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Thursday, June 25, 2009
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Cut welfare. Why should California's welfare recipients receive more than what is mandated by the federal government? If they don't like it, they can go to MA or MI, or back to Mexico. As for education, go ahead and cut. The dropout rate is high because illegal aliens don't need to graduate to flip burgers or work at a carwash. There is no requirement to have a GED or diploma to receive welfare. -- edandwillie Leave your commentTaxes or cuts, there's simply less to spendPublished: Thursday, Jun. 25, 2009 - 12:00 am
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Whether the state budget mess ends with more cuts or more taxes, the economy won't know the difference – at least in the short run, economists say. "One way or another, we have $24 billion less to spend," said Stephen Levy, director of the Center for Continuing Study of the California Economy in Palo Alto. Democrats and Republicans both argue that their mix of taxes and spending cuts will be best for the economy. Economists, though, say there's no convincing evidence that the overall impact of one approach is significantly different from the other. "As a first-order approximation, they're going to cause the same aggregate level of pain," said Steven Sheffrin, who directs the Center for State and Local Taxation at the University of California, Davis. "When the Democrats say, 'It's going to destroy things,' that's not true, and when the Republicans say, 'It's going to destroy things,' that's not true, either," he said. That's not to say that real issues aren't being debated, Sheffrin said. Each year's spending and tax decisions have major impacts on subsets of the economy, schools and millions of California residents. And every budget season moves the trenches in the ideological war over the role of state government. "The real issue is what stage is set for the future," Sheffrin said. "What overall level of taxation do you want?" While this year's budget gap amounts to a huge chunk of the state's general fund, it's a relatively small fraction – about 1.4 percent – of the state's $1.7 trillion economy. "We're talking on the margins here," in terms of a direct impact on overall economic indicators, said Dan Mitchell, a professor-emeritus of public policy at UCLA. For instance, the outcome of the current cuts vs. taxes debate stands to shift the state's unemployment rate by somewhere in the range of a tenth of a percent, Mitchell said. The budget crisis, however, does have an outsized impact in other ways, he said. "We can't float bonds. We're running out of cash. It makes it very difficult for state and local government to operate." It's not as though economists think it's impossible to evaluate the impact of a given tax increase or program cut. It's generally agreed, for instance, that taxing something produced outside of California – like cigarettes – will tend to hurt the economy less than taxing something made here – like wine. A program cut that hits low-income residents is likely to have a quicker impact on consumer spending than one that targets middle- or upper-income groups, which are more likely to have some money saved up. But evaluating the economic effects of bundles of tax proposals and spending cuts quickly gets murky – and partisan, said Jed Kolko, an economist with the Public Policy Institute of California, a nonpartisan foundation based in San Francisco. "Different people have very different beliefs about how much tax increases or spending cuts affect economic activity," he said. "And a lot of those beliefs aren't always based on research." Estimates – high or low – of the number of jobs that would be lost as the result of a proposed tax are particularly suspect, said Kolko and others. Republicans, for instance, have argued that 10,000 jobs would be lost if the state adopted a Democratic proposal to raise about $1 billion a year from a 9.9 percent tax on crude oil extracted in the state. Severin Borenstein, an energy economist at the University of California, Berkeley, said that while the tax would indeed result in some marginal wells going out of production, "the job impact of this would be pretty minimal." Borenstein and other economists also disputed oil industry assertions that the tax would cause gasoline price hikes. About 23,000 people are currently employed directly in the oil and natural gas sector in California. The petroleum industry's job-losses estimate relies on the predicted impact on other industries, which are indirectly related to the petroleum sector, employing around 100,000 people in total. These sorts of estimates are notoriously speculative, Kolko said, for a number of reasons. Economic relations are complex. Market factors such as the global price of crude oil can change. There aren't clear rules for determining which industries should be lumped in as "indirectly" related to the sector affected by the tax. These and other factors can raise or lower the actual economic impact of a policy dramatically. "There are lots of reasons for genuine disagreement," he said. Call The Bee's Jim Downing, (916) 321-1065. |
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