Monday, January 07, 2019
There'll be heaps of happy talk in Sacramento this month about bold new, expensive government programs. That's normal from an eager new governor and Legislature. Too bad there won't also be some bitter truth spoken about the crucial need for state government to correct festering old mistakes that threaten or already are damaging California, such as unfunded public pension liabilities, regulatory abuse that stymies economic development and a sick, decrepit state tax code.
Two decades ago state and local politicians promised public employees a lot more than pension funds could afford. There's an obvious conflict: Politicians get big hunks of campaign money from public employee unions.
Today, the total unfunded liabilities for all state and local pension systems in California range from $330 billion to $1 trillion, depending on how they're calculated.
The options are ugly: Trim pensions, raise taxes, increase employee and government contributions or cut other public programs such as education. Local governments could also go bankrupt and slash retiree benefits.
Another ugly truth is that California is considered notoriously unfriendly to business investment.
High taxes are one problem. Wealthy taxpayers are leaving the state. Newsom and the Democratic-dominated Legislature should declare a moratorium on tax hikes, even if they're called fees. But they won't.
Another ugly truth is that California's outdated state tax system is unreliable and unstable. It produces a torrent of unneeded tax revenue in good times and shrinks the flow when the economy busts, playing havoc with the state budget and government services.
Because of Brown's soak-the-rich tax hike, the state leans too heavily on wealthy people, whose capital gains dry up in a recession. The top 1% pays nearly half the state income tax. That needs to be fixed by lowering income tax rates and extending the sales tax to services that are mainly used by businesses and the wealthy, such as legal.
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