Prop. 1A’s passage would open doors to more taxation – Pacific Research Institute

Prop. 1A’s passage would open doors to more taxation

In 1987, Gov. George Deukmejian gave California taxpayers a $1.1 billion rebate. Due to the Gann spending limit enacted in 1979, named after Proposition 13 co-author Paul Gann, the state had a budget surplus, making the rebate mandatory. Subsequent ballot measures, however, rendered the limit meaningless.

Now we are being asked to approve another measure that proponents say “limits spending”: Proposition 1A on the May 19 ballot.

It is not a serious spending limit. It changes the way the state sets aside money in a rainy-day reserve, and how this money is spent. It enlarges the potential size of the fund but includes only very narrow spending control authority. It will not solve California’s out-of-control taxing and spending.

While Proposition 1A could “make it harder to approve spending increases in some years,” the Legislative Analyst’s Office says, “it would not cap the total level of spending that could be authorized in any year” if new taxes are approved.

In other words, we might have a larger rainy-day reserve but also higher spending and taxes, which would suck the oxygen out of economic growth.

We would still be the highest-taxed state, with among the worst business climates and the highest unemployment rates. We would still be a spending-spree state, choked in the stranglehold of the government-union complex, with rampant disrespect for working families.

If Proposition 1A passes, the $12.5 billion hike in income tax, sales tax and vehicle license fees just imposed – costing California families $1,100 during a recession when people are losing jobs and homes – would be extended for one to two years, resulting in an additional $16 billion in taxes – reportedly a payoff to unions to support the budget deal.

Not only would extending the tax increases “be economically destructive,” according to Ben Zycher, a senior fellow with the Pacific Research Institute, the Proposition 1A formula for estimating revenues will “favor future tax increases at the expense of economic growth.” The measure, he says, allows the revenues from any tax increase to be included in the revenue projections for the current fiscal year, thus increasing allowable spending.

However, it “proscribes any consideration of the adverse economic effects, such as the reduction of the tax base” – for example, if people lose jobs and no longer pay taxes – and thus “biases the future revenue projection upward, and with it allowable spending under the terms of the proposition.”

A good spending limit should encourage economic growth rather than weaken it, Zycher says, such as a limit defined as a “specific percent of state gross output.”

Passage of Proposition 1A would also enable Proposition 1B, if also enacted, to go into effect – another money grab by the public education lobby.

Under Proposition 1B, the state would be required to pay an extra $9.3 billion to education over several years, no matter what our financial condition. Long-term education costs would jump by “potentially billions of dollars each year,” according to the LAO, despite the fact that numerous schools that spend less per pupil than California public schools perform better.

All in all, not a bad deal for the state’s powerful unions – billions at taxpayers’ expense in exchange for a spending limit that has no limit. What’s more, even if all these ballot measures pass, the LAO says, the state would still face “multibillion-dollar budget shortfalls in the coming years.”

It is time to base our state budget on economic principles, not on special interest wish lists. To grow jobs and generate revenues, government must live within its means, keep taxes and regulations low, rely on the ingenuity of the people, and refuse to repeat the failures that brought us here in the first place.

Proposition 1A achieves none of these Economics 1A principles.

What happened, for example, to the California Performance Review Commission’s 1,400 recommendations with potential savings in the billions? If past trends hold, higher taxes will just lead to more spending and recurring budget deficits laid on the backs of taxpayers.

It looks as though California has seen its last tax rebate. What a shame.

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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