By Michael D. Capaldi
California’s budget problems are ridiculously complex. Sacramento’s solution, though, is to bundle them up, slap on some gift wrap, and hand them to you. That’s the idea behind Propositions 1A through 1F.
Here’s my suggestion: Send them back to Sacramento, where they belong.
Proposition 1A bets that, in exchange for a sort of state spending cap, you’ll be willing to extend for another two years the sales, car and income tax hikes passed earlier this year.
Propositions 1B through 1E would shift state revenues already committed under existing law, such as education funds and tobacco taxes, to other general fund uses.
Proposition 1F would deny officeholders pay increases during deficit years, an incentive so trivial, that, if you’re planning to vote against the other propositions, it’s hardly worth the effort to make a mental note to vote against this one.
So, make it easy on yourself. Here is an eight-syllable voter’s guide for Propositions 1A through 1F: Vote no, no, no, no, no and no.
Let’s start with the basics. Ten years ago, California’s general revenue budget was $75 billion. By this year, at $145 billion, it has almost doubled. If Sacramento had limited spending to increases in population growth and inflation over that decade, our $42 billion deficit would have been a $15 billion surplus. That’s a $57 million swing, one that suggests Sacramento can find other spending to cut without raising taxes.
Most of the controversy swirls around Proposition 1A, partly because it rests on a bed of deceit. If you read only the official voter guide, you wouldn’t know 1A imposes the other half of the largest state-government tax increase in American history,or any tax increase at all,because the guide’s title and summary don’t even mention it.
Then there are the campaign ads, which hustle Prop 1A as way to slap down self-serving politicians, even though it is those pols themselves who have engineered the campaign.
None of which suggests that Sacramento thinks much of the voter’s intelligence. But consider the insult to the economy. California, already deep in a harrowing recession, now suffers the highest sales tax in the nation (at 8.25%, without local add-ons) and the highest personal income tax rate (at 10.56%). Proposition 1A lengthens those tax bumps and others, together valued at $32 billion. Worse, 1A may actually encourage tax increases in the years ahead.
Consider how it works: State revenues for any year would be projected using the preceding 10 years’ revenue trend, increased by expected revenues from new taxes. If, during that year, it turned out that actual tax revenues exceeded the estimate, much of the excess would go into a savings account to pay for future years’ shortfalls. During these lean years, funds in the account could be used only to the extent that they would not increase spending beyond the prior year’s level, plus an estimate of inflation and population growth.
However, economist Ben Zycher warned in an interview on the Web’s FlashReport that because Prop 1A adjusts for anticipated revenues from new taxes, the Legislature has a continuing incentive to raise taxes so that it can push up the spending cap.
That’s not all. Zycher says 1A’s inflation and population projections will not be based on hard-and-fast economic statistics, but estimates made by bureaucrats and overseen by their political bosses. Those estimates, Zycher frets, are “subject to manipulation and other machinations, processes hardly unknown in Sacramento.”
Don’t confuse Prop 1A with a real spending cap, like old Proposition 1, proposed by Ronald Reagan in 1973 and which would not have bated the Legislature into cranking up taxes. Imagine a spending limit tied to the overall health of the economy, one that rose only when personal income or the state’s gross domestic product grew. If Sacramento knew it could spend more money only if the people themselves were prospering, it would have every incentive to nurture the economy, reduce job-killing regulations, keep tax rates low and not push businesses into other states. The state government, then, and the people could prosper together, not one at the other’s expense.
In the meantime, by hiking taxes now and threatening more later, Proposition 1A gets it exactly backwards.
Capaldi is a partner in the business law firm of Spach, Capaldi & Waggaman LLP in Newport Beach and chairman emeritus of the Lincoln Club of Orange County.
