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by Ray Haynes Temecula If there is any problem with government budgeting, it is how the government budgeting analysts approach their job. They always (not sometimes, not once in a while, not even frequently, but always) start the budget discussions with what they spent last year on a program by program basis. Take a look at the Governor's Budget Summary I referenced in my last post on this item. Go to the Table of Contents. The first substantive item? 38 pages of "Summary of Major Changes by Major Program Area," summarizing how much the change is spending on each program area is. There are then 8 pages of "Economic Outlook," recognizing that government revenue is based on growth and activity in the private sector. Finally, on page 63 of an 85 page document, the analysts discuss revenue. Finally. Want a real budget solution? Talk about revenue first. Analyze why revenue is dropping. Is it a "general economic malaise? Is it a government induced recession? Are government policies toward the private sector inhibiting private economic growth? What things can government do to enhance revenue growth in the private sector, thereby increasing revenue to government? Take a look at Table REV-03 on page 69 of the Summary. We find that 10% of the taxpayers (those earning over $100,000) pay almost 90% of the taxes. So, what would be the best government policy? Figure out ways to increase the number of people in the state who earn $100,000 or more in the private sector (it will not increase revenue to the government if we increase the number of people who work for the government who earn 100,000 or more, and yet, that has been the policy of the state over the last several years). So, if our first goal is to increase the number of private sector people in this state who earn $100,000 or more, will we accomplish that goal if we increase taxes on that group? Of course not. If we increase taxes on those who earn $100,000 or more, what will they do? They will move if the tax burden becomes too onerous. That is not conjecture, that is fact. Here's another interesting fact--if the economy in the private sector is good, Capital Gains revenue increase. Check out Figure REV-04 at page 69 of the summary. Now take a look at REV-05 on page 70, regarding the mental health tax (the 1% tax on millionaires), it is going down. It has dropped over $700,000 in the last two years. Why? Because we have fewer people in this state earning $1 million or more. Of course, one of the reasons for that is the tax. Want to save a minimum of $10,000 a year in taxes if you are a millionaire? Move out of California. And, by the way, they are. So, the next discussion in the budget solutions meetings must focus on revenue first. How to improve the private sector economy in order to increase government revenue. A good starting point is looking at government regulations, taxes, fees, and other things that government does, to figure out how to improve the economy in the next year to increase revenue, since, quite frankly, those are the only things that government can change about the economy. If government is doing something that slows or stops growth in the private sector, it should stop doing those things, as quickly as possible. Government, particularly at the state level, can't spend money to stimulate the economy. It can, however, do lots of things to make it easier for people to grow their own incomes and businesses. If government actually looks at those things, it may actually do more to solve a lot of the budget problems than it would solve by raising taxes on the people who are already looking for reasons to get out of the state. Just a thought. CRO copyright 2009 Haynes Ray Haynes is a former member of the California Assembly and the California Senate.

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