Now and then during one’s work life, a colleague comes up with something so clever that your heart twinges with envy. This happened to me the other day when I stumbled upon the CalMatters “Spend the Surplus Game,” the brainchild of John Osborn D’Agostino. Kudos to Mr. D’Agostino. For think tankers like us, this game is wonk heaven.
The game “puts you in charge” of California’s budget surplus, currently at $76 billion according to Gov. Newsom. It allows you to choose the state’s tax and spending priorities and rejigger the money coming in and going out. The hitch – the state has to have a balanced budget, so you can’t run a deficit.
Right off the bat, the first question put me in a funk. I had to choose from 1) keeping the current personal income tax rates (the highest in the nation) 2) adding a wealth tax that would have added $22.3 billion to the state’s coffers, or 3) scrapping income taxes altogether. According to the game, saying “bye, bye” to the income tax would mean foregoing 69 percent of the general fund and put the state in a deficit of $123.3 billion. I decided to go bold — rid Californians of the income tax and try to make up the revenue elsewhere.
The second question on the sales tax helped me close the gap. I opted to lower the sales tax to 5 percent but tax professional services. Better to tax consumption rather than income, which reduces incentives to work harder.
I also opted to keep Prop. 13 and the current corporate tax rates. I would have rather freed businesses from taxes, but that would have put California deeper in the red. To make up for the revenue hit when I did away with personal income taxes, I spent down the rainy day fund, pocketed the federal stimulus money, and taxed pot. But I held the line on taxing oil production and repealed the gas tax. Those gas taxes were meant to repair our roads, but much of it was squandered to pay for other projects. I also let the lottery go on – not because it means extra money for schools, but Californians seem to have fun with it.
Now for the money going out. I pretty much nixed everything – no universal pre-K, no broadband build out (we might get money from the feds in any case), no rent relief (with no personal income taxes, Californians will come roaring back to work), no utility relief (there are better ways to lower utility bills – see PRI’s studies here and here), stop the train to nowhere, no extra money for the drought (PRI has better solutions in its book Winning the Water Wars), no extra money for college, and you could forget about a Golden State stimulus. I did keep the status quo on Medi-Cal and spending for the homeless, but better ideas can be found in PRI’s book No Way Home).
All total, I ended up with a surplus of $3.3 billion.
I would have liked to see less draconian and more creative choices, for example, a flat tax option and more flexibility on Medi-Cal and other programs. Once I submitted my budget, I got to see how others answered, but I don’t want to be a spoiler and reveal the results. Overall, the game was clever and fun, and I encourage all Californians – especially those who want limited government – to play “Spend the Surplus.”
Rowena Itchon is senior vice president of the Pacific Research Institute.