In an interview with KGO-TV in San Francisco Republican gubernatorial hopeful Tom Campbell suggested a higher gas tax as a solution to the state budget deficit:

Former State Finance Director Tom Campbell will be offering legislators his idea of a partial solution — an 18 cent temporary gasoline tax.

“The price of gasoline has now fallen in our state. Last June it was about $4.60. If you were to put on a gasoline tax of about 18 cents, so we’d still be well under two dollars a gallon,” said Campbell.

It would be nice if KGO explained that the Democrats’ budget deal – which Arnold vetoed – would have basically done the same thing, replacing the current gas tax with a “gas fee” that would result in a net 13 cent increase to the taxes paid on gasoline. But it’s good to see Campbell proposing an eminently sensible plan like this.

Whenever higher gas taxes – or higher taxes of any sort – are proposed, some progressives react with criticism, pointing out that some of these taxes are regressive. They’re not wrong – when you’re talking about taxes, progressive income taxes and property taxes are generally a fairer way to obtain revenue than excise and sales taxes.

But if you stop there, you’re missing the point.

Because when you include the whole equation – the effect of spending cuts as well as tax increases – it becomes clear that even sales and gas taxes are much better for the economy, and especially for working and poor people, than spending cuts.

Such is the point Nobel Laureate Joseph Stiglitz makes, in work cited in this California Budget Project report. Stiglitz demonstrates, using hard evidence, the following points:

• The economies of states that substantially increased taxes in recent years performed as well or better than states that did not
• The economies of states that enacted large tax cuts in the late 1990s and early 2000s performed worse than other states
• Personal income taxes are better than spending cuts as they don’t have as harmful an effect on consumption or local economies.

Much of this ought to be common sense. We are facing a recession driven by rising unemployment and folks having less money in their pocket. While the right-wing ideologues would have us believe taxes take money out of that pocket the amounts pale in comparison to the money lost to spending cuts.

In the early 1990s recession both California and the US government raised taxes. It didn’t worsen the recession, and it didn’t prevent an economic boom from emerging after 1993.

Spending cuts are really just a euphemism for mass layoffs. When you fire tens or hundreds of thousands of public employees that means they are spending less money. Fewer shopping trips, fewer visits to restaurants, fewer people paying their mortgage. That creates a spiral of job losses and business failures, which in turn mean fewer tax revenues. Spending cuts ultimately leave the budget worse off, not better off, than before.

This is true especially for lower-income families. A sales tax or gas tax hike will have some bite. But as much as a school closure? As much as a father being laid off from his job on a state infrastructure project, or a mother being laid off from her job in the county government office? I strongly doubt it.

For example, the cost to a family of a restored VLF, between $150 and $300 a year, is chump change compared to the cost of having to provide health care to an uninsured family kicked off of state assistance. If a school closes or higher education is priced out of reach that is going to have a far larger cost to a family both immediately and over the long-term than any tax increase.

This is common-sense stuff, obvious to anyone willing to give even a cursory glance at reality. But 30 years of anti-tax rhetoric has blinded us to these realities. Spending cuts are the most regressive form of budgeting there are – and while we need as progressive a tax code as possible, we need to keep in mind that this is a continuum of progressivity:

Income and property taxes > sales taxes > spending cuts

While there are differences among kinds of taxes and spending cuts, the above is a good shorthand to keep in mind as we push back against 30 years of ruinous policies and bad priorities that have brought California to the brink of a Depression.

With the Governor and the legislature still no closer on a special session solution on the budget, Controller John Chiang issued a strong warning about the very near future, finally bringing public the possibility of IOUs for state vendors:

“Specifically, my office will be forced to pursue the deferral of potentially billions of dollars

in payments and/or the issuance of individual registered warrants, commonly referred to as IOUs,” Chiang said in a letter to the governor and other officials.

“In order to ensure that the State can meet its constitutionally required obligation to schools and debt service, the Capitol’s budget paralysis may leave me no choice but to, in full or in part, withhold payments or to issue IOUs to other individuals and entities entitled to state payments. Given the current financial instability of the banking industry, it is highly unlikely that the banks, if they accept the IOUs at all, will be able to do so for any sustained period of time. Consequently, the recipients of the registered warrants may have no apparent options but to hold them until redemption.”

Chiang said his office is also pursuing the issuance of “revenue-anticipation warrants,” a form of short-term borrowing that carries high interest and heavy fees because it’s believed that the state cannot issue “revenue anticipation notes” that would have to be repaid by June.

If it was impossible to sell revenue anticipation notes to lenders, I don’t see why they’d accept revenue anticipation warrants, even if they offered the promise of higher interest rates.

It goes without saying that this stalemate, and the prospect of eliminating vital services, comes at the worst possible time, when California’s most at-risk citizens need a social safety net the most.  The California Budget Project detailed this today in a paper, appropriately titled Proposed Budget Cuts Come at a Time of Growing Need.

More Californians are turning to income support and related programs, such as Food Stamps, WIC, Healthy Families, Medi-Cal, and CalWORKsfor assistance.

Increased demand for public programs comes at a time when policymakers have proposed deep cuts to health and human services programs to close the state’s budget gap.

However, prominent economists argue that carefully chosen tax increases are preferable to spending cuts during a recession because “steep budget cuts will exacerbate the economic downturn and harm vulnerable low-and moderate-income”families.

With unemployment rising to the third-highest rate in the nation, with one in five Californians out of work for longer than 27 weeks, with projections of the unemployment rate rising over 9.3% by 2010, with almost a million Californians underemployed (working less than they’d like), with applications for food stamps up 33% over the past year, and with every county in the Central Valley experiencing double-digit unemployment, including an incredible, depression-era 23.4% unemployment in Imperial County in Southern California, the prospect of losing vital services to those affected would be absolutely devastating.  And yet that’s where we are.  County governments are already expecting the worst, to have their funds raided by the state to eventually fill the budget hole, so they’re cutting back.  The self-sustaining cycle of cutbacks creating job loss creating less revenue creating more cutbacks has already begun.  And that’s why it’s not just bad politics but horrible policy for Schwarzenegger to hold the state hostage for extremely marginal rewards that will almost certainly be overturned once he’s out of office anyway.  His intransigence, perhaps based on his inability to get anyone in state government to listen to him, is puerile nonsense.  But it also really hurts people.

As I’ve said continuously, the budget mess in California cannot be solved under the current broken system without serious help from Washington.  Fortunately federal lawmakers are fighting for state and local government relief for California, done in such a way that we can actually access it without having to put money up front (which is impossible given the current cash-flow crisis).

(As a side note, I want to on behalf of the editorial board thank our friends in the blogosphere for driving attention to our ongoing Calitics budget coverage, in particular paradox at The Left Coaster.  I think I speak for everyone in saying we appreciate the links and support.)