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[Proposition One] - A Reasonable Program for Revenue Control and Tax Reduction, (Proposition One Blue Book)
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Ronald Reagan Presidential Library
Digital Library Collections
This is a PDF of a folder from our textual collections.
Collection: Reagan, Ronald: Gubernatorial Papers,
1966-74: Press Unit
Folder Title: [Proposition One] - A Reasonable Program
for Revenue Control and Tax Reduction,
(Proposition One Blue Book)
Box: P38
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https://reaganlibrary.gov/archives/digital-library
To see all Ronald Reagan Presidential Library inventories visit:
https://reaganlibrary.gov/document-collection
Contact a reference archivist at: [email protected]
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PRESS
a reasonable program for
Revenue Control and Tax Reduction
OF
THE
SEAL THE OF CALIFORNIA STATE REPUBLIC CALIFORNIA OF
XXXIII
submitted to the California Legislature by
Governor Ronald Reagan
March 12, 1973
OFTHE
Office of the Governor
THE 8 SEAL CALIFORNIA
STATE CAPITOL
XXXIII
SACRAMENTO 95814
RONALD REAGAN
GOVERNOR
March 12, 1973
Revenue Control and Tax Reduction
To the Members of the California Legislature:
A little over a month ago, I proposed to you and the people of
California a long-term revenue control and tax reduction program
aimed at returning the great bulk of the state's $850 million sur-
plus to the taxpayers, slashing state income taxes by 10 percent
next year and thereafter, and limiting the share of earnings the
state can take from Californians in the years ahead.
Since then, many of you have been briefed on the program by
members of my staff. We have offered such briefings to every
member of the legislature.
Legislation was introduced on behalf of the administration sev-
eral weeks ago providing for deferral of the one-cent sales tax
increase from June 1 until January 1, 1974; a 20 percent rebate
on 1973 income taxes; and funding of one-time projects such as
making the State Capitol building earthquake safe and purchase
of beach and park lands.
Unfortunately, this legislation has been shelved in committee
and its prospects for coming to a vote on the floor of either house
appear to be extremely remote at this time. I will address this
matter later in the message.
At the same time, the public statements of some key legislative
leaders make it clear that the constitutional amendment we intend
to introduce soon-providing for a vote of the people on our pro-
posed revenue control program and permanent, ongoing income
tax cut-may well be denied passage.
I certainly hope not.
I
Purpose of Message
The purpose of this message and the attached detailed informa-
tion is two-fold:
1) To bring to your attention the urgent need to swiftly enact
our legislation to return the surplus to the people, and
2) To provide you with sufficient details and technical informa-
tion on our proposed constitutional amendment to enable the ap-
propriate committees of both houses to begin close consideration
of it. The actual language of the constitutional amendment will
be submitted to you shortly.
The Constitutional Process
The California Constitution has made provision in the legisla-
tive process for you, the members of the legislature, to place
constitutional amendments on the statewide election ballot for a
vote of the people.
During the last session, you passed eleven constitutional amend-
ments which were then voted on by the people in November. I
respected that action, not necessarily because I agreed or dis-
agreed with the propositions as such, but because I believed the
people should have the right to decide the issues for themselves
at the polls.
The constitutional amendment I will submit to you in the next
several weeks deserves the same consideration and passage which
you gave to the measures you placed before a vote of the people
last year.
I am not asking you to approve or disapprove the constitutional
amendment we will propose, but simply to allow the people to
make that decision.
To deny them that opportunity would make a mockery of the
very process which the people have authorized for major constitu-
tional issues.
A Thoughtful Program
The constitutional amendment I will submit to you and the
people is the result of literally countless hours of study and dis-
cussion within our administration. Some of the finest, most dis-
tinguished economists in the nation contributed their time and
expertise to the task force which helped develop it during the past
six and one half months.
It is a thoughtful, reasonable program which assures that state
government can continue to fully meet its responsibilities to the
people of California in the years ahead.
II
Some have charged that the program would put the state in a
fiscal straitjacket, that it would lead the state down the path of
mediocrity, inadequacy or even misery, that it would have a cata-
strophic impact on the quality of life in California.
But, I ask you. How can a program which would double the
state budget in 10 years and nearly triple it in 15 years possibly
cause the horrors attributed to it by some?
What About the Taxpayers?
Are we automatically destined to tax and spend, spend and tax
indefinitely until the people have nothing left of their earnings for
themselves?
Have we abandoned or forgotten the interests and well-being of
the taxpayer whose toil makes government possible in the first
place Or, is he to become the pawn in a deadly game of govern-
ment monopoly whose only purpose is to serve the confiscatory ap-
petites of runaway government spending?
We know who speaks for the special interests. But who will
speak for the taxpayer?
We ask that he have the chance to speak for himself.
In 15 Years
If we fail to curb government's voracious appetite for the
people's earnings, California's state budget in only 15 years will
be five times what it is today. Indeed, the state-without a revenue
control-will be siphoning off more than 12 cents from the average
dollar earned by that time.
Our constitutional amendment will insure that by 1989, state
government can take only about 7 cents from every dollar of per-
sonal income. That's five cents less on the dollar.
And, during those 15 years, Californians will have been able to
keep and spend as they wish $118 billion dollars-money which
they otherwise will not have. For, without the constitutional
amendment, government will almost certainly keep that huge sum
for itself. I don't need to tell you that $118 billion in the billfolds
of the people can only result in a healthy shot in the arm to the
state's economy and mean many more jobs to the working men and
women of California.
Still, during that same period, our constitutional amendment
will enable state government to more than keep up with inflation
and increases in population. Indeed, at five percent a year (three
percent for inflation and two percent for population increases) the
III
state will have to increase its tax revenues 118 percent in 15 years
to keep even with inflation and population growth.
But, under our planned limit state government revenues will in-
crease in the area of nearly 200 percent.
It should be obvious from this that the constitutional amend-
ment we're proposing will allow for tremendous leeway in pro-
gram innovation and even creation of realistic new programs to
meet public needs.
On the other hand, with this revenue control in effect, state
government in only 5 years would be in a position to reduce the
personal income tax by another 25 percent, or reduce the state
sales tax by 1 cent. In only 10 years state income taxes could be re-
duced 60 percent or there could be a 2 cent reduction in the exist-
ing state sales tax, or a combination of both. This would, of course,
be a decision for the legislature to make. All of this would be in
addition to the ongoing 10 percent income tax cut we are propos-
ing to begin next year.
Safeguards
Some of you have raised the question: what would happen under
our proposal if the state were to experience an economic depres-
sion or natural disaster? Would the provisions of the constitu-
tional amendment allow the state to cope. with such emergencies?
Our program calls for the creation of an emergency fund to be
appropriated by the legislature to meet such contingencies. The
emergency fund would be a safeguard, not unlike a family's sav-
ings account. In the event this fund (up to four percent of the
total budget of any given year) were ever depleted, and a short-
age of necessary funds continued, the legislature could raise the
tax limitation we're proposing by a two-thirds vote of the mem-
bers. Then the voters would be given an opportunity at the next
statewide election to approve or disapprove the increase in the
limitation by a simple majority vote. A Tax Surplus fund
would be created to replenish the emergency fund, if necessary,
and then refund the remaining surplus to the taxpayers or use it
to reduce tax rates.
In addition, the constitutional amendment will provide that the
legislature can place a referendum on the ballot for a vote of the
people to defer the annual decrease in the revenue limit.
At no time would state services be allowed to fall below the cur-
rent level of per capita expenditures, adjusted for inflation and
population growth.
IV
If the federal government were to take over a particular state
function, or increase its revenue sharing, the legislature could
either pass the savings on to the taxpayers or use the money for
new programs.
The constitutional amendment would require a two-thirds vote
of the legislature, and the governor's approval, to increase any
specific tax within the overall limitation. And, a two-thirds vote
of the legislature would be required to override a governor's veto
of any tax increase.
The One-time Surplus
Earlier in this message, I mentioned that the legislation already
introduced to return the state's current one-time surplus to the
people has been effectively shelved in committee. As you know,
this bill was recently amended by the author, at my request, to
exempt all Californians earning less than $6,000 per year (ad-
justed gross income) from paying any state income taxes whatso-
ever this year. Surely, with this amendment, it can no longer be
credibly argued that the legislation was designed to unduly bene-
fit the wealthy at the expense of the poor.
Nor can it honestly be said that the proposed return of the one-
time surplus contained in the legislation gives an unfair advantage
to any segment of our citizens. Those who pay little or no state
income tax will benefit directly from the deferral of the one-cent
sales tax increase. Those who do pay state income taxes in 1973 will
benefit from the proposed 20 percent income tax rebate in direct
proportion to their total state income tax bill.
It has been suggested the income tax rebate is disproportionate
to the share of the surplus which came from the income tax. That
is not true. Federal and state income taxes made up some $60 mil-
lion more than we are rebating by way of the income tax.
To suggest that the proportional rebate is unfair to any eco-
nomic group amounts to sheer demagoguery.
The legislation now before you relating to the surplus deserves
your swift consideration and passage.
Our Commitment to the People
If it becomes increasingly apparent that our bill to deal with
the surplus stands no chance of passage, and that the legislature
cannot, or will not, place our proposed constitutional amendment
on the ballot, I will have no choice but to meet my commitment
to the people of California and lead a petition drive to place the
V
issue on the ballot by initiative at a special statewide election in
November.
In this event, the initiative amendment will include our pro-
posed 20 percent income tax rebate for 1973, as well as the 10 per-
cent across-the-board income tax cut and the revenue control
provisions I already have outlined.
The Legislative Process and Representative Government
It has been charged by some that because we have placed the
long-term elements of our program in a constitutional amend-
ment, we are deliberately attempting to circumvent the legislative
process, that the program is a direct threat to representative gov-
ernment.
I do not believe the program we have proposed poses a threat
to either the legislative process or representative government.
What it does do is to allow all of us realistically to come to grips
with a difficulty which state government-indeed all levels of gov-
ernment-has experienced for years: controlling the expenditures
of tax money.
Certainly, the revenue limit we are proposing represents no
threat to the legislature's authority or prerogatives in altering
the state's tax structure within the limit. It is merely designed to
halt a continuation of the long-established government trend
which siphons off an ever greater share of the people's income for
itself. Is that a threat?
Frankly I believe our revenue limit holds the promise of assist-
ing the legislature in its determination of spending priorities SO
that state government can, once and for all, reverse the trend
toward higher and higher taxes and permit the people to keep a
larger share of their earnings to use as they wish.
