Contributor

Ray Haynes

Mr. Haynes is an Assembly member representing Riverside and Temecula. He serves on the Appropriations and Budget Committees. [go to Assembly Member Haynes website at California Assembly]


A Budget With No New Taxes
(It could have been worse….)
[Ray Haynes] 8/5/03

The Democrats said it couldn’t be done. They insisted they needed new taxes to balance the budget. They threatened, they cajoled, they whined, they plotted. They dilly-dallied on the details, and groaned about the damage Republicans were causing. In the end, they folded like a cheap tent, admitting that their whole strategy was to try to embarrass the Republicans into voting for a tax increase. They knew that the budget could be balanced with no new taxes; they just didn’t want to do it.

Not that this budget is perfect. It isn’t. It is precariously perched on a precipice, depending completely on a solid economic policy in Washington to grow the national economy. If the national economy grows, it will drag California with it, causing the State’s tax receipts to increase, in spite of Sacramento’s short-sighted anti-business policies. If the national economy continues on its anemic recovery, California’s could fall into a canyon whose only bottom is bankruptcy. It is still too early to see what will happen, but at least California’s economy will not be burdened with new taxes instituted through the budget.

During the budget battle Republicans understood one thing. New taxes in the budget would be disastrous for the state as a whole. In 1991, when then-Governor Pete Wilson pushed for huge increases in numerous taxes in the midst of a growing recession, he caused enormous budget problems. State budget experts thought they were going to receive an extra $7 billion as a result of the tax rate increases. The state actually lost $1.2 billion. Governor Wilson and the Republicans had learned their lesson. They reduced spending for three years, waited for the economy to recover, and ultimately built up $10 billion in surpluses for the state’s coffers. Interestingly enough, the record surpluses arrived each year the state actually cut taxes, or allowed previous tax increases to expire.

In 2000, when the Democrats started raising taxes again, the state’s economy began to slow. Democrats wanted to blame President Bush, but, California’s recession started six months before he became President. As taxes and energy prices increased, job growth and state revenues decreased. All of this was evident in May, 2001, as the state’s “perfect budget storm” clouds gathered. They hit with full force this year. As the winds and rain increased, Democrats cried about the storm. Republicans tried to fix the boat. Additional taxes would be devastating to our economy. Even the Governor’s own fiscal experts predicted that his proposed sales tax increase would cost our state jobs and reduce spending and investment in our economy. Luckily, the good guys won this battle.

There is still a lot of work to be done to restore California’s fiscal health. A lot more spending reductions and long-term reforms to the budget process need to be enacted. One small disaster could throw this whole process into chaos. The $10 billion deficit bond is risky. The revenue projections are uncertain, because they assume that revenue from the car taxes will come in this next year. Those taxes may not come in as revenue, because either a court or a new Governor could reverse Governor Davis’ illegal tax increase, leaving an additional $4 billion hole in the budget. As the minority party, there was little we Republicans could do to keep them from counting that money, even though they will regret it in the near future.

The truth is, the people of California were able to dodge a tax bullet. They were lied to about the need for new taxes. Republicans knew they were lies, and suffered the attacks of the Democrats and their allies in the left-wing media outlets in California to protect the hardworking taxpayers of California. We still need a constitutional spending cap in California, and we still need to do some immediate work repairing our business climate. The Republican leadership has already asked the Governor (again) to call a special session on worker’s compensation so that we can get started on reforming that job-killing mess. There is still a lot of work to do to fix the problems caused by Governor Davis and his legislative buddies, but, for now, people are safe from the tax and spend crowd in Sacramento. That is something to celebrate.