State’s budget problems are political issues, not economic

The loudest voices in California’s budget crisis belong to those on the political right who contend that increasing taxes to cover the deficit would doom the state to perpetual recession, and those on the left who argue that reducing spending would likewise devastate the economy.

The volume of those arguments is rising as the Legislature reconvenes; as Gov. Arnold Schwarzenegger calls a symbolic special session on the budget; and as Gov.-elect Jerry Brown prepares to confront the state’s most vexing political issue.

One says “political issue” because the thunder on the left and right about the supposedly cataclysmic economic stakes is just hot air, as new data from the U.S. Department of Commerce underscore.

The Commerce Department pegged California’s largest-in-the-nation economic output in 2009 — even with a severe recession — at $1.9 trillion, nearly as much as the next two states, Texas and New York, combined.The state’s structural budget deficit — the difference between its spending commitments on paper each year and its general-fund revenue — is about $20 billion, according to the Legislature’s budget analyst.

Now, $20 billion is a lot of money to anyone not named Gates or Buffett, but it’s scarcely 1 percent of our economic output, so closing the gap with either new taxes or spending cuts would have virtually no impact on the world’s eighth-largest economy.

That’s especially true when one considers how public funds fit into the economy. Raising taxes by $20 billion a year or cutting that much in spending would reallocate who can spend what by a relatively tiny amount — and while it might affect the pocketbooks of individual taxpayers or individual recipients of state funds and services, it would not change the amount of money circulating in the economy.

Closing the budget deficit, then, is not an economic issue, the propaganda from left and right notwithstanding. It is a political issue that reflects not only the ideological polarization of the Capitol, but the apparent inability of ordinary Californians to comprehend public finance.

A recent University of Southern California-Los Angeles Times poll told us what other polls have been telling us for years — that most Californians want to close the gap with spending cuts rather than taxes, but oppose most of the specific cuts that would have to be made to bring income and outgo into balance.

Democratic politicians seize on such polls to defend spending and promote new taxes, while Republicans say it means voters want spending cuts, not new taxes.

Brown said he wants to change the tiresome debate by presenting the unvarnished reality to Californians and compelling them to make choices. Good luck, Jerry. When it comes to taxes and the budget, denial is a way of life in California, not a river in Egypt.

Dan Walters’ Sacramento Bee columns are syndicated by the Scripps Howard News Service.


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