California Voters Reject Spending Cap


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California's special election this week came with no surprises. Just as the pre-election polling had predicted, California voters roundly rejected most of the ideas sent to them by their representatives -- save the proposition limiting pay increases for elected officials. The most important consequence of the vote was the defeat of a cap on state spending, hastily placed on the ballot as a means of securing the Republican votes needed to pass a budget with two-thirds legislative support.

The rejection of this cap, however, brings with it the early expiration of a variety of recently enacted, but temporary tax increases. Instead of expiring in early to mid 2013, those increases will now cease to exist in early to mid 2011. This development does deal a sizeable blow to California's fiscal outlook, though even with the full tax increases an immense budget deficit would have remained.

Talk over the last few days has focused largely on themassive cuts that will be needed to bring the state's budget into balance. Additionally, the state would like to borrow to fill much of the gap. It hopes to have its loans guaranteed by the federal government in order to avoid the consequences associated with lost confidence in California's ability to pay back those loans.

Unfortunately, at least as of today, responsible, broad-based, progressive tax increases appear to be off the table. With California's budget in shambles for the foreseeable future, however, it's hard to think that the opportunity for meaningful, revenue-raising tax reform is completely out of the question. Such reform, of course, should start with the elimination of the two-thirds requirement for enacting tax increases and passing budgets.

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