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The Problem With Raising the Bar on Raising Taxes

May 28th, 2009 . by economistmom

Harold Meyerson’s column in today’s Washington Post discusses California’s fiscal woes and how Proposition 13, passed 31 years ago, is to blame:

Amid the inflation of the late 1970s…the California model began to crumple. As incomes and property values rose, Sacramento’s tax revenue soared…frustrated Californians grumped to the polls and passed Proposition 13, which rolled back and then froze property taxes — effectively destroying the funding base of local governments and school districts…

Since 1978, state and local government in California has been funded chiefly by personal income taxes. Bank and corporation taxes have been steadily reduced. In the current recession, with state unemployment at 11 percent, tax revenue has fallen off a cliff.

But the problem with Proposition 13 wasn’t merely that it reduced revenue. It also made it very difficult to increase revenue. Raising taxes now requires a two-thirds vote of the legislature, though in 47 other states a simple majority suffices…

Harold’s got this exactly right… Proposition 13 gets it exactly wrong:  we don’t need to make it harder for politicians to raise revenue.  We need to make it harder for them to pass fiscally-irresponsible tax cuts.  That’s why pay-go rules–and ones that apply to tax cuts as well as spending increases–make sense.  Proposition 13 is like an anti-pay-go rule.

But what really fascinated me (made me wax nostalgic) in Harold’s column was the following:

The current Republican crop has refused in good times as well as bad to raise business or other taxes (increasing the tobacco tax, for instance, has failed each of the past 14 times it has come up for a vote). Abetted by little local Limbaughs who inflame Republican brains, they protest that the state already has the nation’s highest taxes. In fact, California ranks 18th among the states in percentage of personal income paid to state government…But the myth of soak-the-rich high taxation persists among Republicans — so much so that the GOP front-runner to succeed Arnold Schwarzenegger in next year’s gubernatorial election, former eBay CEO Meg Whitman, is calling for cuts in business tax rates even though the state is staring at a $21 billion deficit that it somehow has to close.

…because I think we should all be grateful that Meg Whitman is not our Secretary of the Treasury.  Does anyone remember what presidential candidate McCain had suggested?  (Here’s a link to the video clip, so you can wax nostalgic, too.)

3 Responses to “The Problem With Raising the Bar on Raising Taxes”

  1. comment number 1 by: Jim Glass

    California ranks 18th among the states in percentage of personal income paid to state government … Raising taxes now requires a two-thirds vote of the legislature, though in 47 other states a simple majority suffices

    Data from the Tax Foundation

    State and local taxes — 2007

    Per capita state-and-local taxes paid to home state/per capita income, to 0.1%

    1. New York 8.8%
    2. California 7.9%
    2. New Jersey 7.9%
    2. Hawaii 7.9%
    5. Maryland 7.6%

    US Average 6.7%
    ~~~

    States with super-majority requirements to increase taxes or enact new ones:

    2/3rds majority legislative vote needed:

    Arizona, California, Colorado, Louisiana, Nevada, South Dakota and Washington.

    3/5ths majority legislative vote needed:

    Deleware, Oregon, Mississippi, Florida on corporate tax (it has no personal income tax), Kentucky (in non-election years).

    3/4ths majority legislative vote needed:

    Oklahoma (unless passed by majority in both houses, and by voter initiative on election-day ballot, and signed by governor), Arkansas (for property, excise, privilege and personal taxes.)

    That’s 13 states, subtracted from 50 … a bit more than 47. (And none of those other states are bankrupt, or have a credit rating as low as California’s.)

    The problem with newspaper op-ed opinion writers is that they just write personal opinions about technical subjects about which they have no personal knowledge, using information from sources (often partisan and overtly trying to influence them) that they often, very often, far too often, don’t bother to check for accuracy and bias.

    But as Sen. Moynihan used to say, while we’re all entitled to our own opinions, we’re not entitled to our own facts.

  2. comment number 2 by: Mike

    I wish people quit bashing proposition 13. The problem isn’t that it restricts the ability raise taxes, but rather that politicians really can’t seem to find it in themselves to run the government with the revenue they have. If you can’t run your government off of a property tax rate of 1 percent, your government has issues that need to be addressed.

  3. comment number 3 by: Raj

    We must not also forget the ridiculous initiative process that has hamstrung the state with bond issues and payoffs for every interest group and sycophant in the state. The only initiative I will support would be one to either get rid of the process or to make it exceedingly difficult to pass one.

    Add to that term limits. Despite the problems of the legislature before term limits, those people were professionals who worked together for years and knew how to compromise when it was needed.

    I some times wonder if we are really this stupid or if we need study groups at night to attain the level of ignorance we have.