State finances will be in worse shape in 2014 if the proposed 18 percent increase in the state sales tax passes on May 18, according to long-term projections by the Joint Legislative Budget Committee. With Proposition 100’s passage, the deficit in 2014 would be almost $1 billion. Without Prop. 100’s tax increase, the projected 2014 deficit would be $200 million.
These new estimates highlight the fact that Prop. 100 fails to address the state’s long-term structural deficit brought on by too much spending. Past spending and new programs were not adequately funded when they were signed into law. But the damage this caused to the state’s financial stability wasn’t clear for a few years because tax revenues spiked during the real estate bubble. JLBC’s deficit projections assume the state maintains current eligibility requirements for taxpayer-funded health care, which is likely given the new mandates passed under the federal health care bill.
Prop. 100 is, at best, a partial, short-term fix to a long-term problem. Projected deficits in 2014 markedly worsen with the proposition’s passage for one simple reason: The tax increase is supposed to be temporary. This will allow the government to keep spending more than it would otherwise bring in through regular tax collections. In contrast, if Prop.100 is rejected, the state will have to adjust its spending priorities and get spending back in line with the normal tax revenues coming in the door.
Increasing taxes “temporarily” now just assures that we will have this debate again in three years. The only way to permanently solve an over-spending problem is to stop over-spending. That means we must take on the challenge of weeding out ineffective programs and waste and stop asking families to sacrifice so the government doesn’t have to.
Dr. Byron Schlomach is an economist and the director of the Center for Economic Prosperity at the Goldwater Institute.
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Joint Legislative Budget Committee: Long-Term Budget Projections
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