From today’s Wall Street Journal Political Diary E-mail…
LOS ANGELES — California Gov. Jerry Brown is calling for $12 billion in spending cuts in exchange for $12 billion in tax hikes to close the state’s estimated $25 billion deficit. His spending cuts are contingent on the extension of expiring rate increases in the sales and income taxes. Those tax increases happened under former Gov. Arnold Schwarzenegger and are set to revert back to lower rates next year.
Mr. Brown wants to extend the higher tax rates for five more years, but here’s the kicker. He promised in the campaign that any tax increase proposal would have to be approved by a vote of the people. And to do that he would need a super-majority vote from the legislature, which means he would have to capture Republican votes.
"We’re not going to touch any vote that raises taxes," says state Senator Tony Strickland, a rising conservative star from Southern California. "Our problem in this state is that we are over-taxed, not under-taxed." There is also some question as to whether higher income-tax rates will raise revenues. An analysis by scholars at the Hoover Institution found that more than 90% of lost revenues in Sacramento over the past few years come from a disappearance of taxpayers in the top 1%. "We had a $20 billion deficit before the tax hike, and now with the tax hike we still have a $20 billion deficit," grouses Tom McClintock, a former state legislator who now serves in the U.S. House.
Democrats counter that the higher taxes are popular with voters and would likely pass if put to the ballot. One Public Policy Institute of California poll found that 53% favor the tax rate extensions, and even some Republicans may support them. GOP state Senator Bob Huff, a vice chair of the budget committee, says that if there are meaningful spending cuts and budget reforms, "it’s possible we would have members in our caucus" willing to put the tax on the ballot.
"We should be pressing pension reforms, not tax increases," advises Mr. Strickland. But for now it looks like extending some of the highest income and sales tax rates in the country will be the price for years of budget profligacy and union rule. In the past, California has grown its way out of its budget crises. Don’t expect that to happen this time.
— Stephen Moore