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Dan Walters: California's high taxes bring low results

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One of the annoying anomalies about government services in California is that while we carry one of the nation's highest state and local tax burdens – over 10 percent of personal income – we consistently rank very low in what those many billions of tax dollars provide.

That disconnect is very evident in public education, the single biggest consumer of tax dollars as well as the most popular thing that governments do.

Despite our high taxes, California consistently ranks in the lower quadrant of per-pupil spending and much of that money has been diverted into an almost impenetrable thicket of specialized pots.

Meanwhile, the outcomes, as measured by academic tests and high school graduation rates, range from poor to mediocre.

Gov. Jerry Brown says we'd get more bang for our school bucks by eliminating most of those special pots and simplifying how money is distributed, with more going to districts with large numbers of poor or "English learner" students.

But whether that happens, and whether it would improve outcomes, are still very much unknown.

If schools are the most obvious of California's public services, highways are a close second, and there, too, there seems to be a disconnect between what taxpayers are paying and what's happening where the rubber meets the road.

A new statistical compilation by retired University of North Carolina professor David Hartgen for the Reason Foundation finds that while California ranks very high, vis-à-vis other states, in per-mile spending on state highways, it consistently ranks at or near the bottom in official measures of pavement condition, congestion and other indices. It ranks dead last in improving seven measures of highway adequacy between 1989 and 2008.

Meanwhile, state transportation officials plan to spend $5.6 million on a party for opening a new Bay Bridge section – but what's to celebrate? The project took 24 years and cost several times the original estimate.

We spend more on inmate health care, proportionately, than Texas spends on its entire prison system – yet California is under federal court supervision.

Finally, there's the string of failed projects to incorporate technology into public services.

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Sales and use taxes in California are among the highest in the United States and can be levied by the state and local governments.

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At 7.50%, California has the highest minimum state sales tax in the United States, which can total up to 10.00% with local sales tax included. [1]

California's rising standards of living and outstanding public schools and universities once attracted millions seeking upward economic mobility. But then something went radically wrong as California legislatures and governors built a welfare state on high tax rates, liberal entitlement benefits, and excessive regulation. The results, though predictable, are nonetheless striking. From the mid-1980s to 2005, California's population grew by 10 million, while Medicaid recipients soared by seven million; tax filers paying income taxes rose by just 150,000; and the prison population swelled by 115,000.

http://online.wsj.com/article/SB1000142 ... 64690.html

How do you grow the population by 10 million, but only increase the number of tax-paying filers by 150,000?

It's official: Gas tax going up

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The tax you pay on a gallon of gas will rise by 3.5 cents in California come July 1.

The state Board of Equalization voted 3-2 on Thursday to increase the excise tax about 10 percent, from 36 cents per gallon to 39.5 cents per gallon.

The increase is partly due to a $157 million shortfall in gas-tax revenue in fiscal 2012, and also a projection of less consumption by California drivers.

The state legislature switched its gas taxation system in 2010 so it could re-appropriate some of the gas tax money from road maintenance to other areas. It reduced the sales tax from 8.25 percent to 2.25 percent, but roughly doubled the excise tax to 35.3 cents. The excise tax has increased multiple times since, but previous hikes were by fractions of cents.

An excise tax is a tax on an individual product purchased, not based on the price. The publicly elected Board of Equalization must set the rate each year by March 1 so that the state generates the same amount of tax revenue it would have had it remained under the previous sales-tax system. Taxable sales of gasoline in California have fallen from 15.9 billion gallons in fiscal year 2006 to 14.6 billion gallons in fiscal year 2012.

A January study by the American Petroleum Institute listed California's gas taxes as second highest in the nation behind New York. After the July 1 tax increase, however, the 70.1 cents average tax per gallon will lead the nation.

Prices for regular gas in California are already among the highest in the nation. On Wednesday, the average price for a regular gallon of gas was $4.238, up from $3.69 a month ago. California's prices are second only to Hawaii, the Auto Club reported.

A person who drives 15,000 miles per year at 20 miles per gallon will pay an extra $26.25 per year in gas taxes. That's on top of the $478 per year in state, federal and sales taxes.

The sales tax on a gallon of diesel will increase by 1.94 percentage points, but the excise tax will stay at 10 cents per gallon.

Democrats Jerome Horton, Betty Yee, and John Chiang voted yes on the measure. Republicans George Runner and Michelle Steele voted against raising the excise tax. The publicly elected members can serve up to two four-year terms.

Board member George Runner, who voted no on the tax increase, said he took issue with a lack of transparency on the tax increase, and he said the state should not be in the business of predicting the volatile gas prices. He said the catch-up from fiscal 2012 only represented 1 cent of the 3.5 cent increase.

"This has nothing to do with good tax policy," he said. "This had everything to do with trying to solve a budget problem in 2010."

The U-T has requested comments from the three board members who voted to increase the tax rate.

Alan Gin, an economist at the University of San Diego, said he didn't think the price increase would affect demand for gasoline, but said it would gradually hit consumer spending.

"When the price of a gallon of gas goes up normally the money goes to oil companies," Gin said. "This time the state is taking it in terms of tax revenue so they could take that money and help offset the state deficit or could be spending it on programs."

The board in a statement said the excise tax revenues fund highway and mass transit projects, while the sales tax revenues go to local government programs.

"We do it based on the best information possible," she said. "The rate was to be set so there still would be revenue."

Alan Gin, an economist at the University of San Diego, said he didn't think the price increase would affect demand for gasoline, but said it would gradually hit consumer spending.

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Dan Walters: Jerry Brown's budget boasting should be put in context

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Gov. Jerry Brown did another victory lap in Washington late last month, suggesting during a national governors' conference that California had shown the way to resolve the federal government's budget woes by balancing the state budget after years of deficits.

It's a drum that he's been beating ever since voters passed Proposition 30, which temporarily raises sales and income taxes by about $6 billion a year. He unveiled a new budget in January that he claims is balanced and during his State of the State address in late January called it "a solid and enduring budget."

But how legitimate is Brown's claim? It's shaky, if one looks at the numbers and assumptions behind the rhetoric.

It assumes that the revenues in the budget are valid, but in fact no one knows whether increasing the marginal income tax rate on high-income taxpayers could lead them to either move from California or shelter their incomes, particularly capital gains, from the state's reach.

The budget also assumes that California's economy will continue a slow but steady recovery, thus increasing retail sales and personal incomes on which those revenues are based. But California's economic future is very cloudy.

It assumes, too, that Brown's fellow Democrats in the Legislature resist pressures from major constituent groups to rescind some of the cuts in health and welfare services, and that the courts can live with continued erosion of financing without imploding.

Even if Brown succeeds in balancing income and outgo during the 2013-14 fiscal year, however, the tens of billions of dollars in debt run up during the previous half-decade of deficits will continue to fester.

The state also faces an ever-mounting burden of servicing bonded debt that has built up over the last two decades – and he wants to increase that debt even more for a bullet-train system of dubious efficacy.

The taxes that voters approved last year are temporary and will, unless renewed, expire just about the time Brown ends his second term, assuming he runs again and wins. That could leave a big hole in the state's finances – unless the economy does resume strong growth and/or those tax increases are made permanent by the Democrats' new legislative supermajorities.

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