Taxable Talk

The answer is very, very stupid.

On a party line vote, the California State Senate passed a health care bill that would cost $200 billion. The legislation will undoubtedly be vetoed by Governor Schwarzenegger. Meanwhile, as I reported earlier California is lurching towards running out of money by April 1st…again.

But don’t worry, Democrats in Sacramento have a new idea for raising revenue: banning free parking. If California weren’t in such sad shape (and I wasn’t a Californian) this would be hilarious.

Governor Schwarzenegger is taking on unions with his final budget. Steve Maviglio, a Democratic strategist, told the Los Angeles Times, “It’s a continuing jihad against organized labor. The governor thinks public employee unions are Enemy No. 1.” So what does the Governator want to do? He wants to cut the number of government employees, shrink pay, and cut future pension costs.

Let’s look at what happens if you or I have a business, and revenues decline. Let’s assume that we can’t increase prices (while an individual sale would be for a larger amount, we would overall lose business due to a declining number of sales). We’d be forced to cut expenses. Except in the short-term, we can’t afford a deficit.

What Governor Schwarzenegger wants to do is what’s needed: cutting expenses. Attempting to raise taxes (a solution that is available for the government) is not a good option in California. Taxpayers in the Bronze Golden State already pay among the highest taxes in the country. Increasing business taxes will just drive more businesses out of state. The last several years have seen budgeting by gimmicks. I am thrilled that Governor Schwarzenegger is looking at actually cutting expenses.

Added to this is the news that while revenues have grown by 24% in the last decade, state pension costs have grown by 2000%. It doesn’t take a rocket scientist or a tax accountant to know that this is not sustainable. Unfortunately, it’s likely that Democrats in Sacramento won’t be able to figure this out.

Of course, Democrats in Sacramento are almost certain to reject Schwarzenegger’s measures. If they can propose other methods of cutting costs that equal what Governor Schwarzenegger has proposed—and when I say cutting costs, I mean without accounting and budgeting gimmicks—fine. I just don’t see that happening. I also see the almost certain likelihood of budgetary gridlock in Sacramento.

California’s Controller, John Chiang, called California’s cash situation “precarious.” Mr. Chiang called on the legislature and Governor Schwarzenegger to act on the $9 billion of budget cuts by March. The alternative is that California will run out of cash.

If this sounds familiar, it should. This situation happened last year, and led to the bad budget fix last February which included tax increases.

The budget that Governor Schwarzenegger proposed earlier this month has billions of budget cuts in it. However, Democrats in Sacramento showed that they were completely out of touch with both fiscal and political realities when they passed a $200 billion health care plan in the State Assembly. (If this plan should reach Governor Schwarzenegger’s desk, he would undoubtedly veto it.) I do not expect the budget negotiations to go smoothly this year. Indeed, I can’t see a budget passing by March…or May. Even July is optimistic.

The time of easy budget cuts is gone. Most Californians do not want tax increases. It’s time to cut the budget with a chainsaw. Unfortunately, the politicians in Sacramento haven’t figured that out.

Expect IOUs to be issued again in about a month.