Blue Collar Muse

The LA Times reports the budget impasse faced by California for over 75 days will be resolved today. Facing a $15 billion+ shortfall for this year’s budget alone, the legislature has been unable to close the fiscal gap before now because Republicans in the legislature did something amazing. They kept their word. Prior to the budget spat, all GOP members of the legislature save one signed the Americans for Tax Reform pledge not to raise taxes.

Thus, the GOP refused to consider any solution that raised taxes on Californians. It only took the Democrats 11 weeks to cave and pass a budget without tax increases.This is all the more amazing because of the GOP’s solidarity in such a liberal state. ATR posted video last week of the response from some lawmakers. Noteworthy are two who cannot grasp raising taxes isn’t the only solution to budget woes.

Cutting spending is always available but seldom availed because it means doing without or scaling back. While painful, this is reality based and often necessary. There is not a single law or regulation anywhere demanding we increase spending each and every year to fund each and every program eternally. If we do so, it is an intentional choice! It is the choice of those believing government should coerce revenue collection for the spending they deem needful. GOP legislators wanted a different choice. They asked government to choose between this program and that as opposed to between this new tax and that.

Unfortunately, they didn’t get what they wanted and the compromise struck will magnify the problem while postponing it until next year. The legislature didn’t raise taxes. But they didn’t cut much spending either. They played fast and loose with the books. While there will be cuts under the compromise, the bulk of the shortfall will be made up by accelerating collection of currently approved taxes. Moving collection to the front of the fiscal year permits California to pay the bills that are past due and meet current operating costs. That’s the upside.  The downside is it simply moves this year’s budget crisis to next year.  It’s not a solution at all, just postponing the inevitable.  The LA Times Evan Halper reports

Legislative leaders announced Sunday that they had reached a deal on a no-new-taxes state spending plan, bringing the longest budget impasse in modern California history nearly to an end.

Their proposal would increase spending for education and healthcare, though not enough to avoid cutbacks in services. It would borrow against the state lottery. And it relies heavily on maneuvers that would push the state’s financial problems into the future at a time when economists have little hope that revenue is on the rebound. …

The tax-related measures, which [Senate President Pro Tem (D-Oakland) Don ] Perata called revenue “accelerations,” would affect businesses and individuals in several ways, beginning in coming months.

Withholding of state taxes at the workplace would increase by 10% for families with two wage-earners and for all taxpayers with income from investments. The state could use the extra $1.5 billion generated by the scheme to reducethe budget gap; it would send those taxpayers extra refunds later.

Taxpayers who file quarterly would have to pay more of their taxes earlier in the year. And those who earn more than $1 million and experience a big jump in income would no longer have extra time to pay taxes on the increase. These measures, according to legislative staff, would generate $3.8 billion in the current fiscal year.

Limited liability companies would have to prepay fees that normally would not be due until the next fiscal year. The state would give tax cheats amnesty to encourage them to pay what they owe. And tax write-offs for business losses would be suspended temporarily. These measures would generate $2.7 billion this year.

In one sense, it’s a creative solution. In reality, it’s a nightmare merely delaying inevitable hard choices. Arguably the largest experiment in Socialist governance in the US, California is merely the canary in the coal mine for rising threats to the rest of the country owing to years of bi-partisan spending on unconstitutional earmarks and entitlements. Barack Obama promises to make it worse by openly advocating for increased taxes. While many question if McCain will be better, his rhetoric promises tax cuts and responsible Government spending.

A couple of things seem clear.  The budget crisis California is heading towards will simply be the latest, and in the US the most spectacular, failure of Socialism’s flawed economic model.  There is a limit beyond which citizens will not voluntarily be taxed regardless of the societal benefits touted by those proposing new taxes. Hopefully, Democrats will take advantage of the reality they’ve faced for 75 days and plan now for the cuts necessary next year to avoid the same problems.

If they don’t and California’s government defaults, I have only one thing to say - No Bailouts!!

Blue Collar Muse

SEE ALSO:

Taking “Yes” for an Answer by Chuck DeVore at FlashReport.

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This entry was posted on Monday, September 15th, 2008 at 2:00 pm and is filed under Business, Common Sense, Conservative, Economics, Entitlements, History, Lower Taxes, Politics, Smaller Government, Taxes, Unintended Consequences. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.