Can California’s Next Governor Gain Victory over Revenue Volatility?

California gets about half of its income-tax revenue from the top one percent of earners, which makes for high revenue volatility during an economic downturn. Back in 2009, California governor Arnold Schwarzenegger set up the Commission on the 21st Century Economy to deal with this problem. The commission recommended cutting tax brackets down to two and replacing the corporation tax and state sales tax with a 4 percent tax on business activity, but the legislature failed to vote on the proposals.

As Dan Walters of CALmatters notes, after governor Jerry Brown took office for the second time and grasped the threat of volatility, “he clearly didn’t want to take on such an immensely complex issue with a high probability of failure.” So Brown will leave office “with the fiscal time bomb still ticking away and likely be succeeded by someone with less ability, politically and intellectually, to do what needs to be done.”

Brown’s successor is governor-elect Gavin Newsom, who proclaims, “volatility is not our friend, it’s our enemy,” and says “I am not going to neglect this issue.” Taxpayers might wonder about that. Newsom believes in a “progressive” tax code, which means punitive, punishing the productive with higher tax rates. Ruling Democrats support that arrangement and are fond of blaming fiscal woes on Proposition 13, which limits government’s ability to hike property taxes.

When that measure came along in 1978, governor Jerry Brown opposed it with all his might. When it passed in a landslide, Brown promptly proclaimed himself a born-again tax cutter. In his second go-round as governor, Brown proved himself a born-again tax hiker, leaving California with the nation’s highest income and sales taxes. In typical style, he kicked the volatility issue down the road. His successor, Gavin Newson, is on record that “there’s no greater political mind in our lifetime than Gov. Brown.” Taxpayers can believe that punitive taxation and revenue volatility are here to stay.