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Reason Foundation

Orange County Register

Gov. Davis Feeds Spending Addiction

Revenues are up, but so is spending

Carl DeMaio
January 14, 2002

When someone is an addict, they usually refuse to admit and confront their problem, choosing to shift the blame on to others. Gov. Gray Davis' new budget proposal shows all of the classic signs of an addict denying his problem and shifting the blame to others.

The governor is asking taxpayers, and our local governments, to eliminate a massive budget deficit that we, taxpayers, didn't create. He also wants us to continue financing the state's nasty spending addiction.

The governor proposes a massive $8.3 billion tax increase to help erase about a quarter of what he estimates to be a nearly $35 billion deficit. His plan raises state sales taxes by 1 cent — costing the average family at least a couple of hundred dollars per year — raises personal income taxes on the state's wealthiest residents by $2.6 billion annually and imposes a whopping additional $1.10 tax on packs of cigarettes (kind of ironic for a state with its own dirty habit).

These taxes will dampen investment — businesses and wealthy individuals are already fleeing the state at alarming levels and this budget proposal will expedite the exodus. California should focus on creating conditions necessary for job creation and business expansion — the real source of revenue in a healthy economy — through low taxes, reform of workers' compensation and a return to common-sense regulation.

The new taxes and fees also severely burden working families and local governments. The governor's proposal shifts $6 billion in costs to county governments by asking them to fund and manage key social services, public health and criminal justice programs. Local governments, already facing their own dramatic budget shortfalls, will now have to take on new responsibilities and provide these important services with the money generated from the sales tax increase. The money from those taxes will likely be insufficient to pay for the programs, leading to even more fees and taxes on the local level. It's a vicious cycle that always comes back to the taxpayer.

The governor does propose $20.7 billion in cuts and would probably argue that this proves he isn't a spending addict. But while some may applaud the proposal for offering cuts, a closer look shows he's taken a meat-ax approach, cutting programs of varying merit across the board.

This isn't exactly thoughtful governance. When families look at cutting their own budgets, they don't cut 10 percent across the board from the mortgage, car payment, school bill and health insurance. That approach would get them evicted and their car repossessed.

Instead, they eliminate non-essential expenditures and stretch each dollar.

Instead of using the governor's across-the-board approach, the state should embrace a performance-based approach to cutting programs that do not provide vital citizen services, reforming inefficient programs and restructuring state bureaucracies.

Programs with defensible records could escape relatively unscathed if we committed ourselves to identifying and eliminating the pork projects and wasteful spending that are prevalent in our government. Gov. Davis spent the past several weeks blaming falling revenue as the root cause of the state's budget deficit.

Yet revenue is actually up 28 percent while spending skyrocketed 36 percent during Davis' first term. Indeed, had the state merely held the increase in spending during that time to the population growth and inflation, we'd have a $5 billion surplus today — and no need for new taxes.

Any independent analysis of the state's deficit points to what happened during the stock market bubble year of 2000 as the root cause of the current mess.

Infused with a rush of capital gains tax revenue from stockholders cashing out of the market, the governor and Legislature went on a spending spree in 2000 and 2001. Instead of returning the state's budget to pre-bubble levels of 1999, the governor's proposal maintains many of those clearly unsustainable spending increases.

Like any recovery from an addiction, overcoming California's spending problem will take time and a little sobriety by the state's leaders about the true nature of the budget problem.

Most importantly, it will take the collective willpower of California taxpayers to "Just Say No!" to financing Sacramento's addiction with new taxes and fees.

Carl D. DeMaio is President of the Performance Institute and a senior fellow at Reason Foundation.



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