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January 19, 2008

It Is Time to Undo Past Tax Cuts

-- by Dave Johnson

This post originally appeared at Speak Out California

California faces a large budget deficit, and the Governor has declared an emergency. The Governor has proposed "across-the-board" spending cuts -- which means cutting all state services by an equal amount.

This inability to prioritize the importance of any particular spending cuts should be taken as a de facto declaration that there is no waste or unimportant spending left to cut -- that all spending is equally crucial. Driving home this point, the Governor is asking for the release onto the streets of prisoners.

If we don't want prisoners released onto our streets the legislature must raise revenue.

The first place to look is toward taxes and fees that were cut when times were good. The vehicle license fee is the most obvious place to start. A letter-writer in today’s San Francisco Chronicle makes this point:

"When Arnold Schwarzenegger became governor, he immediately repealed the increase in vehicle registration fee that Gov. Gray Davis had used to help close the budget gap. This returned money to the pockets of Californians with cars (I received a check for $1) and took $4 billion from our state's budget. This is roughly the amount he now wants to cut from our public education. … It is hard for me to feel empathy for people who complain about a 1.5 percent tax increase on their $100,000 car when there are families that will lose their ability to have a home if these cuts go through."
We should examine the record from past tax cuts. Have they helped or harmed us?

The record shows that tax cuts actually harm state economies and finances. The Center on Budget and Policy Priorities, in a 2005 report titled, TAX CUTS AND CONSEQUENCES: The States That Cut Taxes the Most During the 1990s Have Suffered Lately found that tax-cutting states actually performed worse fiscally and economically than other states. From the sumary:

Those big tax cuts do not seem to have contributed to state fiscal and economic health. In fact, when the economy began to weaken in 2001 and states fell into a fiscal crisis, those big tax-cutting states generally faced larger fiscal problems, and had worse economic performance, than other states that had been more cautious about tax cuts.
Since these cuts were clearly a bad idea it is time to repeal them.

Beyond this, we should learn from this emergency. What happened to us that we got talked into cutting taxes at the top while cutting services in the middle?

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Posted by Dave Johnson at January 19, 2008 2:33 PM

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