
Spending, NOT Tax Cuts, Caused the Budget Crisis
In today’s column in the LA Times, George Skelton points to Governor Schwarzenegger’s decision to cut the car tax in his first day in office in 2003 "forced [Governor Schwarzenegger] into the budget box he found himself in Friday." Skelton also cited borrowing $15 billion to pay off the accumulated Gray Davis debt as another reason. He later cites other things, which I will address later, but I wanted to address these two first.
Let’s look at the numbers again, just to reiterate the impact of the car tax cut on state revenues. The day the car tax was first cut in 1998, total state revenues were $57 billion (Schwarzeneggger’s cut restored the rate to its 1998 level). Today, those revenues are $84 billion, a $27 billion increase in revenues. The total amount of the car tax cut, even assuming the cut had no positive impact on state revenues (by increasing private sector growth, and therefore increasing revenue) was $5 billion. It is simply illogical to conclude this $5 billion reduction in taxes, and not the huge increases in welfare, education, state government and government health care spending, from $57 billion to over $102… Read More