Thursday, July 23, 2009
The solution seems...well...Republican
All of which demonstrates what can happen when the political class has its credit-card pulled by the electorate. It’s a shame it takes a fiscal crisis for this kind of discipline to be imposed, and the victories here are a long way from permanent. But if Mr. Schwarzenegger can drive more tax and spending reform in his last year in office, he can vindicate the fiscal promises he made when he first ran for Governor.
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Score one for California voters. In May they rejected a bipartisan budget deal that raised taxes and debt, and the political class screamed “disaster.” This week Governor Arnold Schwarzenegger and Democrats in Sacramento agreed to spending cuts that Assembly Speaker Karen Bass admitted were once “unthinkable.”
To close a $26 billion budget gap, the deal reduces spending by $15 billion, including in previously untouchable though bloated education and health-care programs. Democrats were even forced to implement welfare reforms that most of the rest of America put in place 15 years ago: a work requirement and a four-year limit. The agreement eliminates about $2 billion a year in automatic benefit increases and saves another $1 billion by auditing in-home health-care payments that are notorious for fraud. “Only in California,” says Mr. Schwarzenegger, “is welfare still a way of life.”
The budget is also a triumph for what it doesn’t do: raise taxes. Earlier this year, when the deficit hit $40 billion, the governor and legislature raised sales and income tax rates, making the Golden State the single costliest place in America to operate a business. Right on time, sales and income tax receipts are down $10.47 billion so far this year even with the higher rates. Instead, the new budget deal sensibly allows more oil drilling off the shores of Santa Barbara, albeit only on “existing platforms.” This will bring in $100 million more a year and could be the first step in shaking the state from its antidrilling phobia despite huge offshore energy reserves.
California is still a long way from a sustainable balanced budget. About $10 billion of the savings are one-year shots, or gimmicks, so next year could mean confronting another $20 billion to $30 billion deficit. Mr. Schwarzenegger says the “missing piece to the puzzle is tax reform,” and he’s right. His tax reform commission is considering a flatter tax that would help to stabilize state finances.
California will only generate more tax revenues through new businesses and jobs, and that will require a tax rate much lower than its top marginal rate of 10.55%. With 50% of Golden State income tax revenues coming from the richest 1% of residents, the state needs lower rates to avoid revenue boom and bust. The liberal obsession with income redistribution has destroyed California’s tax base. (Memo to President Obama, if he’s paying attention.)
All of which demonstrates what can happen when the political class has its credit-card pulled by the electorate. It’s a shame it takes a fiscal crisis for this kind of discipline to be imposed, and the victories here are a long way from permanent. But if Mr. Schwarzenegger can drive more tax and spending reform in his last year in office, he can vindicate the fiscal promises he made when he first ran for Governor.
A simple 1% property tax, ZERO corporate tax, 7% sales tax, and personal income tax of 20% of federal. ALL other taxes would be cut, working people and business owners would have far lower taxes....AND business would want to stay in California or relocate there. There famous prop laws have ruined their economy.
Terry:
Has your plan been scored? It sounds very sensible. I know that total California taxes are actually middle of the pack nationally. Because the base has been reduced - through the props - the top marginal tax is simply too high.
Anecdotally - they spend too much. I don't know if this is true, but a Republican friend told me they have the highest proportionate workers comp and disability for state workers in the country. The number of state workers off active duty at any given time exceeds 20%!? If true, the complaints about AFSCME, et al, are justified.
That is the kind of thing that needs to be benchmarked and states can be the 50 laboratories that Buckley used to write about. Workers Comp/Disability claims need to run the same as the private sector. To the extent they exceed that standard, union contracts need a formula to see that wages are adjusted accordingly.
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