California, by itself, has the world’s fifth largest economy.
Yet it’s also dynamic and ever-changing. Once-dominant factories
and assembly lines are giving way to the likes of Google, Facebook
and stem cell labs, which have risen from nowhere in less than a
decade.
California, by itself, has the world’s fifth largest economy. Yet it’s also dynamic and ever-changing. Once-dominant factories and assembly lines are giving way to the likes of Google, Facebook and stem cell labs, which have risen from nowhere in less than a decade.
But an artifact of the past remains: tax laws that are choking state government. Over the years, Sacramento has cobbled together a feast-or-famine cash-collection system – and right now, it’s decidedly in its famine phase. The present year’s budget could be short $10 billion and counting.
What’s needed is a more reliable and predictable system, one that allows multiyear planning instead the 11th hour budgets the state now produces. New rules should also reflect the reality of a changed economy built on research and technology, not just manufacturing.
For years, Sacramento has talked this talk, and the topic even came up this past summer while stalemated budget talks produced the longest budget delay ever. But now, with a fresh shortfall looming, the topic has come back.
Bad as the situation is, the state’s financial low point could be a timely gift to push California to modernize its tax code. …
Nearly half of the state’s taxes come from personal income, and within this category the bulk comes from a tiny sliver of wealthy taxpayers.
That soak-the-rich motif may feel good, but it’s subject to wild swings magnified by the economy. …
The same up-and-down dynamic is at work now, and it’s safe to assume that personal income taxes will take a sizable hit. Sagging home sales, fewer shoppers paying sales taxes, a weaker stock market and a rising jobless rate will all burden the state too. The $10 billion predicted shortfall may be on the low side.
Come Wednesday, the governor and legislature are due to consider emergency stop-gaps in a special budget session. What may come will be ugly: cuts to social services and education moderated by a possible sales tax increase. …
If California can find long term solutions, instead of fitful gimmicks and financial Band-Aids, then the results could be truly revolutionary.
This editorial first appeared in the San Francisco Chronicle on Wednesday.