The Frightening Alternative
Government must realize that it cannot indefinitely tax the
people at constantly increasing levels without destroying the peo-
ple's ability to support themselves and their families. In the end
they will wind up defenseless, at the mercy of a vast special
interest-oriented government bureaucracy they unwittingly helped
to create.
We need merely to look at the record.
Before 1930, government at all levels took but 15 cents from
the average dollar earned in this country. Only twenty years later,
in 1950, that 15 cents had doubled to 30 cents.
VI
Today, government is keeping 43 cents of the people's earnings
for itself. In only the next 15 years, our projections show that
government's share will have increased to almost 54 cents on the
dollar-more than half the people's earnings.
If we as Americans allow that trend to continue, it is only a
matter of time before we'll have nothing of our earnings to spend
for ourselves. The spectre of such utter dependence on government
should be frightening to every citizen who values our traditional
values of self-reliance and our productive free enterprise way
of life.
A Once-in-a-Lifetime Opportunity
I am firmly convinced that California has an unparalleled op-
portunity to show the way to the rest of the nation-the way to
reverse the trend we have been a witness to.
You in the legislature can help make that possible by exercising
your authority to approve the legislation we have proposed and
placing the constitutional amendment I will submit to you on the
ballot for a vote of the people.
I urge you to expedite these matters at the earliest possible time.
I hope you will find the specific details of the program contained
in the following pages of interest and assistance.
Sincerely,
Ronald Reagan
RONALD REAGAN
Governor
VII
Some Press Comments
" As a concept
(the Governor's plan) is as practical as the spend-
ing limitation placed on local governments by the legislature and the
Governor in SB 90 last year. Future governors and legislators still
would be free to set spending and taxing policies limited only by the
fixed ceiling on total spending.
They could even be spendthrifts and crash through the ceiling, but
only if the people agreed to it.
"The requirement of the people's concurrence is, after all, no more
than government by the consent of the governed."
San Francisco Examiner
Governor Reagan has proposed a sensible plan to reduce the amount
the state takes from every taxpayer annually and to give the people
less instead of increasingly more government.
"The final decision will be made by the electorate at the polls. It is
another impressive accomplishment of the Reagan administration that
he is spear-heading this move to give the people the opportunity to
chart their own destinies.'
Los Angeles Herald Examiner
Governor Reagan's proposal to delay the state sales tax increase
and cut back the income tax 20 percent
as a way of returning most
of the $850 million state surplus to the people who paid it in, is emi-
nently right for short-term tax reduction and it is a challenge the legis-
lature won't easily evade.
"Dr. Milton Friedman, University of Chicago economist, who is ac-
companying Governor Reagan on his missionary expeditions to sell his
tax limitation plan, sees it as a 'unique and valuable opportunity for
citizen participation in the spending taxation process.' This is some-
thing new in American government and because it is new it may not
have instant popularity in Sacramento but it may well have with the
public.'
San Francisco Chronicle
"The time is near when government will take more out of each dol-
lar than the earner keeps. Governor Reagan perceives that day-and
indeed the current level of taxation-as a disaster for wage earners
and the entire private sector of the economy. His view should find con-
currence among taxpayers who have experienced the sinking feeling
that they are 'running just to stay even on the tax inflation treadmill.'
IX
'The program requires a constitutional amendment and if the legis-
lature fails to put it on the ballot, he intends to lead an initiative
petition to bring the issue to the people. Hard-pressed taxpayers who
take the time to study the Governor's program should comprise a
formidable army ready to sign the petition and troop to the polls.
And if the nation's most populous state puts restraints on spending
and taxes, perhaps even Washington will be forced to follow suit.
Santa Monica Evening Outlook
"Taxation is a necessary means of financing government; if carried
to excess, it becomes an oppressive burden on the citizenry. Reagan
points out that all governments together-state, local, federal-pres-
ently soak the California taxpayer for 43 cents of every dollar he
earns. 'Obviously,' warns the Governor, 'freedom itself is in danger
if we continue this rate of increase.'
"That is just about the size of it.
Dallas Times Herald
The Governor has proposed a realistic and feasible long-term and
far-reaching program to control the growth of state taxes.
"The Governor's plan is a way that assures that you will have some
of your income to spend yourself. Without such control, it is clear
that you eventually will be totally dependent on a socialistic govern-
ment to support you on money it has taken from you.
Few hard-pressed California taxpayers, we believe, will reject such
a realistic tax reform proposal. Governor Reagan's proposed revenue
control and tax reduction program could well be the prototype for
every state in the Union.'
Sacramento Union
"
It's not very hard to predict what the voters-of California or
Massachussetts- would do, if they were given an opportunity to reduce
their taxes and slow down government spending.
Herald Traveler Record American
Boston, Mass.
'Reagan and his task force of tax and economic experts have put
together a revolutionary and fundamentally sound concept for at last
imposing a realistic ceiling on governmental spending.
"It's a plan which is certain to outrage and disturb those who have
devoted their lives to spending other people's tax dollars.
"But it is also one which deserves the enthusiastic and wholehearted
support of all of us who have become bone-weary of seeing every extra
dime we make gradually snapped up and carted off by one tax collector
or another. "
Oakland Tribune
X
"Broadly defined the (Governor's) plan suggests installing a ceiling
on state spending. This would be determined by a graduated formula
based on a percentage of statewide personal income. Thus, the limita-
tion is linked directly to the relative health and vitality of the state's
economy and citizens.
"Whenever anyone speaks of imposing controls on government spend-
ing there are immediate, and usually hostile reactions, to such limita-
tions. So it's been with Governor Reagan's tax limitation proposal.
"Many have reservations
but we're inclined to endorse the radical
approach contained in the plan.
KCBS Newsradio, San Francisco
"It is a carefully reasoned, well thought out program that offers
some hope for controlling the costs of government without cutting
down on services, as well as offering auxiliary benefits in easing the
crushing burden borne by taxpayers.'
Bakersfield Californian
"The reason the State of California now enjoys a bonanza cash sur-
plus that may reach a billion dollars is that you and I were overtaxed.
It's our money. It should be promptly returned to the people.'
KGO Radio, San Francisco
"Three big cheers for Governor Ronald Reagan's drive to slap an
unprecedented lid on state taxes, offer a one-time 20 percent rebate
and a permanent 10 percent reduction in Sacramento's take of our
paychecks.'
Richmond Independent
"The legislature should give full consideration to Governor Reagan's
immediate solution, as well as his recommendation for a permanent
10 percent cut in the income tax starting next year to prevent further
surpluses from developing."
Monterey Peninsula Herald
'What the Governor wants to do is simply to reduce the percentage
of the people's earnings state government can take. The Governor says
he has been appalled at the big spending projects legislators have pro-
posed with never an answer as to where the money is to be found
We at KHJ-TV would ask the legislators just one question : what have
you done about our tax burden lately?"
KHJ-TV, Los Angeles
XI
"Governor Reagan's bold, visonary, tax-freeze plan
deserves
the serious consideration of the entire California state legislature.
"The way taxpayers feel today about the amount of money they are
being required to pay in federal. state, county, city and special district
taxes, there is little doubt that the Reagan proposal would be approved
overwhelmingly by the voters at the polls-in any form it appears on
the ballot.'
Contra Costa Times
Walnut Creek
"A tax reduction is unique and obviously desirable. Dr. Friedman
called it 'an imaginative venture.' But in his preface praising the plan
the economist warned that all attempts to hold down taxes and govern-
ment spending by controlling individual programs have been defeated
by a coalition of special interests.
'The elections this fall may reveal that taxpayers can rise up as a
single special interest opposed to giving nearly half of every dollar to
the government."
Fullerton News Tribune
"We think the Governor's tax limit proposal is reasonable and de-
serves public support. Now is the time to clamp a lid on government
costs and spending.'
San Gabriel Valley Tribune
"The Press Democrat agrees with the Governor's proposal. Much of
the surplus was produced by the payroll withholding system instituted
last year. That money should go back to the people who paid it-those
who file state income tax returns.
"The sales tax is paid by all and hits those in the lower income
brackets the hardest. Delaying the 1 cent increase would give that part
of the surplus back to all of the people.'
Santa Rosa Press Democrat
"Governor Reagan has reason to be proud of the imprint his philos-
ophy has made on a state government which had spent itself into a fiscal
crisis that broke soon after he took office. His plan is imaginative and
pioneering and deserves a full and objective appraisal by the legis-
lature."
San Diego Union and other Copley newspapers
XII
"Governor Reagan has launched a bold, new plan to establish some
long range control over the prolific growth of state government
We predict that when the people are given a chance to express them-
selves, it will receive resounding approval."
Lodi News-Sentinel
"It is a bold plan, well conceived by some of the nation's best econo-
mists. We would like to see it put into effect, as it provides safeguards in
the event of a catastrophe."
Elk Grove Citizen
"Stripped down to its bare essentials and left uncluttered of all the
hyperbole opponents will surely throw
to confuse the issue, the
tax limitation program proposed by Governor Ronald Reagan is quite
simply a proposal to place all government spending on a controlled
basis, identical to that under which private enterprise is forced to
operate.'
Folsom Telegraph
"It is refreshing to find a politician proposing responsibility for
spending be placed upon the spenders. It is refreshing, too, to hear a
politician say government cannot continue to grow and spend and
expect the people to pay and pay.
"The Governor is to be commended (and)
has accepted the chal-
lenge and done something positive about a perplexing, and seemingly
perpetual problem. He has developed a constitutional amendment that
will do something to boost the California economy for both employee
and employer.
"Governor Reagan is attempting a practical solution to something we
all complain about: taxes. A word of caution: before you listen to the
predictions of doom
take the time to listen to the Governor and
examine his proposal. You will be asked to make a decision altering
the course of California's government. It is important-and appro-
priate-that the people make this decision.
"Virtually every contingency has been thought of and provided for
in this constitutional amendment."
The Ledger, Montrose, California
"The lawmakers like to be free to spend money-our money, that is.
But Reagan says that if the Legislature won't go along, he'll sponsor
an initiative campaign to get the amendment on the ballot. And, that
should have less trouble. The people are tired of having their money
spent carelessly in Sacramento.
"Reagan's plan is complicated
but it makes sense.'
