The Democratic Legislature and former Governor Davis "balanced" the current year's budget by a $12 billion bond issue of questionable legality, because it was not submitted for voter approval. Now Republican Governor Schwarzenegger proposes to "balance" the budget with a $15 billion bond issue, which the Legislature has placed on the ballot as Proposition 57.
"Ahnold" recently told the Legislature that there were only two choices: his bond plan or increasing taxes. Although the comment was really intended to threaten and scare the Legislature into passing his plan, in reality he had the right idea: increase taxes on the rich, who do not pay their fair share now, instead of issuing bonds which only pay interest to the rich at the expense of working class Californians in future years.
The Peace and Freedom Party has traditionally opposed bond financing because it evades fair progressive taxation and gives taxpayer money to wealthy investors, who are the only ones who purchase state government bonds. Interest income paid to the wealthy is exempt from Federal income tax. This tax benefit results in lower interest rates paid on the bonds, so that it only makes sense for those in top tax brackets, who can take full advantage of the tax exemption, to buy them and receive the state tax money taken from the pockets of California workers. The federal tax break is paid for by all workers in the U.S. through the additional federal taxes which they must pay to make up for this lost federal income.
The cost of government under the present system should be paid by a genuinely progressive system of taxation. While California has a progressive personal income tax, the overall nature of California's tax system is highly regressive. In 2002, the poorest one-fifth (measured by income) of California's working-age families, with an average income of $11,100, spent an average of 11.3% of that income on state taxes. By contrast, the wealthiest one percent, with an average income of $1.6 million, spent an average of 7.2% of their income on state taxes. This is primarily due to the sales tax, which is the source of a significant portion of state revenue and which is paid proportionatly to a far greater extent by low-income families, notwithstanding the exemption of non-prepared food from that tax. Likewise, low-income families pay a greater portion of their income on property tax, either directly or through their rent.
It is true that low-income workers pay a relatively small amount for the state's personal income tax. But this is more than made up for by the high amounts they pay on sales and property taxes. Further, it means that the many tax credits and write-offs that are part of the personal income tax scheme do not benefit them because they do not have the income tax liability that the credits and write-offs might otherwise reduce. There are no comparable credits for the regressive taxes paid by the lowest income workers.
The Peace and Freedom Party's platform section on taxes states:
Public services and infrastructure have deteriorated as government has increasingly shifted the tax burden from corporations to workers. Our long-range goal is a socialist society without conventional taxes, with public services to be funded from the proceeds of social production. We demand: