Economics is harsh. Existential rather than wishful. In an imperfect world we fall back on our political biases. While there is no economic debate as to the impact of the huge tax increases proposed in California to “solve” the budget deficit in our state, we are close to hitting that Titanic iceberg while the captain and crew in Sacramento smile and yell full speed ahead.
Not only are these proposed taxes regressive-impacting the poor and working class disproportionately-they will certainly have a perverse impact tax revenues collected as an already bad unemployment picture further deteriorates. This is a very dangerous situation. Because of past overspending by the democratic majority, and borrowing against future revenues permitted by Governor Schwarzenegger, California will have an “anti-stimulus” plan.
Apparently our elected representatives don’t realize many California businesses are close to failure. Think of all those contractors, mortgage brokers, real estate agents and entrepreneurs who are barely holding on and whose retirement portfolios have collapsed. Some of these are our neighbors. The huge tax increases will cause businesses to shutter and employees laid off. Thus tax revenues will decline and the demand for social services increase. How many cars won’t be purchased if the car tax is increased? How many auto salesmen will be laid off and thus won’t replace their washing machine or take their wives to a Malibu restaurant? In 1991 the state passed another similar massive tax increase. Tax collections fell.
The proposed budget “solution” once again borrows from the future, in this case from future lottery income. So how do we balance our budget next year?
Since the Terminator was elected state spending has increased nearly 40 percent. This is clearly unsustainable. Taxing our way out of a forty billion dollar state deficit in the current economic climate will be counterproductive-reducing tax collections, increasing unemployment, and the certainty of a state budget collapse. That desperate situation will create a great cry to repeal Prop. 13. We already hear this from the far left. This will accelerate middle class flight out of California and bring us closer to the wealthy being served by recent immigrants.
The unintended consequence of a statewide depression caused by the proposed tax increases is the undermining of the national economy. California is such a major part of the total GNP that the proposed tax increases will more than offset the stimulus proposed by President Obama. This in turn will undercut recovery in the national economy.
Scott Dittrich