San Rafael Independent Journal
XIII
The California Revenue Control
and
Tax Reduction Program
"
a wise and frugal government, which shall restrain men
from injuring one another, which shall leave them otherwise free
to regulate their own pursuits of industry and improvement, and
shall not take from the mouth of labor the bread it has earned.
This is the sum of good government
11
-Thomas Jefferson
"An unlimited power to tax involves the power to destroy."
-Daniel Webster
"All attempts to keep down government spending and taxes by
controlling individual programs have failed-defeated by a coali-
tion of special interests attached to specific programs. The only
hope of meeting the public's demands for an effective lid on
spending is by tackling the budget as a whole, rather than piece-
meal.
"The Governor's proposed spending ceiling to be included in
the Constitution is an imaginative venture in this direction. It pro-
vides for expenditure control responsibly, allowing for growth in
the State's economy, for emergencies, and for a gradual transition
to a lower level. If the public seriously wants its taxes reduced,
this is a promising way to proceed.
"The Governor's proposal has an importance that extends far
beyond California. It will offer a beacon to every other state and
to the Federal Government.
"Citizens throughout the land are coming to recognize that they
are not getting their money's worth for the 40% of their income
that is being spent for them by governmental units, Federal, state
and local. They are demanding that they be permitted to keep
more of their own income to spend in accordance with their own
values.
"California may show them how to achieve this objective."
Milton Friedman, Ph.D., Professor of Economics,
University of Chicago
PROJECTED STATE REVENUE GROWTH
50
$47.1
40
30
REVENUE $ IN BILLIONS
$27.4
WITHOUT CONTROL
20
WITH TAX CONTROL
10
$9.8
1973-74 74-75
79-80
84-85
1989-90
YEAR
XVII
TABLE OF CONTENTS
INTRODUCTION
Page
Governor Reagan's Message
I
Some Press Comments
IX
THE PROBLEM: Constantly Increasing Taxes
1
Reform is Possible!
1
How to Reduce the State Tax Burden Permanently
3
THE SOLUTION: Controlling State Spending, Realistic
Tax Reduction Plan
5
Major Elements of the Revenue Control and Tax
Reduction Program
6
Tax Limit and Reduction
6
Limit Computation-Economic Estimates Commission
6
Revenue Limitation
6
Definitions
7
Tax Reduction
8
Definitions
8
Tax Surplus Fund
9
Local Government Tax Limit
9
Flexibility to Meet Changing Needs, Emergencies
9
Emergency Fund
9
Definitions
10
Safety Valve-Vote of the People
10
Limit Adjustment
10
Tax rate adjustments
10
Transfer of fiscal responsibilities
11
THE RESULT: To Permanently Lower the Tax Burden
12
CONVERSATION WITH DR. MILTON FRIEDMAN, Professor
of Economics, University of Chicago
13
COMMENTS BY OTHER TAX EXPERTS
18
QUESTIONS AND ANSWERS
20
ACKNOWLEDGMENTS: TAX REDUCTION TASK FORCE
24
APPENDIX: Statistical Data, Charts
29
Footnotes
47
XIX
THE PROBLEM:
Constantly Increasing Tax Burden
During the past two generations, the tax burden of the people of
California and the United States has almost tripled. Government takes
the first and largest slice of the average citizen's income, leaving the
people a steadily shrinking share of the income they earn by the fruit
of their own labor or through investment.
In 1930, the combined cost of government at all levels-Federal,
State and local-was about 15% of all personal income. By 1950, gov-
ernment's cut had grow to 32%. This year, 1973, it is estimated that
combined government revenues-Federal, State and Local-will be more
than 43% of California's total personal income.
The typical wage earner today must work almost five months of the
year just to pay his total taxes to the different levels of government.
Taxes cost the average family more than it spends for food, shelter
and clothing combined.
Unless this trend of higher and higher taxes is reversed or slowed
down, by the early 1980's, government revenues will be more than 50%
of California's personal income. By 1990, economists estimate the per-
centage will reach nearly 54% of total personal income.
Once established as part of a government budget, few spending pro-
grams ever end. Quite often. as government reform efforts demonstrate
time and again, some spending programs continue to be a financial
drain on the people regardless of whether the original goal is achieved
or whether experience proves a particular program to be ineffective
in meeting the need for which it was adopted.
In good times and bad, in periods of high employment and recession,
government spending goes in only one direction: UP. That means
higher taxes and higher taxes means less take-home pay for the in-
dividual.
Because government spends more, the people have less of their own
income to spend for their own priority needs. Instead, in a tragic cycle,
more and more people become dependent on government and this
triggers even greater government spending.
Can anything be done? Can the people act to limit the amount of
their income government may take? Can government spending ever be
brought under control?
Reform Is Possible!
Two years ago, the State of California demonstrated that something
can be done to control government costs when it implemented a massive
overhaul of the public welfare system. At the time these reforms
were proposed, welfare costs were increasing two to three times
faster than the normal expansionary (without tax increases) growth
1
of state revenues. Welfare caseloads were growing at the rate of 40,000
new people a month and the public assistance system was riddled with
complex and arbitrary regulations and laws which not only allowed but
actually encouraged welfare fraud.
The welfare reforms were designed to
-tighten eligibility to eliminate welfare fraud
-bring welfare costs under control and most important, to
-increase benefits for the truly needy (those with no significant income
of their own) by assuring that California's public assistance dollars
went only to those who really needed help.
Critics denounced these reasonable reform efforts and instead sug-
gested increasing taxes by more than $700 million. This would have
meant subsidizing a discredited welfare system that was unfair to
both the taxpayers and the truly needy.
It was alleged that the proposed reforms would simply transfer state
welfare costs to local government and thus would mean higher local
property taxes.
The welfare reforms Governor Ronald Reagan proposed were adopted
and put into effect. The result has demonstrated beyond dispute that
government costs can be brought under control. At the end of January
1973, there were 265,000 fewer people on welfare than when the reforms
were proposed.
Instead of transferring state costs to local government, as critics
direly forecast, 42 of California's 58 counties reported reductions in
their basic county-wide property tax rates in the year following wel-
fare reform.
Federal taxes are responsible for most of the total tax burden of the
people of California. The State of California can do nothing to influ-
ence Federal spending except to support the President's current efforts
to hold down spending as a means of fighting inflation and slowing
down the growth of Federal taxes.
But it can and has acted to reduce the tax burden of California's
people at other levels of government. The tax reform and school finance
program enacted in 1972 (Senate Bill 90) imposed limits on local gov-
ernment spending.
Besides providing immediate homeowner property tax reduction, the
program enacted last year will provide a permanent "brake" on local
spending and assure local taxpayers the right to decide for themselves,
by majority vote, whether they wish to increase local taxes.
The program outlined below will accomplish the same results at the
state level, by placing a permanent limit on the amount of revenue the
State may take from the people of California to finance state govern-
ment.
No one should be deterred by heeding the cries of those who claim it
cannot be done. It can be done, if the Legislature responds positively
to the urgent demand of the people of California for lasting and
realistic relief from their growing total tax burden.
2
In welfare, the State of California approached a complex problem
by totally overhauling the state programs causing the problem. This
practical and no-nonsense approach to welfare reform is the nation's
most effective. Indeed, it has been cited as a model for other states and
the Federal Government.
Other states have incorporated elements of California's welfare
reform into their own reform efforts and the Federal Government is
utilizing the expertise of some of California's welfare reform team in
its own efforts to control welfare costs and eliminate abuses on a
national basis.
It is time now for another total effort-an effort that will control the
growth of government spending and thus permanently reduce the total
state tax burden of the people of California.
HOW TO REDUCE THE STATE TAX
BURDEN PERMANENTLY
One of the greatest needs in American government today is control
of the growth of spending. The tax limitation plan that Governor
Reagan has proposed for California seems to me to offer a unique and
valuable opportunity for citizen participation in the spending/taxation
process.
-c. Lowell Harriss, Ph.D.
Professor of Economics
Columbia University
"The proposed tax limit amendment represents a fundamental
change in the way we conduct our public business in the State of
California.
The proposed tax limit
is based on an assump-
tion that the voters in California have the intelligence, information and
the right to determine the total state tax revenues.
-William A. Niskanen, Ph.D.
Professor, Graduate School
of Public Policy,
University of California
at Berkeley
3
-
THE SOLUTION:
Revenue Control and Tax Reduction
This program is the result of more than six months of concentrated
effort by the Governor's Tax Reduction Task Force. The task force was
assisted by nationally noted economists and experts in public admin-
istration, management and public policy. The goal during these months
of careful analysis was to develop a realistic and a responsible way
to reduce the ever increasing burden of taxation being borne by the
people of the State of California.
Elsewhere. Governor Reagan outlined a proposal for returning Cali-
fornia's $852 million 1973 fiscal year surplus to the citizens of Cali-
fornia-through deferring a scheduled one cent increase in the state
sales tax from June 1. 1973 to January 1, 1974 and by giving every
income taxpayer a 20% tax credit or rebate on 1973 state income taxes.
The Tax Reduction Program, to be introduced as a Constitutional
Amendment subject to a vote of the people, provides tax relief on a
long term basis. It will include an immediate 10% reduction in state
income tax rates and incorporates into the State Constitution a plan
to systematically reduce state taxes by imposing a maximum limit on
the percentage of California's total personal income that may be taken
by the state.
The program will gradually increase the amount of personal income
that remains in the hands of the people, to spend as they see fit, and
it will decrease the percentage taken by state government.
It allows flexibility to transfer program responsibilities and func-
tions from one level of government to another. It reinforces the legis-
lature's authority to decide the proper combination of state taxes and
other revenues to meet budget requirements.
It contains comprehensive emergency provisions to enable the gov-
ernment to meet the needs of the people in times of natural disasters,
economic recessions or other emergencies. It allows state revenues to
grow to permit financing of present State programs and includes a
sufficient expansion of revenue growth to accommodate desirable and
legitimate new programs to be adopted to meet the changing govern-
mental needs of the people of California.
At the same time, it slows the rate of government's revenue growth
in relation to the State's economic expansion and provides a means to
return the surplus to the people in the form of lower taxes. In other
words, this plan is designed to permit the take-home pay of the people
to grow faster than their payroll deductions for state taxes.
It is a visionary concept totally in keeping with America's historic
tradition that the best kind of government is a government of the
people, by the people and for the people.
