Fiscal Responsibility vs. Fiscal Conservatism
Robert Samuelson's column this morning is a good reminder that there's a difference between being fiscally responsible and fiscally conservative. The subject of his argument, at least ostensibly, is California's budgetary crisis and the need for government to manage its finances more responsibly. But toward the end, Samuelson gives up the game a little bit:
On paper, the state could solve its budget problems by raising taxes further. But in practice, that might backfire by weakening the economy and tax base. California scores poorly in state ratings of business climate. In a CNBC survey, it ranked 32nd overall but last in "cost of business" and 49th in "business friendliness." [...]
So California is stretched between a precarious economy and a strong popular desire for government. The state's wrenching experience suggests that, as a nation, we should begin to pare back government's future commitments to avoid a similar fate.
Those rankings don't amount to much (hence Samuelson's huge hedge: tax hikes "might backfire," as might spending cuts, or really doing anything -- or nothing! -- at all). California is, as observers will quickly point out, home to Silicon Valley and Hollywood and was one of the epicenters of the housing boom. Whether it's friendly to business or not, businesses are certainly friendly to California, and the proof is that the most important industries of the past few years made their home in the Golden State.
But like the Golden State's Republicans, Samuelson is proposing that California close a $26 billion budget deficit through spending cuts. That means cutting education spending -- which accounts for 51 percent of the state's general fund spending -- by billions. It means radically cutting health-care spending and spending on state parks and spending on food stamps and spending on law enforcement and spending on, well, everything. Samuelson is not choosing the quickest path back to a balanced budget (a mixture of tax hikes, spending cuts, and reforms). He's using the budget crisis to argue for a different governmental norm: Not only a low-tax, low-spending state, but a low-tax, low-spending country.
But the numbers don't do a great job supporting that argument. Samuelson implies otherwise, but California isn't a particularly high-taxing state. Total state and local taxes take up 11.73 percent of the average Californian's income. The national average is 11.23 percent. And it's been like that for many years:
Nor is California's spending on education somehow out of the ordinary. The state ranks 29th in the country on education spending. And recent tax cuts haven't been helping the Golden State out. This graph from the California Budget Project shows the contribution that decades of tax cuts have made to the state's current fiscal crisis. It's a pretty depressing story:
The budget deal that Arnold Schwarzenegger just accepted contained $15 billion in spending reductions. Absent the tax cuts of the last few decades, most of those reductions wouldn't be needed. The education system would have $9 billion more than it will next year, and local governments would have $4 billion more. But in a sense, that's a bit beside the point. Samuelson's argument is not fundamentally about matching revenues to expenditures. It's not about some uniquely large welfare state or tax department in California. It's not an argument about fiscal responsibility at all. It's an argument about the type of government we should have, not how it should manage its finances. And that's fine. It's just worth being clear about.
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