Depth of the California Budget Shortfall And Its Effect On Us
Original post made by frank on Mar 14, 2009
First, stocks bubbled without underlying wealth justification. The state collected huge revenues from capital gains taxes. When this bubble collapsed the tax revenue lost was more than replaced by increased property tax collections from the housing price bubble run up. Yes, this increase occurred in spite of Prop 13, or rather because of it. Supplementing this tax revenue windfall was lots of sales tax revenue generated from consumption fueled by housing equity loans used as a personal ATM. Meanwhile, basic American wealth generated by jobs barely moved upwards and arguably decreased as high paying jobs were outsourced to China, India, and elsewhere during this same period.
These huge tax revenue increases were simply windfalls to the state, which quickly spent them. The basic governmental services did not proportionately increase due to its underlying costs because such services and their costs are driven by basic costs of labor, size of the need, and inflation, and not by the size of tax collections. But all sectors of government scrambled to spend the money anyways. A fair system of taxes would require that tax revenue increase only at the inflation rate or be justified by increased need and would bar windfall increases.
Yes, this windfall expenditure included education, which today is crying the loudest because the money is no longer there to support the level of spending it has become accustomed to.
But, the real world has arrived, no more big tax revenues. This real world is here to stay. The jobs are not coming back, and a new bubble is not in the works. The correction has begun..... We must keep in mind that the generation of wealth (jobs) by our citizenry comes first.... all else, including government funding through taxes comes after that.
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