5
The plan will produce a healthier State economy, by leaving the
people of California more of their own money to spend as they wish. It
will mean a more responsible state government. It will not force in-
creased costs on local government. In fact, this program will incorpo-
rate the local tax rate limit concept of Senate Bill 90 into the Consti-
tution to assure permanent protection against increases in local spend-
ing without a majority vote of the people themselves.
Major Elements of the Revenue Control
and Tax Limit Program
REVENUE LIMIT AND REDUCTION PROVISIONS
Limit Computation-Economic Estimates Commission
Each year, estimates of state personal income will be made by an
Economic Estimates Commission, consisting of the State Controller, an
appointee of the Legislature and an appointee of the Governor. On
October 1 and April 1 of each year, the Commission will make, adopt
and publish an official estimate of California's total personal income
for the succeeding year. (Similar estimates are now made twice an-
nually by the Department of Finance and form the basis for projecting
revenue and budget estimates.) These estimates shall determine the
State Revenue Limitation for both the Governor's Budget in the next
fiscal year and the Budget as enacted by the Legislature. The Revenue
Limitation will be determined by a declining percentage method
(8.75% in 1973-74, 8.65% in 1974-75, etc.) or by a per capita constant
dollar calculation, as described below.
On August 1, or as soon thereafter as the necessary data is avail-
able, the Commission will determine and publish the amount of sur-
plus, if any, for the previous fiscal year.
RESULT: The effect of this provision will be to provide an effective
equitable and official means of establishing the State Revenue Limit
each year and to eliminate any dispute over the maximum permissible
size of the State Budget.
Tax Revenue Limitation
State tax revenues, except inter-governmental transfers, employment
insurance trusts and excluded fees and receipts, will be limited to a
maximum of approximately 8.75% of the State's estimated total per-
sonal income for the fiscal year 1973-74. Thereafter, the maximum
revenue limit will be determined in the manner described below. The
figure 8.75% (an approximation pending later refined estimates) is
the result of dividing anticipated 1973-74 State Revenues by the
6
1973 estimated total state personal income. This produces the 8.75%
revenue limitation for fiscal year 1973-74. In other words, the State's
revenues currently represent about 8.75% of the estimated total per-
sonal income in California.
RESULT: The effect of this provision will be to slow the growth
rate of State Government spending by limiting the proportion of per-
sonal income that can be taken in taxes to the designated percentage
allowable under each year's Revenue Limitation. In short, it will pro-
vide an effective limit on state spending.
Definitions
State personal income is the total personal income of California as
defined by the U.S. Department of Commerce, and represents not only
earned income, but all other income, including income to nonprofit
institutions, Social Security and Welfare payments and the imputed
rental value of owner-occupied dwellings. Professional economists agree
that this is the single best standard measure to accurately reflect in-
come to individuals who are, of course, the true payers of all taxes.
State tax revenues means all receipts to the State Government of
California, except as noted. The major components of State Tax reve-
nues are:
-State Sales Tax
-State Personal Income Tax
-State Corporate Income Tax
-State Inheritance and Gift Tax
-Motor Vehicle Taxes
-Cigarette Taxes
-Alcoholic Beverage Taxes
-Horse Racing Taxes
-Insurance Taxes
-Miscellaneous taxes, licenses and fees, except excluded user fees.
Intergovernmental transfers are amounts received by California,
from other levels of government, principally from the Federal Govern-
ment as fiscal aid in the form of shared revenues and grants-in-aid, as
reimbursements for performance of general government functions and
specific services for the Federal Government or in lieu of taxes; in-
cludes the large sums of money received from the Federal Govern-
ment for welfare, education, health care and highways.
Employment Insurance Trusts are revenues from contributions re-
quired of employers (including the State of California) and employees
for funds (and earnings on assets held by such funds), such as: the
Unemployment Insurance Fund; Disability Insurance Fund; and Pub-
lic Employees Retirement System.
7
Excluded fees and receipts are taxes, fees, penalties and other mone-
tary extractions, receipts, and interest and costs in connection there-
with, imposed, collected or received where the basis of the user fee is
generally available from a non-State source or where the user fee is
collected to regulate a non-commercial or non-professional activity. Ex-
amples of excluded fees and receipts are fees for use of State Park
camping facilities, fees paid by students enrolled at the University of
California and the State University system, hunting and fishing license
fees and charges made for State owned parking lots.
Tax Reduction
The allowable percentage of state personal income which the State
may take as revenues in 1974-75 shall be reduced by 0.1% each year,
commencing in fiscal year 1974-75, unless using this declining per-
centage the Revenue Limitation in a given year would produce less
total revenue than $360 per capita constant dollars, using a base year
of 1967. (The year 1967 was the last year the Federal Government
defined a "constant dollar. '')
The cost of present state programs and services in California for
fiscal year 1973-74 is $467 per capita. Measured in "constant dollars,"
the present cost of existing state programs and services for fiscal year
1973-74 would be $360 per capita. That means it takes $467 this year
to purchase the same amount of goods and services that $360 purchased
in 1967.
By measuring costs on a constant dollar basis, the eroding impact
of inflation on the purchasing power of the dollar is taken into con-
sideration.
Thus, if the 0.1% per year reduction factor should ever produce
revenues less than $360 in constant dollars, the constant dollar method
of calculating the Revenue Limitation would be used. This would as-
sure that the State's current level of services to the people would never
be decreased because of expected growth in population and inflation.
RESULT: The result of this yearly 0.1% reduction will-over the
years-gradually increase that portion of total personal income that
remains with the people who earned it and it will require the Legisla-
ture to lower taxes as the allowable Revenue Limit declines.
Definitions
Constant (1967) dollars are dollars with 1967 purchasing power, as
established by the National Consumer Price Index. The limit expressed
in per capita constant dollars means that revenues will always expand
to meet the combination of inflation and population growth
8
Tax Surplus Fund
The State will create a Tax Surplus Fund for any surplus of reve-
nues over expenditures and/or any surplus of revenues over the reve-
nue limitation within a given year. The money in the Tax Surplus
Fund may not be spent for programs. These funds may only be used
to return the surplus revenues above the revenue limitation to the peo-
ple, either through refunds or by decreasing taxes, as determined by
a majority vote of the Legislature, with the concurrence of the Gov-
ernor.
Local Government Tax Limit
The State will pay to each local entity that amount necessary to re-
imburse them for increased costs caused by newly-enacted State pro-
grams or increased levels of service required by the State under an
existing program.
The property tax rates in effect when the program begins will be
the maximum property tax rates which may be levied in the future,
unless the people by a majority vote elect to change the rates. In the
event of an emergency, the local governing body, by a four-fifths vote,
may temporarily increase property tax rates, but only until the next
regular election unless the temporary higher rates are approved by a
majority vote of the people.
RESULT: The effect of this provision will be to prevent State pro-
gram costs in excess of State Revenues from being forced on local gov-
ernment. With the local limits in effect, property taxes could not be
raised and, in addition, the State would be required to fund any new
or expanded programs mandated by the State at the local level.
FLEXIBILITY TO MEET CHANGING NEEDS, EMERGENCIES
Emergency Fund
The State will create and maintain an Emergency Fund equal to
0.2% of the State's personal income. The Fund may be appropriated by
the Legislature to meet bona fide emergency needs. However, prior to
use of the Emergency Fund, the State must exhaust other resources,
such as normal internal borrowing and available Federal funds. There-
after, the Emergency Fund may be used if the Governor declares a
State emergency. Any unused portion of the Emergency Fund at the
end of a fiscal year may be carried over to be used in the Emergency
Fund in the succeeding year.
RESULT: The effect of this provision will be to provide the Legis-
lature the flexibility to meet unexpected needs during legitimate emer-
9
gencies (such as substantial, unanticipated economic difficulties, nat-
ural disasters, etc.). This figure (0.2% of State personal income)
will amount to approximately $220 million in fiscal year 1973-74 and
may reach $750 million by 1990.
Definitions
Internal borrowing means procedures by which State funds borrow
from other State funds on a temporary basis to meet a cash flow defi-
ciency.
Available Federal funds are funds available through Federal pro-
grams, including those under existing Public Law 91-606, the National
Disaster Assistance Act, et al., to meet a national disaster declared by
the President.
Safety Valve-Vote of the People
If the Emergency Fund is exhausted, the Legislature, by a two thirds
vote and with the concurrence of the Governor, may impose a tax in-
crease to meet an emergency. Such tax increase will be temporary only
and will expire at the next general election, unless the people by a ma-
jority vote decide to extend it or to permanently increase taxes.
RESULT: This provision means that the Legislature may by a two-
thirds vote, spend in excess of the Revenue Limitation for that year,
including the Emergency Fund and may temporarily increase taxes
to do SO for legitimate unexpected needs. But the people will have the
opportunity to determine, at the next general election, whether the
temporary increase shall be extended, made permanent or allowed to
expire.
Limit Adjustment
The Legislature may, by a two thirds vote, place on the ballot for
a vote of the people the question of increasing or decreasing the limit.
If the issue is approved by the people, the revenue limit level will be
adjusted accordingly, and thereafter, the annual tax reduction will
commence from the level of the newly established limit.
RESULT: The effect of this provision will provide complete flexi-
bility to adjust the revenue limit level to accomodate unforeseen needs
or reductions in the costs of operating government.
Tax Rate Adjustments
No State tax may be increased if such increase will produce revenues
in excess of the annually established revenue limitation. The increase
of any State tax within the limitation will require a two thirds vote of
the Legislature and approval of the Governor.
10
RESULT: At present, only the Bank and Corporation tax requires
a two thirds vote of the Legislature for approval of increased rates. This
provision will put all taxes on an equal basis, requiring a two thirds
vote of the Legislature and concurrence of the Governor to increase any
State tax.
Transfer of Fiscal Responsibilities
If, as a result of a Federal or State statute or a judgment of a court
requires the State to perform and assume the cost of a program or
function formerly financed by another level of government, the State
revenue limit may be increased. If the transfer of a function is from
local government to the State, local taxes must be reduced by the
same annual amount the program cost at the time of transfer.
RESULT: This means that if the State is required, for example,
by a future court decision to finance local school costs now borne by
local government, local government would have to reduce its home-
owner property taxes by the amount it saves as a result of such a court
ruling. The effect of this guarantees that total taxes will not be in-
creased because of a transfer of financial responsibility for a specific
program from local government to the State. Instead of spending
the money it formerly earmarked for school costs and thus has avail-
able, local governments would have to return this tax saving to the
people through lower property taxes. This will prevent total taxes
from increasing as a result of transfers of financial responsibility from
one level of government to another.
