Tuesday, January 6, 2009

Taxes are Taxing

California is in the red.  Money hemorrhaging from every bureaucratic 'poor'.

Problem:  massively decreased tax revenue due to the drop in home ownership, failed businesses, lost jobs, and reduced consumer spending, combined with a budget which swelled optimistically during the 'good' times.

Proposed solution: raise income and sales taxes, and any other taxes that might help.  

Status: the state assembly passed it, the governor is holding it up and looking for a compromise.

Reality: in the depths of recession, no government in its right mind increases the burden on already hammered families by raising their taxes.  Not without truly exhausting every other option first. 

Reality, Part 2: at current levels of state income, all services can't be maintained.  Some of these can be cut back or put on hiatus, others just simply can't.  

Possible solution: seemingly counterproductive though it may be, some tax increase is inevitable.  But it has to be reasonable and have a firm expiration date.  Increasing the state income tax is NOT a good idea at all since it is already high and there are few exemptions. Increasing business taxes isn't smart either, since businesses are failing everywhere.  Raising property taxes would be a bitterly ironic blow to frazzled homeowners scrabbling to remain homeowners.  Better a sales tax increase, only a graduated one and in the reverse of the usual pattern of such things.  Increase the sales tax by a quarter of a percent on items that cost less than $500 (as an example), but leave everything else the same.  That way, the state would be sure to get some extra money rather than just further curbing the purchases of already hard-hit big ticket items like cars.  And consumers would be saved big pain if they happen to need, say, a new car.   Any tax increase must have a concrete and unchangeable expiration date, or its expiration must be tied to a simple, easily measurable, verifiable, economic indicator.

Possible solution, Part 2: Bite the bullet and cut state spending wherever possible. Throw partisanship aside and trim, trim, trim.  Delay projects. Freeze budgets.  Whatever it takes. It's OK to prioritize so that critical safety and infrastructure functions are preserved, and ensure that cuts to education are absolutely necessary, and even then as minor as possible, but everything is open to scrutiny.  Painful, but what else should responsible people do?  And California's reps are responsible people, aren't they?

California, like most other states, have fiscal problems the like of which haven't been seen since, well, the Great Depression, or the 1970's New York City bailout crisis.  And they can't easily borrow their way out, given the worldwide credit crunch.  And, oddly, the federal government isn't rushing to grant them 'bridge' loans, bailout money, or any other kind of fiscal assistance, even though most states could get by with a few billion here or there, California included.  Chump change against the 700 billion financial bailout and the upwards of 500 billion proposed economic stimulus.  And money given to the states would arguably improve life (or at least maintain its quality) for more people than will benefit from the other giveaways, at least in the near term.

Absent any federal help, though, the states are on their own.  California must solve it's problem in the most rational and reasoned way possible.  All petty politics must be put completely aside in an effort to spread the burden as fairly as possible when increasing taxes and cutting budgets.

Whatever the state assembly and the governor ultimately work out, California's voters need to watch closely and take notes and names.

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