One of the odder political phenomena of 2009 has been the strength of the neo-Hooverite argument that the most appropriate response to the deepest recession since the 1930s is radical retrenchment of public spending policies to mitigate (or, at the state and local level, avoid) deficits. Most Republicans and some Democrats have embraced the rhetoric of hard-core fiscal hawkery, with particularly tough words for those state and local governments who have suddenly, through no particular fault of their own, watched revenues drop through the floor.
Well, the fiscal hawks ought to be enjoying the latest news from California, where Republican manipulation of a two-thirds-vote requirement for enactment of a state budget has led to a no-tax-increase deal to close an astounding $26 billion state shortfall.
The deal does have a revenue component that manages to take money out of California’s economy without actually increasing the state’s revenue base: it will increase and speed up tax withholding, and exploit an arcane provision related to Prop 13 that enables the state to borrow (to the tune of $1.9 billion) property tax dollars from local governments, who will in turn, of course, be forced to cut their own spending.
The spending side of the deal includes $1.2 billion in unspecified cuts to prison expenditures–virtually guaranteed to force early release of prisoners, a practice that earlier led to public demands, in California and elsewhere, for mandatory sentencing rules and restrictions on parole and probation.
But the crown jewel of the spending cuts in the California budget deal is the continuation and extension of furloughs for public employees that amount to a 14% pay cut. This isn’t exactly great news for California businesses that will feel the impact of reduced consumer spending by state employees.
Given the Golden State’s size, there’s no question the budget deal (if, indeed, it secures legislative approval) will represent a significant blow to national economic recovery. But it will undoubtedly please those for whom public spending is the villain, and “sacrifice” in every area other than taxes is the panacea.