Taxable Talk

Earlier this week I wrote that California might be facing a $20 Billion Deficit. You’ll be happy to know I was wrong. The Legislative Analyst (LAO) released his official forecast today; he projects a $20.7 Billion deficit for the next 18 months.

Republicans vow no new taxes. Democrats vow no spending cuts. The LAO says that increasing taxes in a recession isn’t a good idea, but that revenue enhancements are needed:

Just as the Legislature will have to prioritize its spending commitments, we continue to recommend that it do the same on the revenue side. Through tax expenditure programs—special credits, deductions, and exemptions—the state provides subsidies to certain groups or individuals in ways that often have not been shown to be cost-effective. Their modification or elimination raises revenues without having to increase marginal tax rates. The Legislature should also look to increasing fees in those cases where the costs of state programs currently supported by the General Fund can appropriately be shifted to specific beneficiaries.

The LAO also notes that expenditures will need to be cut, and that long-term solutions are needed:

The budget problems we predict are long-term in nature. They will not go away quickly. Accordingly, long-term solutions are needed. The Legislature should focus on actions that have ongoing impacts.

Of course, most of the solutions the Legislature has recently enacted have been gimmicks, smoke and mirrors that look good until the numbers have to be tallied again.

Yesterday, I heard Orange County Register columnist Mark Landsbaum talk about California’s ongoing budget fiasco. I joked to him that the Legislature would be forcing Californians to pay their 2017 taxes in 2015 in order to balance the budget. Not so strangely, Mr. Landsbaum thought that might actually happen.

What’s needed is the elimination of programs that the state can’t afford. California needs to match spending to revenues, and eliminate pork barrel government spending. Mr. Landsbaum noted in a recent op-ed piece that the proposed fix to the California water crisis would only make things work. He concludes,

Admittedly, at this stage cutting the knot of government involvement and special-interest payoffs is a monumental task. It’s something that requires men and women of principle, rather than compromisers. As a society obsessed with consensus, we may be beyond making such a hard decision, conditioned as we are to living at the expense of someone else.

The reality of taxes is that all of the money being spent by Sacramento (and by Washington D.C.) is our money. Yet in Sacramento the politicians and bureaucrats treat the tax revenues as their money. That attitude needs to change. Once it does, I believe solutions to the budget crisis will quickly be found. Unfortunately, the chance of that changing in Sacramento in the next few months is somewhere between slim and nil.

After the three budget battles during the past 18 months, are Californians ready for the fourth installment of the state budget crunch next Spring? Like it or not, it’s coming.

This report notes that a $20 Billion is possible for next year. Democrats are already saying that nothing else can be cut; Republicans vow no new taxes.

The past few budgets have been balanced with smoke and mirrors. While there were some real spending cuts in the last budget, there were also the usual budgetary shenanigans. Several one-time moves (such as the increase in state withholding that began on November first) can’t be repeated. Or maybe they can; perhaps Democrats in Sacramento will propose that during 2010 we prepay our 2011 California income tax?

As long as we have state agencies trying to implement ridiculous regulations (such as the proposed regulations on LCD televisions), I’m certain there’s waste in Sacramento.