More taxes won’t fix state debt – Pacific Research Institute

More taxes won’t fix state debt

The Golden State continues to lead the nation in accumulating public debt, a race where being in first place isn’t the same thing as winning. “California again trumped other states with a $617 billion debt,” reported State Budget Solutions, a nonpartisan organization advocating “fundamental reforms” for state budgets.

For the third consecutive year, the organization calculated each state’s total debt. The $4.1 trillion tab for all 50 states includes regular debt, 2013 fiscal year budget deficits, outstanding loans to unemployment trust funds, unfunded post-employment benefits and unfunded pension liabilities.

California’s share, $617 billion, is more than twice that of the next-most indebted state, the annual report said.

Gov. Jerry Brown’s Proposition 30 would slightly reduce the debt load. It would impose $8.6 billion in higher income taxes on the state’s top earners and a four-year, quarter-cent increase in what already is the nation’s highest state sales tax.

We would argue to the governor that California’s debt isn’t caused by lack of revenue. It’s from lack of spending restraint and overextending to provide for unaffordable benefits and services. Over-reliance on income taxes exacerbates the volatility that makes California budget projections worthless.

“California has repeatedly overestimated revenue inflows during difficult economic times – and underestimated them during periods of economic growth,” writes Arthur B. Laffer, author of “Eureka! How to Fix California,” published by the Pacific Research Institute. Since 1981-82, “the state’s budget experts have hardly ever gotten it right.”

Last week, an independent group of fiscal experts said the infamous “wall of debt” Mr. Brown said he inherited when he took office last year is several times larger than he thought. There were unpaid bills from previous years including $8 billion in delayed payments to schools and community colleges, and $250 million raided from a fund dedicated to transportation but treated as ordinary revenue, said the report, prepared in collaboration with California Forward, a nonprofit, nonpartisan organization seeking improved governance and fiscal affairs.

By whatever measure, it seems clear. California is living beyond its means.

A single tax rate for individual taxpayers and businesses could ensure no one is punished disproportionately when income rises. People would be less likely to underreport income or move out of state. A flat tax also could end California’s “yearly revenue roller-coaster, where the stock price of the latest IPO makes or breaks the state budget,” as Mr. Laffer put it.

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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