Some Tax Increase Initiatives Could Make Budget Worse

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You are about to see several initiatives to raise taxes circulating in mall parking lots for signatures. Their sponsors will tell you they want to raise taxes to help the budget system. Many of the tax increases make some sense.

But that doesn't mean the initiatives are a good idea.

In fact, even the most noble of measures has the potential to make the budget system worse. Exhibit A of a well-intentioned tax initiative is a new measure from the hedge fund manager Tom Steyer.

Steyer is a principled man who believes strongly in protecting the environment and developing renewable energy resources. His initiative is built around a tax policy for which there are strong arguments: requiring businesses to pay taxes based solely on sales they have in California. The current tax policy for businesses allows companies to choose their formula; going to one formula could raise an estimated $1.1 billion for the state.

So far, so good.

The problem occurs when you see where the money goes. How much of that $1.1 billion ends up helping balance the budget, service debt, or make up cuts to schools, universities and social services?

Half. Maybe.

Steyer's initiative reserves $550 million of that money for programs related to clean energy. Those are worthy goals, and it's nice that, unlike so many initiative sponsors, he's identified a funding source -- a new tax -- for this spending.

But raising a business tax and funneling the money into one priority at a time when the whole budget is a mess is simply wrong.

The way I read the initiative, those energy programs get their money first. Whatever is left over goes to the general fund. And there is no language I can find permitting amendment of the initiative -- which means the state has a new obligation to these programs that can't be undone, except by another vote of the people.

California's budget system is already full of these kinds of whips and chains -- they are precisely what makes the budget so hard to balance and manage. Such restrictions, however, get included in initiatives either because the sponsors want money for a particular item or because political consultants want to be able to tell voters that new taxes will go to a specific, popular purpose. Or both.

But if you want to fix the budget, look for tax increase initiatives that don't tie the money down. If you can find such an initiative.

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