This will provide flexibility for transferring functions between the
different levels of government, but without penalizing the taxpayer. To
the extent that such transfers increase or decrease expenditures at the
State and/or local level, the respective limitations are in turn in-
creased and/or decreased.
11
THE RESULT:
To Permanently Lower the Tax Burden
The long term result of this responsible and realistic program will
be to control the growth of government spending, reduce taxes and it
will maintain present levels of government service, taking population
growth and inflation into consideration.
It also will require the Executive and Legislative branches of state
government to more carefully consider each spending proposal both
on its own merits and to measure the cost against the impact that the
new spending program might have on state taxes.
With this Revenue Limit in effect, the State would have ample funds
to finance existing services and to adopt new programs. But by having
the limit in effect, at the end of five years, the State also could reduce
the State Income Tax by 25% or reduce the state sales tax by one
cent. At the end of 10 years, the State could accomplish a 60% re-
duction in state income taxes-over and above the 10% income tax
reduction that would go into effect immediately. Or the State, after
10 years, could reduce the sales tax by two cents. Or the Legislature
could enact any combination of tax reduction.
But the important point is the State would be planning its future
budgets to include tax reductions instead of tax increases. The people
want lower taxes now and in the future.
That is what this Revenue Control and Tax Reduction Program is
all about.
12
A Conversation With
DR. MILTON FRIEDMAN,
Professor of Economics, University
of Chicago:
Q. Dr. Friedman, thank you very much for taking the time to
discuss Governor Reagan's tax limitation plan. First of all. what do
you think will be the immediate and longrange economic impact on
California?
A. The immediate impact will be primarily through what it does
to people's expectations about the future in California. The enactment
of this measure will give businessmen in California and in the rest
of the country a kind of confidence they cannot have in any other
state about what will happen to the future level of taxes. And, there-
fore, its immediate effect ought to be to encourage a willingness on the
part of business and other groups to invest in California. In the longer
run, this effect will be reinforced by the fact that the citizens of Cali-
fornia will have more of their own money to spend on themselves (see
Figures 5 and 6), will see less of it going through government for
government services that they may not value at what it costs.
Q. Does this tax limitation plan mean the present and future level
of government services will be drastically reduced?
A. On the contrary. The plan provides that initially the amount
of money spent by the government will stay the same, as was otherwise
intended. Over the longer period, the amount of money spent by the
government is going to go up. It will be possible to have an expansion
of services. What's going to be held down is the fraction of your in-
come that will be spent by the State Government. But given that
California is going to continue to grow as it has over the past 100-odd
years, a slightly smaller fraction income will mean a larger amount
of money available for government services, SO the range of govern-
ment services will expand, not decline. (See Figure 5 and Table 5c).
Q. What assurances, Dr. Friedman, can anyone give that both
fiscal and social chaos won't result as a result of this plan?
A. The assurance you can give is that the State of California is
now spending a great deal of money. It's spending something near
9% of personal income. (See Figures 3 and 4) This proposal will
simply keep that amount of money spent the same as the fraction of
income for the next year, and then gradually reduce it over 15 years
to something like 71%. It is inconceivable that any kind of fiscal or
social chaos can arise out of preventing the State Government from
13
spending more than 71%. However, to allow for even that minute
possibility, the proposal has an emergency provision in it, whereby if
an emergency arises, the limits can be broached by the Legislature,
provided they are reasonably united behind it, subject to the approval
of the public at large. It seems to me those are ample assurances against
any kind of fiscal or social crises. People who talk about fiscal and
social crises arising out of this plan simply have not read the plan.
They are reading into it all sorts of imaginary fears of their own.
Just stop and consider, how do you get a fiscal and social crisis out
of setting a top limit to receipts and requiring the government to live
within its budget?
Q. How do you know this kind of plan can work?
A. There are very few things of which one can be certain-it's
only a fool who's positive. However, we know that other ways of trying
to hold down government spending have not worked. We know for
certain that trying to cut down particular projects doesn't work, be-
cause you get all the special interests going each after his own special
project, and the general public interest tends to get buried. The great
virtue of this plan is that it looks at the problem as a whole. One can
ask, how do you know that having a limit on the amount of money
you can spend keeps down your spending? Have you ever tried it?
I think most of the citizens of this State have, tried it, and the same
principle will apply to government. So we cannot be certain it will
work, but we can have a pretty good reason to, expect that it will.
Q. The allegation has been made that this limitation plan is really
a very simplistic answer to a whole host of complex social problems.
What is your reaction to that
A. Well, I think it is a simple, but not a simplistic, answer. And
it's a simple answer not to a whole host of problems but to one very
particular specific problem. How do you keep down the total amount
of spending? And it is exactly as simple an answer to that as it is to
say to you as an individual that the way to hold down your spending
is to keep watch on how much money you have in the bank. Now that's
a simple answer, but it's an effective answer. The fact that an answer
is relatively simple does not mean that it cannot be effective. On the
contrary, it's very hard to get a complicated answer to work.
Q. What does the program do about tax loopholes?
A. It doesn't do a thing about tax loopholes-that's completely
independent, whether you have this program or not. The closing of
tax loopholes depends on action by the Legislature. That can be done
without this program, that can be done with it. This program does
nothing about measles, either.
14
Q. Does this program help the rich at the expense of the poor?
A. It has no relation one way or the other to that. Its main effect
will be to reduce waste in government activities. Insofar as the distri-
bution of spending is concerned, that again is up to the Legislature.
This only sets a limit on the total amount to be spent. If the Legisla-
ture feels that too much of current spending is going to help one group
rather than another, there is absolutely nothing in this proposal that
prevents the Legislature from reorganizing the given total.
Q. Dr. Friedman, will the tax limit really force the Legislature to
establish spending priorities?
A. It must. Of course, it may be that somehow or other the Legis-
lature is going to completely disregard the Constitution and the law,
but I don't believe that's going to happen. I think it's a responsible
Legislature, and the best way to establish priorities in spending is to
have a total limit. That's true for the individual, and it's true for the
government.
Q. Well, then, why not reduce government by cutting bad pro-
grams?
A. That's a tempting approach. It's one that's been tried over and
over again. It never worked, and the reason it has never worked is
because, when you take one program by itself, all of the people who
have a special interest in that program land in Sacramento like a ton
of bricks. It's worth their while to spend a great deal of energy on it.
On the other hand, the public interest in having that program is
diffused. Each one of us saves a few cents, but for the special interests,
those cents accumulate into a great many dollars. As a result, when-
ever you try to take off one special program at a time, the special
interests win every time and the general interest is suppressed. The
great virtue of this proposal is precisely that it lumps together all of
these little programs into one bigger total and, thus, makes it possible
for the public interest-that is, your interest and my interest-to be
reflected, in the same strength and the same force as the separate
special interest.
Q. Dr. Friedman, over what period of time will the State tax
revenues be reduced, and to what percentage of total person income
will the State tax revenues drop before they actually bottom out?
A. Well, the particular proposal that the Governor has made looks,
at most, 15 years ahead, and it specifies that the government revenues
drop to a percentage of 71% of personal income, provided that is
higher than a specified constant amount in real terms, allowing for
price rises of government spending. There's no point now in trying
to figure what's going to happen in 50 or 75 or 100 years, and the
most you can say is at the moment, the program is geared to the next
15
15 years. As time rolls on, as people see how it works, as the public
decides whether it likes it or not, it can then make whatever decisions
are necessary to keep it going.
Q. Recently a State Legislative leader said that Governor Reagan
has actually declared economic war on the interests of most of the
people of California with this tax limitation plan. What is your reac-
tion to that allegation?
A. It's poppycock. Obivously, whoever made that statement didn't
understand the plan. If Governor Reagan has declared economic war
on the people of California, then the Legislature has done so; because
to begin with, Governor Reagan's proposal simply provides for spend-
ing the amount of money that the Legislature has already appropri-
ated. I find it hard to see how it's declaring economic war on the
people of California to provide that government spending will go up
year after year, almost in proportion to total income. The program
calls for a very large increase in the government budget. In my opin-
ion, from my point of view, I think if it has a defect, it's that it doesn't
cut down government spending fast enough.
Q. Everyone's standard of living has increased SO tremendously at
the same time that government has grown; thus, why limit govern-
ment?
A. Everyone's income and standard of living has grown at the
same time that pollution has grown. Does that mean that we ought to
be happy with pollution and not try to limit pollution? Everybody's
standard of living has grown, despite the fact that government has
been wasting some of our substances; but, fortunately, we are strong
enough and a productive enough economy that we've had enough left
over for waste. The fact is that you need to ask yourself the question-
here Federal, State and local governments are spending roughly 43%
of the National income (see Figures 1 and 2). Do you feel that you
are getting your money's worth for that? If not, then you better think
about how you can get more for your money, and the only way you
can do that is by cutting down the amount which the governments
spend, both on the Federal level and also on the State and local level.
Q. Some commentators have suggested that this plan is historic,
really a revolutionary step in the history of public finance. What is
your reaction to that?
A. There's some merit to that, but it goes a little far. You've had
many cases in which in local areas, in cities, in counties, you have had
limits on total taxes that can be collected, on the total amount that can
be spent. On the other hand, it is historic, in the sense that it is the first
time to my knowledge that a major state in the United States proposes
to impose upon its governmental process the kind of discipline that we
all impose on ourselves. We have a great background. For 150 years
16
from the birth of the Republic of the United States to 1932 or 33, we
had governmental spendings kept down to relatively small levels. Dur-
ing the whole of that period, spending for Federal, State and local gov-
ernments never exceeded 15% of the National income, except during
time of major war. In the past 40 years, we've had a revolution. The
New Deal ushered in a period in which government spending has been
growing by leaps and bounds and has now reached 43%. Something
historic needs to be done to stop that process.
17
COMMENTS BY OTHER TAX EXPERTS
Here is what some other leading economists in America say about the
California Revenue Control and Tax Reduction Program. All served as
advisors to the Governor's Task Force on Tax Reduction.
"Governor Reagan's plan to reverse the trend of ever-increasing tax
burden and of a continuous and limitless expansion of governmental
spending and to reduce the tax load gradually over the next few years
is excellent. I expect it to be received with enthusiasm by the citizens
and taxpayers of California. In fact, I feel that California may in this
be setting a precedent and example for the entire nation. Residents of
other states may soon be clamoring for comparable relief from exorbi-
tant tax bills.
