Fair & True Deficit Reduction

by Paul O'Lague and John Bachar

What's the best way to solve California's debt crisis?

On March 2, taxpayers will be asked to vote on a fiscal package hailed as a bipartisan success by newly elected Governor Arnold Schwarzenegger.

Prop. 57 includes a fiscal cap on future spending and a $15 billion bond. This long-term bond would refinance last year's $10.7 billion deficit and other obligations in the coming 10 to 15 years, thus saddling us and the next generation with huge interest payments. Furthermore, it deals with old debt, not the expected shortfall ($14 billion) next year.

This ballot measure would undoubtedly result in Spartan budgets for local governments, fire and police protection, education at all levels, health care, poor children, the disabled and many more essential services.

Why is this the only solution? Well, it isn't. We propose a different ballot measure that would get California back into the black and prevent painful cuts without crimping the financial lifestyle of one single Californian. It would generate $26.4 billion in additional revenue — interest free over the next two years.

How is this possible?

Our state is the fifth-largest economy in the world. In 2001, its residents had a combined gross income of close to $1 trillion. This amount is hard to imagine, but placed end to end, a trillion $1 bills would extend from Earth to 40 million miles past Mars.

The crux of our proposal lies in the distribution of California income. There are nine major income categories beginning with those who make an adjusted gross income (AGI) over $200,000 a year. This group consists of fewer than 400,000 people out of 14.9 million taxpayers (3.1%).

Clearly, lower-income citizens (the 97.3% below $200,000) are in a whopping voting majority. At the very top are those who have AGIs of $1 million and up, who numbered more than 44,000 in 2001, and who had a combined income of at least $180 billion, an average of $4.2 million apiece.

Barring a collective philanthropic epiphany by those in the high income brackets, we should vote instead on a modest temporary tax surcharge starting at 0.5% for those making $200,000 (an annual increase of only $1,000) and progressively rising to 7% for those with incomes of $5 million and up.

This would generate a staggering $13.2 billion of additional revenue each year and would eliminate the huge interest payments created by the governor's proposed bond measure.

Undemocratic you say? Socialism you say? Not really. Why? Because nobody's lifestyle really changes for the worse.

For those in the top income class, instead of spending $30 million to buy a Gulfstream jet like the one our governor owns, one would have to do a little belt-tightening and settle in the next two years for a substitute jet costing about $29.7 million. Instead of purchasing a mansion for $10 million, one would have to settle for a fixer-upper for $9.5 million. At other high income levels, taxpayers would have to make similarly modest adjustments.

Let's put this proposal on the ballot, for the wealth of the few is in great part made possible by the labor and sweat of the many. The majority of voters should not feel guilty about asking the rich to share more of this present financial burden. To the contrary, the majority should ask why the rich do not pay more.

Nationally since the mid-1970s, after-tax income increased substantially: People with incomes of $1 million and up got tax cuts of 44%, while those with $5 million and more have seen their taxes cut by a whopping 73%.

An old Irish proverb says: "No one with four aces asks for a new deal." But it is curious that in dire financial times, it never occurs to the majority (97.3%) that they deserve to vote on such a ballot measure.

Remember what Franklin D. Roosevelt said: "The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little."

Today we as a people seem to have forgotten that what makes America great is the spirit and lives of its citizens and not only its wealthy few.

(Paul O'Lague is a professor of molecular biology at UCLA and John Bachar is a professor of statistics and probability at California State University at Long Beach.)