California Assembly Democrats, facing that state’s persistent deficit, announced a plan to raise taxes on upper income earners. Failing that (from the LA Times):

“If Republicans refuse to support that approach (raising taxes on upper income earners), (Assembly Speaker) Nuñez said, Democrats will demand that the state borrow to get the money.”

Let’s hope that when Nuñez is termed out he doesn’t expect to make a living as a financial planner. He seem to be forgetting the one course of action guaranteed to reduce the problem right now … cutting spending. But that is apparently not even in their playbook. Instead, like a shopaholic in need of credit counseling their solution is to pay for current expenses with long term debt.

Dan Weintraub of the Sacramento Bee points out the flaw in their “logic” — not surprising to anyone with a degree of economic literacy, but apparently not obvious in Sacramento:

At our editorial board briefing with the Speaker (Nuñez) on Tuesday, I asked what would happen if they raised the income tax and the money they are counting on (about $2 billion) didn’t come in as projected. I said that’s what happened in 1991 when Pete Wilson tried the same thing. Núñez and his staff countered that my question was based on Republican spin – not facts. The money they’re projecting would come in, they assured us. Well, here are the facts.

The Wilson rates were adopted in July, 1991. The entire increase in the personal income tax was projected to net $2.3 billion in the first year, including $1.1 billion from the increase in the upper-income rates. That money was, of course, booked in the budget and spent. But it never arrived. The result was another deficit the following year. In fact, the growth in personal income tax revenues over the next three years was the second slowest, on a percentage basis, for any three-year period in the second half of the 20th Century.

… the Wilson tax hike never really produced the money it was projected to bring in – until it expired. This is, of course, exactly what the much maligned “supply-side” theory on taxation would predict. But that’s another story.

This is Exhibit 737 in the case against the California Democratic Party. They created a persistent structural deficit. Their tired all-purpose “tax the rich” solution won’t bring in enough new revenue. Good fiscal stewardship says they shouldn’t pay for current expenditure with long term debt. And yet they won’t cut spending, which would have immediate benefit. If that’s not the definition of irresponsible, what is?

[PS Weintraub has far more on this at the link above — free registration required]

Technorati Tags: California, politics

This entry was posted on Wednesday, June 1st, 2005 at 10:15 am by A Senior Administration Official and is filed under I knew I'd use my Econ major, California Schemin', Brilliant, but uncategorizable, Your Tax Dollars In Action. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.