"I believe that the approach used by Governor Reagan-to reduce
the tax burden in small annual steps and to relate the tax limit to the
personal income of our citizens-is the only practicable approach to
implement it."
-Roger Freeman, Ph.D., Senior Fellow, The Hoover Institution
"A constitutional initiative imposing strict limits on the taxation of
personal income and wealth is a direct and effective avenue by which
Californians may register their preferences with respect to state spend-
ing. Should this initiative pass, Californians may look forward to a
progressive reducton in the burden of state taxation.
-Craig Stubblebine, Ph.D., Professor of Economics, Claremont
Men's College, Claremont Graduate School, California
"The governor's plan offers the people of California a clear oppor-
tunity to not only stop the increasing tax burden, but also to reverse it.
It is a truly innovative, eminently sensible tax reform plan. If the
people of California accept it-and I think they will-it will mean more
money in the pockets of Californians to be spent for things they per-
sonally value and less money for government bureaucrats to dissipate.
"We are now at the point where government spending has become SO
wild and exuberant that it will only be controlled by restricting the
flow of tax money into the government coffers. The governor's plan is
a rational way to restrict this flow gradually and may be the only viable
alternative to keep us from a future fiscal crisis that could severely
damage each and every one of us."
-Martin Anderson, Ph.D., Senior Fellow, The Hoover Institution
18
"Unfortunately, evidence accumulates that legislatures respond
largely to the pressures of the entrenched government bureaucracy,
rather than to the public at large. Until the legislature is forced by
constitutional restriction to face up to the conflicts between the interest
of the citizens and that of the bureaucracy, they will continue to take
the route of least resistance. This has been, until now, that of allowing
government budgets and taxes to continue to grow. I applaud the initia-
tive taken by Governor Reagan of California in attempting to resolve
this major problem.'
-James Buchanan, Ph.D., Director of the Center for Public
Choice, Virginia Polytechnic Institute
"Governor Reagan's proposal will provide a basis for more rational
use of state funds and should assure the development of better pro-
grams. It should set a precedent for other states. Its adoption in Cali-
fornia should help to assure the success of the efforts now being made
in Washington to limit federal expenditures."
-Dan Throop Smith, Ph.D., Senior Research Fellow at The
Hoover Institution, and Lecturer at Graduate School of Busi-
ness, Stanford University
19
QUESTIONS AND ANSWERS
About the Revenue Control Plan
1. Over what period will State tax revenues be reduced, and to what
percentage of total personal income will the State tax revenues
drop before they bottom out?
Revenues will not be reduced. They will increase at a slightly
smaller rate than the personal income of the State increases.
Tax rates will be reduced by about 20% over the next 15 years,
by our estimates. At the end of that time, the percentage of per-
sonal income taken in State revenues will be 7.15%. If the
reduction is continued beyond that time, the percentage will
decrease until it reaches the level of constant dollar services
currently being provided, which should be about 51% to 6%
of total personal income.
2. Will the tax limit force the Legislature to establish spending
priorities? If so, how and why; and will this be done more effec-
tively than it is now?
Yes, because not every new program will be capable of fund-
ing levels that meet the desires of the special interests that sup-
port them. The Legislature will have to assess varying needs
against a limited capability to increase payments for those
needs.
3. As you know, California provides a rather substantial portion of
the State budget in local assistance. A substantial portion of the
local assistance budget is in the form of direct real property tax
relief. Won't the limit force the Legislature to eilminate this
real property tax relief from the State budget?
The program should have no effect on present or future prop-
erty tax relief. If additional property tax relief were to be
passed by the Legislature, under the terms of this program the
limit would be raised for the State, but property taxes would
be decreased dollar for dollar to offset the increase in the limit.
4. Is it true that had this plan been in effect during the last 15 years,
it would have been impossible to achieve a $2.5 billion tax pro-
gram, of which $1.25 billion went for property tax relief?
No. The Legislature could have raised the state revenue limit
by statute to the extent that it required lower property taxes
at the local level.
5. Won't the limitation plan result in the demise of county govern-
ment?
The plan should strengthen local government, including county
government, in relation to both the State and Federal Govern-
20
ment. Since the State Government will be unable to force un-
wanted programs and expenditures on local government, local
government will, therefore, be encouraged to define its own
needs and enforce its own solutions.
6. Isn't your concept of a tax limitation the same as the Watson
Amendment, which was defeated by the people at the polls in the
last election ?
No. The Watson Amendment was an arbitrary fixed limitation
on one tax without regard to income and other economic varia-
tions. The revenue control and tax limitation program is a
flexible limit on the general power of the State to tax in rela-
tion to the income of the people.
7. How does the plan handle a decision by the courts that all public
school costs must be borne by the State?
Such a decision would automatically increase the limitation at
the State level SO that the State could fund, without effect on
other programs, any school costs required of it. Simultaneously,
the plan would require a dollar for dollar tax reduction at the
local level.
8. How does the plan handle a cutback in the amount of Federal
funds which now flow into California by the billions each year
The plan is not related to the amount of Federal funding, and
Federal funds are excluded from the limitation. If fewer Fed-
eral funds will result in a lower level of services and the people
of California decide to pick up the costs of maintaining that
level of service, the State limit may be raised to do SO.
9. What happens if there is a large mandated Federal program over
which we have no control ? How will we pay for it?
The Federal Government has never mandated costs associated
with a program. In the highly unlikely event that they were to
do so, the State, under this program, would have to increase its
limit through Constitutional Amendment or decrease expendi-
tures for other programs.
10. Why include most so-called user fees within the limit Isn't it
good economics and, as a matter of fact, fairer to exclude those
functions for which people pay some direct charges?
Many user fees are involuntary payments to a monopolistic
government and are, therefore, in effect, taxes. Those fees are
included within the limit.
11. It has been criticized that linking State revenues to the total
personal income of Californians should not be done. Personal in-
21
come should be a reference point, but it should not be tied in the
Constitution to State revenues. Is this true?
Fixing a tax limitation to any other reference than the income
and resources of the people who must pay the taxes will result
in unequal treatment of the people, as well as artificial levels
of government services. Although "State personal income"-a
standard definition of the Federal Government-includes some
unearned components, it is the best standard measure related
to people's income, and people are the true payers of all taxes.
12. Is it valid to make a straight line extrapolation of economic
growth? Doesn't the analysis of growth of California's total per-
sonal income exaggerate growth in order to make it appear that
there will be more money available to run State Government than
there probably really will be?
Any projection technique, statistical or "eyeball," is subject to
criticism. Projections of economic and tax growth attached to
the description of this program are useful for illustrative pur-
poses and should be considered in that light. The design of
the program is independent of projection techniques, since
revenues as a percentage of personal income will be scaled iden-
tically, no matter how large or small the increases in personal
income turn out to be. Various techniques of extrapolation were
used, including straight line, average of historical percentage
increase, S-curve and exponential curves based upon linear re-
gression techniques.
13. Why not cut government spending by cutting bad programs?
Isn't this a better way than to tie State Government's hands
through this limitation plan?
Simply because program cuts have not worked. In those in-
stances when a specific program has been cut, the savings have
been drained off almost immediately into the programs. For a
more comprehensive explanation of this phenomenon, see Dr.
Friedman's comments in the text.
14. It has been stated by members of the Legislature that this plan
doesn't propose a limitation on the amount of taxes people will
pay but places a limitation on the amount of services you receive.
Is this true?
This is a simplistic and totally inaccurate statement. The limi-
tation is on taxes, not on services. Which taxes will be reduced
and to what extent will be decided by the Legislature when
the program is in effect. Which services will expand and how
much will also be decided by the Legislature, but an overall
expansion of services will be possible at the same time tax rate
reductions are put into effect.
22
15. Is it true that this plan emasculates the Legislative Branch of
government?
On the contrary. This program should increase the responsi-
bilities of the Legislature and the visibility of their decisions,
since the true problems associated with tax inequities and com-
binations will be addressed within a limited revenue base.
16. Is it true that this plan is a complete reversal of good fiscal
policy and there would be no discretion as to what kind of tax
policy the State could have?
As indicated above, not only is full discretion for tax policy
left with the Legislature under this program, but also the fact
of a revenue limitation should result in more rational and
better thought out tax decisions in the future.
17. Does the plan permit the Legislature to grant tax loopholes on
a majority vote but require a two-thirds vote to close them?
The plan permits the Legislature to reduce taxes by a majority
vote but requires a two-thirds vote to increase any tax. It
neither permits nor denies loopholes to be granted or closed.
18. Is this plan a way of the Governor saying we have all the pro-
grams we're ever going to have?
No. It is simply a way for the people to express whether or not
they feel government has grown too rapidly in the past and
should be required to grow more slowly, in the future. This is
the only way to achieve permanent tax reduction.
23
GOVERNOR'S TAX REDUCTION
TASK FORCE
STEERING COMMITTEE
TASK FORCE MEMBERS
Frank J. Walton, Chairman
Lewis K. Uhler, Chairman
Secretary, Business and
Charles D. Hobbs, Member
Transportation Agency
Richard E. Kazen, Member
Robert C. Walker, Member
TASK FORCE STAFF
Special Assistant to the Governor
Jeffrey Davis, Staff Assistant
John T. Kehoe, Member
Director, Dept. of Consumer Affairs
Linda Miller, Secretary
Diane Sekafetz, Secretary
James E. Jenkins, Member
Douglas A. Sloane, Administrative
Director of Public Affairs,
Assistant
Governor's Office
Sharon Young, Research Assistant
Edwin W. Thomas, Member
Administrative Assistant
TECHNICAL ASSISTANCE
to the Cabinet
Linda Bernheim
Lawrence R. Robinson, Jr., Member
William R. Knudson
Director, Dept. of General Services
Jeanette May
Richard Piper
H. Herbert Jackson, Member
Attorney at Law
Wendy Potter
Member (former Chairman) of the
Lund Tim
Little Hoover Commission
Virgil Woods
GOVERNOR'S TAX REDUCTION
TASK FORCE
ADVISORS AND CONSULTANTS
ARMEN ALCHIAN, Ph.D. Professor of Economics, UCLA
MARTIN ANDERSON, Ph.D.
13
Senior Fellow (Public Policy), The Hoover Institution, Stanford
NEIL BERSCH
Senior Partner, Touche Ross & Company, Los Angeles
14
PATRICK M. BOARMAN, Ph.D.
