This article is from Cal-Tax Digest, published
by the California Taxpayers' Association.
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The 2000-01 state budget proposed by Governor Gray Davis is prudent and pragmatic, and it correctly judges and respects a number of taxpayer issues.

Taxpayers' concerns go far beyond cutting unnecessary taxes. Taxpayers deserve sound management of hard-earned tax dollars that are sent to Sacramento. They also look for continued focus by the governor and Legislature on ways to make California's tax structure more competitive.

The proposed $88 billion budget:

• Does not raise taxes, and the governor underscored that fact when he told the Sacramento Press Club: "It is unconscionable to ask people for more money in the face of the most expansive economy known to man."
• Allocates a large percentage of the surplus to one-time purposes - enhancing budget reserves, covering court costs and other taxpayer liabilities, and investing in public works infrastructure. Frequently in the past, surplus revenue has been used to make ill-advised commitments to permanent spending programs. California's budget deficits have been more severe when one-time surplus revenue has been committed to ongoing spending programs. This mistake sets up taxpayers for future tax increases. The governor's plan protects taxpayer interests.
• Underscores that public schools are the state's top spending priority. The funding problem for the schools, according to the governor, took 30 years to create and cannot be solved in one or two years. He believes - correctly - that voters elected him to fix problems within already-generous resources, not to raise taxes to fix problems.
• Continues to make California's tax structure more competitive for economic investment and jobs. The governor proposes to address needed changes in the state net operating loss carry-forward that would allow businesses to spread out losses over 10 years.

A portion of the massive revenue surpluses in recent years results from actions taken over the past decade to make California more competitive. These actions include passage of the manufacturers investment credit (1993), research and development tax credits (1997, 1998 and 1999), reductions in the corporate tax rate (1994), the Internet Tax Freedom Act (1998), and workers' compensation insurance reform (1993).

Partly because of these changes, in five years, 2.2 million jobs have been created in California. These wage earners consume goods, use services - and pay taxes. The connection between good public policy and a robust economy is demonstrating itself. California's economy is producing surplus tax revenue for the operation of state and local government, needed infrastructure and tax relief.

Since the governor unveiled his budget plan on January 10, which was based on economic projections through last November, the Legislative Analyst's Office reported that state revenue projections have risen to even greater heights. Based in part on December's revenue surge, the analyst forecast an additional $3 billion in unanticipated revenue over the next 18 months. The governor's budget had forecast $6 billion in revenue that was not anticipated as recently as last summer.

Taxpayers anticipate that Governor Davis will continue to guard against imprudent spending that could inflate ongoing programs to levels that cannot be sustained when the economy slows. Hopefully, additional steps will also be taken to make the tax structure more competitive and continue to fuel these extraordinarily good economic times for California.

So far, the governor is on the right track with the 2000-01 budget.

- Larry McCarthy is president
of the California Taxpayers' Association.

Larry McCarthy