Dan Walters

Dan Walters: Jerry Brown's tax plan has a downside

Published: Wednesday, Jul. 11, 2012 - 12:00 am | Page 3A
Last Modified: Tuesday, Feb. 26, 2013 - 8:16 pm

Whatever its other attributes or deficiencies may be, Gov. Jerry Brown's tax increase on the November ballot would make the state budget more dependent on personal income taxes and on the relative handful of wealthy Californians who pay most of those taxes.

By the state's own numbers, income taxes would rise to well over 60 percent of general fund revenues in the just-enacted 2012-13 budget, about twice their proportion when Brown was governor three decades ago.

So, one might ask, what's wrong with that?

Income taxes are more volatile – i.e., they rise and fall more frequently and more steeply – than other taxes, especially income taxes on the wealthy because their incomes are tied more to stocks and other capital markets, rather than salaries.

As everyone involved acknowledges, this volatility plays a major role in the state's chronic budget deficits. Simply put, when revenues rise sharply, as they sometimes do, the windfall is always spent, either through automatic formulas such as the one governing school finance, or via political pressure.

Democrats demand more money for their pet health and welfare programs and Republicans – and some Democrats – want tax cuts of one kind or another. But when the revenue surge ends, the state is left with corrosive deficits, forcing either tax increases or emergency spending cuts.

It's a fiscal roller coaster, and the ride is getting hairier – and scarier – every year. If Brown has his way, primarily boosting taxes on those with high incomes, it will become even wilder.

There are two ways to reduce volatility – flatten out the tax system, or adopt some kind of spending limit so that windfalls are redirected into rainy-day reserve funds rather than being squandered, as they always are now.

Both approaches were debated at length a few years ago by a special state commission named to recommend how volatility can be reduced.

The commission took the flatter tax approach over objections of its liberal members, who said it would put too much burden on middle- and low-income taxpayers. Its report was immediately dumped in the trash can by the Legislature.

A spending limit has fared no better. The Senate Governance and Finance Committee killed a spending limit measure just last month.

More than likely, therefore, we are stuck with the status quo, which is an ever-increasing reliance on volatile income taxes and even less certainty and more chaos in budget cycles.

One consequence would be more stress on the health, welfare and education services that liberals say they value, and more heartburn for the poor, the aged, the disabled and the young who depend on those services.

It recalls the old adage about cutting off one's nose to spite one's face.

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