The annual budget paradox: taxes hit Dems, cuts hit Reeps – Pacific Research Institute

The annual budget paradox: taxes hit Dems, cuts hit Reeps

One knock against politicians is that they’re always trying to bring pork back to their districts. But when it comes to California’s annual Kabuki budget dance, a new pattern emerges: Republicans try to cut spending-often even money likely to flow to their own districts-while Democrats try to pass taxes that would take a particular bite out of some of their own constituents.

Budget leaders in both parties say that’s exactly what the voters elected them to do.

Sound strange? While the scenario above is obviously a pretty simplified take on the budget impasse, it does point to one of the paradoxes of modern California politics: Democrats often represent many of the wealthy citizens who would pay the higher taxes on the well-off that they’re pushing, while many Republicans represent poorer districts that receive more state funds than they pay out.

Take Fresno. The county hosts a least part of the districts of the two Republican legislative leaders, Sen. Dave Cogdill, R-Fresno, and Assemblyman Mike Villines, R-Clovis. Each man replaced a previous GOP leader who was more moderate, and came in pledging to hold the line on new spending and taxes.

According to 2005 figures from the U.S. Census Bureau, Fresno County is tied with Kern for the third-highest poverty rate in the state, at just under 21 percent. It rates better in terms in median household income, ranking 38th out of 58 counties. Still, its median of $51,438 is well below the statewide average of $64,587.

The Democrat’s tax proposal calls for a 7.5 percent hike on incomes of $321,000 or more, with an 18 percent jump hitting those making $642,000 and higher. According to 2005 figures from the California Franchise Tax Board, only 1 in 100 Fresno tax returns reported $300,000 or more.

Contrast that to the rich Bay Area counties of Contra Costa, Marin, San Francisco, San Mateo and Santa Clara. These counties hold all or part of more than 20 legislative districts, including some of the most liberal legislators in the state. They’re only represented by one Republican-Guy Houston, R-Brentwood-and the seat he’s terming out of is widely seen as one of the most competitive races this November.

These five counties were also the only ones in the state reporting a median income over $68,000 for married couples filing jointly. Four of them had poverty rates of 8.4 percent or less-enforced by high costs of living, of course. And all five have at least three times Fresno’s percentage of taxpayers making $300,000 or more. In San Mateo, it was 4.4 percent of all returns. In Marin, nearly 7 percent reported making that amount. This strikes Assembly Budget Committee chairman John Laird, D-Santa Cruz, as “ironic.” “They’re defending our constituents, who are quite capable of defending themselves,” Laird said.

But Laird’s Republican counterpart, Budget vice chair Roger Neillo, R-Fair Oaks, had a couple counterpoints. First off, he said, people generally “know what they’re voting for,” Niello said-and Republican voters want their representatives to hold the line on spending and taxes.

Second, Niello said that state’s over-reliance on high-income taxpayers is one of the biggest reasons behind the annual budget crisis. Higher incomes vary more with the ups and downs of the economy. But during every upswing, Niello said, Democrats pass new spending as if the good times will go on forever, forcing later cuts. At an event back in May, Niello spoke favorably of a flat tax proposal put forth by economist Robert Murphy of the Pacific Research Institute that he said would take much of the unpredictability out of budgeting.

“I would suggest it is far more charitable to establish a level of government spending that people can depend upon year in and year out, as opposed to having government spending ride a roller coaster that reflects on overly volatile revenue source,” Niello said.

Such cuts are also likely to hit many GOP districts harder-especially Cogdill’s district, SD 14. According to numbers produced earlier this year by the left-leaning California Budget Project (CBP), only four of forty Senate districts stand to lose more money from the Healthy Families and CalWORKS programs under Governor Arnold Schwarzenegger’s budget proposals. Only five districts would have more people affected by Medi-Cal cuts.

“The healthcare of many in my district and throughout the Central Valley is dependent upon Medi-Cal providers,” Cogdill said. “That is why I am working to restore the cuts to Medi-Cal. However, raising taxes, no matter who pays more of them, to increase government spending in a weak economy is not what my constituents expect.”

Villines’ Assembly district is a bit better off. Yet it still ranks ninth out of 80 districts in terms of how many children would lose CalWORKS cash assistance, 20th in the number of children that would lose Medi-Cal coverage, and 32nd in terms of the amount of Healthy Family funds its likely to lose.

The situation is similar across much of the GOP-heavy Central Valley, said Jean Ross, president of the Budget Project.

“Those are some of the poorest counties in California,” said Ross. “You see higher levels of reliance on social welfare program in the valley because you have a disproportionate low income population.”

While these budget analyses were largely ignored by the Capitol press corps when they came out in April and May, Ross said, rural papers covered them. Pieces in the Fresno Bee and Redding Record Searchlight used them to show the importance of state spending in these regions, she said.

Niello countered that the CBP “is not without its agenda.” He also said that California already has the highest upper-income tax rates of any state. He said that raising these even more could drive some of the wealthy out. He pointed to celebrities who have moved to lower-tax states, notably Tiger Woods in 1996.

“Really wealthy people can have second homes on the beach [in California] and a primary residence in Reno,” Niello said. “Then all you get is there property tax.”

Republicans also pointed to their “We are not a tax loophole” campaign, which highlights programs like the dependent child tax credit, the senior citizen tax credit and mortgage interest deduction-all of which could be cut under the Democratic proposal. Many of these, particularly dependent tax credit, are used nearly equally across the state.

But Laird said that was because in the late 1990s Republicans we able to raise the eligibility limit on the dependent tax credit, bringing many more well-off Californians into these programs. The Democratic “cuts,” he said, would merely lower the income limits on some of these programs.

Meanwhile, many Democratic-leaning areas stand to lose less under the Governor’s budget proposals. For instance, all 12 of the Assembly districts that would lose the least Healthy Families funding are represented by Democrats. Ross said Marin and San Mateo counties have a disproportionate number of “basic aid” school districts-that is, districts that are paid so much by their local taxpayers that they get only the bare, Constitutionally-mandated minimum in education money from the state.

However, the numbers on many of the other programs the Budget Project looked at were a lot more even between the parties. Democrats still represent many of the districts on California’s economic margins-particularly conservative “Valleycrats” like Cathleen Galgiani, D-Tracy, and Nicole Parra, D-Hanford. But many of their more liberal colleagues also have constituencies likely to lose out in budget cuts, including several minority-heavy Los Angeles area districts. Meanwhile, conservative Orange County has poverty, average income and high income numbers that would nearly place it on par with Bay Area counties.

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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