This year’s state budget is going to increase taxes. I say that neither as a good or a bad thing, merely as a statement of fact. But the only questions to be answered at this point are which taxes will be raised, by how much, and what Republican legislators will get in return for putting up the necessary votes.
Arnold Schwarzenegger, of course, wants to raise the sales tax, at least for awhile. But GOP legislative leaders have previously indicated a willingness to close tax “loopholes”. All have sworn they will only agree to these concession s in exchange for a cap on state spending and other structural budget reforms that will make it easier for the state to avoid the boom-and-bust cycles that have characterized the last two decades of California’s economic and budgetary roller-coaster. But let’s assume that the Democrats are smart enough to give Schwarzenegger what he wants in the way of long-term budget reform in order to access sizable amounts of additional tax revenue, whatever form it takes. So taxes are going up.
The debates over whether a sales tax or income tax hike would be more damaging, and over which loopholes are necessary incentives and which are giveaways for the well-connected, can wait for another day. But now that the broader battle lines are drawn, let’s focus on what other tradeoffs Republicans can extract in exchange for the tax votes they’ll almost certainly provide at some point in the next several weeks.
There are two logical areas for the GOP to focus: economic growth and education reform. As California heads deeper into recession, the state’s business community has begun to agitate for various types of regulatory relief. While their biggest wish, a delay in the implementation of the governor’s global warming initiative, is unlikely given the political capital that Schwarzenegger has mined on the issue, there are a host of other potential steps that can be taken to improve the state’s competitive standing. During boom years, it’s easy for policymakers to regard the small business community as a well-dressed goose that will lay golden eggs now and forever. But it’s harder to take those job-creators for granted in a downturn, and the rising unemployment rate here creates a window of opportunity to push for legislative fixes on issues ranging from the eight hour day to further workers compensation reform.
While not a substitute for economic growth measures, the area of education policy provides another potential leverage point. Earlier this year, the Governor’s Committee on Education Excellence, a bi-partisan group that I once advised, outlined a range of reform proposals that could be implemented at low or no budget impact. The most controversial of the ideas is an incentive-based pay system that rewards teachers who take on the most difficult assignments. But other necessary improvements such as increased transparency and access of student data for parents, and enhanced local control over school spending and other decision-making responsibilities, could become part of the price of a final budget agreement. Even broader school choice can be part of the discussion, if the GOP leaders play their cards right.
There are certainly other policy achievements that can be realized in exchange for budget votes as well. Democratic Assemblymember Nicole Parra has announced that she will not cast her vote for a budget that is not accompanied by the placement of a water bond on the November ballot. By the time this column is posted, at least a dozen Republican members should be signing on to the same principle. As shifting poll numbers on the issue of offshore oil drilling have demonstrated, voters tend to be less attentive to environmental-based arguments during difficult economic times. Urban legislators from Southern California could certainly be pressured to lend their support for a dual conveyance system to move water through the Delta in exchange for the prospect of more tax revenue for their constituents.
But these are only a few examples: virtually every area of state governance can be on the table. Democrats want those additional tax dollars and are willing to trade quite a bit in order to make it happen. Republicans are now in a position to decide what they want in return.
Few Californians want to see their tax burden increase. But it’s going to happen. So let’s see what the governor and GOP legislators can do now to improve our lives in other ways.
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