Thursday, February 19, 2009

California's Taxpaying Chumps.

California's budget is woefully out of balance and the plan to fix that includes four different types of tax increases. The plan is stuck because Democrats don't have enough votes and they need to peel off 3 Republicans in the Assembly and in the Senate.

The Republican caucus in each house is holding firm against tax cuts. Their initial plan to ameliorate the budget problem without raising taxes went nowhere. (Here.) But several individual Republican legislators are lining up to provide the votes necessary for the Democrats, and our RINO governor, to get their budget and their tax increases.

The Democrats argue that taxes are necessary to solve California's budget crisis. Who knows if that's really true. The news stories about the budget never state the actual budget number being voted on. The stories only describe the dollar amount of the so-called budget cuts and the four tax increases. Without knowing the actual amount of the proposed budget there is really no way for an average taxpayer to know whether the tax increases are really needed.

This taxpayer is skeptical. For most of the past decade, California's general fund budget grew at about 1 to 2 percent per year. But in 2005, the budget grew by a whopping 15 percent from $79 billion to $91 billion. Then in 2006, the budget grew another 11 percent to $101 billion. From 2007 to the present the budget has grown to $103 billion, again a small increase in keeping with increases early in the decade.

California's overall expenditures, which include special funds and federal money, are even higher. But those too grew slowly during the early part of this decade increasing from $99 billion in 2000 to $105 billion in 2004. But in 2005 overall expenditures increased to $117 billion, and in 2006 they increased to $131 billion. Expenditures increased even more in 2007 to $145 billion and then declined in 2008 to $144 billion.

California's budget numbers tell a sorry tale of government profligacy. From 2005 to 2007, the state government was awash in cash from the housing and stock market bubbles. Instead of wisely putting money away for down times, spending the money only on capital improvements, or returning money to the taxpayers, the government instead used that money to increase continuing programs, thus locking in future spending based on revenue from two unsustainable bubbles.

If California had set aside the excess revenue from the bubbles into a reserve fund and increased its budget at 2 percent per year from 2005 to the present, the general fund budget for this year would be about $86 billion. Anticipated revenues for this budget year are just over $87 billion. (Here.) California would have a balanced budget and a significant sum of money in reserves to tide it over during this recession. Instead, the government went on an irresponsible spending spree and California's taxpayers are expected to foot the bill and save the day.

How much is that bill going to cost? The Sacramento Bee newspaper has a nifty little calculator for Californians to figure out how much their taxes will increase under the budget plan. (Here.) The most interesting aspect of the tax plan is that taxpayers with children will see their taxes increase more than taxpayers without. An odd policy.

Given the sorry history of California's budget, you'd think legislators would be ashamed of having to ask taxpayers to save the state from the government's irresponsibility. You'd be wrong. Here's what the Democratic Senate President Pro Tem Darrel Steinberg said to Republican legislators opposed to tax increases the other day: "I just wish you could deviate just a little bit from your philosophy, from the endless mantra of no new revenue, no new revenue ever, and be a participant and partner with us in solving this problem." (Here.)

Don't worry Senator. We'll be participating in solving this problem. But it's not the problem you think. The problem isn't a budget shortfall. The problem is controlling irresponsible and spendthrift legislators.

Long ago when property taxes skyrocketed out of control and the legislature did nothing about it, the voters revolted and passed Proposition 13 to roll back property taxes and make it nearly impossible for the legislature to increase taxes. More recently, Governor Gray Davis was recalled from office over the car tax. This year, the Democratic legislature is going to increase the sales tax, the gas tax, the income tax, the car tax, and decrease the dependent tax credit for children. Don't think for a minute that Californians will let this happen without a backlash.


Budget numbers in this post were compiled from the websites of the California Department of Finance website (here), the Legislative Analyst's Office (here), and the Senate Committee on Budget and Fiscal Review (PDF here). A useful overview can be found at California Budget webpage of Sunshine Review. (Here.)

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Thank you for the link to the Sunshine Review article on the California budget.

I've been working on that article (even though I live in Wisconsin) having gotten engrossed in the complicated details.

I'm glad I don't have to foot the bill.
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