Lockyer, Levy Are Clueless

Steven Greenhut: It’s shocking for the state’s highest-ranking finance officer to express such ill-informed views on economic competitiveness in California [California’s not broken]. State Treasurer Bill Lockyer and fellow author Stephen Levy, a liberal economist who believes in higher taxes and more government spending, don’t think that California having the eighth-highest corporate income tax rate matters for investment. Apparently, state competitiveness and incentives for entrepreneurship and investment are not influenced by having the third-highest top personal income tax rate in the country. But, of course, these taxes do matter and explain why California is performing so poorly, particularly when compared to our potential or compared to many other states. Tax rates and the state’s regulatory climate matter.

In the liberal worldview, though, everything is static. People are sheep who don’t respond to incentives and disincentives. The government raises tax rates and we all supposedly work just as hard and invest just as much. Tax-hike advocates believe that government is the source of wealth. Levy has a long history of arguing that California’s future is dependent on “investing more” and raising taxes. No wonder Jon Coupal of the Howard Jarvis Taxpayers Association calls him “an avowed enemy of Prop. 13.” Yet this is the economist our state treasurer believes offers the right take on California’s situation.

Lockyer and Levy seem to miss the word “despite.” California is not a total basket case despite economic and regulatory policies from Sacramento that seem designed to push top wage earners and businesses to friendlier economic climates. Beyond blaming the economy, Lockyer and Levy blame the state’s taxpayers. They write, “Californians have to assume more responsibility for deciding what they want government to do and how much they’re willing to pay for public services.”

Read that line carefully. It’s the same false choice we’ve been referring to here at CalWatchdog — the choice between more services or higher taxes. We know what Lockyer and Co. choose. Lockyer has often made some sensible observations about the state’s economy in the past, so perhaps he is merely trying to bolster the bond markets, as Wayne Lusvardi argues in an article today. Still, Lockyer’s argument is weak and a bit scary. If the state’s leaders don’t believe California’s government has a fundamental problem, then there’s no chance that they will attempt to fix it.

The authors don’t mention the many ways state government misspends taxpayer dollars and how Sacramento officials overspend no matter how the economy is doing. The authors’ implication is that the state government is lean, and that California is suffering from problems that are not under its control. They ought to talk to business owners who must deal with California’s notoriously ham-fisted regulatory agencies. In the authors’ view, the state seems to be a mere victim of economic circumstance. The real solution is for taxpayers to “assume more responsibility” for their decisions, they argue. But what about the responsibility of state officials such as Lockyer, who have spent their careers passing legislation and managing the state budget? Don’t they bear much responsibility for the state’s budgetary and economic mess?

Furthermore, Lockyer and Levy misstate the default risk, as my PRI colleague economist Jason Clemens points out. “The risk is not that the state will actually default,” he said. “The risk is that the cost to California in terms of relative interest rates will increase, which means more state revenues have to go to paying interest on debt instead of actual programs and services.” While debt service is a senior obligation, the refusal of state officials to deal with pension liabilities and other long-term debts means that other programs must be cut or taxes must be raised.  I suspect the latter proposal is what this column was all about, which gives Californians some insight about how the state’s leadership plans on approaching its intractable self-imposed budget problems. The column will make state government insiders feel better about themselves and the work they do, but it ought to offer a clear-sighted warning to taxpayers and business owners that nothing is going to change in Sacramento.

DEC. 22