California and its love of tax cuts

Being from the Bay Area, I was saddened to hear that the city of Vallejo decided to declare bankruptcy in the face of ever-mounting expenses and withering revenues. However, as terrible as the Vallejo development was, it’s a harbinger of more bad news to come for California, the current budget deficit of which has ballooned to more than $14 billion (some estimate it might be closer to $20 billion). In January, Gov. Arnold Schwarzenegger declared a state of “fiscal emergency” and began cutting billions from key programs in public education and health care. However, these are only temporary solutions focused simply on the spending side of the deficit equation.

Since the early 1990s, California has just not received enough money to pay for its basic services, from public education to health care; nevertheless, the state continues to empty its coffers by giving unnecessary tax cuts to groups that don’t need them. As a result of this reckless tax policy, California now faces a continuous revenue shortfall.

The “Governator” and Republicans would have us believe that our budget deficit is caused by overspending, but if overspending is our problem, then why are we cutting $4 billion from public schools and $1 billion from health care programs? Shouldn’t we cut truly useless programs instead of our two most vital ones?

The truth is that frivolous spending, while always present in politics, accounts for a tiny fraction of the total state deficit. The real reason why California stands on the brink of bankruptcy is because of California’s decision to provide tax cuts.

In February, the California Budget Project (CBP) released a scathing indictment of this state’s addiction to tax cuts for the past 15 years. According to the report, since 1993 there have been several tax breaks given – especially to corporations – which now cost California $12 billion in vital revenues every year. These tax cuts were given during the economic boom of the early 1990s, but they’re hurting us today since we can no longer fund key programs without them.

The CBP concludes that if corporations paid the same rate now that they did in the 1980s, California would collect $7.5 billion more in revenue each year. Obviously this excess revenue would prevent cuts in education and other key areas in the state. I am sure conservatives and Libertarians are up in arms over this suggestion of a “tax hike” for corporations, but I don’t see why asking corporations to go back to paying their fair share of taxes (especially after 20 years of tax cuts) is unjust.

In addition, decades of superfluous tax cuts were doled out to the wealthiest Californians, who haven’t been asked to “sacrifice” at all. In fact, lower-income individuals now bear the largest tax burden in the state. According to the CBP, the lowest 20 percent of income brackets pay 11.7 percent of their income to state and local taxes, whereas the top 4 percent pay only 7.1 percent of their income to the state. I can’t understand why asking the wealthiest Californians to match the tax contributions made by the lowest 20 percent is unreasonable.

Recent short-sighted tax policy decisions have also contributed to the soaring budget deficit, namely Schwarzenegger’s repeal of the Vehicle License Fee (VLF) in 2003. The VLF was created in 1935 as a 1.5 percent tax on the purchase price of every automobile sold in California, which went to local governments to pay for fire and police protection, libraries, schools and public parks. The average 1.5 percent VLF for a car buyer was around $200.

Although it might seem “generous” of our governor to spare the average car buyer $200 off the purchase of their car, the total state loss from removing the VLF was $6.1 billion in 2007. This type of tax cut is disturbingly gratuitous, given that three months ago the Los Angeles Unified School District (LAUSD) announced that it was facing $460 million in budget cuts. The LAUSD claims this reduction would be like closing 22 high schools, firing 5,700 employees and cutting remaining salaries by 8 percent. Is this dire scenario really worth saving drivers a measly $200?

Given this list of reckless tax cuts over the years, it isn’t a surprise to see the current financial mess California is in. Am I saying that excessive government spending doesn’t exist? Of course not. However, the problems facing California reside mainly on the revenue side of the equation. The sooner we accept this reality and re-establish tax normalcy, the sooner California will be on its way to recovery.

Patrick Molnar is a business junior and a Mustang Daily liberal columnist.