Dems Want More Taxes in California

Less than a month after California voters overwhelmingly rejected billions in taxes in a May 19 special election, the legislature’s Democrats are pushing $1.9 billion in new taxes on oil, vehicle licenses and tobacco to help close a $24.3 billion state deficit.  

A newly-invigorated Gov. Arnold Schwarzenegger has threatened to veto any tax increases. The California governor has also moved to block additional borrowing to paper over California’s overspending — a first for him.  Harking to the early days of his governorship when he called to “blow up the boxes,” Schwarzenegger wants government reform, especially in California’s bloated and fraud-ridden welfare programs.

A Schwarzenegger veto of the Democrats’ new budget, with its reliance on taxes, threatens to move California to insolvency, as the Golden State’s cash reserves are rapidly running out.  A state cash crunch could unleash political forces beyond anyone’s understanding, with overburdened taxpayers facing off against state workers, people dependent on state programs, and government contractors.

Schwarzenegger signed off on a massive $13 billion tax increase in February, the largest tax increase in U.S. history at the state level. California is now one of America’s top three highest-taxed states. Now the state’s deepening economic slump and Democrats’ reluctance to enact any substantive reforms may have nudged the governor back to the right — at least for negotiating purposes.

Meanwhile, an additional bailout from the federal government is not yet in sight.  The Obama administration is counseling a tough love approach — for now — saying that if more federal dollars were to come to California, it would be with onerous conditions designed to ward off requests from other states.  No doubt, those federal strings would include requirements for massive new state taxes in exchange for freshly printed Federal Reserve notes.

A high-profile example of how government has gone wrong in California can be found in its welfare system. With only 12 percent of America’s population, California now strains under 32 percent of the nation’s welfare caseload, according to data from the federal Department of Health and Human Services.  Year after year, the one consistent thing Schwarzenegger has tried to do is to reform California welfare to reduce fraud and encourage welfare recipients to graduate to the dignity of work.  And, year after year, legislative Democrats have rebuffed him.  

The latest welfare showdown has Schwarzenegger proposing to cut $765 million from California’s most rapidly growing welfare expense: the state’s In-Home Support Services (IHSS) program. IHSS pays newly unionized workers to take care of the frail and elderly, often their own parents, at home. The theory is that care in a convalescent home is far more expensive. The program has doubled in cost to $5.4 billion in the past five years. Conference Committee Democrats immediately slashed Schwarzenegger’s cost containment efforts to $117 million, trimming IHSS rolls by less than 10 percent.  Assembly Budget Committee Chairwoman Noreen Evens (D-Santa Rosa) expressed a commonly stated Democrat concern when she said of the proposed health and welfare cuts, “The imagination runs wild on what would actually happen to these people.”

That many of “these people” are committing fraud to receive state benefits is becoming increasingly evident as Democrats have resisted most efforts to ensure only the truly needy receive help. County prosecutors say that taxpayer funds are pouring into IHSS so quickly and with such minimal oversight that welfare scam artists often get money for taking care of the dead. One variation of the scam has people who are not in need of in-home services agree to be “taken care of” by someone else in exchange for a share of the check. With wages ranging up to $14.68 an hour, the temptation to abuse the program is high and the examples many.

A few months ago there was a fatal crash of a bus headed to one of California’s tribal casinos. Several of the passengers killed were “patients” of in-home supportive services from the Sacramento area — people who were supposed to be so infirm as to require constant attention.  As a senior deputy district attorney from Sacramento County said, “If you are able to get on a bus and go gamble, then maybe the medical documentation you submitted to qualify for the program wasn’t accurate.”

The IHSS program now provides the Service Employees International Union (SEIU) with about $5 million per month in dues money, making the SEIU a heavy hitter in the California political landscape. This has led Sen. Dave Cogdill (R-Modesto) to observe, “Anything (the SEIU) see(s) as a threat to that income stream they are going to challenge and use the political muscle they have to do it.”

California has the most generous welfare benefits and most lax eligibility criteria of any state.  This has resulted in a steadily rising welfare caseload over the past several years while other states successfully moved their welfare dependents from handouts to work.  

This places a heavy burden upon the individual California taxpayer.  About 15.8 million Californians filed an income-tax statement in 2008 out of a state population of 36.7 million.  In the same year about 1.2 million Californians were receiving welfare from the CalWORKs program. Were recipients of other welfare programs added in, including programs such as IHSS which pays 223,000 workers to care for 440,000 people, the total would rise significantly. This means that each welfare recipient is supported by about a dozen California taxpayers who pay three times more than taxpayers of other states: a remarkably concentrated ratio that doubtless worsens when one considers that of the 15.8 million Californians filed an income-tax statement in 2008, not all actually paid income taxes.

California has a narrow base of taxpayers supporting a comparatively broad base of welfare recipients. That the number of those recipients is so high is often blamed on California’s problem with illegal immigration. This is a contributing factor but not the driving cause, as California is not the only border state, nor is it the sole destination of illegal immigrants.  For instance, Texas has a welfare rate less than one-seventh that of California’s. The primary cause of California’s high welfare caseload, and narrow taxpaying base to support it, is overreaching and over-spending state government.

This "generosity" with other peoples’ money impels Sacramento lawmakers to give such large sums of working Californians’ money to non-working Californians inevitably results in less of the former and more of the latter. This is simple economics, and it’s a shame that it escapes the architects of our state’s governance today.

The bottom line: when one of the world’s top ten economies has America’s largest welfare caseload, things have gone terribly wrong.