Monday, May 18, 2009

Sun setting in the West

It seems likely that all of California's budget measures will fail tomorrow, meaning more doom! (By "doom," I mean the state needing to find another $21 billion in cuts, as opposed to a mere $15 billion.) In case you wonder why California is in the budget nightmare it's in, the Sacramento Bee's Daniel Weintraub does an excellent job explaining it here. Hat tip to Wesley Hussey for the link.

As Wes reminded me this weekend, there are a lot of moving parts to the state's budget politics, but one of the key ones is the state's great reliance upon income taxes for revenue. Income taxes are very progressive there, of course, which has the political virtue of sticking it to a few wealthy people while easing the pain on the many poor. But a real down side is that income taxes are a fickle revenue source. When the economy's booming, you get a surplus, and when it's stalling, you get a deficit. The state has compounded this problem by making long term spending commitments during the boom years, which of course it can't pay for the following year when the boom dries up.

More regressive taxes like car registration fees are much more steady sources of income, but of course they're much less politically sellable since they stick it to everyone. Gray Davis lost his job in 2003 at least in part because he jacked up auto registration fees.

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