The first thing we have to get straight if we want to fix the state's finances is that there is no moral dimension to spending or taxation. The state budget, in particular revenue sources and expenditures, shouldn't be an instrument of ideology any more than the budget of a homeowner's association should be. I don't mean that the state shouldn't choose some ways of spending money over others based on political preferences. Rather, I mean that the total amount of spending should somehow reflect an ideology, whether that ideology is that government spending is somehow inherently bad and should be minimized, or that government spending is good and that it should be maximized. Similarly, taxes aren't inherently good or bad, and manipulating taxation to reflect some ideology is ridiculous. There isn't anything inherently good about lowering or raising taxes.
What should matter is that revenue is adequate to fund a reasonable level of expenditures of the state, so that over the long run, or even the short run, the state's balance is balanced. Taxes shouldn't be cut for the sake of lowering taxes, nor should they be raised solely to punish the rich, or grab money from people who have it just because 'they can afford it'. When expenses increase and cuts are impossible or at least impractical, taxes should rise. When revenues from existing taxes decline and corresponding cuts are imprudent, other revenues need to be found. Conversely, when expenses decline, taxes should be lowered, or surpluses put into a rainy fund to be used next time there is a short term shock in tax revenues.
To achieve these goals, the state government, especially the unicameral legislature that I suggested in my previous post, needs the flexibility to adjust spending and taxation as it sees fit on a year by year basis, just like parliamentary democracies. That means wiping the slate clean and eliminating all of the mandates, caps, dedicated funding and so forth that have turned the state budgeting process into such a disaster. Let the elected representatives decided on a year by year basis what to do about taxes and spending. If the voters don't like what they do, throw out the party in the next election, and give the other party a try. The current mass of restrictions, caps, mandates, limits, dedicated funding streams and so forth, imposed by initiatives, reflects a complete abdication of responsibility by voters. If we don't like what our representatives are doing right now, we shouldn't be passing laws that bind future representatives who may be operating under very different circumstances, rather we should be voting our representatives out of office and replacing them with a new batch.
When I say wipe the slate clean, I really mean wipe it clean. Everything has to go. Proposition 13 has to go, so property taxes can be set by elected officials based on current circumstances. Again, if we think elected officials are raising taxes too high, replace them, don't pass some sort of cap that has consequences years or decades down the road. All of the other formulas and caps and mandates and dedicated revenue streams have to go as well. The state should be free to allocate whatever it raises each year in whatever way it sees fit. Don't like what they do? Vote against your representative at the next election. Don't pass some silly initiative that tells the representatives how to do their jobs.
The most important goal of tax policy should be to provide a stable revenue stream to the state that doesn't jump around wildly from one year to the next. Revenue volatility is bad for all sorts of reasons. When times are good, there is too much temptation to assume they will last, and initiate new programs that will need to be funded in future years. And when times are bad, of course, the state runs a deficit, like we have right now. Predictability should be a key goal for tax policy.
Taxes should not distort the economy, intentionally or otherwise. Individual and corporate taxes should be simplified to sweep away the tangled mass of deductions, credits, exemptions, and other distortions that have accumulated over the years as the state, or the voters, have sought to encourage or discourage certain types of expenditures. Let's get back to a simplified income tax with no deductions, credits, exemptions or anything else that are intended to reward or punish specific types of expenditures by individuals or businesses. Maybe a flat tax would make sense, or a mildly progressive income tax.
Similarly, if we want a sales tax, let's clean it up and tax everything equally. No exemptions for particular kinds of goods or services. If we think sales taxes hurt the poor, lower sales taxes overall, rather than singling out particular types of goods or services for special treatment.
'Sin taxes' or fees can stay, or perhaps even be increased, for goods or services that generate negative externalities for which the state or society at large picks up the tab. Thus alcohol, tobacco, and other taxes should remain in place to the extent that we think that the purchase price of the goods doesn't reflect the full cost to society of the good. The state, the federal government, and society at large, ends up picking up the tab for the health consequences of smoking through higher Medicaid and Medicare expenditures, and higher insurance premiums, so tobacco taxes should remain in place. Similar reasoning could be applied to justify taxes on alcohol. When someone drinks enough to harm their health, we pick up the tab. And sometimes people who drink harm others, or otherwise require expenditures on the part of the state, if only because they waste the time of our police.
Along these lines, I would also like to see a calorie tax, not as a punitive measure, or a measure to alter behavior, but to recover costs that are currently born by the state, the federal government, and society at large. I don't like the idea of a sugar tax, or a junk food tax, if only because such micromanagement is hopeless. Taxes on specific sources of calories also miss the point that the health problems associated with overweight and obesity like diabetes, heart disease and so forth are not necessarily due to single, specific sources of calories, but really reflect an overall problem with overconsumption of calories in general, whether through the grotesquely larger portions served by most restaurants, junk food, soda, or even fruit juice. The state should figure out what the social cost of a calorie is in terms of increased health care expenditure, increased premiums, reduced productivity, and impose a calorie tax as a means of cost recovery. Again, though, this should not be a dedicated funding stream for healthcare, but one more stream for the state budget, to be allocated as the legislature sees fit.
While we're at it, why not legalize marijuana and tax it like anything else. I'm not saying that because I am a fan of marijuana. I don't smoke it, and don't like it. But the current effort to restrict its use is a complete farce. It isn't working, and probably never will. Everyone who wants to smoke it seems to be able to get it whenever they want, so by not legalizing it and taxing it, the state is essentially leaving potential revenue on the table. If people are concerned about the high THC content of modern marijuana, regulate its content. We should also treat the recent proliferation of marijuana dispensaries in LA as an experiment in what happens if marijuana is legalized. Civilization didn't collapse, so let's end this farce and treat marijuana like anything else. We should also look carefully at other drugs and assess whether they should also be legalized, on the grounds that some of them may not be much worse than alcohol and are already in widespread use. Again, I am not advocating for use of any of these, but rather suggesting that our approach be based on evidence and practical considerations, not ideology.
Obviously, many illegal drugs really are dangerous, and should never be legalized, and hopefully law enforcement would have more time to focus on heroin, meth, and all the other really nasty stuff. Legalizing marijuana and some other drugs would probably aid law enforcement's fight these other drugs by depriving traffickers of a relatively easy source of revenue based on smuggling pot and other products. At the same time, I would like the state to take seriously the abuse of prescription drugs, whether it is painkillers, stimulants or worse. These appear to be misused wildly and many of them may have even more pernicious consequences than drugs that are now illegal, but somehow they aren't being taken seriously.
While we're at it, why not get the state out of the business of building and operating controlled-access highways, i.e. freeways? Create a non-profit, tightly regulated tollway authority, and turn all the freeways in the state over to it to run as tollways, with the requirement that it be self-sustaining. Of course it would have the ability to borrow from banks and issue bonds, like other such authorities. This would mean that every freeway in the state would become a tollway, but the state would be out of the business of building and maintaining freeways, and the costs of using a freeway would be borne entirely by users, and not imposed on people who rarely use a freeway because they use rapid transit or commute on surface streets. Of course the tollway authority would be free to experiment with various pricing schemes to maximize revenue, like congestion pricing, with higher tolls at peak hours.
That's enough for right now, I had better get back to work... I'll sort out the state's remaining problems in the next few weeks.
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