The Freedom Minute

How to Solve California’s $42 billion Budget Deficit

Yes, it’s not enough to just chant “no new taxes” without also providing an alternative. Here’s my attempt to do so.

First of all, there is no “good” solution to this problem. The State (meaning our elected representatives) has overspent, expanded government services, and gotten itself into all sorts of long term financial obligations that are difficult, if not impossible, to easily reverse. Actually, the best solution would be to build a time machine, go back 10 years, and not make all the irresponsible decisions that got us into this mess. Barring that, let’s look at some possible actions that could solve the current budget deficit and not raise taxes.

First – Things You Need to Know

1. California is already one of the highest taxed states in the country.
   a. California has the highest personal income tax and capital gains tax rates in the country and these income tax rates kick in at the lowest income levels.
   b. California’s Top Individual Income Tax Rate is the Highest in the nation.
   c. California’s Corporate Income Tax Rate is the Highest in the west.
   d. California has the highest sales tax in the nation.
   e. California has the highest gas tax in the nation.
2. California teachers’ salaries are the highest in the nation.
3. California teachers’ benefits are among the best in the nation.
4. California spends more per prisoner than any other state, mostly due to exorbitant employee costs.
5. During the last decade, California has added 175,000 new state workers to the payroll.  That’s 48 jobs per day that have to be paid for with your tax dollars.
6. Total state expenditures have increased from $104 billion in 2003 to $145 billion in 2008.  Does that $41 billion number look familiar?
7. California now has the worst credit rating in the nation — even worse than Louisiana’s.
8. California has the nation’s fourth highest unemployment rate of 9.3% (after Michigan, Rhode Island and South Carolina).
9. There have been no major layoffs of state employees since 1975.

The real question we need to ask is, how is it possible that a state this heavily taxed is in the hole for $42 billion? Certainly it’s not because we’re not taxed enough. The answer is that the various unions representing state workers hold a disproportionate influence over State lawmakers. They’ve been able to get better pay and benefits than the vast majority of regular working stiffs – the one’s who have to pay for all this. And there is so much waste and mismanagement in State government that we could easily cut 10% across the board and practically no-one would notice. The heavy tax burden and overbearing regulation has driven business – large and small – from the state. When that happens, the tax base shrinks and each person must shoulder a greater burden of the cost of government.

So does anyone still think that raising taxes is the answer? Only if you have no concept of how economics works, or you simply don’t care.

Ok then, what should we do? First, we shouldn’t try to fix a 18 month budget problem all at once. Lawmakers could first do a 6 month budget which would be balanced with the spending cuts already negotiated, some borrowing and California’s share of the Washington stimulus money. Then we should consider using the untapped funds currently sitting in two accounts – the tobacco tax and the 1% surcharge on millionaires. These funds which total at least $4 billion were created by previous voter initiatives and could be used to balance the budget with voter approval. Also, one state senator has suggested permitting oil companies to expand the use of slant drilling in which the oil platforms are located onshore and drill at an angle to tap reserves that exist offshore. There’s much less chance of an oil spill using this method and we could borrow up to $5 billion against future revenues.

This gets us out of the red temporarily. Then the hard work begins. We need to roll back our budget to 2003 levels. We need to enact real spending reforms and significantly reduce the size of State government. We need a spending cap that only allows increased spending tied directly to increased economic growth (like we had in the late 1980’s) with any excess going into a rainy day fund. We need to cut unnecessary programs and wasteful expenditures such as the various State Boards that meet a couple of times a year, do nothing, and eat millions in tax dollars. We need to renegotiate some of the union contracts to bring pay and benefits for State workers in line with what employees in the private sector get. We need to cut the prison population by reforming our drug laws and ceasing to lock up otherwise law abiding citizens for simple drug possession. We need to put some kind of cap on the expenses shelled out for illegal aliens. There are hundreds, if not thousands, of spending cuts that need to be made.

Simply put, we need to live within our means. We need to stop overspending in the boom years. We need to reject the idea that the government can and should do everything; that government is the answer. Instead we need to embrace the idea that it is the individual in the private sector that contributes most to our society. We need to champion those who provide jobs rather than tax them to death. We need to cut unnecessary regulation which hinders the creation of new business that provide good new jobs. We need change, real change. And that change cannot be to raise taxes. That’s just more of the same and it’s part of what caused this problem in the first place. We need real guts and real leadership to get us out of this mess. Unfortunately, I see neither on the horizon.

Related posts:

1. Stop the California Tax Hikes!

February 18th, 2009 Posted by freedomminute | State Government | no comments