Why not cut spending instead of raising taxes?

Michael Genest's picture
By Michael Genest
Director of the California Department of Finance
Fri, November 7th, 2008

As a former budget director for the Senate Republicans, I ask myself this question every time we face a deficit - Why not cut spending instead of raising taxes?

Today Governor Schwarzenegger called a special session of the Legislature to address an $11.2 billion shortfall in state General Fund revenues. This shortfall is so sudden and so severe that we have to act immediately, and we have to both cut spending and raise taxes.

When Governor Schwarzenegger came into office, General Fund spending was $78 billion. If all the cuts proposed by the Governor in the special session are adopted, we will spend $99 billion this year, which equates to a 4.77-percent annual increase. The amazing thing about that number is that it is actually a bit less than we would be allowed to spend if the Republican "hard spending cap" had been in effect when the Governor took office. Specifically, population and inflation growth over that time was 4.84 percent annually on average.

To be fair, our administration did allow growth in 2004-05 and 2005-06, which can be attributed to a litany of expiring gimmicks and inherited debt that caused those high rates of growth, but the fact is that only a tiny portion of the growth in those years was due to discretionary spending increases supported by the Schwarzenegger Administration. In any event, by holding growth to near zero over the last two years and by proposing to cut it even more in the special session, we have made up for those early years of growth.

I would be surprised if any legislator can seriously propose, let alone get votes for cuts that go even deeper than what the Governor is now proposing. Unfortunately, that leaves revenues. The Governor's special session proposal is evenly balanced between cuts and tax increases. It is a tough but fair plan to address this unprecedented economic and fiscal crisis. The time for questioning is over. We need to act now!

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This is a very misleading

Submitted by Visitor (not verified) on Sun, 11/09/2008 - 14:49.
This is a very misleading comment. The growth in spending in the early Schwarzennegger years was quite substantial, and a large part of it was discretionary, such as the Governor's decision to settle the CTA lawsuit over Prop 98 spending, instead of pursuing the state's legal defense which would have ultimately been successful. The hard spending cap would have prevented those increases in spending and we would today have a much smaller problem.

Taxes on services and raising LA County tax rate to 10.25%

Submitted by Visitor (not verified) on Fri, 11/07/2008 - 17:36.
In a time of a struggling economy, small business owners everywhere are already suffering. We are in many cases the first ones to feel it. As Joe Customer tightens his belt our sales numbers fall. Now here come the big boys from Sacramento. What's their solution? Raise the sales tax rate, which discourages purchases even more, and tax "some" services. Oh yes, and raise the Business and Use tax (a tax that businesses pay for the "priviledge" of using the equipment they already bought and paid sales taxes on - many lay people who work for others are totally unaware that there even is such a tax, believe me, there is). Oh yes, and at the end of all this, if you've managed to stay out of bankruptcy, you take your net at the end of the year and give the IRS their cut, and maybe fight them to prove you had all the deductions you claimed you had, because God knows, the IRS can't understand how owning a small business can be so expensive to operate. Did I hear someone saying how this is the greatest nation on the face of the earth? Is there a survey on that?

Why not cut spending instead of raising taxes?

Submitted by Visitor (not verified) on Fri, 11/07/2008 - 14:00.
"I would be surprised if any legislator can seriously propose, let alone get votes for cuts that go even deeper than what the Governor is now proposing. Unfortunately, that leaves revenues." And these two sentences fully define the problem with the California State budget. Cutting real spending is incomprehensible to the legislature. The real world budgets on the basis of what we have, not what we want.

Cut Spending?

Submitted by Andy (not verified) on Fri, 11/07/2008 - 13:29.
Cut spending sounds great, until you look at who suffers from the cuts. Here's the quote from Arnold's proposal which I've copied directly from today's LA Times article. "His solutions include a number of significant spending reductions, the biggest of which is an immediate $2.5-billion cut from schools and community colleges. And the governor proposed canceling dental insurance for poor adults on the state's MediCal program and lowering subsidies to the aged, blind and disabled" Schools - sure let's take it out on our kids and comprimise our future. Our level of education in the state and in the nation has drastically fallen when compared to other nations. How are we to regain our place as a world leader when we stifle the growth of our greatest resource, our children. Oh, and of course, lets cut programs for the poor, blind and disabled. That's easy. They have the most difficult time fighting back. Are we that cold and calloused? As distateful as it sounds, we must raise the sales tax, but can't we find a more fair method of cutting our spending?



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