Legislators push for higher taxes

MAY 5, 2010

By MICHAEL BARNHART and BRYAN LEONARD

Pity California taxpayers.

They are afflicted with the nation’s highest sales and gasoline taxes, and a particularly punishing income tax. And still “progressives” both inside and outside the state claim that California’s budget crisis — a looming deficit of $18 billion — is the result of too little tax revenue. (This deficit figure doesn’t include the state’s pension liabilities totaling a stunning half-trillion dollars.) As if devoid of economic rationality, state legislators have introduced more than a dozen proposals this year to hike taxes even higher — on top of the $12.5 billion tax increase imposed last year. They’re looking to legalize marijuana in order to tax it at $50 an ounce.

The politicians advocating “revenue enhancements” are drawing political cover from public employee unions and groups such as the California Budget Project, which manipulates data to convince taxpayers that government just isn’t big enough. But California’s once vibrant economy is buckling under the weight of existing taxes, costly regulation and a government bureaucracy reminiscent of Red Square.

One of every 62 households in the state has been hit with a foreclosure filing so far this year. That’s 216,000 families facing the loss of their home. Thousands of children forced from the familiar into the unknown. Neighbors disappeared and communities pockmarked with vacant houses. And through it all, there persists the Sacramento chant for more taxpayer dollars.

The folks at the California Budget Project employ a slick statistical sleight of hand to produce what amounts to their cornerstone argument for higher taxes. The group’s March report, titled The Top Ten Budget Myths … and the Truth, asserts that “General Fund spending is $21.5 billion below the baseline level projected by the Legislative Analyst’s Office in 2004.”

But as noted on the organization’s own Web site, “If the results don’t make sense, something is wrong.” Indeed. It matters not a whit whether current spending exceeds or falls short of 2004 projections. Budget forecasts are notoriously inaccurate. What really matters is how government spending correlates to inflation and population growth. On that score, the Golden State has been patently profligate.

Spiraling Spending Depresses Growth

Throughout the last decade, with the sole exception of a single year, state spending far exceeded population growth and inflation (as calculated from the Consumer Price Index).  As noted in Rich States, Poor States, an annual index of state competitiveness published by the American Legislative Exchange Council, California’s state budget ballooned from $75 billion to $99 billion between 2003 and 2007 — a 31 percent increase in just four years. And in the decade between 1997 and 2007, state and local spending combined increased a whopping 54.9 percent.

Given the current state of the state, it’s all too obvious that high taxes and excessive government spending have depressed economic growth and job creation, forcing residents to flee the state in search of opportunities elsewhere. With a net domestic population outflow of more than 1.4 million people, California may not gain a new congressional seat following the 2010 Census — for the first time since it gained statehood in 1850. Ironically, the desperate hordes of the Dust Bowl adopted the motto “California or Bust” for their trek to what was then the Promised Land. Today, in contrast, those fleeing the state have been gone bust from California’s high taxes and big government. Meanwhile, states that don’t levy personal income taxes, such as Nevada and Florida, experienced population growth of 41.1 percent and 19 percent respectively in the past decade.

Public Employees’ Compensation Dwarfs Private Sector Pay

The unemployment rate in California hit 12.6 percent in the first quarter of 2010 — third worst in the nation. That’s 2.3 million men and women without a paycheck — 40 percent of them for more than six months. Unpaid bills pile up on the dining room table. Tension surges in every checkout line. Hopes and dreams dim as bank accounts dwindle.

Nonetheless, public sector employees are grousing about their compensation despite earning far more than their private sector counterparts still lucky enough to be employed. So rich are civil service benefits, in fact, that California’s pension obligations have increased 2,000 percent in the past decade.

Ever higher taxes can’t possibly remedy the problem if the problem is ever more spending. Families and businesses simply can’t keep up. And wresting more and more and more money from taxpayers to feed government necessarily means starving California’s economy of consumer trade and investment.

More Jobs, Not More Taxes, Will Grow State Revenues

More than 19,000 small businesses in California filed for bankruptcy last year, an increase of 81 percent in the 12 months ending Sept. 30, 2009. The entrepreneurial spirit extinguished. Generations of sweat equity lost. Engines of the economy stalled.

Nonetheless, proponents of “revenue enhancement” claim that insufficient tax revenues rather than unchecked spending are to blame for California’s deficit. In fact, state revenues have grown consistently in recent years, and remain higher than a decade ago despite a dip in 2009. A dip caused, in part, by a lack of private sector growth. Too few people gainfully employed. Too much government redistribution of people’s wealth.

California’s top marginal personal income tax rate is among the highest in the nation, at 10.55 percent. The amount of that income consumed by government actually increased by a whopping 31 precent, from $3,506.79 in 2000 to $4,606.46 in 2008.

If higher taxes and government “stimulus” truly drive prosperity as progressives claim, California would not rank as an economic basket case, at present. For the past two decades, higher taxes and bigger government have been the norm, with predictably disastrous results. Unless the load is lifted from California taxpayers, yet more thousands will lose their homes and jobs and savings, and another million and a half residents will go elsewhere to pursue their dreams.

California Needs Budget Solutions Based in Reality

California is famous the world over for its entertainment industry. But the days of fiscal fantasy must come to an end. It is well past the time to forego budgetary gimmicks and quick fixes in favor of real tax and spending reforms.

Michael Barnhart, President of Sunshine Review (www.sunshinereview.org)  and State Budget Solutions (www.statebudgetsolutions.org); Bryan Leonard is with the Evergreen Freedom Foundation (www.effwa.org)