California, like Greece is perpetually in fiscal trouble. Overoptimistic revenue forecasts coupled with spending $2 billion more than expected has California in a deep hole. Governor Jerry Brown has the same non-solution as ever, hike taxes.
Brown wants a “temporary” (as in seven years) tax hike. Given we all know there are no such things as temporary tax hikes in California (seven years is permanent enough in the first place), and also given the California school budget needs an axe, I say let him.
Gov. Jerry Brown announced on Saturday that the state’s deficit has ballooned to $16 billion, a huge increase over his $9.2-billion estimate in January.
Lawmakers and others were hoping that a rebounding economy would help the state avoid steep cuts to social services. But revenue in April, the most important month of the year for income taxes, fell far short of expectations, leading to a shortfall of at least $3 billion in the current fiscal year.
The state has also spent $2.1 billion more than expected, according to the controller, further worsening California’s financial health.
Advocates involved in budget discussions say they expect deeper cuts to social services than Brown originally proposed in January. Union officials are also in negotiations with administration officials about ways to reduce state payroll costs, an issue that wasn’t on the table earlier this year.
Brown has said there will be even deeper cuts, mostly to public education, if voters do not improve tax hikes in November. He is seeking a quarter-cent increase in the state sales tax for four years and a seven-year hike on incomes of $250,000 or more that will range from 1 to 3 percentage points. He says the measure would raise $9 billion in the upcoming budget year.
Tax Hikes, Public Unions, and Union Sympathizers Hand-in-Hand
Whenever tax hikes are on the table, union supporters are at the front of the line demanding them.
Yahoo!News has additional details in California facing higher $16 billion shortfall
Under Brown’s tax plan, California would temporarily raise the state’s sales tax by a quarter-cent and increase the income tax on people who make $250,000 or more. Brown is projecting his tax initiative would raise as much as $9 billion, but a review by the nonpartisan analyst’s office estimates revenue of $6.8 billion in fiscal year 2012-13.
Supporters of the “Schools and Local Public Safety Protection Act of 2012” say the additional revenue would help maintain current funding levels for public schools and colleges and pay for programs that benefit seniors and low-income families. It also would provide local governments with a constitutional guarantee of funding to comply with a new state law that shifts lower-level offenders from state prisons to county jails.
A second tax hike headed for the November ballot is being promoted by Los Angeles civil rights attorney Molly Munger, whose initiative would raise income taxes on a sliding scale for nearly all wage-earners to help fund schools.
Anti-tax groups and Republican lawmakers say both tax increases will hurt California’s economic recovery. State GOP Chairman Tom Del Beccaro has embarked on a statewide campaign to discuss alternatives to Brown’s tax hikes.
The governor is expected to propose a contingency plan with a list of unpopular cuts that would kick in automatically if voters reject tax hikes this fall. In January, he said they would result in a K-12 school year shortened by up to three weeks, higher college tuition fees and reduced funding for courts.
Expect to hear Armageddon chants from public unions immediately if not sooner.
How Brown Ruined California in His First Term
Bear in mind that Governor Brown helped ruin California with public union collective bargaining rights in his first stint as governor, in the 70’s.
- The Educational Employment Relations Act of 1976, established collective bargaining in California’s public schools and community colleges
- The Ralph C. Dills Act of 1978 established collective bargaining for state government employees
- The Higher Education Employer-Employee Relations Act of 1979, extended collective bargaining to the state university system.
California schools and taxpayers are perpetually in the hole because of Brown’s idiocy decades ago.
Four Point Solution
Fixing the problem is easy to describe, but hard to implement given all the union sympathizers who want to further wreck the state.
- California needs to end collective bargaining of public unions
- California needs to claw back promised pension benefits
- California needs to end all defined benefit plans for public employees
- California needs to scrap prevailing wage laws that have crucified cities
Raising taxes will just cause the exodus of more corporations and highly salaried workers as noted in California Tax Revenues Plunge; Businesses Exit “Taxifornia” in Droves; Piecing Together the Jobs-Picture Puzzle
Taxed to Death
If Brown continues to suck up to the public unions responsible for the mess California is in, expect still more businesses to leave, expect the unemployment rate to rise, and expect a continued plunge in revenue.
About the author: Mike “Mish” Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management. His top-rated global economics blog Mish’s Global Economic Trend Analysis offers insightful commentary every day of the week. He is also a contributing “professor” on Minyanville, a community site focused on economic and financial education. Every Thursday he does a podcast on HoweStreet and on an ad hoc basis he contributes to many other websites, including UnionWatch.