Out of Control Policy Blog

More Taxes Not the Answer to California's Budget Woes

Economic conditions are exacerbating already tight state budgets across the country.  Dan Walters noted the impact of the recession on California's revenues, particularly on sales tax revenues, in his Sacramento Bee column today.  Walters writes:

Shrinking taxable sales also affect the deficit-ridden state budget.  The budget deal approved last month raises sales taxes by one percentage point.  State officials are hoping that a blue ribbon commission studying the state's tax system will recommend extension of the sale tax to services.  That would relieve its reliance on declining sales of tangible and taxable goods such as cars.

However, Walters seems to blame Proposition 13 for encouraging "cash-strapped local governments" to find other ways (besides increasing property taxes) to fund government programs and services.  While it is certainly true that California state and local governments have found creative ways to impose additional taxes and fees, oftentimes to get around Prop 13's restrictions, the problem is not that taxes are too low--far from it!  Until very recently, and for many years, revenues have grown significantly.  The problem is that whenever there is a period of economic boom and the state's coffers are overflowing, legislators spend as though the good times will never end.  When the inevitable correction comes, they are always shocked, shocked that revenues cannot keep pace with their unrealistic assumptions, and so we have another fiscal crisis.  If California had simply held spending to the average population growth plus the average increase in the cost of living during the past three gubernatorial administrations--starting with Pete Wilson in fiscal year 1990-91 and covering the Gray Davis and Schwarzenegger administrations--the state would have been sitting on a $15 billion surplus instead of that $42 billion deficit.  That's a difference of $57 billion!  California will never return to a state of fiscal sanity until it learns to kick its spending addiction.

For more analysis of California's spending and revenues during the Wilson, Davis, and Schwarzenegger administrations, see my recent policy brief, California Spending by the Numbers.

Adam Summers is Senior Policy Analyst

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Comments to "More Taxes Not the Answer to California's Budget Woes":

Gary Gastax | March 29, 2009, 5:10pm | #

The only smart tax today is on gasoline. America's weakness in the world is multifactorial; the cost of the wars in Iraq and Afghanistan, the failure of the banking system (largely from the subprime crisis)and the loss of international respect resulting from the above. But the biggest proportion of it is from our immense use of foreign oil and the immense trade defecit it creates.
The Obama administration is spending billions to subsidize green energy in the form of photovoltaic and wind systems while improving the grid. That's fine but it does nothing to reduce oil consumption. Wind and sun compete with coal, our biggest source of electricity. We have a gazillion tons of coal.
Taxing gas: starting small with 25 cents a gallon and increasing by 25 cents a year will provide funds to accelerate alternative fuels like electric vehicles (my all-electric car arrives next week - a converted Pontiac Vibe). It's the first in the U.S. If we had 300,000 of these on the road we would be reducing the demand and thus the cost of oil. If subsidy money were there from the government, auto manufacturers would be scrambling to build these cars and improve the technology. Increasing the gas tax allows for this while moving the cost balance from the favor of gasoline to electricity. It's a no-brainer. As gas consumption slowly drops, so will the price! This allows for increasing the gas tax to keep the price high, providing more funds to subsidize electric cars. It will take only 5 to 10 years (depending on the gas tax rate) to elimiinate our need for foreign oil but the benefits will be felt in year 2 and accelerate thereafter. We were paying the middle east $4 a gallon. Why not pay the U.S. an additional 25 cents, raising gas to a mere $2.25 and starting us on the road to 100% energy independence? This would be world-changing, very much in our favor.

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