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Curb the ideology, fix the budget

By Josh Richman
Wednesday, November 12th, 2008 at 12:41 pm in General.

I just got off a conference call with California Budget Project executive director Jean Ross, who said the governor’s budget-crisis proposal has some good points but won’t get the job done.

“If you look at the overwhelming body of economic research, it tells you that cutting spending is absolutely the worst thing you can do in a down economy. Why? Because public dollars that go out through state budgets, county budgets, school district budgets… immediately recycle through local economies,” whether by public workers’ paychecks or by payments to vendors and contractors, she said. “When we cut back spending it has a very direct impact on local economies.”

In contrast, she said, a carefully targeted tax hike for California’s richest residents – she’s talking about married couples making $321,000 or more per year and individuals making $160,500 or more per year – is less likely to impact the local economy, as these people are both more likely to have savings and more likely to spend money out of state. Such a tax hike also shifts some of the burden to the federal government, she noted, as these Californians will be able to deduct more from their federal tax returns.

That’s not the case with the governor’s proposed sales-tax hike, Ross continued – not only would it not provide a federal deduction, but it’s regressive, meaning it takes a higher percentage of household income from the poor than from the rich. Ross did say she likes Schwarzenegger’s plan to widen the sales tax to services such as car repairs, veterinary services and even golf greens fees, as it spreads the sales-tax burden more fairly throughout the economy.

And Ross said the governor is also on the right track by proposing an oil severance tax; California is the only jurisdiction in the world that produces oil but doesn’t tax it as it’s drilled from the ground, she said, and there’s ample evidence that the cost won’t be passed along to consumers because oil prices are set on a world market.

Now, the California Budget Project isn’t completely impartial – it’s nonpartisan and nonprofit, but its goal is “improving public policies affecting the economic and social well-being of low- and middle-income Californians.” Still, what Ross is saying seems to make some sense.

Let’s review. The nonpartisan Legislative Analyst’s Office says we’re looking at a $28 billion budget deficit by June 2010, including $11.2 billion in the current fiscal year.

This year’s long-delayed budget – already blasted by many as woefully inadequate, and already so badly in deficit – projects $103.3 billion in general fund spending, of which more than half goes to K-12 ($41.6 billion) and higher ($12.1 billion) education; the next-biggest sector is health and human services ($31.1 billion), and after that, prisons and corrections ($10.3 billion).

The high-bracket income tax increase Ross advocates, proposed earlier this year by Legislative Democrats, would pump $5.6 billion per year into California’s coffers; that’s more in one fell swoop than the $4.7 billion that would be raised by all of Schwarzenegger’s proposed hikes.

Legislative Republicans still say any tax increases at all are unacceptable, and under California’s requirement that all budget and tax bills win two-thirds majorities in the Assembly and in the Senate – a requirement to which only we, Arkansas and Rhode Island subject ourselves – they can stop such bills dead.

Whether that’s legislative malpractice is for you to decide. But hear this: Anyone telling you that California can resist all tax increases, rely only on spending cuts and still maintain anything close to its current quality of life in the next few years is lying to you.

The question comes down to this – what are Californians willing to give up? Decent schools? The hope of a college education for those who want it? Healthy children and senior citizens? Constitutionally adequate prisons for the world’s seventh-largest inmate population? Roads and bridges that aren’t crumbling? What else?

Or do we return high-bracket income tax levels to where they were in the early ‘90s under Republican Pete Wilson? Or restore the vehicle license fee that Schwarzenegger rolled back as soon as he was sworn in, fixing its previously regressive nature by tying it more closely to the vehicle’s value? Or – dare I say it? – revisit the idea of a split-roll property tax, leaving Proposition 13’s protections in place for homeowners but reassessing commercial property more often? I know that one’s a long-shot, especially in a down economy, but desperate times call for desperate measures – nothing should be beyond discussion, and no lawmaker’s head should remain buried in the sand of ideology.

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