Wednesday, May 20, 2009

California’s Tax Revolt

When you’re trying to get yourself out of a hole, the first step is to stop digging. California voters effectively stole our Government’s shovel yesterday.

The message was clear:


The Los Angeles Times reports California voters kill budget measures

Schwarzenegger has called for cuts that would hit every corner of the state. He announced plans to lay off 5,000 of the state's 235,000 workers and has proposed slashing education by up to $5 billion, selling state properties, borrowing $2 billion from local governments and potentially reducing eligibility for healthcare programs.

Worst-case scenarios also call for the release from state prisons of up to 19,000 illegal immigrants, who would face deportation, and the transfer of up to 23,000 other prisoners to county jails.

The governor also wants to borrow up to $6 billion, but awaits word on whether Washington would guarantee those loans. The White House has never done so for the state but is considering the action as Wall Street expresses concern that California could become a deadbeat borrower.

In a bid to salt those prospects, Schwarzenegger met privately Tuesday in the U.S. Capitol with members of California's congressional delegation. "We have a major problem in California, and I think if we work together, we can make it through this crisis," he told reporters after attending the White House announcement on tougher vehicle emission standards. "We need assistance. . . . I didn't come for any bailout. We're going to make the necessary cuts."

Californians seemed upset partly by Sacramento's call for more money at a time when employment was sagging, retirement accounts were plunging and the average resident was struggling. Others expressed irritationat being called back to the polls just months after a presidential election.

‘The short campaign also created confusing bedfellows in support and opposition to the ballot measures.

Schwarzenegger joined withliberal Democrats and the California Teachers Assn., the group that helped defeat a 2005 ballot package championed by the governor. Foes of Proposition 1A, meanwhile, included several unions, which didn't like the effect spending limits could have on the state workers they represent, and anti-tax groups that hated its extension of tax increases.

Here are some other thoughts from the blog world:


So now the onus is back on the legislature and the Governor to close the deficit, which stands at $21 billion. It's going to be brutal. The only real areas to get those kind of savings are in core services like education, prisons, health. You know, the big things.

Any affected group will cry bloody murder, no matter what's done. There's been some chatter that perhaps the negotiations could be easy, since the government has few options. We doubt it, though. The state would rather play chicken with Washington, DC and get its bailout, rather than make cuts in education and prison spending. In fact, it might just rather default.

The Atlantic:

California will go bankrupt, muni and state debt will spike, the federal government will backstop humanitarian programs and very possibly all state and local debt, and eventually, California will figure out whether it wants higher taxes or lower spending.  But we will not actually make the world a better place by enabling the lunatics in Sacramento to pretend they can have both.

Kevin Depew – Minyanville:

The vote wasn't even close. Voters rejected all but one of the six propositions on the ballot, approving a measure prohibiting pay raises for lawmakers and other state officials during deficit years.

As social mood continues to darken and turns increasingly negative, you should expect tax revolts across the country to become more aggressive.


With this success (yes the failure to pass these propositions was a huge success) the budget deficit is $21 billion and counting. Had the measures passed, the deficit would have been $15 billion. At the time it was proposed, the propositions were supposed to close the deficit. The reality is California is losing $2 billion a month with no end in sight.

Schwarzenegger is going to have no choice but declare another fiscal emergency. Let's see if the legislature can make some better choices this time, starting with reducing their own pay.