Brown’s Budget Rejects Tax Rebates, Ignores Need for State Tax Reform

Gov. Jerry Brown’s 2018-19 budget proposal is projecting a $6.1 billion surplus by July 1, 2019, further evidence that the taxpayers of California have been overcharged. But there will be no rebates.

Brown said at his press conference Wednesday that, in effect, the sky would fall if you give tax rebates.  “If you return money, you’ve got to raise tuition and lay off teachers.  The nature of our financial framework requires a large surplus. 20-30 years ago, you didn’t need it.”

Unlike a business, when government overcharges, it feels no need to return the money to its rightful owners. In this case, Sacramento will either keep the money to spend later (Brown’s Rainy Day Fund, which will have $13.5 billion in it by the end of his term), or run through it as soon as possible (legislative Democrats).

Assemblyman Phil Ting, chairman of the Assembly Budget Committee, for instance, is eager to spend about $7 billion more. The San Francisco Democrat says that he wants lawmakers to focus on “the people who we think need tax relief, are the working Californians who are making less than $25,000. That’s where we want to spend our money, making sure they have money to pay rent, to pay for food.”

The people who “we” think need tax relief? “Our” money? Of course, those who are covetous of other people’s money come to think of it as their own.

Even though it appears the state is legally obligated to send our money back, and the state has handed out rebates in the past, it’s unlikely that state tax rebates from this budget will ever reach mailbox.

But if we’re not going to get back what we overpaid, why don’t we use some of it to pay down the state government debt — as much as $221 billion, according to the California Policy Center — and to fund public employee pensions, which could be underfunded by $600 billion.

Senate Republican Leader Patricia Bates proposed such a framework in what she calls a “2-2-2 Framework” — $2 billion each for infrastructure, reducing pension liabilities, and saving in the Rainy Day Fund.

While most officeholders in Sacramento seem incapable of learning lessons, maybe the surplus will wake them up to the reality that California’s tax system is broken. One reason that Brown prefers to put away the surplus is that he knows the regime will produce future deficits. He noted at his Wednesday press conference that the current economic recovery is about to break the record for the longest in state history.

The Legislative Analyst’s Office is projecting the next one will arrive in the 2019-20 fiscal year, and will be followed by at least two more. The whipsaw effect of lurching from deficit to surplus to deficit is caused by a tax system that relies too heavily on personal income tax revenue. It is, as State Controller Betty T. Yee has said, “outdated, unfair, and unreliable.”

For the record, we’re not talking about an effort to “protect” Californians from the federal tax cut by allowing taxpayers to essentially make charitable donations to the state government in lieu of paying taxes. That’s a political stunt unworthy of this state, and even Brown questioned at his press conference whether the IRS would allow it – despite his openness to the scheme.

We’re talking about an overhauled system that promotes economic growth and expands the freedom from government burdens that we are supposed to enjoy as Americans. Combine all the income tax rates and capital gains into one flat — and low — rate, stop bleeding businesses and trying to manipulate personal behavior while handing out gifts to the politically favored. Find out what works in other states, and improve on those systems. Asking for an updated, fair, and reliable tax system is not asking for too much.

Kerry Jackson is a fellow with the Center for California Reform at the Pacific Research Institute.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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