In this time of crushing budget deficits and guaranteed public pension plans, one sentiment seems widespread among voters: government always grows. Even with cutbacks and a floundering economy, many Americans clearly believe that government only gets bigger.
As the economy has expanded and contracted over the past three decades, Californians have slowly, but steadily, paid more in personal income taxes to support state government. Corporations, however, are another story. While individuals have watched their tax burden rise, corporations have seen their effective tax rate plummet even as California-based companies like Chevron, Google and Apple have posted record profits. This disparity has reinforced the state’s reliance on personal income tax and contributed to California’s chronic budget deficit.
California is the nation’s most populous state, the owner of the world’s eighth largest economy, the home of Silicon Valley and Hollywood, and the global leader in biotechnology. And yet, the fortunes of its state government depend on a small group of people.
Talk of rolling back public employee pensions appears to be gaining momentum in Sacramento. Some lawmakers increasingly link budget negotiations to pension reform, and an independent state commission last week called for dramatic changes in the way California compensates its retired employees. But anyone who hopes that reducing pension benefits will help balance next year’s budget, or any budget in the near future, might be disappointed. California is facing a $25.4 billion budget deficit right now, yet changes to the public employee pension system generally take years or even decades to produce significant savings.