Kurt Brouwer August 20th, 2008
Politicians and government bureaucrats seem to have missed out on Economics 101. First, when the economy is hurting, raising taxes is a bad idea. It did not work well just prior to the Great Depression when President Hoover raised income tax rates and it won’t work well now.
Now, at a time of economic contraction in California, the state, various counties and municipalities all want to raise taxes. Californians already struggle under one of the highest tax burdens in the nation, but that load is likely to get heavier in light of the many tax increases being proposed. In this LA Daily News piece [emphasis added], we see some of what is coming from the state and other taxing authorities:
California Tax Bites Get Hard To Digest (Los Angeles Daily News, August 17, 2008, Troy Anderson)
Stung by one of the highest state tax rates in the nation, Californians soon could be paying even more if officials and voters approve an array of new bond measures and taxes now under consideration.
Already on the November ballot are nearly $17 billion in statewide bonds, ranging from $9.95 billion for a high-speed passenger train system linking Southern California to the Bay Area, to $5 billion that would give motorists cash rebates for buying fuel-efficient vehicles.
Do we really need a $10 billion high speed train? And, if so, does anyone believe it will cost $10 billion? Do we need to spend $5 billion to give motorists cash rebates to buy a Toyota Prius? People who want a fuel efficient car will get one anyway, with or without the rebate. And, does anyone think car dealers won’t game the system by raising prices on the most popular models that qualify for the rebate?
The Los Angeles Unified School District is asking voters to approve a $7 billion bond measure for school construction and charters. The city of Los Angeles is seeking a $36-a-year parcel tax on all properties to fund anti-gang programs.
Los Angeles County’s Board of Supervisors is trying to place the Metropolitan Transportation Authority’s proposed half-percent sales-tax increase on the ballot.
The Los Angeles Community College District is seeking $3.5 billion in bonds for construction projects.
Meanwhile, Gov. Arnold Schwarzenegger has proposed raising the statewide sales tax by 1 percent for three years.
“What’s happening is the taxpayers are under assault like we’ve never seen before,” said Jon Coupal, president of the Howard Jarvis Taxpayers Association. “We have not seen an assault on taxpayers of this magnitude since the tax revolt leading up to Proposition 13 three decades ago.
“Our elected leadership, at both the state and local levels, is pushing California into the `coveted’ position of the highest-tax state in America. If that happens, it will be economic suicide for the Golden State.” Last week, the Washington, D.C.-based Tax Foundation released a report that found California’s state-local tax burden currently is the sixth-highest in the nation at 10.5 percent of per-capita incomes - costing Golden State taxpayers an average of $4,752 a year.
…But Paul McIntosh, executive director of the California State Association of Counties, said he doesn’t think the state’s tax burden is so high.
And with the economic downturn, a $15 billion state budget deficit and declines in anticipated revenue from property and sales taxes, McIntosh said elected officials statewide have no choice but to propose tax increases and bond measures to continue providing government services.
“The fact is the state has not invested in its infrastructure in the last 25 or 30 years, so California counties have stepped forward and proposed tax increases to fund specific transportation and flood-control projects,” McIntosh said.
It is indicative of the bureaucratic mindset that the only solution offered is always to raise taxes. Do they ever consider cutting expenditures? No. Do they put money aside during good times — such as the 2003 - 2007? No.
And, get this. This gentleman claims we have not spent anything on infrastructure in the past 25-30 years. Is that accurate? I seem to recall all kinds of measures to improve highways, bridges, airports. Don’t those count as infrastructure. This piece from the Oakland Tribune in March, 2007, lists just some of the billions that have been spent in the name of infrastructure:
VOTERS back in November made it clear that California’s infrastructure needs fixing. In fact, voters backed $42.7 billion worth of public works bonds in the election.
Plans are under way to assign how these bonds should be used. Yet how many times in the past has public works money been wasted? The San Francisco-Oakland Bay Bridge reconstruction — a project with $5 billion in cost overruns — is an example…
I think it is fair to say Californians have spent plenty on infrastructure and on government in general. But, whether we have gotten our money’s worth is a different question. And, as this enlightened LA Supervisor pointed out in the LA Daily News piece, when we are having hard times, it just makes no sense to raise taxes:
“You cannot tax yourself into prosperity,” said Supervisor Michael D. Antonovich… “Taxes don’t create jobs. It’s not right to rob the working people of their hard-earned money they need to support themselves and their families.
“Instead of the government providing better services in giving taxpayers a fair return for their taxes, they want to tax people more. They should utilize the dollars they currently have for government services and programs.”
Since 1989, Los Angeles County voters and elected officials have approved more than 300 city, county, school district and special district bonds, assessments and parcel taxes.
In the last two decades, Los Angeles has received voter approval for bonds totaling $2.5 billion. Voters have approved $11.2 billion in LAUSD bonds and an additional $2.25 billion in Los Angeles Community College District bonds.
In the past six years, voters statewide have approved more than $42 billion in bonds for schools, water systems, the environment, stem-cell research and facilities.
“With all the budgetary problems going on and the increased pressures on local governments and school districts, debt is going to be an important issue to look at in the future,” said Glenn Byers, the county’s assistant treasurer and tax collector.
And taxpayer advocates warn of the potential toll.
“We pay taxes on our phone bills. We pay taxes on our electric bill. Parcel taxes, hotel taxes - just about everything you do seems to be taxed,” said California Taxpayers Association spokesman David Kline.
“Many of these taxes, taken individually, seem to be for good causes, but the cumulative effect is they have made California a very expensive state in which to live and do business. Voters have to take that into account when they have a chance to vote on some of these taxes and bonds.
“Something might be marketed as a great idea to fight gangs, expand public transportation or improve local schools, but they have to weigh the benefits against the long-term costs of paying all these additional taxes.”
I think we all know that many of these programs are created with good intentions and run by people of good will — generally. But, no matter how good the cause, all these programs have to be paid for by taxpayers. And, they raise the level of taxation permanently because government programs almost never go away. State tax revenues have gone up very nicely over the past several years, unfortunately state spending has gone up much more.
And, the billions in bonds that have been floated for projects — no doubt worthwhile too — all have to be paid back. Principal and interest. In some cases the investment will be worth it, but in many cases, it will not. Or, even if the project is a good one — such as the SF - Oakland Bay Bridge — cost overruns of $5 billion really add up. As the late Illinois Senator, Everett Dirksen, quipped, “A billion here and a billion there. After a while, it adds up to real money.”
I believe our political leaders are busily — again with good intentions in many cases — taking us down the line to a fiscal train wreck that will derail, if not destroy, the California Dream.
