Big Deficit Cries Out for Big Thinking in California

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With a projected budget deficit that some believe may reach $20 billion, policymakers in California can avoid the harsh reality no longer. They must either address some of the fundamental problems that plague their tax system or impose draconian cuts in vital public services.

One of the shortcomings with California's tax system that has received a great deal of attention in recent weeks is the state's sales tax and its relatively narrow base. Like many states, California taxes only a handful of services, despite the prominence of that form of consumption in today's economy. The Chair of the State Board of Equalization, Judy Chu, released an analysis late last month demonstrating that California could generate as much as $10 billion in additional revenue by expanding its sales tax base. Senate President Don Perata has previously expressed support for such a change and new Assembly Speaker Karen Bass may also be open to the idea -- as well to other reforms. Now it seems that Governor Schwarzenegger may have taken the report's ideas to heart too, as the Los Angeles Times reports he has been meeting with business leaders in recent weeks to build support for changes in tax policy.

Unfortunately, California's budget woes haven't just highlighted problems with state tax policy. They have once again shed light on a legislative process that makes constructive responses to fiscal crises incredibly difficult. In particular, tax increases require a two-thirds supermajority vote to pass the legislature, a rule that gives disproportionate power to the legislative minority and that fosters intransigence among those opposed to tax increases no matter how dire the state's fiscal situation.

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