Now is The Best and Worse of Times

Editorial by Noel T. Braymer

Ridership on Amtrak, commuter and transit trains is growing and reaching all time records. Los Angeles will see the extension of the Gold Line from LAUS out to East Los Angeles by late next year and the start up of the Expo Line to Culver City by 2010.  Metrolink will be running trains in Orange County every half hour by late 2009 and is working on extending service to Perris in Riverside County by 2011. We are very close to seeing the Coast Daylight running with the first direct service between Los Angeles and San Francisco in over 30 years. With gasoline prices going higher almost every day people are looking for economic alternatives to their dependence on oil and the automobile.

So what could be wrong: the economy! The dollar is losing value, inflation is rising and the economy is slowing down. Rail projects need money to be built or so service can be expanded. Tax revenues are down at all levels of government and there is greater need for government services at a time local and state governments are looking at major cut backs. On the bright side up to 300 million dollars of the 20 billion dollars in 1B Bond money passed in 2006 will be going for freight rail projects to grade separate Colton Crossing plus double tracking of Tehachapi and Donner Pass. These projects plus additional funding for highway/rail grade separations will help some rail passenger service, as well as highway and freight rail service while also giving the economy a needed boost. But 4 billion dollars of 1B funds for transit including 400 million for intercity rail passenger service which included money for more passenger cars is being held up due to political fun and games.

There is a great deal that rail service can do to help the economy, improve transportation, save energy and the environment. In the short term with some extra funding existing services can be expanded, particularly during weekends and off peak periods. The Coaster between Oceanside and San Diego has three trainsets that are stored most of the day in San Diego. This equipment could be used to extend service to Irvine were there is a strong market. If Coaster and Metrolink coordinated their services, their trains could meet at Irvine to create connections to Los Angeles and Riverside/San Bernardino. The Coast Daylight needs equipment which we can get from Amtrak. This equipment will need to be overhauled before going back in service which will require some money. But with additional equipment we could add more trains and more seats to existing crowded trains. In the long term all services will need more new equipment just to meet growing demand. There are existing rights of ways that can be used to swiftly and economically expand rail service. These include service from Orange County and downtown Los Angeles to LAX and direct service from Sacramento to the upper San Joaquin Valley, San Jose and San Francisco.

All of this needs money. The answer for that is to do what this country has always done in difficult times; raise taxes. Then Governor Reagan raised taxes in the 1970’s to close a budget deficit as did Governor Wilson in 1991. At the Federal level today’s Income Tax for those in the highest tax bracket is 35 percent. World War II was one of the most critical times in our history. All wars create massive deficit spending, inflation and historically ended with a depression when the war ended. With this in mind during World War II taxes were raised on everyone. The top tax bracket by 1944 peaked at 94%. This wasn’t done to balance the budget, which can’t be done in a war but to help control inflation. Even after the war ended the top tax bracket reminded at 90 percent up until 1964. What is amazing is that after World War II there wasn’t a post war depression. There was some inflation but nothing like we have seen since the 1970’s. You could by a new house in the 1960’s for $20,000, rent an apartment for $100, buy a new car for $2,000 or ride transit for 25 cents. Even if you made only $3,000 a year which was about what you’d get on minimum wage in the 1960’s, you still had the buying power of someone today making around $30,000.

Instead of depression, the period after World War II saw the greatest economic growth in American History. A great deal of money was spent building houses, roads, water, sewer lines, bridges etc:  much of the infrastructure we are using today. While we were building roads and airports back then, we didn’t spend much money on rail or rail transit. This created much of our dependence on autos and trucks which helped us to be so oil dependent. It was hard to worry about that in the 1960’s when gasoline was around 27 cents a gallon. But now not only do we need more infrastructure, but much of the infrastructure built after World War II is now old and in need of replacing. So the question remains: where are we going to find the money?

Even when the top tax bracket was 90%, no one paid 90% of their income in taxes. There were deductions and loopholes. More was paid in taxes as a percentage of income than today. But the high tax rates “encouraged” people to shelter their money from taxes in low risk, low yield investments. This helped create the capital that was used for the economic development in the post war years. Many important investments can take years before there is a return. People like to get rich, quick. High yield investments are always high risk investments. In 1922 the top tax bracket was 55%.  By 1929 this had been dropped to 25%. Much of this extra money was used to get richer, quicker in the Roaring 20’s by investing in the stock market. By 1929 the stock market was in a classic bubble with many stocks selling for much more than they were really worth. Like most economic bubbles it finally burst which started a chain of events which lead to the Great Depression of the 1930’s. The current burst housing bubble has some things in common with the 1929 Market Crash. It is doubtful we will see 90% tax brackets again, but to pay for the projects needed to maintain a first world standard of living will require higher taxes.