To the surprise of no one, California Gov. Jerry Brown unveiled his plan calling for more tax increases to address the state's structural deficit. The proposal, for which signatures are now being gathered with a goal of placing a ballot measure before voters in the November 2012 election, includes a half-cent sales tax increase and an income tax rate increase of one to two percentage points for those earning at least $250,000 a year, and would remain in effect for five years. As the Los Angeles Times reports, the tax increases are estimated to cost up to $6.8 billion a year for the five-year period, or a total of $34 billion.
Taxpayers have just gotten over the last "temporary" tax increases imposed under then-Governor Arnold Schwarzenegger and now Brown is coming, hat in hand, for more "temporary" tax increases. If these tax increases were to go into effect, and politicians continue to ignore the significant changes that must be made to pare back a bloated and unsustainable state government, you can be sure that five years down the road the budget will still be in peril and taxpayers will be asked to pony up again for more "temporary" tax measures.
While a sales tax increase of a "half-cent," or 0.5%, as it is sometimes reported sound innocuous, those increases are raises in the tax rate. Thus, a "half-cent" sales tax increase on the state's base rate of 7.25% to 8.25% is actually an increase of 6.9% on the price of everything Californians buy that requires sales tax. (Most counties and cities add their own sales taxes to the base rate, so their sales taxes are even higher. The cities of Pico Rivera and South Gate in Los Angeles County, for example, hold the dubious distinction of having the highest sales tax rates in the state at 9.75%.) Similarly, the "1%" income tax increase on someone earning $250,000 a year, which raises the tax rate from 9.3% to 10.3%, translates to a tax hike of 10.8%, and the "2%" increase on someone earning at least $1 million a year, which raises the tax rate from 10.3% to 12.3%, translates to a 19.4% tax hike. That's hardly small potatoes, even for someone who is rather wealthy.
All these tax hikes will serve to do is keep the current dysfunctional system going a few more years. As Steven Greenhut of CalWatchdog.com notes in his interpretation of Gov. Brown's "Open Letter to the People of California" announcing the tax increase proposal,
Brown: The stark truth is that without new tax revenues, we will have no other choice but to make deeper and more damaging cuts to schools, universities, public safety and our courts.
Interpretation: Actually, we could reform state government by embracing educational choice, outsourcing, pension reform and other measures, but we don’t want to do that. Remember, the unions elected me and I am serving them as faithfully as possible.
[. . .]
These tax increases will be gone in an instant and I will soon be back asking for more money. The public safety money means protecting huge pay and benefit packages for union workers, not for actually improving the public’s safety. The public schools are substandard, but the teachers unions won’t let us get rid of bad teachers or improve them with market-based reform. Our only way out is to throw more good money after bad. We will be taxing millionaires more, and more of them will join the exodus out of the state. Of course, when I say millionaires, I don’t mean those many public employees who are retiring on the kind of pensions that only a millionaire could afford.
I ask you to join with me to keep our state from having to make reforms that would cause any inconvenience to public employees. We need to get the state back on track — of spending without concern for the future.
It is a sad commentary on the state of California politics that living within your means and doing more with what you've got are radical concepts. Simply applying a "Yellow Pages test" to state government would go a long way to providing the same services for cheaper. Simply put, if the state is doing something that can be found in the Yellow Pages, either it shouldn't be doing it in the first place or it should put those services out for competitive bid so that private-sector businesses may provide them more cheaply and efficiently. As Greenhut suggests, improving the state's woeful business climate by reducing taxes and eliminating arduous and unnecessary regulations, addressing union education monopolies, and implementing real public pension reform are also necessary fixes that have long been ignored. (See here for a number of other ways to reform state budgets and spending.)
California's fiscal troubles are the result of many years of overspending and budgetary/accounting gimmicks. The recent economic downturn certainly did not help matters, but it merely revealed the state's budgetary unsustainability, rather than caused it. We have been dealing with many of the same issues since long before the latest recession hit. Perhaps, after years of continued failure, it is time to try something besides the status quo tax-and-spend policies.
Related Research and Commentary:
» Citizens' Budget 2003-05: A Ten-Point Plan to Balance the California Budget and Protect Quality-of-Life Priorities (sadly, this is as relevant today as when it was written years ago)