Brown Budget Backs Tax Increases

JAN. 5, 2012

By JOHN SEILER

Gov. Jerry Brown today released a budget proposal that reaffirmed his fealty to the public-employee unions. It’s for fiscal year 2012-13, which begins on July 1, 2012.

The budget would rise to $92.5 billion from the $85 billion of the previous year, fiscal 2011-12. That’s a 9 percent increase in just one year. If adopted, the increase would be close to a return to the 10 percent yearly increase of fiscal 2006-07 that got the state in trouble in the first place.

By contrast, if a more modest 2 percent increase in the budget were enacted, the general fund number would be $87 billion. Doing so would continue the current fiscal year’s expenditures without a tax increase.

Brown simply is refusing to make cuts in areas ripe for reform. Except for some paltry reforms, there’s no significant reduction in lavish state pensions. There’s no total suspension of new bond issues, which must be paid from the general fund. There’s no reduction in employee pay to match the sharp reductions in the private sector of recent years.

The Brown proposal even funds the California High-Speed Rail Authority, whose latest long-term cost estimates begin at $99 billion.

The Brown budget insists, “High‑speed rail will be an important asset of the state’s infrastructure. It will meet Californians’ future travel needs in an efficient manner and reduce greenhouse gas emissions. The Budget includes funding requests to continue the basic functions of the High‑Speed Rail Authority. The Authority’s funding plan is under review by the Department of Finance. After the review, the Administration will propose a plan for the initial train segment….

“The Budget proposes a total of $15.9 million for support of the Authority, which will be revised early in 2012. Regardless of the specifics of the capital proposal, these resources are necessary to enable the Authority to more effectively develop and manage the project.”

Yet just two days ago the California High-Speed Rail Peer Review Group condemned the boondogle. It was the just the latest of many reports pointing out that the numbers just don’t add up.

Instead of a more rational analysis of state spending leading to cuts in waste and excess, the Brown budget resorts to the old standby of cutting services for the poor. Child care subsidies would be axed by $450 million and Medi-Cal by $678 million. This will put pressure on voters to increase taxes.

The budget proposal pegs the general fund budget deficit at $9 billion. But less than two months ago, the Legislative Analyst said it was almost $13 billion. It will be interesting to see what the Leg Analyst comes up with in a couple of days when it takes apart the governor’s new numbers. It’s possible that a slightly improved economy the past two months may have improved revenue prospects.

Tax Increases

The governor also renews his call for $7 billion in tax increases. Without that, he threatens, education funding will have to be cut $4.8 billion.

“The stark truth is that without some new taxes, damaging cuts to schools, universities, public safety and our courts will only increase,” he writes in his introductory letter to the budget. “That is why I will ask the voters to approve a temporary tax increase on the wealthy, a modest and temporary increase in the sales tax and to guarantee that the new revenues be spent only on education. I am also asking that the voters guarantee ongoing funding for local public safety programs. This ballot measure will not solve all of our fiscal problems, but it will stop further cuts to education and public safety and halt the trend of double‑digit tuition increases.”

But a half-cent increase in sales taxes isn’t “modest” if you’re a middle-class person pinching pennies just to make ends meet in a high-tax, high-regulation, high-expense state. For the purchase of a new car costing $25,000, it would mean another $125 in taxes. That would be on top of the existing sales taxes (assuming an 8 percent tax rate, which may vary by county) of $2,000.

Plus high gas and other taxes.

Zapping Jobs Creators

His proposed tax one the “wealthy” would slap a new 1 percent to 2 percent tax on those making $250,000 or more a year. Yet in sky-high expensive California, a $250,000 a year salary still is middle class — albeit at the top end of the middle class. It’s the equivalent of making $100,000 a year in Indiana or Mississippi.

Once again, it seems he’s stuck back in his first term as governor in the 1970s, when $250,000 really was a “wealthy” person’s income, equivalent to about $1.1 million today, according to the CPI Inflation Calculator of the U.S. Bureau of Labor Statistics.

Moreover, it’s Brown’s demonized “wealthy” who create the businesses and jobs in this state. When the late Steve Jobs created Apple out of his garage, he created a handful of jobs. But when it expanded to a gigantic company based in Cupertino, it created tens of thousands of jobs — and made Jobs a billionaire.

And as I detailed in an article yesterday, the tax cuts last year bear at least some responsibility for the modest economic recovery California is enjoying. As I noted, last year, as the 2009 Schwarzenegger tax increases fell off, unemployment in California declined at 0.7 percentage point faster than at the national level.

That might not seem like much, but it’s better than unemployment increasing, as it did after Schwarzenegger’s $13 billion tax increase cracked a two-by-four over the state economy’s head after it already was lying prostrate on the ground from the national economic troubles.

California still has the second highest unemployment among the states, after Nevada. So it just doesn’t make sense to hit businesses again while they’re just getting up off the floor.

Killing Redevelopment

On the positive side, the Brown budget gloats a little about the demise of redevelopment agencies. That undeniably was the highlight of Brown’s first term back in office. It not only saved $1.7 billion in general fund cash for schools, public safety and welfare. It also destroyed the horrible practice of using eminent domain to grab private property — and give it to private companies, such as developers.

The budget proposal notes, “The elimination of redevelopment agencies, recently validated by the California Supreme Court, results in less General Fund savings in 2011‑12 but significantly greater savings going forward, beginning in 2012‑13….

“Revenues that would have been directed to the RDAs will be distributed to make ‘pass through’ payments to local agencies that they would have received under prior law, and to successor agencies for retirement of the RDAs’ debts and for limited administrative costs. The remaining revenues will be distributed as property taxes to cities, counties, school and community college districts, and special districts under existing law.”

That’s a pretty good summary of how local cities, counties and school districts will benefit from the elimination of redevelopment, which distorted local finances to benefit wealthy developers.

It’s too bad the whole budget didn’t include such innovative changes. The Visionary Brown, whose return from exile was promised in his 2010 campaign, has yet to show up with significant proposals to reform the budget, pensions, taxation and schools.

So far, with the exception of getting rid of redevelopment, all we’ve seen is a Schwarzenegger retread trying to tape over budget gaps with tax increases.