The two sides of the issue on the California Budget

In a column for the Sacramento Bee this morning, the Executive Director of the California Budget Project, a foundation funded "non-partisan" organization made the following comment - "This year's (budget) dance results from the divergent approaches to dealing with what budget wonks call our structural deficit - that chronic mismatch between the money the state takes in and the money it spends on the public services Californians have come to want and expect."   The Executive Director then asks "Why, even in relatively good times, California's budget problems persist and what must we do to fix them permanently?"

But note to the Executive Director - a budget includes both revenues and expenditures.  The substance of this op-ed is how horrible the California tax system is.  Indeed, the California tax system needs to be improved.   We rely too much on capital source income - so that in times of economic vibrancy we get loads of dough from capital gains and options realizations.  But in times like when the NASDAQ took a dump - the money does not roll in.   So the Director suggests that we need to get our "fiscal house" in order.  But only on one half of the budget.

Unfortunately for those in the state who are really interested in thinking about the public fisc - the director of this organization seems only to look at the revenue side of the ledger - we should raise corporate taxes, reduce the fraction that we need to pass a budget, and close out the tax "loopholes."  There is no thought about the relative costs of changes in the tax code.  One thing any student of taxes learns early is that changes in the tax code have dynamic effects - and sometimes it is a good idea to think about those before they are enacted.

The director has no thoughts about whether we could find some savings in the expenditure side of the budget.  As the Governor pointed out last year, revenues grow pretty rapidly - almost as you might expect in a vibrant economy like California's but expenditures, based in part on a number of requirements that should be looked at with the same kind of care that the tax side seems to merit.

One would hope that any serious thought about how to solve our perennial budget problem would think about the full range of alternatives.  But for the California Budget Project answers come from one side of the ledger.