Calif. is addicted to heavy spending; Too much government, like Mass.

Byline: Chris Sinacola

COLUMN: Sina-cism

In an effort to get as far away as possible from First Night celebrations conducted in 20-below-zero wind chills, I kicked off 2009 with a visit to California's Central Coast.

Daytime temperatures were 65 to 70 degrees. I drank lots of wine, watched sunsets on the Pacific, hugged several coastal redwoods, and taught Scrabble to high school students. Tough work, but someone had to do it.

I couldn't help but notice that every time I bought a souvenir - whether it was a stuffed sea lion, a bottle of Late Harvest Zinfandel, or another chachka emblazoned with "California Republic" - I would pay a staggering sales tax. California's statewide rate of 7.25 percent is enhanced by an additional tax of one-tenth of a percentage point up to a full percentage point, depending upon where you are.

The taxes didn't stop me from stimulating the economy of the Golden State, but when I picked up the local papers and read about the state's budget deficit, I thought I was back home.

California's government isn't as imbalanced as Massachusetts' - Gov. Arnold Schwarzenegger is nominally a Republican and his party has more than a third of the seats in both chambers of the Legislature - but the state is in a similar financial bind.

With about six times the population of Massachusetts, California has a projected deficit of $41.6 billion for 2009-2010, about 20 times that of the Bay State, at least according to The Economist, a copy of which I purchased at the airport in San Jose for $6.99 plus 8.25 percent sales tax.

If you think $41.6 billion is a lot of money, you're right, but if you think the current economic downturn is the primary reason that states like California and Massachusetts are in trouble, think again.

Yes, investment portfolios have crashed, and states are having trouble selling long-term bonds, but sound budgetary practices can go a long way toward smoothing the peaks and valleys of economic cycles.

Unfortunately, most states ignore sound practices. They rely heavily on income and capital gains taxes, so when times are good, the money rolls in and they load up on programs and employees. When the economy cools off, they are left with programs and payroll they cannot afford, along with residents who are just a little more dependent on government than they were before.

Some see a solution in making the wealthy pay their "fair share," but that can't work.

"California relies heavily on income taxes, especially those paid by the top 1 percent of earners," The Economist article noted. "These veer up and down with the markets. But instead of saving money in boom years, the state locks in higher spending on public services and embarks on projects that need long-term investment."

Upper-income earners, in short, are the driving force behind investment and economic growth. They pay the sea lion's share of taxes that finance the programs everyone wants. Discourage the rich from earning and investing and you stunt the economy.

All this is made worse by government's propensity to budget in anticipation of revenues that can quickly evaporate, paired with an unwillingness to cut anything. The San Jose Mercury News last week lamented the existence of a California commission to oversee solid waste. This board is full of retired state legislators who draw exorbitant salaries to oversee perfectly competent bureaucrats who oversee other perfectly competent bureaucrats. Garbage, indeed.

Such patronage havens are familiar in Massachusetts, but my point is that no government that tolerates such waste is capable of reform. The real reason for our bicoastal financial woes, then, is not that government fails to act with sufficient speed or wisdom, but that too much of it exists to begin with, acting as a parasite sapping our economic and moral strength.

"A certain amount of taxes is of course indispensable to carry on essential government functions," Henry Hazlitt wrote in his "Economics in One Lesson." " ...But the larger the percentage of the national income taken by taxes, the greater the deterrent to private production and employment. When the total tax burden grows beyond a bearable size, the problem of devising taxes that will not discourage and disrupt production becomes insoluble."

Whether it's California or Massachusetts, the percentage of income going to taxes is already too high, and after Tuesday, it's going a lot higher. Until that changes, our economic problems have no solution.

Contact Chris Sinacola by e-mail at [e-mail].