Sacramento Spendoholics! The Bigger the Surplus, the More the California Legislature Spends, Pacific Research Institute Study Shows

Apr 11, 2001, 01:00 ET from Pacific Research Institute

    SAN FRANCISCO, April 11 /PRNewswire/ -- As tax day approaches, a new study
 shows that the California legislature spends over $9 in new expenditures for
 each dollar of surplus revenue.  "Send It and They Will Spend It: The Case for
 Tax Cuts in California," by economist William L. Anderson, Ph.D., released
 today by the California-based Pacific Research Institute, reports that debate
 over budget surpluses and deficits are misguided; the real concern is
 insatiable and out-of-control government spending.
     The study comes as Californians face skyrocketing energy bills, layoffs,
 evaporating personal investments, and a looming recession.  According to
 Anderson, California has some of the nation's highest state income tax rates,
 and even the most modest reduction in state income tax rates would generate
 hundreds of thousands of new jobs and increase investment capital by billions
 of dollars.
     "Whenever the government runs large budget surpluses, legislators
 congratulate themselves for fiscal responsibility, but it really means that
 taxes are too high," said Dr. Anderson.  "For the last 30 years, whenever
 Californians have paid more taxes, the legislature simply spent more money.
 Real fiscal responsibility calls for giving that money back to the taxpayers,
 not coming up with new ways to spend it. After all, it is 'their' money."
 
     Highlights of the report's findings include:
     When Californians pay more in taxes, the legislature increases state
 expenditures.  Examination of the California state budget revenues and
 expenditures from 1968 to 1996 reveals that:
 
     -- Every $1 increase in tax revenues (adjusted for inflation) has led to
        an increase in spending of 75 cents.
     -- Each dollar of a surplus leads to $9.27 in new expenditures for the
        next budget year.
 
     Lowering tax rates a mere one-to-two percentage points would lower
 revenues, but would increase employment, capital stock and investment in the
 private economy.  Using the California State Tax Analysis Modeling Project
 (Cal-STAMP) econometric model, the study offers two scenarios:
 
     -- One Percent Tax Rate Reduction:  If the California legislature cut the
        state tax rate by one-percent across the board, in 2002, it would, in
        effect, leverage more than $36.8 billion in capital investment,
        $7.7 billion in new payroll, and 212,963 new jobs.
     -- Two Percent State Tax Reduction:  The second scenario has a slightly
        more aggressive cut in tax rates at two percent.  It would create, by
        2002, almost $66 billion of new capital investment, $13.9 billion of
        new payroll, and 381,333 new jobs.
 
     "If a recession is coming, as many economic analysts believe, state tax
 cuts would make California more capital friendly and ensure a more robust
 recovery for California," said Anderson.
 
     For more information or a copy of the study, visit
 www.pacificresearch.org.  To schedule an interview, contact Dawn Dingwell at
 415-989-0833, ext. 136 or ddingwell@pacificresearch.org.
     The Pacific Research Institute is a free-market public policy think tank
 in San Francisco, California.
 
 

SOURCE Pacific Research Institute
    SAN FRANCISCO, April 11 /PRNewswire/ -- As tax day approaches, a new study
 shows that the California legislature spends over $9 in new expenditures for
 each dollar of surplus revenue.  "Send It and They Will Spend It: The Case for
 Tax Cuts in California," by economist William L. Anderson, Ph.D., released
 today by the California-based Pacific Research Institute, reports that debate
 over budget surpluses and deficits are misguided; the real concern is
 insatiable and out-of-control government spending.
     The study comes as Californians face skyrocketing energy bills, layoffs,
 evaporating personal investments, and a looming recession.  According to
 Anderson, California has some of the nation's highest state income tax rates,
 and even the most modest reduction in state income tax rates would generate
 hundreds of thousands of new jobs and increase investment capital by billions
 of dollars.
     "Whenever the government runs large budget surpluses, legislators
 congratulate themselves for fiscal responsibility, but it really means that
 taxes are too high," said Dr. Anderson.  "For the last 30 years, whenever
 Californians have paid more taxes, the legislature simply spent more money.
 Real fiscal responsibility calls for giving that money back to the taxpayers,
 not coming up with new ways to spend it. After all, it is 'their' money."
 
     Highlights of the report's findings include:
     When Californians pay more in taxes, the legislature increases state
 expenditures.  Examination of the California state budget revenues and
 expenditures from 1968 to 1996 reveals that:
 
     -- Every $1 increase in tax revenues (adjusted for inflation) has led to
        an increase in spending of 75 cents.
     -- Each dollar of a surplus leads to $9.27 in new expenditures for the
        next budget year.
 
     Lowering tax rates a mere one-to-two percentage points would lower
 revenues, but would increase employment, capital stock and investment in the
 private economy.  Using the California State Tax Analysis Modeling Project
 (Cal-STAMP) econometric model, the study offers two scenarios:
 
     -- One Percent Tax Rate Reduction:  If the California legislature cut the
        state tax rate by one-percent across the board, in 2002, it would, in
        effect, leverage more than $36.8 billion in capital investment,
        $7.7 billion in new payroll, and 212,963 new jobs.
     -- Two Percent State Tax Reduction:  The second scenario has a slightly
        more aggressive cut in tax rates at two percent.  It would create, by
        2002, almost $66 billion of new capital investment, $13.9 billion of
        new payroll, and 381,333 new jobs.
 
     "If a recession is coming, as many economic analysts believe, state tax
 cuts would make California more capital friendly and ensure a more robust
 recovery for California," said Anderson.
 
     For more information or a copy of the study, visit
 www.pacificresearch.org.  To schedule an interview, contact Dawn Dingwell at
 415-989-0833, ext. 136 or ddingwell@pacificresearch.org.
     The Pacific Research Institute is a free-market public policy think tank
 in San Francisco, California.
 
 SOURCE  Pacific Research Institute