With California voters approving a ballot initiative last week to increase sales and income taxes, optimism that the state's recurrent budget problems may begin to dissipate is in the air in Sacramento. But as Chris Megerian notes in the Los Angeles Times, the hope may be premature:
Driving the point home, the Times piece notes,"The administration's most recent report showed it falling 2.1% below expectations in the current fiscal year, a $379-million drop." As Art Laffer recently noted for City Journal, there is a solution: construct a system that would stimulate both state revenues and private-sector growth. But despite the fact that California has a governor who once ran for president as as a supporter of the flat tax, and a Democratic supermajority in Sacramento that says it wants to use its new power for serious reform, no such change looks to be in the offing. For California to meaningfully recover, state leaders will have to learn that ratcheting up rates isn't the only change in tax policy available to them.... Swings in the stock market can have an outsize effect on California's budget because the state relies so heavily on income taxes paid by the wealthy. In 2010, the richest 1% of Californians earned 21.3% of the income in the state and paid 40.9% of the state income taxes, according to the most recent government data available.
