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A rational budget solution is within our grasp

What if California had a normal government by which it addressed the ever-growing budget deficit?  Think about majority Democrats negotiating with a Republican Governor over a budget and taxes, as occurs in various partisan configurations in almost all other states.  The outcome would be painful but achievable: a combination of increased tax revenues, efficiencies, and cuts would be negotiated. Over time, both the recessionary deficit and the structural deficit would be addressed. 

That outcome would also reflect the views of a majority of Californians, who might then have a lot more appreciation in poll results for both the Legislature and the Governor. 

The truth is this: There are many billions in potential revenue which are on the table which do not have a negative economic impact, particularly compared with massive cuts in critical services.

With all the discussion about how "impossible" California's deficit is to address, we forget that the constitutional straightjacket of the two-thirds vote is not how government normally operates. Add to that term limits, in which legislators have no time to become trusted by and comfortable with their constituents until they run for a new seat-and a partisan seat at that, whether by geography or reapportionment–and one can see that the bi-partisan effort necessary to get a budget and revenue becomes even more difficult. 

Finally, there's the dead-end politics, hopefully changing. 

Since the Newt Gingrich-Grover Norquist takeover of the Republican Party in 1994, even having a rational discussion of  revenue is very difficult in the context of an ideology in which the explicit goal is to starve government and make it disappear. 

That's hardly what the public wants, as evidenced by the failures of the Bush Administration and the oft-stated preferences of California voters.  And it's not likely that many Republicans in the California legislature share that view either.

There have been bi-partisan solutions in the past, even with the two-thirds vote. Like Gov. Schwarzenegger, many Republican legislators have been pragmatic problem solvers. 

In 1991, after Republican Pete Wilson announced a program of half taxes-half cuts, Republican Sen. Ken Maddy put a number of tax loopholes on the table, including capping mortgage interest deductions at levels impacting only wealthy homeowners.   The ultimate outcome which received Republican votes was a mix of increases and cuts, including top income tax brackets, which rode us through the depth of the recession. 

Anti-tax advocates carp that the tax revenues were less than expected because of the deep recession, but the fact is revenues not only solved the problem but then came in so rapidly that the Governor and Legislature agreed to a major tax cut by 1997-even before the dot-com boom inflated one-time revenues.

The many sources of revenue are not rocket science.  Assemblywoman Loni Hancock's bill, AB 2897, would adjust the top brackets so that families over about $300,000 and $600,000 would pay, respectively, 10 percent and 11 percent.  The revenues:  $6.3 billion initially, nearly $5 billion on-going, a major piece of making up for the $6 billion in vehicle license fees cut out of the revenue stream by the Governor.  These brackets mirror the federal tax system, which has higher brackets that are well above California's top bracket of $90,000, and recognizes that well-off families should be paying a higher rate than working families with two $50,000 wage earners.

With itemized deductions, the net tax increase to California taxpayers would be about 30 percent less than the amount California would receive-finally, some reverse revenue-sharing from the feds.  

The estimated receipts from an ordinary oil production tax, like every other state and everywhere in the world, as proposed by Speaker Nunez, keep rising with the prices of oil.  This week's California oil price was an astounding $107/barrel, which, under the Speaker's bill, would generate over $1.2 billion, with zero effect on gasoline prices or oil production. 

Many people have pointed out the narrowness of the state's sales tax base, compared with other states.  There are many tangible products-misclassified as "services"–which are discretionary and untaxed, such as entertainment and professional sports, ski lift tickets and golf green fees, easily bringing in $1 billion.

 Board of Equalization member Judy Chu recently noted that just by taxing services commonly taxed in other states, $2.6 billion could be raised.  In addition, the "escapes" from the sales and use tax-digital downloads, cable and telecommunications services (e.g. rent a movie and pay tax, order one on cable and pay no tax)-can be addressed. 

 New York has recently passed language that describes the thousands of Amazon "associates" who refer sales to Amazon as creating a presence in the state for Amazon, whose sales will therefore be subject to taxation.

The LAO's approach on the corporate side replicates what Sen. Martha Escutia proposed several years ago:  Do not let corporations shelter their entire income with exclusions and credits.  The LAO estimates that eliminating the profusion of profitable "no-tax" corporations would raise $700 million, to which we would add another $300 million from restricting Subchapter S status to the small and mid-size companies for which it was intended, totaling another $ 1 billion. 

And then, of course, there are potential rate increases, such as ½ cent on the sales tax for about $3 billion, or an across-the-board surcharge on the income tax for $5 billion.  While the sales tax is regressive, massive cuts in education, health and human services, and higher education would hurt the poor and middle-class more than a widespread, and hopefully temporary, increase in a regressive tax. In short, the billions in the current and longer-term deficit can readily be matched with billions in revenue. 

A vote for taxes is a hard vote for any politician.  Yet there is no doubt that a substantial majority is prepared to take those steps. 

In terms of the necessary bi-partisan solution, perhaps John McCain's primary victories sends a signal that Republicans who work in a bi-partisan manner are not anathema to primary voters.  Recently I heard that there are enough Republicans who want a rational solution, one which does not decimate the public sector or damage the economy, if only they weren't called "taxes."

Impuestos, anyone?

Lobbyist Lenny Goldberg is a specialist

on taxation.


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