalPERS’s three-decade-long transformation from a prudently managed steward of workers’ pensions into a highly politicized advocate for special interests. Unlike most government pension funds, CalPERS has become an outright lobbyist for higher member benefits, including a huge pension increase that is now consuming California state and local budgets. CalPERS’s members, who elect representatives to the fund’s board of directors, ignored concerns over Valdes’s suitability because they liked how he fought for those plusher benefits.

CalPERS has also steered billions of dollars into politically connected firms. And it has ventured into “socially responsible” investment strategies, making bad bets that have lost hundreds of millions of dollars. Such dubious practices have piled up a crushing amount of pension debt, which California residents—and their children—will somehow have to repay.

Investor's Business Daily: Government's False Prophets Often Create Taxpayer Losses

People on both sides of tax issues often speak of such things as a "$300 billion tax increase" or a "$500 billion tax decrease."

That is fine if they are looking back at something that has already happened. But it can be sheer nonsense if they are talking about a proposed increase or decrease in the tax rate.

The government can only raise or lower the tax rate. Whether the actual tax revenues that the government will collect as a result will go up or down is a matter of prophecy. And these prophecies have been far too wrong far too often to base national policies on them.

When Congress was considering raising the capital gains tax rate from 20% to 28% in 1986, the Congressional Budget Office advised Congress that this would increase the revenue received from that tax.

But the Congressional Budget Office was wrong, not simply about the amount of the tax revenue increase, but about the fact that the capital gains tax revenue actually fell.

There was nothing unique about this example of tax rates and tax revenues moving in opposite directions from each other — and also in opposite directions from the predictions of the Congressional Budget Office.

Reductions of the capital gains tax rates in 1978, 1997 and 2003 all led to increased revenues from that tax.

LA Times: State seeks back taxes from small-business shareholders

For almost two decades, California has provided a hefty tax break for residents owning shares of small businesses that keep most of their workers and assets in the state.

Not anymore. A court has thrown out the incentive, and now, to the frustration and anger of about 2,000 taxpayers, the state tax collector wants the money back, plus interest.

The Franchise Tax Board is going after four years' worth of these tax breaks. It recalculated the back taxes of people who benefited and mailed out a holiday surprise.

"It's a surreal situation," said Brian Overstreet of Healdsburg in the Sonoma County wine country. He said investors learned they owed taxes only in late December when the board sent out letters telling them the so-called qualified small-business capital gains tax incentive had been deemed unconstitutional.

"California is not a banana republic," said one critic, state Sen. Ted Lieu (D-Torrance). "California government should not punish innocent, law-abiding taxpayers retroactively just because it may have the power to do so."

Investor's Business Daily: ObamaCare Exchange Subsidy Cost Hiked By $233 Billion

The Congressional Budget Office on Tuesday quietly raised the 10-year cost of ObamaCare's insurance subsidies offered via the health law's exchanges by $233 billion, according to a Congressional Budget Office review of its latest spending forecast.

The CBO's new baseline estimate shows that ObamaCare subsidies offered through the insurance exchanges — which are supposed to be up and running by next January — will total more than $1 trillion through 2022, up from $814 billion over those same years in its budget forecast made a year ago. That's an increase of nearly 29%.

The CBO upped the 10-year subsidy cost by $32 billion since just last August.

In part, this jump is because more people will get insurance via the exchanges than it had forecast. Where the CBO had seen 22 million enrolled in an exchange in 2022, it now figures 25 million will be.

That explains only part of the cost hike. The rest is largely the result of the CBO's sharp increase in what it expects the average subsidy will be.

Watchdog: Hawaii’s teachers demand tax bump to boost salaries

Hawaiians already pay among the nation’s highest taxes, and the state’s Department of Education already gets a good chunk of the revenue from those taxes — nearly 50 percent of the state general fund budget or $2 billion per year in total expenditures from all sources.

But some public school teachers say that’s not enough.

They’ve organized a campaign to boost teacher salaries with funding from a substantial jump in the state’s primary tax, the General Gross Income Tax.

At a February 5 legislative hearing, teachers wearing white-and-red tee shirts that read “Teachers Taking a Stand: You cannot put students first if you put teachers last” told House Economic Development Committee members they support a plan to raise the General Gross Income Tax by 1 percent with revenue set aside for teacher pay raises.

Teachers maintained they need higher pay, better working conditions and access to new technology. A “penny” increase for education — that’s what supporters call it — is not too much to invest, they said.

The 1 percent increase works out to a 25 percent increase in the rate.

MSN Money: Texas Gov. Rick Perry poaches California businesses

Texas doesn't have redwood forests, a spot on the Pacific, Hollywood or a team in the last Super Bowl or World Series. But it doesn't have California's taxes either.

Texas Gov. Rick Perry's failed presidential campaign didn't make it to the California primary last June, but that's not stopping the single-minded state executive from trying to lure the Golden State's businesses and wealthier residents his way.

Perry has started running radio ads in San Francisco, Sacramento, Los Angeles and San Diego touting his state's low taxes and business-friendly approach in light of recent California tax increases. He kicks off the 30-second ads with this little zinger:

Building a business is tough, but I hear building a business in California is next to impossible. This is Texas Gov. Rick Perry, and I have a message for California businesses: Come check out Texas.

CNBC ranked Texas as its No. 1 state for business last year, while California drifted toward the bottom of the pile at No. 40. Perry, meanwhile, points out that his state has won the "Best State for Business" title from Chief Executive magazine eight years in a row. He also notes that the cost of doing business in California is 6.3% above the national average and Texas' is 4.6% below it.

This all brings up one really important question: If Texas is such a business powerhouse, why is it begging California businesses and Californians themselves to come on down? Simple: California is still the only state whose economy generates more business than Texas. As of 2011, its gross domestic product sat at $1.96 trillion and made up 13.1% of the nation's total economy. Not only does that give it a greater share than the 8.7% taken up by Texas' $1.31 trillion GDP, but that gives it a larger economy than India ($1.897 trillion GDP in 2011), Russia ($1.86 trillion), Canada ($1.736 trillion), Australia ($1.51 trillion) and Spain ($1.478 trillion).

CARTOON OF THE DAY