California suffers from a structural deficit--a budget gap where revenues lag behind expenditures by $20 billion and will continue to do so through 2016 unless the state either reduces spending or increases taxes.
In the previous blog we covered possible spending cuts--painful but doable if we're willing to pay the price. In this blog, we consider what for many is the unthinkable--revenue increases.
Where can we find that much money?
Here are six ideas:
- Extend the temporary motor vehicle tax and sales tax increases, both scheduled to expire on July 1, which would bring in $6 billion.
- Broaden the sales tax to include various services, sporting events, rentals, club memberships and other goods, which would bring in an additional $3-5 billion, depending upon which categories are included. Sales taxes on food items purchased in grocery stores are not included in this proposal.
- Continue the temporary personal income tax increase, scheduled to expire next January 1, which would add $2 billion to state coffers annually.
- Cancel the new corporate tax accounting method enacted by the legislature last year, which would add $1.5 billion.
- Increase liquor taxes (at the same level since 1991) by ten cents per drink, which would add $1.5 billion.
- Adopt an oil severance tax of 9.9 percent that would bring in $1 billion annually. Of the top ten oil-producing states, California is the only state without such a tax.
There you have it. These areas alone would bring in new revenues by approximately $15-17 billion. The virtue is that the pain is spread out over every category of income, including businesses and individuals.
Unless Californians are prepared to eliminate health insurance for the poor, do away with higher education, or shut down various portions of state government altogether, the structural deficit will not disappear without some revenue enhancements.
It may well be that the governor and legislature choose some of these areas and not others. Combined with shared sacrifices via selective cuts discussed in the last blog, the state could eliminate its structural deficit.