Arnold's $15B bond proposal for CA

Great Debates
1

Arnold wants to pass a $15B bond to get CA thru the deficit crisis. Is this a good idea?

I’m not sure if I understand all the details, and that’s one reason I’d like to put this on the table in GD. But the way I see it, we pretty much have two choices: Borrow money or raise taxes. Arnold is adamant about not raising taxes, and prefers that we “grow our way” out of the deficit by a) keeping taxes down, b) curtailing the growth in spending and c) letting the economy catch up to government spending. Some cuts have been made, but trying to solve this problem solely by cutting spending would send us into a political morass, the likely outcome of which would be that nothing gets done.

The more I think about this, the more I like it. It’s simple (simplistic?), but it’s also the kind of thinking that legislators seem incapable of considering. Raising taxes is the easy way to deal with the symptom, but doesn’t address the root cause. Namely, that gov’t spending grew at a rate not sustainable by any reasonable projection of economic growth.

Here’s a link to a SJ Merc article with some data* about what voters think. Seems that Californians are more inclined to raise taxes than to float this bond, but they all also seem to want to raise taxes on someone else:

This is all before Arnold has had a chance to sell his idea to the public, and clearly he’s counting on changing a lot of minds in the process. I think he can do it. His popularity is good, and I expect he’s going to “Terminate” any effort to raise taxes.

This is really a make or break issue for Arnold. It goes to the very core of why he supported the recall and ran for Governor in the first place. It’ sure will be interesting to watch a hard-ass, non-politician go at something like this.

There are also plans for a balanced budget initiative on the ballot. I’d support it, especially if it had the teeth in it to keep the growth in government spending below that of the economy as a whole. But I’d still be cynical enough to expect politicians to find ways around it.

*Note that there are 2 polls quoted in the article, and they do contradict each other in some areas.

2

Doesn’t a bond proposal just pass the taxes onto someone else also? The taxpayers have to pay it back in the future, plus interest; this is about as wise as paying my mortgage payment with a credit card. This is what I find disturbing about Republican approaches to paying their debts; rather than biting the bullet and raising taxes to pay for what you already consumed (the deficit), they always want to defer it to the future, and let someone else worry about it. Unfortunately, that someone else is not the wealthy that are usually targeted by Democrats; it is their own children.

It also has the effect of raising interest rates for consumers, as government chases the same dollars as major lenders, increasing demand, and we know what that does.

3

My understanding is that borrowing is far from being an untried idea by California politicians. Some might say that earlier debts coming due have a lot to do with current problems. My simplistic answer is you can only borrow, borrow, borrow for so long before you can’t make the minimums. That, for instance, is why most Americans carry a higher rate of debt than ever in our history. And why personal bankruptcy claims are also at an all time high. I only hope to high heaven there is never a scenario where those high debts have to start being called in.

I like the idea of growing our way out, but this is not the way to do it. He’s gambling heavily that the economy is going to significantly turn around this year. I think growing requires long term planning.

Sooner or later, sometimes you simply have to make more money. No one likes having taxes raised, any more than we like paying the cable bill, or the cell phone, or the water bill. But sometimes ya gotta do what ya gotta do. Contrary to your claim that taxing is the easy way out, it takes lots of political courage for one to come right out and say that this is what they are going to do because they have to.

I think a better solution yet would to be to close all the loopholes in the tax code to provide something closer to a serious flat tax. Some of the progressive tax rates could even be scaled back if everyone paid their true rate without exception. Just the top 1 percent of California taxpayers and corporations could provide a funding boon. Here’s an article on a new book, Perfectly Legal, that suggests this could be so. If you make less than half a million a year, here are an astounding number of tricks you’re missing out on. And some taxes paid for the super rich, at your expense.

That would be an idea I’d say politicians don’t consider. In addition, they don’t think about making the case convincing Californians to scale back some of the propositions that have passed which tie the hands of the government in Sacramento as to what money they can collect and where it has to be spent. Don’t blame only the politicians on the mess in the golden state.

For example, there is a possibility that by law, that we will have to fund after-school programs by taking money out of the actual schooling itself. There is no proposition that guarantees that new schoolbooks must be purchased or that there must be a minimum number of teachers per the number of students. But we must fund after school; the money must go there no matter what.

And who pushed that proposal into place?

Arnold.

