Arnold’s “Budget Fix” Will Only Make Things Worse

by Paul Hogarth on November 19, 2008

We all know the state’s in a fiscal crisis – with horrific budget cuts on the way. But the Governor’s solution (tax increases on poor people during a recession) will only make things worse. Yesterday’s SF Chronicle said that raising sales taxes in tough economic times is bad for small business, but it failed to mention it’s also bad for consumers. And eliminating the renters tax credit for our most vulnerable Californians further adds insult to injury – at a time when the blind and the elderly won’t get cost-of-living increases this year. While Arnold Schwarzenegger wants the poor, sick and elderly to bear the burden of our struggling economy, he still won’t ask the wealthy to pay an extra 1% in income taxes. Democrats proposed such a measure in this year’s budget, and prior Governors like Pete Wilson and Ronald Reagan approved such increases in past recessions. But while the state clearly has a “revenue problem,” it’s tough to argue with Republicans in the legislature who say we have a “spending problem” – when lame-duck politicians like Carole Migden get six-figure salaries to serve on the Integrated Waste Management Board (which everyone knows to be a patronage slush fund.)

After (a) repealing the Vehicle License Fee in his first day of office that has cost the state $6.5 billion a year in unmet revenues, (b) getting the state to borrow $15 billion just to pay off one year’s budget deficit during his second year of office, and (c) asking the state to borrow against future lottery revenues as a “quick fix” to the budget deficit, Governor Arnold Schwarzenegger has finally come to the conclusion that we’re in a fiscal crisis. He’s even willing to entertain tax increases – while Republicans in the legislature still refuse to, and can hold the state hostage because of the two-thirds vote requirement.

But Schwarzenegger’s tax increases are the worst way to raise revenue. Not only do they violate any sense of fairness, but they’re likely to keep us in a recession – hurting revenue projections down the road. Yesterday’s front-page story in the SF Chronicle painted a grim picture about how raising the sales tax is bad for the economy – and even quoted a business owner in Santa Cruz who called it a “rape on small business.” But raising the sales tax by one percent is also bad for consumers – and the working poor (who spend a larger portion of their income on goods) will be hurt more than other Californians.

How about a temporary one-percent tax increase – on all income exceeding $272,000 a year? Democrats in the state legislature proposed this idea last summer – raising the upper-income tax bracket from nine to ten percent. It’s not a radical idea, and has been done before when the state was in recession and needed more revenue. Ronald Reagan supported it in the 1960’s, and Pete Wilson implemented it in the early 1990’s.

But raising sales taxes isn’t the only thing Schwarzenegger has in mind. He also wants to raise tuition for students at the University of California another 9.5 percent. This is after a series of tuition hikes that have made our UC system unaffordable – making it almost equivalent to a private school. As a proud alum of UC Berkeley, I find this disgraceful. Budget cuts and tuition hikes have driven students away from UC, and even high school students in California who graduate with a 3.0 could now be shut out of the CSU system.

The poor have already suffered this year – after Schwarzenegger used the line-item veto to kill the renters tax credit, a $347-a-year credit that goes to seniors and the disabled who make less than $40,000 a year. Many of these same folks live on state disability insurance – which even Democrats (in painful budget negotiations with Republicans) agreed to deny them a cost-of-living adjustment because of hard fiscal times. If you’re a 65-year-old residential hotel tenant living in the Tenderloin, Arnold’s message to you is simply “good luck.”

After years of resistance, Schwarzenegger has joined the Democratic majority in the legislature by acknowledging the state has a “revenue problem.” As he told ABC News, “there’s certain times when you have to forget about the ideology and … fix problems.” But Republicans in the legislature – who still refuse to raise any taxes, but can frustrate the entire budget process because of the two-thirds vote requirement – continue to insist we have a “spending problem.” And sometimes, reckless conduct by both parties make it hard to argue that the state couldn’t be more careful with its tax dollars.

According to last Sunday’s Matier & Ross, lame-duck State Senator Carole Migden – who lost re-election earlier this year – has been appointed to the state’s Integrated Waste Management Board. She will get paid $116,208 a year to oversee California’s garbage and recycling programs – although she admittedly has no expertise in that matter. But as the columnist duo noted, the “garbage board has long been a temporary resting place for bouncing politicians and their top aides.” The current board includes another former state senator, ex-Governor Pete Wilson’s scheduler and another ex-state senator’s wife.

How do we expect college students to afford a 10% tuition hike so that Carole Migden can get paid to look at garbage? Why is it fair that small businesses and consumers pay a sales tax hike – while the rich still don’t get a one-percent tax increase? And why did the Governor slash the renters tax credit for people who aren’t getting a cost-of-living adjustment – while ex-politicians get paid six-figure salaries to serve on boards where they have no policy expertise? Well, at least Migden didn’t get appointed to head the DMV.

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