Tough Year Ahead for California Taxpayers and Wealth Producers

The Golden State's big government keeps getting bigger.

California's Democratic leaders are giddy about the future now that they have gained everything they wanted in the last election—voter-approved tax increases and a two-thirds supermajority in both houses of the Legislature, thus rendering Republicans little more than an annoying irrelevancy that can no longer block tax hikes.

Will Democrats just ramp up the taxing and spending spree or will some semblance of a "moderate" Democratic caucus emerge to offer a limited check on those tendencies? Either way, it's hard to find good news for taxpayers or business owners, although the state's public-sector unions ought to be stocking up on champagne.

Given that backdrop, I offer some subdued predictions for the New Year.

Prediction 1: Gov. Jerry Brown and the legislative leadership will continue to argue that the state government is on a bare-bones diet, and therefore continue to look for additional revenue to fund it regardless of mounting evidence of waste and excess.

"Today, the state's highest-paid employees make far more than comparable workers elsewhere in almost all job and wage categories, from public safety to health care, base pay to overtime," according to a recent Bloomberg series. Payroll data by the news agency shows that "California has set a pattern of lax management, inefficient operations and out-of-control costs." The most stunning example: A highway patrol officer with a pay and benefit package of nearly a half-million dollars.

Prediction Two: The state's optimistic budget projections will not come to pass. This isn't much of prediction given that they already are falling short. As Controller John Chiang explained, "November's tax receipts fell 10.8 percent short of expectations contained in the 2012-2013 State Budget, although they were above the year-ago level. Total revenues year to date are now 2.6 percent less than anticipated at this time, with shortfalls among all of the major sources." And he found that government spending continues to outstrip revenues.

Prediction Three: Democratic leaders will begin increasing every tax imaginable to fill the gap in what will amount to death by a thousand cuts. When Sen. Ted Lieu proposed tripling the car tax, he backed down as a backlash grew. But that was only because he started the taxing spree too quickly. Soon enough, the leadership will start floating trial balloons including limited assaults on Proposition 13, the 1978 voter-approved property tax limitation that sparked a nationwide tax revolt.

Prediction Four: Legislators will make good on their promise to "reform" the referendum and initiative process, thus assuring that there will be less opportunity for voters—who still tend to be more conservative in their votes on ballot measures than for candidates—to keep a Democratic majority in check.

California's special brand of direct democracy was born in the Progressive era, by politicians who wanted the public to have a check on robber barons. Today's California Progressives are the hand maidens of modern-day robber barons (unions), and are devoted to keeping pesky voters out of the way. That's not to say that direct democracy isn't problematic, but it's better than relying on this Legislature to protect our rights and wallets.

Prediction Five: Waves of California millionaires and business owners will throw in the towel given that there's no longer anything to protect them. Businesses often threaten to move, and many leave but more stay. Yet the November election seems to have been the last straw for many wealth producers.

The long-awaited implementation of the bogus "cap and trade" market—essentially a massive tax and a policy that will generate increased utility costs—is yet another impetus for manufacturers in particular to head to friendlier states.

Prediction Six: We'll see a return of every bad idea including some resurrected version of redevelopment agencies—those property-rights-abusing, central-planning agencies that Brown eliminated as he sought new funds. Now that there's no problem raising taxes, Brown and legislative leaders will bring them back. California will become an even bigger laboratory for crazy proposals.

Prediction Seven: Hopes of local reform efforts will fade away. For instance, San Diego voters chose as mayor a union ally (Bob Filner) over a reform-minded policy wonk (Carl DeMaio), which carried a message to politicians elsewhere who might otherwise have been willing to deal with excessive public-employee costs. New filings in Stockton's bankruptcy show that the city is stiffing bond holders and slashing services to protect out-sized pensions, which proves that even municipal bankruptcy is no panacea for government fiscal woes.

Prediction Eight: Liberal pundits will continue to blame Republicans for everything that happens.

Prediction Nine: The state Republican Party will circle the drain as it focuses on the wrong issues and continues to follow the advice offered by pundits who never liked the party any way. Expect the GOP to nominate more self-funded "moderates" who differ from the Democrats only by degree and who will continue to lose elections but enrich consultants.

Prediction 10: Those of us who love the state will hang in there and await the inevitable—when a continued fiscal crisis finally leads to the emergence of adult leadership that embraces long-needed fiscal reform.