When Jerry Brown served his first stint as governor three decades ago, the state's biggest generator of revenue was, by far, the sales tax.
At the time, taxable retail sales – cars, clothes, appliances and the like – were well over 50 percent of Californians' personal income. Soon after, however, spending habits changed. We began spending relatively less on taxable goods and relatively more on untaxed services and investments, including our homes.
Why? Demography – particularly the aging of baby boomers – plays a role, but there are other factors involved, such as the surging service sector. Whatever the underlying reasons, it's a fact of economic life.
Today, taxable sales are barely 30 percent of our personal incomes and that means, despite several boosts in sales tax rates over the years, it generates only about a third of the state's revenue.
Meanwhile, the personal income tax, once a relatively minor source of general fund dollars, has soared to more than 50 percent of revenue.
This change contributed heavily to the state's chronic budget woes because income taxes are much more volatile than sales taxes.
When the economy boomed and income taxes – especially from high-income taxpayers – were pouring into the state's coffers, politicians tended to spend them all on permanent new programs and tax cuts. They pleased special-interest pleaders but then faced deficits when the economy cooled and revenue dipped.
One obvious remedy would be to overhaul the tax system to produce more stability and predictability in revenue, thereby counteracting the tendency of politicians to be short-sighted and irresponsible.
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