To be fair, one good thing he proposes is rainy-day fund where we must save money for the lean times, assuming it doesn’t get plundered before then. I’m not sure how they will define what a “rainy day” is either. But I’m disappointed (and not surprised) that the bonds are the best he could come up with. I don’t exactly see people getting excited about bonds in their own portfolios. Especially California near-junk bonds.

Another thing I’d like to see him do is convince Californians that the budget should be passed by a simple majority of the California congress rather than 2/3 of the legislature. That’s the major bottleneck. But since it isn’t his party in control I don’t expect to see that happen either.

4

Fear:

It’s more complicated than that. Many people (not just Pubbies) are distrustful that a “temporary” tax increase will ever be repealed. Arnold is somewhat bipassing the whole raise taxes/cut spending political fued by saying he’s going to not raise taxes, hold spending down, and let the economy grow enough to catch up to the government’s budget. He’s also assuming that if he raises taxes, the economy will suffer and the “grow” part won’t happen as needed.

I honestly believe that even Republicans would agree to raise taxes to solve this type of problem if they knew that spending would not just increase proportionally. So Arnold is saying: We don’t have revenue problem, we have a spending problem. We’ll borrow some money to let the revenue catch up to the spending in due course.

I’m assuming that the bond will be paid off in a relatively short timeframe-- something like 4 or 5 years. If it was to stretch out to 20 yrs, I’d have a problem with that. I haven’t seen what the projections are, but I’ll see if I can find out.

5

Didn’t have a chance to read the whole Murky News article, but it seems that while the voters like Arnie, they weren’t all that thrilled by some of the proposals.

Snag, while there has been plenty of borrowing (often from passing of Propositions by people not having to deal with the consequences) it has been for long term, captial projects like road improvements. This bond would be to pay for current expenses. I’m with you on your analogy. Before it was like having a mortgage on your house, now it is like a home equity loan to pay for luxuries. Not really a good idea. Obviously we need to cut back, which is happening, but we shouldn’t also be cutting taxes - which Arnie just did. The Federal tax cut also had the effect of cutting California revenue.

I’m voting against the bond issue - I’m not going to tax my kids because of this ideological no tax no matter what stuff.

6

We don’t have a revenue problem? So why does Arnie need to raise $15B? :eek:

7

The day before this poll came out, the independant budget analyst concluded;

Even if voters approve the bond, the administration’s predictions pan out and the economy’s growth meets expectations, lawmakers will face a $6 billion hole by the end of the 2005-06 fiscal year, Hill said. That’s because Schwarzenegger’s plan does not entirely correct the state’s fundamental imbalance between revenues and expenditures.

The budget also relies on 500 million from gaming tribes, & 400 mil from the Dept of corrections-these will be difficult to negotiate. And 900 million from medical reimbursments which may be illegal.

8

The whole “no tax increases under any circumstances” bothers me, as do all absolute policy positions. Okay, Arnold, you don’t want to raise taxes and drive away businesses, I can dig that. But cutting spending alone ain’t gonna do it, and your other income sources are dubious at best. Why not split the difference, raise some taxes (maybe ones that won’t impact businesses so much) and cut spending? C’mon, we’ll go halvsies, huh?

9

You might be right and it very well may come to that. But at this stage in the negotiation process, it would be foolish for Arnold to tip his hand. My money, though, is that he may compromise on spending cuts (and thus the timeframe for the bond to be paid off), but he won’t budge on the “no tax increase” position.

10

I’m certain he’ll hold off if he can, but I’m not sure that when he campaigned he promised no new taxes no matter what. Am I wrong about that? I may have missed a promise not to. But yeah, I’m certain at least he strongly implied that he wouldn’t unless there was no choice. He has a shorter than usual term to make a decision as on this well. Too early or too late could be a real problem if he runs for re-election.

And he’ll try not to raise taxes, if nothing else because he still has to build some grudging solidarity with the more conservative Republicans.

11

He was pretty unequivocal about it:

http://www.nbcsandiego.com/politics/2541275/detail.html

I don’t see any wiggle room when he realizes there is no other way.

12

I’d just add to what Fear wrote: Arnold was quite clear that he wouldn’t make a “read my lips, no new taxes” type pledge, but that he only saw a tax increase coming if there was some extraordinary new circumstance like a terrible natural disaster.