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Back To Red Ink For California As Tax-Hike Revenue Retracts?

State Finances: Stop the music. All the merriment over the California recovery may have been a bit premature. Tax revenues are way down this year in the Golden State, and this could throw the books back into the red.

IBD: Aug 19, 2014; Section: Issues & Insights; Page: A12

Here is the sobering analysis released last week from the Rockefeller Institute of Government, which monitors state spending and revenues:

“After four years of uninterrupted growth, states’ tax collections saw a decline in the first quarter of 2014. Preliminary figures for the second quarter of 2014 indicate further declines in personal income-tax collections and possibly in overall state taxes.”

Then came the show stopper:

“Most of the decline is attributable to a single state — California — where personal income-tax collections declined by $2 billion, or 11.1%. If we exclude California, personal income tax collections show a growth of 2.0% in personal income tax collections and a growth of 0.6% in overall state tax collections.”

This time last year, liberals around the country were trumpeting the big fiscal comeback of the Golden State in the wake of Jerry Brown’s giant tax increase — Proposition 30.

That initiative was passed by voters on Nov. 6, 2012, and it raised the personal income-tax rate on taxpayers making over $250,000 for singles and $500,000 for married couples to as high as 13% — which is the heaviest tax penalty on working and investing in the nation outside of New York City.

What was especially devious is that the tax hit was made retroactive to January 2012. Sacramento was so desperate for money that nobody seemed to mind this after-the fact taxation is really a form of confiscation.

In the short term, it worked and revenues climbed a whopping 21% because California’s top 2% had to pay taxes twice in 2013 — once on their current-year income and a supplemental check to pay for the retroactive tax on income from the year before.

The Facebook IPO and the resulting capital gains revenues from that cash bonanza didn’t hurt either. California’s $10 billion-plus deficit magically disappeared.

The left shouted in joy that taxes on the rich don’t hurt the economy and raised big bucks for the state. Sacramento politicians even joyously announced it was time for another spending spree — like alcoholics who walk around all day asking: “Is it happy hour yet?”

Will this state’s lawmakers ever learn? For three decades now, no state has seen the boom and bust fiscal cycles that California has, and that’s because of the progressive tax system.

Revenues surge into the stratosphere during good times, and fall off the cliffs into the Pacific Ocean during slowdowns.

This has been a clear pattern going back at least to 1990. But it is seen most clearly in the year following the 2008 financial meltdown, when California general fund revenues plunged 19%.

That’s what you get for relying on the richest 3% of taxpayers to pony up half the income-tax collections. It’s one of the factors that has made California nearly ungovernable.

The longer-term problem for California is that those rich households the politicians keep gouging can always move across the border to Nevada and pay zero income tax, not 13%.

Or they can pay zero in Florida or Texas or Tennessee. Many are doing just that, according to IRS tax return data. California’s wagering on another 1990s-style tech boom to bail it out for decades of anti-business policies.

If that bet doesn’t pay off, or Silicon Valley millionaires finally tire of paying the freight for the rest of the state, don’t be surprised if those gargantuan budget deficits come back to stay.