Director of Research, Center for International Business (affiliate of
Pepperdine College), Los Angeles
11
JAMES BUCHANAN, Ph.D.
Economist, Chairman of Center for Study of Public Choice, Virginia
Polytechnic Institute and State University, Blacksburg, Virginia
24
15
GLENN CAMPBELL, Ph.D.
Director of Hoover Institution on War, Revolution and Peace,
Stanford
8
HAROLD DEMSETZ, Ph.D. Professor of Economics, UCLA
10
PHOEBUS DHRYMES, Ph.D. Professor of Economics, UCLA
PETER DRUCKER, Ph.D.
Management Consultant, Member of the Faculty of Claremont Grad-
uate School, Claremont
19-
ROGER A. FREEMAN, Ph.D.
Senior Fellow, Hoover Institution on War, Revolution and Peace,
Stanford
5
MILTON FRIEDMAN, Ph.D.
Professor of Economics, University of Chicago
16-
FRANK GOBLE
Management and Motivation Consultant, Author, and President of
Thomas Jefferson Research Center, Pasadena
4
C. LOWELL HARRISS, Ph.D.
President, National Tax Association, Professor of Economics at
Columbia University, Consultant to The Tax Foundation, Inc., New
York
ANTHONY KENNEDY
Professor of Constitutional Law, McGeorge School of Law, University
of the Pacific, Sacramento
/
J. CLAYBURN LaFORCE, Ph.D.
Chairman of Department of Economics, UCLA
2
WILLIAM A. NISKANEN, Ph.D.
Professor, Graduate School of Public Policy, University of Califor-
nia, Berkeley
17
DAN T. SMITH, Ph.D.
Senior Fellow (Taxation), The Hoover Institution on War, Revolu-
tion and Peace, Stanford
3
- W. CRAIG STUBBLEBINE, Ph.D.
Professor of Economics, Claremont Men's College, Claremont Grad-
uate School, Claremont
9
- PROCTOR THOMSON, Ph.D.
Lincoln Professor of Economics and Administration, Claremont
Men's College
25
JAY TONTZ, Ph.D.
7-
Chairman, Economics Department, California State University at
Hayward
NORMAN TURE, Ph.D.
-
Tax Consultant and Economist, Washington, D.C.
26
APPENDIX
STATISTICAL DATA IN SUPPORT OF
REVENUE CONTROL PROGRAM
FIGURE 1
GOVERNMENT REVENUES FROM CALIFORNIANS
1950-1970
40
$37.2
30
$21.6
REVENUE $ IN BILLIONS
20
$8.1
10
FEDERAL
$5.7
$3.6
STATE
$7.5
29
$1.0
LOCAL
$1.1
1949-50
54-55
59-60
64-65
1969-70
YEAR
TABLE 1: GOVERNMENT REVENUES COLLECTED FROM
CALIFORNIANS: 1950-1970
TOTAL REVENUES BY LEVEL OF GOVERNMENT (1)
($ in millions)
Fiscal (2)
Local
State
Federal
Year
Total
Total
Total
Total
1950
$1,135
$1,029
$3,595
$5,759
51
1,327
1,351
4,675
7,334
52
1,378
1,499
6,201
9,077
53
1,525
1,593
6,723
9,841
54
1,498
1,681
6,891
10,078
55
1,659
1,877
6,626
10,161
56
1,849
1,895
7,664
11,589
57
2,126
2,285
8,583
12,994
58
2,456
2,400
8,733
13,589
59
2,494
2,660
8,734
13,887
60
2,662
3,068
10,529
16,259
61
3,283
3,347
10,528
17,158
62
3,471
3,580
11,197
18,248
63
3,868
4,033
12,252
20,153
64
4,339
4,536
13,230
22,105
65
4,516
4,868
13,505
22,889
66
5,094
5,356
14,695
25,144
67
5,701
5,531
16,803
28,035
68
6,050
6,850
18,667
31,567
69
6,884
7,699
20,528
35,111
70
7,487
8,115
21,584
37,186
Total % Increase
559.65%
688.63%
500.37%
545.69%
Average % Increase
10.04%
11.09%
9.75%
9.97%
30
TABLE 1: GOVERNMENT REVENUES COLLECTED FROM
CALIFORNIANS: 1950-1970
LOCAL REVENUES BY SOURCE (1)
($ in millions)
Fiscal (2)
Other
Charges and
Year
Property
Taxes
Miscellaneous
Total
1950
$731
$31
$372
$1,135
51
805
38
484
1,327
52
863
42
473
1,378
53
950
48
527
1,525
54
957
50
492
1,498
55
1,062
66
531
1,659
56
1,183
87
579
1,849
57
1,320
135
671
2,126
58
1,487
182
788
2,456
59
1,646
210
638
2,494
60
1,820
231
612
2,662
61
2,302
343
638
3,283
62
2,468
334
669
3,471
63
2,682
353
832
3,868
64
2,996
387
957
4,339
65
3,147
445
925
4,516
66
3,564
477
1,053
5,094
67
3,936
519
1,246
5,701
68
4,145
579
1,326
6,050
69
4,629
627
1,628
6,884
70
4,998
665
1,825
7,487
Total % Increase
583.72%
2,045.16%
390.59%
559.65%
Average % Increase
10.19%
17.44%
8.92%
10.04%
31
32
TABLE 1: GOVERNMENT REVENUES COLLECTED FROM CALIFORNIANS: 1950-1970
STATE REVENUES BY SOURCE (1)
($ in millions)
Fiscal (2)
Employ and
General
Selective
Individual
Corporation
Year
Insurance Trust
Sales
Sales
Income
Income
Licenses
Property
Other
Total
1950
$129
$322
$207
$61
$75
$73
$49
$115
$1,029
1951
315
401
224
76
98
78
57
101
1,351
1952
345
417
242
91
119
95
72
118
1,499
1953
356
462
278
94
119
94
72
118
1,593
1954
338
464
330
96
126
121
80
127
1,681
1955
358
491
356
107
133
130
87
216
1,877
1956
226
565
403
128
157
140
102
173
1,895
1957
477
603
430
143
167
146
108
211
2,285
1958
531
604
438
149
172
153
112
242
2,400
1959
588
634
516
161
175
166
114
306
2,660
1960
706
715
573
246
240
177
126
286
3,068
1961
816
715
592
270
273
186
129
366
3,347
1962
909
755
620
299
291
191
136
379
3,580
1963
1,122
813
665
322
311
206
148
446
4,033
1964
1,203
883
760
392
405
225
163
505
4,536
1965
1,285
944
828
411
416
239
179
567
4,868
1966
1,439
1,099
875
454
434
261
189
605
5,356
1967
1,533
1,062
889
500
453
273
194
629
5,531
1968
1,609
1,391
1,088
952
579
309
202
722
6,850
1969
1,761
1,684
1,170
1,087
593
335
221
849
7,699
1970
1,854
1,757
1,252
1,151
588
359
234
921
8,115
Total %
Increase
1337.21%
445.65%
504.83%
1786.89%
684.00%
391.78%
377.55%
700.87%
688.63%
Average %
Increase
18.84%
9.17%
9.55%
17.17%
11.40%
8.46%
8.29%
12.26%
11.09%
TABLE 1: GOVERNMENT REVENUES COLLECTED FROM CALIFORNIANS: 1950-1970
FEDERAL REVENUES BY SOURCE (1)
($ in millions)
Fiscal (2)
Individual Income
Corporation
Estate
Year
and Insurance Trust
Excise
Income
and Gift
Customs
Other
Total
1950
$1,688
$429
$902
$85
$35
$456
$3,595
51
2,293
474
1,225
63
53
567
4,675
52
3,021
513
1,890
78
47
651
6,201
53
3,434
586
1,965
90
55
592
6,723
54
3,501
531
1,977
95
51
736
6,891
55
3,457
538
1,704
88
56
783
6,626
56
4,043
578
2,040
109
67
827
7,664
57
4,544
648
2,109
152
73
1,056
8,583
58
4,683
695
2,030
167
79
1,079
8,733
59
4,893
713
1,790
142
96
1,099
8,734
60
5,746
766
2,298
188
118
1,412
10,529
61
5,747
846
2,246
188
105
1,396
10,528
62
6,255
863
2,249
233
125
1,471
11,197
63
6,787
908
2,391
273
134
1,759
12,252
64
7,358
919
2,655
296
142
1,861
13,230
65
7,051
1,028
2,904
347
164
2,010
13,505
66
7,644
937
3,385
364
199
2,166
14,695
67
9,127
989
3,769
374
211
2,333
16,803
68
11,527
1,035
3,185
371
226
2,323
18,667
69
12,210
1,051
4,092
435
259
2,481
20,528
70
13,408
1,199
3,637
439
269
2,632
21,584
Total % Increase
694.31%
179.49%
303.35%
416.47%
666.43%
476.75%
500.37%
Average % Increase
11.39%
5.47%
8.56%
9.69%
11.49%
9.60%
9.75%
33
FIGURE 2
GOVERNMENT REVENUES FROM CALIFORNIANS
34
AS A PERCENTAGE OF STATE PERSONAL INCOME
60%
53.4%
50%
44.7% (1)
40%
PERCENTAGE
32.3%
30%
*
20%
10%
1949-50
59-60
69-70
79-80
1989-90
YEAR
TABLE 2
CALIFORNIA TOTAL PERSONAL INCOME
ACTUAL AND PROJECTED, 1949 to 1989
($ in millions)
Calendar
California Total
Calendar
California Total
Year
Personal Income
Year
Personal Income
1949
17,878 (2)
70
88,825
50
19,774
71
94,118
51
22,756
72
102,220 (3)
52
25,214
73
111,535
53
27,002
74
120,970
54
27,682
75
130,648 (4)
55
30,378
76
141,100
56
33,177
77
152,388
57
35,497
78
164,579
58
37,361
79
177,745
59
41,010
80
191,965
60
42,980
81
207,322
61
45.678
82
223,908
62
49,051
83
241,821
63
52,615
84
261,167
64
56,570
85
282,060
65
60,234
66
65,156
86
304,625
67
69,936
87
328,995
68
76,867
88
355,315
69
83,192
89
383,740
35
FIGURE 3
1973-74 STATE REVENUES SUBJECT TO LIMITATION
UNDER THE TAX CONTROL PROGRAM
S's In Millions
General Funds in the Budget
$7,258 (1) (2)
Special Funds in the Budget
1,691 (1) (2)
Intergovernmental Revenue Included Above
(74)
Miscellaneous Revenues, Charges and Fees
884 (2)
$9,759
TABLE 3
ESTIMATED 1973-74 LIMITED REVENUES
DERIVED FROM 1970-71 ACTUAL REVENUES
$'s In Millions
1970-71
1973-74
Actual
Estimated
Governor's Budget
$5,917
$8,949 (1)
Less Amounts Not Counted as Revenues
Within the Tax Control Program
From the Federal Government
(54)
(60)
From Local Governments
(14)
(14)
Excess Highway Lands
(34)
-
Plus Amounts From Other Sources
Net Interest Income
97
120
