The 1950 Tony award winning Irving Berlin Musical, Call Me Madam can speak to California’s fiscal crisis, tax historian Dave Doerr told an audience at UC Berkeley last month. Doerr, now chief consultant for the California Taxpayers Association, was the long time chief consultant for the Assembly Revenue and Taxation Committee. He literally wrote the book on the history of California taxation, titled, California’s Tax Machine.
The plot of the musical has U.S. Ambassador to the Duchy of Lichtenburg, Sally Adams, generously spreading American dollars around to create good will. The Lichtenburg prime minister is aghast. He believes the hefty loans will undermine his program of fiscal policy reforms that his country desperately needs.
Doerr raises the issue of whether there is a similar situation in California. Will proposals to raise revenues undermine fiscal policy reforms that California desperately needs?
Doerr told the conference that when it comes to taxation, there are four distinct groups with different objectives.
- Those who oppose any tax increase because they believe California taxes are too high and that a tax increase would be bad for the economy.
- Those who stand with the mythical prime minister of Lichtenburg that believe a tax increase will undermine any chance at fiscal reform.
- Those who will support a tax increase if it is good tax policy, but will oppose bills raising revenue that are not good policy.
- Members of the Jesse James school of taxation who declare: “Just give us the money; we don’t give a damn how we get it.”
Doerr thought the first three groups might come together to oppose recent tax proposals that have been floated. However, he suggested it was possible that groups 2, 3, and 4 could come together on a plan of fiscal reform.
Some of the points he highlighted as ripe for reform:
BUDGET PROCESS REFORM
Budgets should follow the process used in the 1960s and 1970s where each house develops a complete budget and places the budget bill on the floor for debate and vote. Only the differences between the Senate and Assembly versions would be subject to conference committee changes.
WASTEFUL SPENDING
Follow the CalTax plan to achieve as much as $7 billion in savings.
EARMARKING
Earmarking creates a misallocation of resources and improper budgeting. It has made state budgeting more difficult and this is a problem with various current ballot measures.
ADDRESS PUBLIC EMPLOYEE BENEFITS
The governor’s budget reported a $45 billion unfunded pension liability and a $60 billion unfunded health benefits liability. A recent Stanford study has local government unfunded pension liability in the $500 billion range.
STATE DEBT
The state faces what Governor Brown called last year a “Wall of Debt.” There is approximately $35 billion in debt due solely to budget borrowing. The state bond debt is $72 billion outstanding and $34 billion authorized but not sold.
UNEMPLOYMENT INSURANCE FUND PROBLEMS
California’s Unemployment Insurance Fund is insolvent. The fund is over $10 billion in the hole and is borrowing from the federal government. California’s failure to pay back federal loans is causing a $21 per employee increase in the next tax year. The governor’s budget contains a $473 million appropriation just to pay the interest on the federal loan.