STATEMENT OF CALIFORNIA ECONOMISTS IN OPPOSITION TO TAX INCREASES

February 24, 2003

The massive California budget deficit is the direct result of excessive spending by our state government: State spending increased 37 percent over only two years because of a revenue windfall from taxes on incomes and capital gains. New taxes will not solve our budget problem because the Legislature and Governor always face powerful pressures to preserve and expand spending programs, and new revenues from higher taxes would reduce the immediate need for fiscal discipline. This political pressure for higher spending means also that any new taxes imposed "temporarily" would be likely to prove permanent, so that even ostensibly temporary tax increases would increase uncertainty and impose other adverse economic effects. In short: Just as every California family must live within its means, so must California government learn to do so as well.

The California budget crisis can be solved only through spending restraint and the implementation of policies yielding enhanced economic growth and a larger tax base. In the short term, spending must be disciplined; tax increases are inappropriate because they would facilitate greater government spending at the expense of private spending, that is, at the expense of the economy in the aggregate. Over the longer term, spending discipline must be maintained; tax increases would induce individuals, businesses, employment, and investment opportunities to locate elsewhere. Instead, the long-term tax burden must be reduced, state-owned assets that could be used more productively in the private sector must be sold, and many regulations that increase the costs of creating and operating businesses and that reduce employment opportunities and wages must be reformed or eliminated.

Signatories:

James C.W. Ahiakpor, California State University, Hayward
William R. Allen, University of California, Los Angeles
Charles W. Baird, California State University, Hayward
Richard A. Bilas, California State University, Bakersfield (Emeritus)
Don Booth, Chapman University
Thomas E. Borcherding, Claremont Graduate University
Henry N. Butle, Chapman University
Darin G. Clay University of Southern California
John Cogan Hoover Institution, Stanford University
Henry Demmert, Santa Clara University
Milton Friedman, Hoover Institution, Stanford University (Nobel Laureate)
Joe Fuhrig, Golden Gate University
Gary Galles, Pepperdine University
Peter Gordon, University of Southern California
Dale M. Heien, University of California, Davis
John M. Heineke, Santa Clara University
David R. Henderson, Hoover Institution, Stanford University
Jeffrey Rogers Hummel, San Jose State University
Mark Jackson, San Jose State University
Daniel Klein, Santa Clara University
Robert Krol, California State University, Northridge
Arthur Laffer, Laffer Associates
Clay LaForce, University of California, Los Angeles (Emeritus Dean, Anderson School of Management)
Tibor R. Machan, Chapman University
Michael L. Marlow, Calif. Polytechnic State Univ., San Luis Obispo
John G. Matsusaka, University of Southern California
Lawrence J. McQuillan, Pacific Research Institute
Tom Means, San Jose State University
Robert J. Michaels, California State University, Fullerton
Lydia D. Ortega, San Jose State University
Aris Protopapadakis, University of Southern California
Alan C. Shapiro, University of Southern California
Stephen Shmanske, California State University, Hayward
George P. Shultz, Hoover Institution, Stanford University (former Secretary of State)
Edward Stringham, San Jose State University
Shirley Svorny, California State University, Northridge
Paul J. Zak, Claremont Graduate University
Benjamin Zycher, Pacific Research Institute