Tax ‘Expenditures’ Should Be Part of the California Budget Debate

[courtesy of California Progress Report]

By Jenny Oropeza
California State Senator

Leadership means solving problems. Business executives must keep business growing for the benefit of their shareholders, government leaders must make difficult public service funding decisions with a fixed amount of revenue, and single parents must balance food, clothing, and housing needs within the limits of their paychecks. Leaders of all kinds cannot afford to ignore reality; instead, they must make hard decisions with the information at hand.

This year, California’s budget crisis requires leadership. A weakening economy once supported by increasing real estate prices and burgeoning corporate profits has resulted in a shortfall now pegged at $16 billion. Simultaneously, increased costs, automatic funding formulas and voter-approved initiatives drive state spending higher. Any way you look at the problem, we are in for a year of hard choices.

For all crises, leadership is about striking balances, not taking the easy way out. Gov. Schwarzenegger chose to make 10-percent, across-the-board cuts for almost all public services provided by the state, including health care, prisons, and public education.

The governor’s plan treats every public investment the same, instead of prioritizing spending based on the effectiveness of the investment of California taxpayers’ dollars. Beyond a few small fee increases, the governor has not proposed new or higher taxes to help balance revenues – echoing the party line issued by legislative Republicans. Since 1967, Governors Reagan, Deukmejian and Wilson have raised taxes when California faced a significant fiscal problem.
Even Liz Hill, California’s respected, non-partisan Legislative Analyst, came out against blanket cuts, urging lawmakers to reject them on the grounds it was short sighted. She also urged leaders to modify or eliminate some tax expenditures.

The Legislature has already cut services to balance the budget this year. The budget spending debate ignores a crucial issue: tax expenditures. These are various tax measures meant to serve as personal or business incentives. These add up to about $50 billion per year, according to the state Department of Finance. None of this revenue is included in a line item in the budget. Many critics call tax expenditures loopholes, while others argue that tax expenditures are important investments that help the public at large, not only one industry. Should not these tax expenditures also be given extra scrutiny in a time of hard budget choices?

The state provides tax credits to businesses constructing child care centers or providing child care instead of directing cash payments for the same reason. Is this the most efficient way to accomplish our mission?