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A California bail out?

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If Vermonters had a vote, just how many Green Mountain residents — and we’re a generous lot for the most part — do you think would agree to use their tax dollars to bail out California?

None was my answer, too.

Yet, federal taxes collected from the sweat and toil of Vermonters just may well go to that Western-most enclave of irresponsible government to resolve what some experts are calling a “fast-approaching fiscal meltdown.” Just why would the federal government even consider bailing out California? Why wouldn’t the federal government demand that they do the things they must to balance their own budget?

Well, Just like AIG or GM, state officials there are claiming that the state’s economy is just “too big to be allowed to fail.”

“This matters for the U.S., not just for California,” U.S. Rep. Zoe Lofgren, D-California, told The Washington Post in Tuesday’s issue. “I can’t speak for the president, but when you’ve got the eighth biggest economy in the world sitting as one of your 50 states, it’s hard to see how the country recovers if that state does not.”

According to the Post’s report, California Controller John Chiang, a Democrat, warned last week that the nation’s most populous state, led by Republican Gov. Arnold Schwarzenegger, was “less than 50 days away from a meltdown of state government.”

What’s most disconcerting about that prospect, from a Vermont perspective, is that this is not just a matter of an economic downtown. Many of California’s problems are self-imposed due to its restrictive public referendum system. It started in 1978 when the residents voted to severely limit the state’s ability to raise school funds by increasing the property tax. That left the state unusually dependent on the personal income tax. To make matters worse, the state has placed an extra burden on taxes paid on capital gains and stock options, to keep its individual income taxes as low as possible. Both categories of income have tanked since the economy started its skid under former President Bush. Capital gains revenues for the state, for example, have plummeted from $130 billion in 2007 to $52 billion in 2008 and an estimated $36 billion this year.

Even with significant cuts already made, the state is looking at a deficit of about $24 billion annually and the amount is increasing each month that goes by without resolution.

What’s worse, any revenue hikes require a two-thirds majority of the Legislature, which has hamstrung the Legislature; leaving only a series of drastic cuts to consider.

What’s the solution? If California requires a federal bailout (meaning every other state resident would be taxed to help California residents pay for state expenses), the federal government must impose systematic changes on the state’s ability to raise taxes and require larger corporate and individual income taxes, plus the ability to raise property taxes so California residents can repay the rest of the nation with interest. It is simply not equitable that responsible states, such as Vermont, would have high taxes to responsibly balance their budgets and then allow California — or any other state — to reap federal aid while keeping their state taxes artificially low.

-Angelo S. Lynn

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