In another time of economic distress, President Richard Nixon famously said, "We’re all Keynesians now," referring to his turn toward the government stimulus policies espoused by economist John Maynard Keynes, usually rejected by Republicans like Nixon. Given the budget plan put forth by Governor Jerry Brown and the Democrats in the legislature you would think we are all supply-siders now. Or we better be if this budget is to succeed.
Supply-side economics suggests that tax cuts will stimulate the economy through increased consumer spending, resulting in increased revenue to government.
The Democrats new budget estimates $4 billion in new revenue. The failsafe is a trigger to cut education and other services if the revenue does not live up to projections.
Is this real money or more gimmickry to claim a balanced budget? Indications are that revenue is above projection for May and June so the prognosticators may be on to something.
Perhaps, there will be a new surge of revenue. The current temporary taxes are set to expire this week. That means a family of four will have an additional $1400 or so to spend over the fiscal year. As consumers spend this money it could spur the economy and help deliver the $4 billion and maybe more.
Considering the May revise identified $6.6 billion more than anticipated, and the Democrats are gambling another unexpected $4 billion will appear, the state well may be on the road to recovery. (Heck, at this rate of unexpected dollars showing up we could be in surplus soon!) That also means the state would not need the tax increases the governor, Democratic legislators, and public employee unions are calling for.
The Democrats are not giving up in their quest to raise more taxes. In a press conference yesterday, the governor and Democratic leaders called new revenues "essential." Assembly Speaker John Perez suggested initiative measures would go to the ballot to secure new revenues.
On that ballot battlefield, they are bound to be met with not only opposition to the tax increase proposals, but reforms on spending and pensions that did not come out of the legislative negotiations.
Over the weekend, gubernatorial spokesman Gil Duran reportedly said on a radio broadcast that Republicans "were not smart enough" to write reforms. We’ll see how smart outside activists are in structuring those spending limit and pension reforms.
They’re coming.