Wednesday, May 20, 2009

California's Budget Problem

From The Guardian:

"By most accounts, the reversal of fortune is largely out of his hands. Three decades of anti-tax activism have made California's budgetary fortunes – and the political fortunes of its leaders - dangerously dependent on the business cycle. Even a charismatic governor has to struggle to win the required two-thirds majority in the state assembly to get a budget passed, and almost always hits a brick wall because of hardline Republican refusal to contemplate tax increases of any kind.

"The reason Schwarzenegger is going to the people at all is because California's political system has, in his words, become a "poster child for dysfunction". He and leaders from the two parties made big compromises to reach agreement on the wording of the six ballot propositions, risking considerable ire in their parties' rank and file.

"But the voters appear to be tired of the constant calls to the polls, the constant budget emergencies (this is the third of the decade), and the constant promises of wide-ranging political reform that never seem to arrive."

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California has always been a progressive state, offering a wide range of social services. In order to fund that kind of government, you need highly progressive taxation. Over the last 30 years, as the article notes, conservatives have chipped away at the taxation needed to support that kind of state, making us dependent on business cycles. In this economic environment, without the degree of progressive taxation needed to continue a classic progressive CA government, that government is coming to an end.
The recent ballot initiatives (1A-1F) weren't the answer, although they would help to a small degree. Ramping up taxes on upper income brackets is the true answer, but the Republicans won't have it, and given the required majorities to pass tax hikes, it won't happen.
The defeat of 1A-1E is most important for what it says- it tells the government to slash programs, and don't come back to the voters until you do. CA is in the process of moving from being progressive to becoming average. This state will always be somewhat more progressive, and perhaps a renaissance is in the works when the economy improves. But I think not.
A new creature is rising from the ashes and that is the federal government. The recent adoption of CA fuel-efficiency standards and the push toward health-care reform, among other things, signal a federal government taking over the mantle from CA. By the end of Obama's first term this will be evident, and a multi-year national economic recovery will be here, purely on the economic benefits of making health-care massively less of a burden to our economy.
Republicans will have succeeded in slaying the "socialist dragon" in CA, only to create the perfect environment for Obama to federalize many of the progressive ideals.

Republicans are partly to blame by allowing tax cuts to pass without securing the passage of a reduction in state services.
Democrats are partly to blame by not being willing to cut state services when a tax cut is inevitable.

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