Newsom's lousy economics

The "Governor's budget will destroy 331,000 jobs" and Newsom is following suit

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EDITORIAL Every major newspaper in California should have plastered the May 2010 report from the UC Berkeley Center for Labor Research across the front page. The headline: "Governor's budget will destroy 331,000 jobs."

It's a stunning analysis. Ken Jacobs, who heads the center, and two associates used a sophisticated computer program to track exactly how the cuts would play out in the current California economy. If the governor's proposals are adopted, the job losses would greatly exceed any new job creation, causing the unemployment rate in the state to rise by 1.8 percent.

On the other hand, the study shows, raising taxes on rich people and oil companies would save 244,000 jobs.

So if, as nearly every politician of every party in the state insists, the biggest policy goal in California today is job creation, Gov. Arnold Schwarzenegger is going about it entirely the wrong way.

The good news is that the Democrats in the state Legislature are finally talking seriously about an alternative budget plan that includes about $5 billion in new revenue. The plans by the Assembly and Senate leadership aren't perfect and will still require significant cuts to cover the budget gap. But after years of cuts-only budgets and a pervasive fear of tax increases in Sacramento, the Democratic proposals are encouraging. (Jerry Brown, the Democratic candidate for governor, shouldn't worry about associating himself with the plans: two-thirds of Californians favor increased taxes on wealthy people to pay for better public education, according to the most recent Public Policy Institute of California poll.)

So at the very least, the state Capitol — a place not known as a bastion of progressive thought — is going to have an intelligent debate over how to address the budget deficit without further damaging the economy. Yet in San Francisco, Mayor Gavin Newsom continues to cling to a no-new-taxes budget that will devastate community services — and add to the city's unemployment rate.

That's just disgraceful.

Every city-employee union has stepped up to the plate and offered concessions. City workers are taking furloughs (actually, pay cuts) and layoffs. They're giving back scheduled raises. They're making a good faith effort to be part of the solution — in fact, labor is now pushing for an increase in the hotel tax to help cover the costs of public services.

Newsom isn't asking any of the wealthy businesses or individuals in town to give anything.

That's not just bad politics, it's bad economics.

The Berkeley study acknowledges that raising taxes on the rich and big corporations has an economic impact — an oil severance tax, for example, would raise $1.4 billion a year for the state, reduce economic output by $128 million, and lead to the loss of 400 jobs. A 1.5 percent increase in the top income tax rate for individuals who earn more than $250,000 would bring the state $2.1 billion, and lead to the loss of 13,000 jobs.

But on balance, both of those are a good deal for the state — because cutting that $3.5 billion from the budget would cost the state far, far more than 13,400 jobs. That's because when you eliminate public sector jobs, particularly lower-paid jobs, there's a direct, immediate impact on consumer spending. Although a rich person may spend slightly less if he or she has to pay slightly higher taxes, a middle-income worker who gets laid off stops spending much of anything — and the local merchants who relied on that person's spending see the impact.

In fact, the Berkeley study points out, more than half the jobs that would be lost under Schwarzenegger's plan would be in the private sector. The same goes for San Francisco: saving jobs requires new revenue solutions. And if Newsom's budget doesn't address that, the San Francisco supervisors must.

 

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