As Brad Williams walked the halls of the California state capitol in Sacramento on a recent afternoon, he spotted a small crowd of protesters battling state spending cuts. They wore shiny white buttons that said "We Love Jobs!" and argued that looming budget reductions will hurt the Golden State's working class.I have no problem with reasonably progressive tax rates, but we shouldn't be stupid about it. The purpose of taxes shouldn't be to "equalize" or "redistribute" income or to penalize the successful or to do any of the other silly things lefties want tax policy to do. The only purpose of taxes should be to raise money for the legitimate functions of government. And we need to raise that money in a way that is reasonable and efficient.
Mr. Williams shook his head. "They're missing the real problem," he said.
The working class may be taking a beating from spending cuts used to close a cavernous deficit, Mr. Williams said, but the root of California's woes is its reliance on taxing the wealthy.
Nearly half of California's income taxes before the recession came from the top 1% of earners: households that took in more than $490,000 a year. High earners, it turns out, have especially volatile incomes—their earnings fell by more than twice as much as the rest of the population's during the recession. When they crashed, they took California's finances down with them.
Mr. Williams, a former economic forecaster for the state, spent more than a decade warning state leaders about California's over-dependence on the rich. "We created a revenue cliff," he said. "We built a large part of our government on the state's most unstable income group."
We can't just raise taxes in bad economic times so that the government has more money to throw around. Fiscal conservatives don't want to raise taxes because we see too much money spent of activities we don't agree are legitimate functions of government. Cut the crap--and then if we need more money for the government to operate, we can raise taxes. But not before then.