[Hiltzik replies here. Note my comment, which points out that he didn't read what I wrote.]
[Note the update below...]
My esteemed colleague (can you tell I was listening to the Alito hearings?) Michael Hiltzik has a column up in the Los Angeles Time business section today (he is the business columnist, after all) in which he explains that the Governor's budget proposal can only be made fair by - wait for it - raising the income taxes on the highest-income Californians.
Other groups drafted to subsidize the wealthy include the disabled and poorest of the poor. The governor wants to delay a cost-of-living increase due next year for recipients of supplemental security income by 18 months, to July 2008. These recipients are, by definition, needy seniors, the blind, and the disabled. The proposal would deprive them of a total of $233 million, keeping the money for the general fund, over two budget years.My first post on Hiltzik dinged him for making exactly this argument back in November of 04.
Another $307 million would be saved for the rich by withholding cost of living increases, or COLAs, scheduled to be paid to recipients of CalWORKS grants. The recipients generally are poor families with children.
The problem with doing this is that California is already highly dependent on high-income filers, and their income is variable.
In 2003, (the last year that the FTB has an Annual Report for -note, pdf) the top 5% of filers paid 58.8 of the personal income tax.
Since the personal income tax represented $33.7B of the $73.6B in revenues in the 03 budget, high income filers represented 58.8% of 45.8% of the budget, or 26.9% of the annual budget.
Since this represents 680,000 returns of the 13.6 million filed, it's fair to say that half a million households provide about a quarter of the revenue to the state.
I think this is an amazingly bad idea. I don't think that this is a bad idea because it's unfair to the half-million rich households. I think it's a bad idea because it builds insane levels of volatility into the state revenue stream.
Looking back on 2003 again, we note a few interesting things (go to page 14):
Exhibit Table B-1 Comparison by Taxable Years shows that, from taxable year 2000 to taxable year 2002, the total Adjusted Gross Income (AGI) declined from $829.5 billion in 2000, to $754.1 billion in 2001, to $731.2 billion in 2002, or an overall reduction of 11.9%. Consequently, the amount of personal income tax dollars deposited to the General Fund declined by 29.2%, from $40.4 billion in taxable year 2000, to $31.3 billion in 2001, to $28.6 billion in taxable year 2002.There's your fiscal crisis right there.
The numbers of returns reporting incomes of $200,000 and above also declined between taxable year 2000 and 2002, as illustrated by the following table:
2000 = 414,746
2001 = 371,369
2002 = 349,845
There's an interesting research project, for someone with more time than I have, to decompose the state revenues for the past decade and really get to the bottom of this.
But by following Hiltzik's plan, the state is in the position of a farmer with one cow. As long as the cow is healthy, all is well. But as soon as the cow gets sick...
Now taxing the hell out of the Malibu Mafia to pay for improving healthcare for the poor emotionally hits the all the right notes for me (I'm the Armed Liberal, remember). But I'm grown-up enough to notice that what feels good emotionally doesn't necessarily make for good policy.
I wrote up some notions on tax policy back a few years ago. The notions are kind of wacky, but at least they make more sense than those Hiltzik proposed in our regional paper of record.
Hiltzik does make several other points in the column; the core is that we can't do all the things we need to without some measure of "fiscal pain." Since his previous columns have suggested that spending is fixed (or must grow) the fiscal pain he has in mind is simple - raise taxes. And particularly, raise taxes on the half-million.
That's not fiscal pain, that's fiscal suicide.
States don't make spending decisions nimbly. There is very little in the state budget that can readily be cut back midyear when times get tough. And I won't even talk about the farcical inability of the legislature to even pretend they are fiscally responsible.
Update: Check out the Legislative Analyst's document on revenue volatility to get a sense of how significant a problem it is here in California.