Most Politicians Don’t Understand Where Money Comes From

Friday, January 16, 2004

Page 7

CALIFORNIA COMMENTARY (Column)

Most Politicians Don’t Understand Where Money Comes From

By JON COUPAL

(The writer is an attorney and president of the Howard Jarvis Taxpayers Association.)

The California Primary election is less than two months away and voters will face critical decisions about the future of the Golden State. On the ballot will be both Governor Schwarzenegger’s fiscal recovery proposals as well as Proposition 56, which would rip the heart and soul out of Proposition 13. The election is also the first step in the winnowing process that will determine state representatives for the 2005/2006 legislative session.

This particular election is elevated in importance because it will be the first opportunity for voters to do what polls this last fall showed they wanted to do: recall the Legislature, which polled lower in voter confidence than did former Governor Gray Davis.

As we begin to evaluate the candidates, we would do well to discard the traditional partisan methods of selection. Whether they are Republican or Democrat, liberal or conservative they won’t be a part of the solution to California’s problems if they can’t answer a simple question: How is wealth created?

A majority of our current lawmakers seem to believe that the origin of wealth is rich people. Their approach to governing is a lot like Willie Sutton’s approach to robbing banks. Sutton said he robbed banks because “that’s where the money is.”

To these politicians all taxes are justifiable and those that fall on the “rich” are not only the most lucrative, they are the most justifiable.

When pressed, however, they often have trouble defining who the rich are. First of all, it never includes them or their immediate audience. During debate over the car tax some politicians said that the tripling the car tax was right for someone who could afford an SUV, so that must mean that they define SUV owners, among others, as “rich.”

If pressed, in a moment of candor, these same representatives might generalize that businesses are “rich” as are all those who own property. This view of property owners may help to explain why tax-and-spend lawmakers have an obsession with destroying Proposition 13.

But these answers do not address the question of how wealth is created. Wealth is created by productivity. Without productivity an economy stagnates and dies. And without economic activity, the tax base stagnates and dies. And although all this may be lost on advocates of the “Nanny State,” it is the tax revenue from the proceeds of this productivity that allows their pet programs to be financed.

Unfortunately, our current pack of representatives have disgraced themselves through their inability to understand the relationship between government income and spending, and worse yet, through their denial that there should even be a connection.

People of goodwill can disagree on spending priorities, but the refusal to link spending with the taxpayers’ ability to provide revenue is unconscionable. Tragically, this is exactly what happened over the last five years and why California faces what is described as an “institutional” spending problem.

Fortunately, Gov. Schwarzenegger gets it, as do a handful of members of the Legislature. In his State of the State address the governor again rejected tax increases and he called on Democrats to join him in boosting the business climate. In taking this position, he echoed the thoughts of 43 prominent economists, including Milton Friedman, George Shultz and Art Laffer, who last year signed a letter stating that tax increases would not solve the state’s problems, that the answer could only be found through economic growth.

After the governor’s remarks, even Gray Davis, interviewed on KNX radio, said that a strong economy is the answer.

Still, a majority of legislators seem to be falling in line behind Senate leader John Burton who has tied his willingness to cut programs to balancing the budget through tax increases. They continue to believe that, in a state that already ranks near the top in taxes, they can increase taxes without further damaging productivity.

This fight is a long way from over. The candidates that are selected this March 4th could well be making critical economic decisions for all of us in the near future.

So if a candidate asks for your support. Ask them if they understand how wealth is created. If they give you a “deer in the headlights” look, vote for someone else.