Based on the Bureau of Labor and Statistics, California has an unemployment rate hovering around 10.5%. According to taxfoundation.org, California is ranked number 1 in the US with the highest sales tax 7.25%; coupled with a combined tax rate of 8.13%, ranks the State 12th overall in the US. California’s state budget is in shambles. They borrow and out spend their State Budget every year; topping $15 Billion this year alone.
On Nov 6th, California voted in favor of democratic Governor Brown’s plan to increase the sales tax by a quarter of a percent and increase taxes on the wealthy (those who make $250,000 or more) for an increase in revenue (estimated at $6 Billion over the next 5-7 years). Keep in mind the State of California spend over its revenue this year alone by $15.7 Billion dollars. It doesn’t take a math genius to know $6 Billion in revenue the next 5-7 years will hardly make a dent in the deficit the State faces.
A responsible person would understand, the only way to equal the remaining balance, since they already increased revenue, is to cut spending; but to what and are they even considering cutting spending? In May 2011, The New York Times reported…
“the Legislature approved a partial budget plan that reduced the deficit to $15 billion, from $26.6 billion. Under the revised plan, California would also eliminate more than 40 state boards, commissions and task forces that Mr. Brown said were inefficient, eliminating about 5,500 jobs from the state payrolls”.
Unfortunately, these cuts are expected to be reborn in the newly administration elect, since the California legislator elected a democratic supermajority in Nov 2012 and spending is projected to take off again. We all know, without massive cuts in spending, California will not balance their books anytime soon. I found it interesting that the State voted 54% to 46% to increase taxes on everybody; not just the wealthy this November.
The Democratic governor didn’t try to hide the fact that in order to start to heal, everyone must contribute; to include lower and middle class Americans. This equality principle of fiscal responsibility through taxation should be shared by all, is a breath of fresh air. By increasing the sales tax in the state, the burden of the deficit doesn’t solely rest on the wealthy. This is one part of a balanced approach to reaching a balanced budget. The other part is to cut spending. The reality is California will most likely not see the spending cuts needed to finally balance their state budget. It was a good try California… since I don’t see real spending cuts in your future; this ends the thought of trending toward conservative principles with respects to fiscal responsibility.
I will continue to watch California as a test bed for the concept of higher taxes and more spending brings about a balanced budget and economic recover. I am not going to hold my breath to see if this pans out in the next 5-7 years, but funnier things have happened. Who knows, maybe something will happen to California, despite having the highest sales tax in the Nation that will drive people and jobs to the state. Maybe people will be willing to pay a higher sales tax with the idea of finally having a job again that pays the bills.
Just my thoughts, thank you for reading.