Has financially-strapped California set the precedent for a solution to the nation’s budget woes?
With the passage of California’s Proposition 30 by a 54%-46% margin, the die may have been cast that could portend future deals between intransigent elements of both political parties.
To wit: temporary tax increases on wealthy Americans, coupled with other selective revenue generation as well as targeted spending cuts, all with the goal of plugging budgetary gaps until the economy improves sufficiently to generate organic tax revenues.
The situation is far from certain, as California has its own very unique set of demographics which cannot be extrapolated nationally. But first, let’s take a look at the measure.
Per the state Secretary of State’s web site, Proposition 30 was summarized as follows:
“Increases taxes on earnings over $250,000 for seven years and sales taxes by ¼ cent for four years, to fund schools. Guarantees public safety realignment funding. Fiscal Impact: Increased state tax revenues through 2018–19, averaging about $6 billion annually over the next few years. Revenues available for funding state budget. In 2012–13, planned spending reductions, primarily to education programs, would not occur.“
Financial Problems Facing California
The urgent need for a solution to the state’s budget crisis was not in dispute. California is one of the hardest-hit states in the nation with respect to the recession and post-recessionary economic malaise. Not only did the recession dampen consumer spending over the past four years, but plummeting real estate values slashed property tax revenues. Unable to cut spending sufficiently to make up the difference, the state sunk into a near-depression and, four years later, is still struggling to balance its budget. According to the Center on Budget and Policy Priorities, California had a projected budgetary shortfall of $15.0 billion for its FY 2013 budget — the highest in the nation.
On the table was the potential for further cuts to public education after already-drastic reductions in previous years. In a risky gambit, California Governor Jerry Brown put his political future on the line by rallying support for the measure. In a report by the San Jose Mercury News, Brown commented:
“I know a lot of people had some doubts and some questions. Can you really go to the people and ask them to vote for a tax? Here we are … We have a vote of the people, I think the only state in the country that says let’s raise our taxes, for our kids for our schools, and for our California dream.”