If terms limits has any downside, it is that the current crop of legislators (at least in the Assembly) have little experience in dealing with budget crises.  Every member of the Assembly today got elected after the budget debacle of 2001-02, and the recovery that followed.  That morass, where the budget deficit grew to $48 billion (when you include the actual deficit between revenue and spending in the 2001-02 budget and the projected spending deficit in 02-03) in a $79 billion general fund budget, was solved without a tax increase.  Today, legislators talk as if a $20 billion deficit on a $110 billion budget can only be solved with a tax increase (to use their cute expression the balanced approach with a ‘mix" of cuts and tax increases).  The public relations effort has begun to convince the Governor of this fact and then have the Governor persuade enough legislators to get the tax increase.

That is an old strategy that worked in Pete Wilson’s first term.  It failed miserably.  The tax increase deepened a pending recession, causing the deficit to deepen.  What is more the proposed "cuts" never occurred.  Spending went up, taxes went up, and revenue never caught up until the economy recovered, mostly because the worst tax increases rolled off.

Now the Dems are talking about raising taxes on "services," which by the way, is an insane concept.  A tax on legal, accounting, medical or other services is little more than a gross receipts tax.  When I billed in my old legal practice, I could have added a tax, but my clients would only have paid whatever they paid.  I would have still owed the tax whether they paid it or not.  That is why we don’t tax services.  They are not like goods, where the exchange takes place when the price of the goods and the tax is paid.  Services are generally rendered, and then they are paid for sometime later.  What is more, there is no such thing as a revenue neutral method of assessing that tax.  Gross receipts taxes are the most unfair method of assessing a tax, no deduction for business expenses, like rent, no deduction for anything.  It literally is a form that says How much did you earn last year?  Send it in.

There is no middle ground on tax increases.  This problem was not caused by tax increases, it was caused by an irresponsible legislative majority and a Governor who failed to exercise control over their impulse to spend.  No matter how much you may dislike attorneys, or accountants, or contractors, or janitorial services, or landlords, that is no reason to tax them unfairly to solve this current budget crisis.  Reduce spending, just like they did in 2001-02.

This entry was posted on Wednesday, April 30th, 2008 at 12:00 am and is filed under Blog Posts.