Governor Jerry Brown put up a new budget plan that contained an eye-opening $6.6 billion in new revenues, a reduction in his previous income tax proposal, boosts to job creation, and an argument that California still needed a five-year tax extension to whittle down a “wall of debt.” Brown moved in the right direction but he should have gone further.
The governor should have embraced the unanticipated revenue as a hopeful sign and offered not only the pro-business measures he did, but also other provisions to spur the economy.
With the economy delivering new revenues, the five-year tax plan is hard to justify. The governor might have shortened the time he was asking for all the taxes contained within his proposal. He could even have suggested a trigger mechanism to capture new revenues only if the economic growth and tax revenue surge flattened instead of seeking the five-year extension.
He offered no such creative approaches but chose to hold tight to the five-year tax increase plan minus the one-year he removed from the income tax.
The governor argued he needed the money over the full term of the tax extensions to deal with the accumulated debt California taxpayers have to repay. There is no question that California’s debt needs be brought under control. However, there are other strategies that the governor could employee to deal with debt even using a device he lauded at his press conference: a spending limit.
A limit restricting spending and adding some discipline to the California’s fiscal situation would be wise to dedicate the first dollars over the limit to bringing down the debt. Reducing the debt improves the state’s credit rating, which means interest rates can be lowered saving tax dollars for essential state functions, in addition to making more revenue available for government operations. In the meantime, a spending limit would prevent future wild spending that helped get California into deficit in the first place.
Given the governor’s insistence that we need the long term “temporary” tax increase, how much has changed with this May revise?
The governor says he supports a spending limit and pension reform but he didn’t put them forth as part of his overall budget reform strategy. A number of Republicans say they need to see those reforms before they think about putting tax increases on the ballot. And, with the revenue surge there is little appetite to put a tax increase on the ballot, certainly not the size and length of a tax increase the governor supports.
After the May revise are we closer to a budget deal than we were in March or farther away?