Not to mention that simply "cutting spending" is an absurdly shallow way to deal with budget crises. OddsOn is basically demanding that the government live "check to check" instead of building up a surplus specifically to counteract these types of unexpected financial problems. That's stupid.
This is misleading, your post treats spending and taxes as if they are connected and they are never connected except by the wisdom or foolishness of governments. This is because governments can spend more than their revenues by taking on debt. Any government can spend all it can take in or borrow. Any government can tax what the people will pay- regardless of how much is spent. Monarchies historically have taxed people and provided very little service at all. Taxation and spending are really 2 independent actions of government. The best scenario obviously is to spend within the limits of your revenue and provide services consistent with levels of taxation. You also state that if they lower spending it lowers taxes. They can raise taxes even if it requires new legislation or an amendment. Spending and taxation are only linked by the good or bad management of fiscal government. If any government spends more than it can receive in tax revenue then it is just gambling, which is very unwise. The problem that California has can only be that their spending is excessive relative to their tax base and they either cannot increase tax revenue or they cannot borrow enough money to cover their deficit. The amount they spend is the problem if they cannot increase their taxes or borrow money. If by law they are limited in the amounts they can tax or any other means of revenue, then if they spend more than their revenue they are fools. The question is not what they spend their money on, the question is do they have the money to spend. Who cares how they spend their money. Any government, business, or individual who spends more than they make in revenue is taking a high risk. Gamblers rarely do well, it is foolish to gamble with public funds. I haven't read up on California's problems (as you can tell) but you cannot leave basic economics out of the issue. Their real problem is poor government. Their financial woes are only revealing it. Don't blame a recession for a belt tightening. Recessions are caused by spending what you cannot afford to spend and borrowing to make up the difference. A recession is a tightening of the belt to overcome decreased demand due to a restriction in debt inflated demand. When governments are in bankruptcy positions it is not different than a business or individual. They must bring revenues and spending in balance. A bailout rarely solves poor management, in fact it rewards it.
Again, this ignores the problems unique to California - the referendum process. Through citizen referendums, they've created a situation where they are required to spend money on a variety of things and they are not allowed to raise taxes on other things. That is the result of what happens when you let citizens vote on individual things. When you limit what you can cut and where you can raise money - and when you create a system where a budget needs a 2/3rd majority to pass - it's difficult to impossible to fix a crisis. It has nothing to do with available money or too high or too low taxes. It has to do with the structure of the California Constitution and the restrictions placed on the legislature by all these individual referendums that had no overall rhyme or reason to them.
I'm no expert on California politics, but haven't the "people" of California, empowered by proposition voting, brought this upon themselves?
Major and I admit I am not up on it, but I just read that their Gov. is refusing to raise any taxes. All I am saying is that they will need to cut spending and raise taxes. They have to. They might need a constitutional amendment. The best course of action is to do the right thing. They will have to suffer now to be sure they prosper in the long haul. They must drastically cut services and they must raise their tax and revenue base. Sorry, but there are basic economic laws that cannot be violated in the long. As much as it hurts they must decide what are their most vital services and cut way back. Then they must increase their revenue. It will only create a worse problem to try to borrow their way out and gamble on some type of monetization of the debt through inflation or a debt bubble. These type actions cause the crisis they face so they should do the right thing instead.
Here's a link to the 16 worst budget gaps. Here's the top ones: 1. Nevada 2. New York 3. Alaska 4. Arizona 5. Florida 6. California 7. Vermont These are states of all sizes and political structures, and geographically and economically diverse. Low tax, high tax, and everything in between.
I have not read up on this, so I am assuming the state governments were gambling on future revenues for their tax base. This is a big mistake if they did that. That's how individuals and businesses quickly go red.
Just trying to drive home the point. Some folks here espouse limited government, libertarian thought, and "power to the people" in a shortsighted view of government without considering the ultimate consequences. Never underestimate the voting public's tendency to vote against their own best interests. Sometimes we get what we want, but what we get is not what we want.
You forgot to post the link. Alaska is surprising to see on there. I guess the recessions effect on oil must have hurt more than I would have expected.
This is serious and obviously due to the debt structure of the national economy. The global recession is killing everything with large excess debt it seems. Sad.
Absolutely - I agree with all of this. But California's problems go deeper than that. They have all sorts of restrictions placed on them in what taxes they can raise if they wanted to, and what spending they can cut if they wanted to. Then there's the issue of a super-majority. the Dems in the legislature cut $5 billion in education spending, but because they need a 67% super-majority, they fell two votes shy because Republicans refused to cut spending. Then the governor refuses tax increases but won't propose spending cuts, etc. (to be clear, this is everyone's fault - the Dems won't accept plenty of things either) But all around, the state could solve a lot of their problems if they were structured the same way as other states. There's not a lot to learn from California except that citizens voting on every issue is a terrible idea.
I am not that much for limited government with regard to fiscal policy as much as I am for limited government with regard to civil liberty. I don't see anything wrong with large government spending where the revenue base is healthy and it is affordable.
Thanks for the update, I agree with that Sounds like this will take a restructuring of their government to get their economic base strong for the future. I hope they can work this out without crushing the youth of their state with debt.
But considering how quickly the rise occurred, and I know they were sitting on a big surplus because of it, I didn't expect it to be that bad. I'm more surprised I haven't been seing Palin bashing based on this subject.
There was some talk a month or two ago about having a Constitutional Convention to blow the whole thing up and start over. Not sure what came of that - I'm sure people would be opposed, but this crisis might spur that on. But I think ultimately, it's going to be what's needed to make it work.
It's not quite that simple. They wanted the programs (they're in their best interest), just not to have to pay for them. Toqueville, anyone?
The republicans refusing to cut spending is not exactly true. Many opposed the bill because the democrats were balancing the budget through smoke and mirrors. One of the ways they came up with was to change the pay date of state employees from June 30th to July 1st. This would shift almost $4 billion to the next fiscal year. The republicans and Arnold would not go along with this. The shifting of costs has been happening for the last few years an there comes a time when you can no longer do that. Unfortunately our problems are two fold, the elected officials and the people who vote to spend more and more each year without having the funds to pay for it.
