Nevadans nervous about the budget-balancing intentions of the 2009 Legislature should pay close attention to their western neighbor.
California Gov. Arnold Schwarzenegger, a Republican who has vowed to never raise taxes, faces a growing revenue shortfall, powerful, uncompromising public employees and wails of "Draconian cuts" from Democratic legislators. (Sound familiar?) Thoroughly stymied in his reasonable attempts to get the state's deficit and long-term liabilities under control, Gov. Schwarzenegger apparently is willing to support a big sales tax increase in exchange for greater budget-cutting authority and spending restraints to control government growth.
The closed-door negotiations with Democratic and Republican legislative leaders, reported Tuesday by the Los Angeles Times, centered on an immediate 1 percentage point increase in the sales tax rate, to 8.25 percent, which would remain in force for three or four years. Then gradual reductions would commence, taking the tax below its current rate of 7.25 percent.
In the governor's eyes, the compromise provides an infusion of about $5 billion per year and allows him to promise a tax cut, albeit a decade or more down the road.
"The governor is pushing Republicans and Democrats to come to the table immediately and reach a compromise because of the looming cash crisis we face," Schwarzenegger spokesman Matt David told the Times. "This compromise must include budget reform that prevents our state from being in this position."
Policy wonks like to point out that as California goes, the rest of the country eventually follows. If this deal wins the support of the California Legislature, it could serve as a model for other states attempting to bridge budget deficits.
And that would be a disaster for Nevada and any other copycats.
Really, does anyone believe this sales tax increase will be temporary? Does anyone really believe California's notorious spendthrifts will start to curb their spending addictions, then relinquish a multibillion-dollar revenue stream? That they won't bemoan all-new needs for the state five years hence? That public employee unions will suddenly accept a much smaller rate of growth in their members' paychecks and benefits? Please.
Nevada Assembly Speaker Barbara Buckley, D-Las Vegas, says she will launch a comprehensive examination of the state's finances and embark on a "restructuring" of its taxes to achieve greater "revenue stability." That's code for massive tax and spending increases, so don't be surprised if she or some other intrepid lawmaker proposes making them "temporary" to placate screams that the hikes will lead to meteoric government growth once the region's economy recovers.
And then lawmakers will roll back the tax hikes? Recall that in 2005, when the state was awash in a nine-figure budget surplus, legislative Democrats cried bloody murder over a two-year, 0.02 percentage-point reduction in the payroll tax, which saved Nevada businesses a meager $15 million over the biennium. Apparently, tax cuts can be temporary, but tax increases? Forget about it.
Nevada Gov. Jim Gibbons' steadfast opposition to tax increases is largely irrelevant heading into the 2009 session. It takes a two-thirds vote of the Assembly and state Senate to get a tax increase to the governor's desk; that same two-thirds margin can override his veto.
Gov. Schwarzenegger, on the other hand, appears to be driving this bus. If he follows through on his efforts, the resulting wreck will ruin his reputation as a reformer and create a chain reaction that swallows whatever momentum other states might have in hastening economic recovery. Enacting a full percentage-point increase in the sales tax rate, making all consumer goods even more expensive when taxpayers and businesses are already being squeezed by sky-high energy costs, is the height of insanity.
Over the years, Nevada has largely benefitted from California's policy mistakes, consistently maintaining a more business-friendly climate. This is one idea we can't afford to copy.