Policy Documents

Reoccurring Budget Deficits Need Comprehensive Fix

July 17, 2008

California is facing a $17 billion deficit along with the third-highest unemployment rate in the country. This has caused some elected officials to say the state has a revenue problem ... but the facts say otherwise. Since Gov. Arnold Schwarzenegger took over in 2003, the state's general fund has grown by more than a third, roughly $25 billion.

State Controller John Chiang recently reported the state overspent its revenue last year by more than $7 billion. He noted, "Without a spending plan in place, the state will run out of cash at the end of September and be forced to engage in costly borrowing to cover its bills."

Chiang's findings reinforce the idea that imprudent spending, not deficient revenue, is the more pressing problem in the state budget. Increasing taxes on small business owners, especially during a time of economic slowdown, is downright dangerous.

Before raising income taxes and eliminating important deductions, a fiscally responsible government needs to trim wasteful spending, enact sensible spending limits, and work with the private sector towards implementing more free-market solutions to pressing public policy problems.

The documents cited below give further information on spending limits, tax reform, privatization, and related budget issues.


Ten Principles of State Fiscal Policy
http://www.heartland.org/Article.cfm?artId=19354
This booklet provides policymakers and civic and business leaders with a highly condensed yet easy-to-read guide to state fiscal policy matters. It presents the 10 most important principles of sound fiscal policy, from "Above all else: Keep taxes low" to "Protect state employees from politics."

Include Spending in California's Budget Debate
http://www.latimes.com/news/opinion/letters/la-le-sunday29-2008jun29,0,7706941.story?page=2
A letter to the editor published in the Sunday edition of the Los Angeles Times explaining why reining in spending is key to solving California's budget mess.

California Legislators Push for More Double-Digit Income Tax Rates
http://www.taxfoundation.org/files/ff134.pdf
With the new push in the California legislature for higher income tax rates, it's worth taking a look back at how the top rates have changed in recent years.

California Budget Woes Underscore Need for a Tough State Spending Limit
http://www.heartland.org/Article.cfm?artId=22710
Four years ago, California Gov. Arnold Schwarzenegger (R) rode into Sacramento brandishing the sword of fiscal discipline. He vowed to avenge the California taxpayer and end the budget deficit created by former Gov. Gray Davis's (D) profligate spending.

California Focus: End Recurring Budget Deficits
http://www.reason.org/commentaries/moore_20080224.shtml
Everyone loves a silver bullet; the simple and easy solution to a tough problem. Gov. Arnold Schwarzenegger's silver bullet is a 10 percent across-the-board budget cut he hopes will erase the state's $16 billion deficit. If only it were that simple.

Tyranny of California's Nonpayers
http://www.taxfoundation.org/news/show/1642.html
Proposition 82 would boost the state's top personal income tax rate to 12 percent. This would be the highest rate in the country and, when combined with the top federal rate of 35 percent, would have California's top-income earners paying income tax rates approaching those levied in socialist countries such as Sweden or France.

California Won't Fix Budget Until It Cuts Spending
http://www.reason.org/commentaries/summers_20080307.shtml
For California taxpayers, the new budget season brings the same-old, same-old fight to fix the state's structural deficit.

A Decade of TABOR - Ten Years After: Analysis of the Taxpayer's Bill of Rights
http://www.heartland.org/Article.cfm?artId=17298
Colorado's TABOR (Taxpayer's Bill of Rights) is a constitutional amendment for tax-and-spending limitation. TABOR's stated mission is to "reasonably restrain most of the growth of government." It allows only those tax rate increases approved by voters; while fees are not directly restricted, state government spending is limited to the growth of Colorado's population-plus-inflation in the prior year.

2007 California Piglet Book
http://www.cagw.org/site/DocServer/California_Piglet_2007.pdf?docID=2861
Unless the most optimistic economic projections become reality, California will find itself in an even deeper fiscal hole in the upcoming fiscal year. Without taking measures to cut government spending and limit waste, everyone will share the blame if there is no longer enough money to support vital services.

A Brief Guide to the Flat Tax
http://heartland.org/Article.cfm?artId=17618
Everything you wanted to know about the flat tax from Dan Mitchell at The Heritage Foundation. Among the benefits of the flat tax: It eliminates special-interest favoritism and prevents taxpayers from scamming by hiring enough lawyers, accountants, and lobbyists.

Reason Foundation's Annual Privatization Report
http://www.reason.org/news/annual_privatization_report_072607.shtml
Reason Foundation's Annual Privatization Report finds states are increasingly partnering with the private sector to build roads and reduce traffic jams that have become one of the biggest complaints among taxpayers living in nearly every mid- to large-sized city in the country. The report analyzes the latest developments in privatization and government reform in the areas of transportation, aviation, education, local government services, telecommunications, and eminent domain.


For further information on tax and spending limitation and privatization, visit The Heartland Institute's Web site at www.heartland.org, where you will find articles on the issue available through PolicyBot, Heartland's free research database.

Nothing in this message is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. If you have any questions about this issue or the Heartland Web site, you may contact Legislative Specialist John Nothdurft at 312/377-4000 or jnothdurft@heartland.org.