More Tax Hikes Seen for California

The Golden State had a recall almost five years ago. California had a huge budget deficit at the time and soon-to-be-governor Arnold Schwarzenegger was promising to “cut up the credit card.” 

By the March 2004 primary, Schwarzenegger, by then governor, was promoting the passage of ballot Propositions 57 and 58. Prop. 57 was a $15 billion deficit bond designed to refinance the short-term debt California incurred under Democratic Gov. Gray Davis (with a few billion left over for future needs, the last $3 billion of which was borrowed a few months ago). Prop. 58 was a supposed spending cap of which Schwarzenegger said, “By voting yes on Proposition 58, you are basically taking the credit cards, cutting them up and throwing them away so that the politicians over there (at the Capitol), those big-spenders, will never ever get the state into this kind of trouble again.” Yea, right.
Conservative critics called Prop. 58 a ruse, saying, correctly, that it was weak and opened the way for more borrowing, spending and taxing by politicians.

With due credit to Schwarzenegger and to history, Prop. 58 was initially supposed to be an iron-clad spending cap that would have limited spending increases for population growth and inflation. Of course, legislative Democrats fought the plan, saying the cap was too restrictive because it did not account for programs such public health and welfare, in which spending often grows faster than population plus inflation.

Propositions 57 and 58 passed in 2004, enacting a worthless spending cap and borrowing $15 billion to paper over $10 billion in past overspending and enable $5 billion more in the future. So, here stands California today, with government spending 40% higher than it was at the time of the recall in 2003 — $41 billion in additional state spending and a $16 billion deficit. To bridge the deficit, Democrats have called for $9 billion in new taxes, mainly on income, while boosting spending another $2 billion. Meanwhile, Schwarzenegger is again calling for a spending cap, and more borrowing, and now, a $5 billion a year tax increase, in spite of his no-new-taxes pledge.

The problem with any new spending cap is one of believability. History has shown us that no spending cap devised by politicians sticks in California.

As for taxes, California already has the highest income tax in the nation, the highest sales tax rate, the highest gas tax, and the highest corporate tax in the West with our property taxes being at the national average, combining for the 47th worst business tax climate in America (as measured by the Tax Foundation). Clearly, additional taxes in this time of economic weakness would make it highly likely that California would be the last state to recover in this present downturn. 

Further, Californians are already stretched. With inflation on the rise, the last thing working Californians need is a 14% effective increase in their base sales tax rate, from 7.25% t to 8.25%.

To sum up, California’s ongoing budget battle strikes at the core of the major parties’ conception of the role of government. Democrats believe in an expansive administrative state that ministers to all our needs, whether we think we need them to or not. In this worldview, you can never have enough government and taxpayers can never pay enough. Republicans, Schwarzenegger now apparently excepted, believe in a more modest government that does for the people no more than what they cannot do for themselves through individual effort, family effort, or community effort.
California’s weak economy should signal to all but the most committed ultra-liberals that new taxes would make bad situation worse.