Dan Walters

Dan Walters: The dark side of Gov. Jerry Brown's tax plan

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

Jerry Brown fancies himself a futurist, exhorting us to act now to ensure a better tomorrow – with a bullet train and a more dependable water system his prime examples.

Their merits notwithstanding, making decisions with long-term benefits is precisely what politicians should – but rarely – do.

One wonders, however, how Brown squares his self-appointed role as progressive pathfinder with his regressive and potentially disastrous approach to the state's chronic gap between revenue and spending.

While making some reductions in spending – although how permanent is questionable – the first two budgets that Brown signed during his second stint in the governorship were based on shaky revenue assumptions.

The first, in 2011, assumed that $4 billion in previously unseen revenue would magically appear. It didn't.

The second, this year, assumes that about $6 billion will come from voter approval of sales and income tax hikes in November, no better than a 50-50 bet.

Even were Brown's tax measure, Proposition 30, to win voter approval, its long-term effect would be to make the state's fiscal situation even less predictable, and continued budgetary angst even more likely.

The plan's core is a boost in income taxes on a relative handful of high-income Californians who already pay most of the state's income taxes and whose taxable incomes are tied largely to stocks and other capital markets.

The uncertainty of depending on such a narrow source of state revenue is demonstrated by another aspect of the current budget – an assumption that the Facebook initial stock sale would generate a $2 billion tax windfall because the stock price would shoot upward.

Exactly the opposite has occurred, meaning the state's revenue gain, if any, will fall well short of the budget's assumptions.

Moreover, Proposition's 30's tax boosts are temporary, lasting just about as long as Brown's governorship, if he's re-elected.

Meanwhile, another provision locks into the state constitution a $6 billion annual commitment to local governments for "realignment" of some criminal justice and social service programs that is, in bottom line terms, being financed from the temporary taxes.

Financing permanent spending with temporary – and volatile – taxes is a foolhardy policy.

Were Brown as committed to long-term impacts as he professes to be, he'd have embraced tax reform to make the state's revenue stream more predictable and less dependent on how well a few rich people are doing on their investments.

He would broaden the reach of sales and income taxes and reduce rates to make California more attractive to business investment.

Instead, he's proposing a potential – even likely – fiscal train wreck.

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