The Budget Should Not Be What’s Fair, But What’s Sensible

Mark Laluan

Governor Brown’s May Revised Budget fails to address the structural problems within the apportionment process that have greased the Golden State’s path to financial insolvency.

Drastic action must be taken to right the ship of state and no ideological framework, no repetition of sad stories and no excuses distract the electorate from demanding a prompt and effective action.

Brown’s band-aid budget is reliant on a slew of new taxes that are being offered for approval to the electorate directly. Without these new taxes, the best Brown’s proposal can hope for is to succeed at paying off accumulated yearly interest on our state debt.

We suggest a sea-shift in the way we manage our fiscal affairs as a state.

In the short-term, California should adopt a strategy of cutting government spending and raising taxes exclusively to pay down the debt.

An all-cuts budget cannot hope to fill in the multi-billion dollar void that is our state debt alone. Likewise, we cannot expect to pay down our deficit by continuing to spend on government provided programs with reckless abandon.

We must move beyond the scare-tactics of both the right and the left; living within our means as a state does not mean automatic privation for the unfortunate, nor does cutting back on reckless spending mean a free pass to cut programs supporting causes which do not mesh with a given ideology.

In the long-term, what we propose for California is to move away from a revenue generation system that exclusively depends on the income of the rich to make ends meet.

Ignoring for a moment red herrings such as how much money might be made if Proposition 13 were repealed—though the collapse of the housing market in 2008 should convince us that increased property taxes are no universal panacea—the fact remains that it is the top 50 percent of Californians who hold up over 90 percent of the tax burden.

Of which, over 85 percent is held up by the top 25 percent paying income tax. This makes our state’s revenues highly susceptible to fluctuations in the economic health of the country.

California is one of the few states with both an income tax and a sales tax. This combined with one of the most crushing corporate tax rates among any state in the entire nation makes California a horrible place to do business.

This harsh reality leaves us with two options; either we make California more habitable to business owners by lowering corporate taxes to draw in the rich or we implement taxation along the lines of a European-style “social democracy.”

In order to bring budget stability, California needs a wide base of taxation; the concept of “social democracy” in Europe is that everyone pays high taxes and gets welfare benefits to compensate.

Naturally, even in Europe this is not the case as the remnants of the Second Estate pay for most everything while the rest feed off the dole. The same hypocrisy holds true in America and in particular states such as California.

A situation where 25 percent of the population accounts for over 85 percent of government revenue is neither fair, nor equitable nor sustainable.

In the second situation, California can draw businesses back by lowering the corporate tax rate radically while at the same time eliminating corporate subsidies and tax exemptions. Having a fair playing field is more than enough for states like Alabama, Georgia and now New Jersey to attract businesses.

In regard to either option, we suggest that in the long-term the state switch from reliance on income and corporate taxes to consumption taxes. Consumption taxes such as sales taxes are more equitable as the consumer gets to decide how much tax he or she pays by how much he or she buys.

All purchases in California—besides groceries—are subject to a sales tax of some sort. Even a 12 or even 18 percent markup on goods benefits everyone in the long-run as it strikes a blow against an income tax system mired in Byzantine complexity; which requires the services of a legion of tax lawyers just to navigate.

Switching to reliance on sales taxes means that the citizen will be using his or her money—which might have gone directly to income tax—to buy goods and products from businesses.

This in turns allows businesses to turn a profit and with good fortune expand their ability to provide employment and healthcare benefits to the state’s residents while at the same time giving the government a share of the revenue through sales tax.

In contrast, direct taxation such as an income tax neither helps the money supply nor aids businesses in growing. It functions as a direct levy out of the taxpayers pocket with no guarantee it will go towards a venture which will benefit the economic health of this state.

Taken together what we propose is a foundation for a fact-based solution to our state’s economic woes. The short-term will require increased taxation to pay down the debt and a reduction in state expenditures to divert as much as possible to paying down our debt to increase our credit rating and thus our ability to borrow money in an emergency.

In the long-term, California must move away from reliance on the wealthy to carry her revenue burdens. This source of revenue depends too much on bull markets which come and go as the market cycles in and out of prosperity, boom and bust.

Adopting these proposals will both save California’s welfare state and set our finances on an even keel. These are end results from which Californians from all ends of the political spectrum can take great pride in.