Author Topic: Jerry Brown Creates California Surplus Miracle, But Can It Last?  (Read 1776 times)

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Offline Rapunzel

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http://www.thedailybeast.com/articles/2013/01/15/jerry-brown-creates-california-surplus-miracle-but-can-it-last.html


Jerry Brown Creates California Surplus Miracle, But Can It Last?
by John Avlon Jan 15, 2013 4:45 AM EST

The California governor deserves credit for turning his state’s deficit into a surplus, although the increased tax burden may drive away the wealthy—eroding the state’s tax base.

Something close to a civic miracle seems to have occurred—at least on the surface.
California Budget

Gov. Jerry Brown points to a chart showing the reduction of the budget deficit as he unveiled his proposed state budget at the capitol in Sacramento, Calif., Jan. 10, 2013. (Rich Pedroncelli/AP)

California has long been synonymous with budget deficits so deep that it looked like the Golden State would inevitably be our Greece—beautiful and bankrupt.

But Gov. Jerry Brown announced that his state has suddenly projected a surplus of $851 million. Two years ago, when Brown came back into office, the state had a $25.4 billion deficit, a Sisyphean problem Governor Arnold struggled with unsuccessfully all last decade.

This reversal of fortune raises a lot of questions. What caused California’s budget turnaround? Is it sustainable? And finally, could there be a national lesson here as Washington tries to confront deficits and debt?

The top-line takeaway is that a balanced deficit-reduction approach seems to have worked in the Golden State. When he entered office in 2011, Brown proposed billion-dollar-plus cuts in welfare and Medi-Cal, as well as $500 billion from the UC system.

All told, his initial proposed budget was almost $20 billion less than Governor Schwarzenegger’s 2008–09 budget, which clocked in at $103 billion. Democrats and unions howled, and Brown’s ultimate budget was less austere than originally advertised, but deep cuts were enacted.

Crucially, Brown also took on the unpopular task of raising taxes—winning a 2012 ballot fight sonorously known as Proposition 30 and 39—that raised sales taxes and closed business tax loopholes. Next year, the combined new revenues are expected to exceed $5.8 billion.

The final factor is an improving economy—always the decisive X factor in deficit-reduction efforts. California’s economy is improving slowly, but the shift from the pit of the Great Recession moved the numbers in the right direction.

The result of increased tax revenues and spending cuts is that—at least for now—a projected deficit has been turned into a surplus.

This is good news. But not everyone is happy. And the numbers do sidestep a deeper problem.

Remember, deficits and debt are different things. Projected year-to-year deficits are comparatively easy to close, especially on the back of an improving economy. But out-of-control debt is ultimately what drags you down.

The Los Angeles Times offered a front-page reality check, under the headline “Debt a Cloud Over State’s Future,” pointing out the inconvenient fact that California “has accumulated a crushing load of debt for retiree pensions and healthcare now totaling more than taxpayers spend each year on all state programs combined.” Ouch.

    Brown’s budget does begin to pay down the debt, but the outstanding amount dwarfs the pay-down.

Brown’s budget does begin to pay down the debt, but the outstanding amount dwarfs the pay-down. Of course, that hasn’t stopped liberal activists from demanding more money be spent immediately on social services, under the banner of “investment.”

Moreover, there are real questions about whether the increased tax burden—especially on the wealthy—will end up eroding the state’s tax base in the near future.

“There’s some doubt that high income taxpayers won’t either move to Nevada—or some other low or no-income tax state—or find other ways, such as delaying realization of cap gains, to avoid hefty new surtaxes—especially since their federal taxes are also increasing,” emails the Sacramento Bee’s Dan Walters. “California’s marginal income tax rate (federal plus state) is now highest in U.S. at highest level, about 52 percent.”

But Walters acknowledges that Brown’s budget miracle is more or less legitimate, at least for now. “It’s mostly new revenue from sales and income tax hike approved by voters in November with a dash of economic recovery and a smidgen of creative bookkeeping such as slowing down some debt repayment and assuming renewal of a tax on health care providers to trigger some federal aid,” Walters’ continues. “But overall it’s mostly the new taxes.”

Other Golden State observers take an even more skeptical view. “There is a reason Gov. Brown is known as Governor Moonbeam,” says KABC’s center-right John Phillips. “Structural deficits are everywhere, the nonpartisan Legislative Analyst’s Office says there’s still a $1.9 billion budget deficit, and rich people can’t cross the state line fast enough—taking revenues down almost 11 percent since the passage of his Prop 30 tax hikes with them. On the plus side, hey, we’re not Detroit!”

The Rust Belt does have problems that make California’s cyclical deficits and deep legislative dysfunction seem comparatively easy to solve. But Jerry Brown deserves credit for pulling off at least short-term success in a state budget situation that had many experts calling impossible to solve. In the near term, the deficit turned surplus highlights the improving national economic environment.

It also provides a compelling object lesson for advocates of a “balanced approach” for reducing deficits, like President Obama & Co. Contrary to conservative talking points about how revenue is not a legitimate part of deficit-reduction solutions—instead, it’s all spending cuts all the time—California’s recent example shows that increased tax rates can help rapidly reduce deficits. Moreover, especially compared with much of Europe, the Obama administration’s decision not to simply pursue a path of deep austerity cuts seems to have been the wiser path, at least for now.

But conservatives could have the last laugh if the wealthiest Californians decide to flee the state for comparatively low-tax climes, like a sun-baked Gérard Depardieu.

Bottom line: This fight ain’t over. But at least for the moment, Jerry Brown’s balanced if painful plan to turn deep deficits into a modest surplus deserves study. It offers a rare glimpse of good news in the relentlessly bleak world of state budget. Whether it is sustainable remains to be seen.
�The time is now near at hand which must probably determine, whether Americans are to be, Freemen, or Slaves.� G Washington July 2, 1776

Offline Atomic Cow

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Re: Jerry Brown Creates California Surplus Miracle, But Can It Last?
« Reply #1 on: January 19, 2013, 06:24:31 am »
Probably all slight of hand and some funny number work.
"...And these atomic bombs which science burst upon the world that night were strange, even to the men who used them."  H. G. Wells, The World Set Free, 1914

"The one pervading evil of democracy is the tyranny of the majority, or rather of that party, not always the majority, that succeeds, by force or fraud, in carrying elections." -Lord Acton

Offline Rapunzel

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Re: Jerry Brown Creates California Surplus Miracle, But Can It Last?
« Reply #2 on: January 19, 2013, 07:12:54 pm »
Probably all slight of hand and some funny number work.

of course it is...........
�The time is now near at hand which must probably determine, whether Americans are to be, Freemen, or Slaves.� G Washington July 2, 1776

Oceander

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Re: Jerry Brown Creates California Surplus Miracle, But Can It Last?
« Reply #3 on: January 21, 2013, 01:05:46 am »
We shall see.  So far, nary a prog/lib has ever been able to legitimately balance a budget.  And counting just one or two years' worth of revenues as being evidence of a pattern is simply poppycock.  Individuals cannot change most of their spending or investment decisions on a dime - so when new taxes are imposed they frequently raise new revenue immediately - but once individuals have the time needed to change their behaviour to account for the new costs - and taxes are merely another cost from the economic point of view - they will adjust their behaviour to minimize the new costs, and once individuals have adjusted their behaviour, the revenues from those new taxes will drop, and the initial revenue estimates will be revealed as false.  At least, their falsity would be evident to anyone who understands how economic actors behave; progs/libs, unfortunately, do not understand how economic actors behave.