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Posted by on Dec 16, 2008 in Economy, Politics, Society | 9 comments

Time For The California Budget Reality Check

In what has become an almost daily (I used to say annual) tradition the state of California is in another budget crisis which threatens to destroy our economy. Those of us who thought a $ 10 or $ 15 billion dollar deficit was bad are now pondering a debt of as much as $ 40 billion or more(out of total spending of $ 145 billion or around 20%).

The result of such a crisis should be for members of both parties to come together to solve the problems but instead things have focused on the traditional rhetoric from both sides so I thought I would offer a bit of a reality check for the legislators.

While this is based on California’s crisis, I am sure it could apply equally to other states as well as to the federal budget.

Reality Check #1: Revenue

The first reality check is you are going to have to increase revenue. Whether this is through cutting out loopholes, increasing overall rates, increasing other fees or a combination of the three is certainly open for discussion, but you are not going to cut 20% or more from spending to close this kind of a gap.

So for the GOP, the reality check here is you have to accept that increases are needed, get used to it and try to find the least damaging way to make these increases. Do not simply oppose tax increases because you don’t like them, don’t get stubborn and ignore the fact that if you do not fix this the economy is going to be in even more serious trouble (if that is possible).

For the Democrats, the reality check is that this is NOT an opening to ‘soak the rich’ and punish people for succeeding. It is a necessary step because of the financial mess but you should only make those increases that are required to close part of the gap. Some of these increases will be temporary and you should not grumble down the road about ‘cuts for the rich.

Reality Check #2: Spending

The next reality check is you are also going to have to cut spending. As with revenues this can be accomplished through a combination of factors like cutting waste, reducing the less important programs and the like. But in the end you are going to have to cut some spending that is going to cause some pain.

For the Democrats, the reality here is you have to accept that some hard choices will need to be made. I know education is important but we may just have to accept some cuts in areas we’d rather not cut. If you’re going to hike taxes, you also need to cut spending. It’s a 50/50 proposition and the burden has to be passed around.

For the Republicans, the reality check is that you have to behave here like the Democrats need to behave on taxes. This is NOT an opportunity for you to cut every social program you don’t like. This is NOT an opportunity for you to pare government to the Libertarian ideal. And when some of these programs get increases down the road, you need to live with that.

Reality Check #3: Immigration

For both parties the final reality check is you need to address the 10,000 pound gorilla in the room which is illegal immigration (or undocumented workers if you prefer). Now, I am a huge fan of immigration. This is what made our country great and what will continue to help us grow in the future.

But there is a difference between those who go through the system and those who do not go through the system. I know that people like to say these immigrants perform duties that others will not but I am not so sure that is true. But either way the fact is that these immigrants are a large part of the budget problem facing many states.

When you don’t have documentation, you don’t get a paycheck, you get paid in cash. You don’t contribute to Social Security or Medicare, you don’t pay state or federal income taxes, you don’t pay local income taxes (if they exist). Yes, you do pay sales taxes, but you don’t contribute to the general budgets

At the same time you do take advantage of the programs paid for by the other taxpayers including things like Social Security. When you’ve got 50 people paying in to a system and 75 people taking out of the system, the problem is pretty obvious.

As with spending and revenue, the solution here is not entirely obvious. While some groups would like to ‘send them all back home’ I am not sure that this is entirely workable. Perhaps some of them should be sent back, others should be brought into the system. But either way you need to find a way to resolve this imbalance

Also we need to reform the system allowing people to be brought into this country. I am sure that everyone wants to be close to Grandma and Grandpa, Aunt and Uncle and so on. But if you bring a 65 year old couple into the US, then they have never paid into Social Security but they get to collect. Obviously this is another major drain.

For both sides you need to work through this problem without all of the rhetoric. The Left needs to accept that some of these people will need to be sent home and it’s not racism. Legal immigrants of all races are welcome to stay, but at least some illegal immigrants of all races need to go home.

The Right on the other hand needs to accept that sending everyone home just is not realistic as a solution. Some of these people have been here for years and just need a way to get into the legal system. It’s all a matter of balance.