What Next for California?

Jerry Brown will soon (again) be California’s governor. When he became governor in the 1970s, California was in excellent financial shape. When Jerry Brown becomes governor again on January 3rd, California will face something like a $25 to $30 billion budget deficit.

Over the last several years, California’s budget has been balanced only through accounting gimmicks. The reality is that California has been operating with a large budget deficit since the early 2000s. Jerry Brown has stated that Californians will be faced with a choice between service cuts and tax increases likely in another special election. During current Governor Schwarzenegger’s term, there were two special elections dealing with taxes. Additionally, taxes were on the general election ballot on various occasions. What is interesting to note is that, in all cases tax increases were voted down by the electorate. I have no doubt that the electorate will continue to vote down any tax increases. So what should Jerry Brown do?

Well, here’s what I would do:

First, everyone in California politics needs to recognize that California’s business climate is dreadful. The Tax Foundation ranks it just about on the bottom of all fifty states. Yes, California has some advantages (Silicon Valley, a wonderful climate, etc.) but tax policy is definitely not one of those. Tax increases are not the answer.

For the short-term, revenues will be whatever they are. Call that number x. Why not take that dollar amount, and match it to the prior budget with that amount of revenue? Yes that’s simplistic, and it would require cutting of programs and bureaucracies, but it’s the simplest solution to painful problems.

The reality is that California desperately needs tax cuts to attract business. Until that happens, California will continue to lurch from budget crisis to budget crisis.

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