Charges, Fees and Other Income
609
764
Total Revenue Subject To The Limit
$6,521 (2)
$9,759 (2)
37
38
FIGURE 4
PROJECTED STATE REVENUE GROWTH WITHOUT LIMITATION
50
$47.1
40
REVENUE $ IN BILLIONS
30
REVENUES IN BILLIONS OF S
20
10
$9.8
1973-74 74-75
79-80
84-85
1989-90
YEAR
TABLE 4: PROJECTED STATE REVENUE GROWTH WITHOUT
LIMITATION 1974-1990
Fiscal (1)
Revenues in
Revenue Growth in
Tax Burden as (2)
Year
Millions of $
Millions of $
% of Income
1974
9,759
8.75
75
10,851
1,092
8.97
76
12,007
1,156
9.19
77
13,278
1,271
9.41
78
14,675
1,397
9.63
79
16,211
1,536
9.85
80
17,899
1,688
10.07
81
19,753
1,854
10.29
82
21,790
2,037
10.51
83
24,025
2,235
10.73
84
26,479
2,454
10.95
85
29,172
2,693
11.17
86
32,127
2,955
11.39
87
35,367
3,240
11.61
88
39,920
3,553
11.83
89
42,815
3,895
12.05
90
47,085
4,270
12.27
39
40
FIGURE 5
PROJECTED STATE REVENUE GROWTH
UNDER TAX CONTROL PROGRAM
50
$47.1
40
30
$27.4
REVENUE $ IN BILLIONS
WITHOUT CONTROL
20
WITH TAX CONTROL
10
$9.8
1973-74 74-75
79-80
84-85
1989-90
YEAR
TABLE 5(a): PROJECTED STATE REVENUE GROWTH UNDER
TAX CONTROL PROGRAM 1974-1990
Fiscal (1)
Revenues in
Revenue Growth in
Tax Burden as (2)
Year
Millions of $
Millions of $
% of Income
1974
9,759
8.75
75
10,464
705
8.65
76
11,170
706
8.55
77
11,923
753
8.45
78
12,724
801
8.35
79
13,577
853
8.25
80
14,486
909
8.15
81
15,453
967
8.05
82
16,481
1,028
7.95
83
17,576
1,095
7.85
84
18,740
1,164
7.75
85
19,978
1,238
7.65
86
21,295
1,317
7.55
87
22,694
1,399
7.45
88
24,180
1,486
7.35
89
25,759
1,579
7.25
90
27,436
1,677
7.15
41
TABLE 5(b)
INCREASED AVAILABILITY OF DISCRETIONARY MONEY TO
PRIVATE CITIZENS UNDER THE TAX CONTROL PROGRAM
($ in millions)
Projections of Revenue Growth Without Control
Fiscal (1)
Minus Projections of Revenue Growth
Year
Under the Tax Control Program
1975
387
76
837
77
1,355
78
1,951
79
2,634
80
3,413
81
4,300
82
5,309
83
6,449
84
7,739
85
9,194
86
10,832
87
12,673
88
14,740
89
17,056
90
19,649
Cumulative Dollars Not Taken by Government
Under Tax Control Program
$118.5 Billion
42
TABLE 5(c): POTENTIAL PROGRAM GROWTH WITH TAX CONTROL
($ in millions)
Program (1)
Fiscal (2)
Total Revenues (3)
Year
Under Limit
Education
Health Care
Welfare
Transportation
Public Safety
1974
9,759
3,403
1,143
830
879
550
75
10,464
3,651
1,224
889
941
585
76
11,170
3,898
1,307
949
1,005
626
77
11,923
4,161
1,395
1,013
1,073
667
78
12,724
4,440
1,489
1,081
1,145
713
79
13,577
4,738
1,589
1,154
1,222
760
80
14,486
5,055
1,695
1,231
1,304
811
81
15,453
5,393
1,808
1,314
1,391
865
82
16,481
5,751
1,928
1,401
1,483
923
83
17,576
6,134
2,056
1,494
1,582
984
84
18,740
6,540
2,193
1,593
1,687
1,049
85
19,978
6,979
2,337
1,698
1,798
1,119
86
21,295
7,431
2,492
1,810
1,917
1,193
87
22,694
7,920
2,655
1,929
2,042
1,271
88
24,180
8,438
2,829
2,055
2,176
1,354
89
25,759
8,989
3,014
2,190
2,318
1,443
90
27,436
9,575
3,210
2,332
2,469
1,536
43
FIGURE 6
THE EFFECTS OF TAX CONTROL
44
ON AN AVERAGE CALIFORNIA FAMILY OF FOUR
7,000
$6,508
6,000
16 YEAR
CUMULATIVE
SAVINGS=
5,000
$17,756
4,000
TAX DOLLARS
3,000
SHARE OF REVENUES WITHOUT CONTROL
$3,792
FAMILY FAMILY SHARE OF REVENUES WITH CONTROL
2,000
$1,264
1,000
1969-70
74-75
79-80
84-85
1989-90
YEAR
TABLE 6
EFFECTS OF TAX CONTROL PROGRAM ON AN AVERAGE
CALIFORNIA FAMILY OF FOUR (1)
State Revenue (3)
Same State Revenue (3)
Fiscal
Share
Share Under Tax
Year (2)
Without Control
Control Program
Savings
1970
$1264
$1264
71
1304
1304
72
1492
1492
73
1652
1652
74
1852
1852
75
2020
1948
$
72
76
2188
2036
152
77
2372
2132
240
78
2572
2232
340
79
2784
2332
452
80
3016
2440
576
81
3264
2552
712
82
3528
2668
860
83
3812
2792
1,020
84
4120
2916
1,204
85
4452
3048
1,404
86
4808
3184
1,624
87
5188
3328
1,860
88
5596
3476
2,120
89
6036
3632
2,404
90
6508
3792
2,716
Cumulative savings to family of four
$17,756
45
Ext.
FOOTNOTES
FOOTNOTES FOR TABLE 1:
(1) Total revenues excluding all intergovernmental transfers derived as follows:
U.S. Bureau of the Census, U. S. Census of Government, 1957, Vol. IV, No. 3,
Historical Summary of Governmental Finances in the United States (Local
and State Revenues; Federal totals for corporation income taxes, customs
and other)
U.S. Bureau of the Census, Governmental Finances series, (Local revenues;
Federal totals for corporation, income taxes, customs and others)
U.S. Bureau of the Census, State Governmental Finances series (state reve-
nues; federal employment and insurance trust revenue in California)
California Statistical Abstract 1970 and 1971 (Federal excise and estate and
gift revenues in California)
Corporation Income Taxes, Customs, and Other revenues for California are derived
from the Federal totals on the basis of percent of U.S. Total Personal Income
attributed to California.
(2) Federal Fiscal Year. 1950 corresponds to State Fiscal Year 1949-50.
FOOTNOTES FOR FIGURE 2 AND TABLE 2:
(1) A previously published calculation of 43.84% for 1969-70 was based on 1969-70
revenues as a percentage of the average of Calendar 1969 and 1970 State
personal incomes. All calculations in Figure 2 are based upon the State per-
sonal income of the calendar year which starts six months before the ap-
plicable fiscal year.
(2) For years 1949 through 1971 actual personal income figures taken from Cali-
fornia Statistical Abstract of 1970, updated by California Statistical Abstract
of 1971 and the 1973-74 Governor's budget.
(3) For years 1972 through 1974 projected data derived from estimates by the
State Department of Finance.
(4) Projected figures based upon an 8% per year growth rate comprised of 3% real
economic growth, 3% inflation growth, and 2% population growth. The average
personal income growth in California over the past 20 years has been 8.02%.
FOOTNOTES FOR FIGURE 3 AND TABLE 3:
(1) Budget totals from the Governor's budget as submitted to the Legislature Janu-
ary 18, 1973.
(2) These totals include user fees, some of which will be excluded under the pro-
posed constitutional amendment. Examples of excluded user fees are fees for
use of State Park camping facilities, fees paid by students enrolled at the
University of California and the State University system, hunting and fishing
license fees and charges made for State owned parking lots. The total amount
represented by these fees remains to be determined.
47
FOOTNOTES FOR TABLE 4:
(1) Federal Fiscal Year. 1974 corresponds to State Fiscal Year 1973-74.
(2) Projected on the basis of historical growth of revenues as a percent of State
personal income from 1961 to 1974-an average increase factor of 22%. Al-
ternative methods of projection for the same time period (1961-1974) yield
expected 1990 revenues as a percentage of personal income in a range from
11.85% to 14.15%. Personal income growth calculated at 8% per year.
FOOTNOTES FOR TABLE 5(a) :
(1) Federal Fiscal Year. 1974 corresponds to State Fiscal Year 1973-74.
(2) One-tenth of 1% per year reduction in percentage of personal income which
the State can take in revenues.
FOOTNOTES FOR TABLE 5(c) :
(1) Costs shown are only State costs and do not include Federal or local expendi-
tures for these programs. Table assumes that each program maintains its
present share of the State Budget : Education-34.9%, Health Care-11.7%,
Welfare-8.5%, Transportation-9.0%, and Public Safety-5.6%.
(2) Federal Fiscal Year. 1974 corresponds to State Fiscal Year 1973-74.
(3) See Table 4 for explanation of projections.
FOOTNOTES FOR TABLE 6:
(1) Four per capita units using 2% per year population growth.
(2) Federal Fiscal Year. 1970 corresponds to State Fiscal Year 1969-70.
(3) Four per capita shares of state revenues based upon Tables 4 and 5 projec-
tions. Years 1970 through 1974 are identical since tax control program will
not take effect until Fiscal Year 1975.
O
printed in CALIFORNIA OFFICE OF STATE PRINTING
84503-401 3-73 4M