Mulling a majority-vote budget

JULY 6, 2010

By JOHN SEILER

With yet another state budget not passed by the July 1 beginning of the fiscal year, Democrats and their union allies are putting the blame on California’s two-thirds supermajority rule for passing a budget in the Legislature. As commonly happens in recent years, the Republican minority in each house of the Legislature has just enough votes to hold up a budget by opposing Democratic-sponsored tax increases.

In some years, Republicans stay solid and prevent tax increases. In other years, such as 2009 and 1991, enough Republicans break ranks to pass a tax-increase budget. This year, it’s too early to tell whether last year’s pattern will be repeated. Much depends on if Gov. Arnold Schwarzenegger, as last year, himself backs tax increases, then pressures several fellow Republicans to go along with him.

To get beyond the impasse, this fall voters will decide the fate of Proposition 25, the Passing the Budget on Time Act, which institutes a majority-vote budget. It’s already being supported by the California Teachers Association.

But what would happen if it did pass? Would that make it easier to raise taxes, as supporters hope? What would happen if taxes were increased so easily? Would Democrats, without having to worry about Republicans in the Legislature, massively increase taxes?

To find out, I researched how things work in Massachusetts. Also a heavily Democratic state, its budget can be passed with only a majority vote. Republicans are close to irrelevant in the Legislature; but, like here, the GOP is able to elect moderates as governor, the most recent being Mitt Romney from 2003 to 2006.

“We have passed tax increases recently on business, and last year we increased the sales tax by 25 percent,” Steve Poftak told me; he’s Director of Research and Director of the Shamie Center for Better Government at the Pioneer Institute for Public Policy Research in Boston. He also was the commonwealth’s Executive Office for Administration and Finance.

At 6.25 percent, the state’s sales tax still remains lower than California’s rates of 8.25 percent to 10.25 percent, depending on county levies. Like California’s Proposition 13, Massachusetts has a limit on property tax increases, there called Proposition 2½. However, Poftak told me that initiatives in Massachusetts only can limit local taxes. At the state level, tax-limitation measures can be amended by the Legislature — that is, effectively ignored.

As in California, one check on tax increases is the governor’s veto. But with only a majority vote needed in Massachusetts, such a veto is much less of a threat. In California, it has been three decades since a governor’s veto was successfully overridden, on the budget or anything.

As in California, Poftak said that public-employee unions are “extremely powerful.” Yet, even in Massachusetts, “there are some union leaders who take a more strategic view, looking at how this works in the long term” concerning taxes, expenditures, and public employee salaries and benefits. He said that, in his state, the major concern now is runaway health insurance costs for public employees. “At least some union leaders see that this can’t continue indefinitely.”

“Taxachusetts”

Contrary to its image as “Taxachusetts” and its recent tax increases, Massachusetts remains at the low-end of the group of states with high taxes. “We’re about 10 positions better than people perceive us to be,” Poftak observed.

Its top income tax rate is 5.3 percent, compared to 10.55 percent in California, 11 percent in Hawaii, 7.85 percent in Minnesota and 8.97 percent in New York.

According to the 2010 ALEC-Laffer Economic Competitiveness Index, Massachusetts ranked 32 of the 50 states, about middling. By contrast, California ranked 46th, among the “States That Do Everything Wrong,” according to ALEC-Laffer, as I noted in a recent article on CalWatchDog.com.

Yet Massachusetts’ ranking has fallen in recent years, from 22nd in the ALEC-Laffer score as recently as 2008. Poftak said that the state has raised corporate taxes seven consecutive years in a row, “whether under a Republican or Democrat.” The Republican governor was Romney. Today, Massachusetts’ top corporate income tax rate is 9.5 percent, 44th most burdensome in the country. California’s is a little better, 8.84 percent, ranking 38th worst.

Boston Tea Party II

Even though Massachusetts’ state government is dominated by Democrats, the voters have the final say. One limitation on tax increases is “that people here are very angry, just as they are everywhere,” Barbara Anderson told me; she heads Citizens for Limited Taxation, a Massachusetts group that calls itself “the Voice of Massachusetts Taxpayers.” Slogan: “Every Tax Is a Pay Cut…A Tax Cut Is a Pay Raise.”

She said state taxpayers are especially mad at the the Legislature for ignoring the voters’ will when Question 4 was passed in 2000, rolling the state income tax of 5.95 percent, in increments, down to 5 percent. Instead, the tax was frozen at 5.3 percent.

She said the Libertarians in the state even have tried to pass an initiative to entirely repeal the state income tax with Question 1 in 2008. It lost, but still garnered 30 percent in a very liberal state.

Her group has a political action committee which, she said, is targeting 50 state legislators who voted to freeze the tax cut. “We’re expecting a revolution on Nov. 2,” she said. “Even if you throw out only a few of them, the rest will get the message. Since they threw out the initiative [Question 4], we have decided that we have to change them first.”

A big problem, she said, is that “in the past, we always had fiscally conservative Democrats to work with Republicans. But we have not had many of them in recent years. I would expect that, if some Republicans win in November, some conservative Democrats will start speaking up.”

John Seiler, an editorial writer with The Orange County Register for 19 years, is a reporter and analyst for CalWatchDog.com. His email: [email protected].