A California Republican

The Department of Finance issued a new revenue projection report last week. The revenue projections are for revenues to come in at the same levels as they were in the 2004-05 budget year. The estimate, $85.9 billion, is $4 billion over the numbers from 5 years ago.

What does this suggest? It means that the horrible, doomsday scenarios being repeated by the Democrats simply aren’t the truth. In the time that Governor Schwarzenegger has been Governor, the expenditures of California have grown by 21%. The answer to the budget solution is simple - go back to the spending levels in the 2004-05 budget, which also had the same level of revenues as we have today.

There is no need for the hue and cry that legislators, and the Governor, are putting out. State parks don’t have to be cut. All money to higher education doesn’t have to be cut. Simply put, the state has to go back to the spending pattern it had when the revenues were this low.

It is a little more complicated than that. There are many new laws which mandate new spending - those would have to be repealled. There is the mandatory education spending which eats up about half the budget - that too would have to be suspended. The prison consts would have to be reigned in, and cost of living adjustments would be denied. However, the truth about cost of living is that, considering the downturn in various economic sectors, the cost of living is at the same level as it was in 2004-05. If it is at the same level, why not decrease payments to the same level?

These solutions seem so simple, and come from a common sense perspective.

However, if you watched any of the public comment from last week’s budget sessions, you would know that the last thing the Legislature wants to do is seen to be common-sensical or to find the simple solution.

The Governor said that the budget situation is dire. The state must find a way to make ends meet for the enxt year before the month is out. On July 1, 2009 the new fiscal year starts, and it will start underwater unless the Governor and the Legislature can find a way to make revenue equal expenditures.

The Governor suggested that the commission who is studying tax reform should not place any idea off the table. In fact, the Governor said that a 15% “flat tax” might be the solution to California’s problems.

There are some arguments in favor of the flat tax. The two most favored arguments are that a flat tax promotes growth and it promotes fairness. The current tax system allows for any number of loopholes that people with the time, or money, to find them can take advantage of. It turns out that those in the highest tax braket pay less than those in lower tax brakets because of the loopholes. A flat tax would, ideally, cure this problem.

The current tax system is also biased against investment and savings - two things that this economic recession has showed we need more of as a country and as individuals. A flat tax would remove this bias from the system and, theoretically, provide the same incentives to save as to spend.

This isn’t a new idea. It has been proposed for California before. The Pacific Research Institute (PRI) suggested that a 3% flat tax would be revenue neutral for most people, although it would have the rich pay more. However, the PRI research also suggests that a 3% flat tax would generate about $10 billion in revenue.

This means that there doesn’t need to be a 15% flat tax. The Governor, as always, is simply throwing ideas out there without knowing what he is talking about. A flat taxisn’t a bad idea, it would smooth the revenue highs and lows that California experiences. It would also make doing your taxes much easier, and much quicker. It would make everyone pay the same percentage of their income - which is not a bad idea. Everyone uses roads, police, emergency services and the environment. Most people use the education system at some point in their lives. Everyone should have a little skin invested in the system. A 3% tax awould allow everyone to have some skin in the system.

The catch is that a flat tax only works if you eliminate the loopholes and deductions. This includes favorite deducations like: mortgage, child care, and car deducations. A 3% flat tax would be less than what most people currently pay, and peole should be happy for that. Of course, it would put the lawyers out of jobs.