The Capitol is consumed with the state budget situation and every day brings some new histrionics, such as Assembly Speaker Karen Bass' threat Tuesday to lock up her colleagues if they fail to approve Democrats' revised package of taxes and spending cuts.
However, by portraying the budget situation as a life-and-death crisis – as if the fate of 38 million Californians depends on them – politicians merely feed their own egos and make it that much more difficult to act.
Republicans, for instance, say that raising taxes would be fatal to economic recovery while Democrats say that deep spending cuts will have the same impact. Obviously, both can't be right, but they can both be wrong.
The budget has about a $15 billion projected hole in the 2008-09 fiscal year and another $25 billion in 2009-10. Overall, that's less than 2 percent of the state's economic output, even during this severe recession.
Were the Legislature to whack that much out of the state's spending, it certainly would create angst among those getting less, but it's highly unlikely that it would have more than a fractional impact, positive or negative, on the economy.
That's equally true of closing the deficit with new taxes. They would be under 2 percent of the economy and about a 10 percent overall increase in the state and local tax burden – not embraced by most taxpayers, certainly, but not immense in the overall scheme of things. And the new taxes would continue to circulate in the consumer economy.
If claims of the budget's economic impact are overblown, so are the supposed effects of "economic stimulus" proposals, such as reducing regulatory burden on business, as Gov. Arnold Schwarzenegger and Republican lawmakers want, or increasing debt-financed spending on public works, as just about everyone touts.
Their purported benefits don't add up, especially since there's a huge time lag between their inception and their becoming effective. At best, they may have a marginal long-term impact, but rhetoric about stimulating the economy enough to close the budget deficit is balderdash.
The Capitol's crisis mentality isn't shared by the public at large, which just wants its politicians to deal with the problem fairly, knowing and accepting, albeit reluctantly, that closing the deficit will take some unwanted spending cuts and new taxes.
Politicians should relax, park their needy ids and accept that what they do on the budget – raising taxes, cutting spending or some combination thereof – may be important to them and the myriad interest groups that have their ear, but in terms of the larger economy is fairly insignificant.
Indeed, a stalemate probably has more negative effect by reducing consumer, lender, investor and voter confidence, than anything they would do to close the deficit. Which means they should suck it up, devise a sensible mélange of taxes and spending cuts, and, as Larry the Cable Guy might say, get 'er done.
Call The Bee's Dan Walters, (916) 321-1195. Back columns, www.sacbee.com/walters.
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