California Scheming

        Last week California voters went to the polls to reject tax increases but also rejected spending cuts.  They are still headed for a deficit.  When the richest state in the country is going broke, there have to be some lessons for the rest of us.  One obvious one is that once spending is started, it is nearly impossible to stop it. Programs take a life of their own and will fight for survival.   It doesn’t matter what it’s for, every dollar that is paid out goes to somebody and they will work as hard as necessary to keep it coming.

            Of course California will be barking for a bailout.  But who should pay to rescue the richest state in the country?  Alabama? Arkansas?  Unknown citizens of the future through spending money borrowed by the federal government?

New York Times published an editorial favoring big new taxes on the rich to solve the California problem.  But California has more wealth than anybody.  How have they screwed this up?  We need to know since our new President seems to like this sort of thinking.

One problem with a completely new tax that I always think about as an accountant is that you have to establish a way to collect it.  You have to hire people to run the system.  You have to have a way to measure the activity and levy the tax.  You have to have enforcement ability since there are always those who don’t want to pay just every new tax you happen to think up.  So it both increases costs and causes more government scrutiny of our activities.  Increasing the rate of an existing tax doesn’t raise the collection cost.  But you can try to make a new tax look like something that someone else will have to pay instead of you.  On the existing taxes, you already know whether you pay it.

            Our federal government is rushing to establish vast new spending programs while Obama and Nancy Pelosi have some momentum and before the taxpayers figure out that they will have to pay the bills somehow.  As we see, once you get the pump primed, it is an uphill battle to slow things down.  People see that they have a basic right to some service that they would never have thought of just a few years before.  But we also see that the bills will come home to roost at some point.  People will quit lending money to you and the taxpayers lose their enthusiasm for more taxes.