In California, no bad idea goes unburied. The latest revenant is an attempt to repeal the Gann limit.
After the Proposition 13 tax limitation was passed in 1978, taxpayer advocates next took on the cause of tax increases: excessive spending. In 1979, voters passed Proposition 4, by a whopping 74 percent. It was called the Gann limit after its major proponent, Paul Gann, a compatriot of Howard Jarvis of Prop. 13 fame.
Prop. 4 was simple, and obvious: State spending increases were limited to the increase in population plus inflation. Anything over the Gann limit would be returned to the taxpayers who earned it. It was intended to prevent the state’s endemic problem of runaway spending followed by tax increases.
The latest attempt to repeal Gann is being led by the California Budget & Policy Center, which almost always pushes for more spending, paid for by higher taxes in America’s most punitively taxed state.
Urges Scott Graves, the center’s director of research, “The state budget is flush with cash, but a decades-old ballot measure could soon limit the amount that can be used to support millions of Californians who need help now.”
Actually, the Gann limit would help “millions of Californians who need help now”—by returning to them some of the tax money they worked so hard to earn.
He adds, “It’s time for state leaders to chart a path toward overhauling the antiquated spending cap that limits our ability to make the ongoing investments needed to help all Californians be healthy and thrive.”
Notice how, to him, “investment” means grabbing your money, instead of letting you invest it as you see fit—in job training, violin lessons for a child, or putting a few bucks into a retirement fund.
“Policymakers’ hands are tied by an archaic rule that links state spending today to the budget priorities of the 1970s—a disco-era spending cap known as the Gann Limit.” “Disco era”—also the era of the high taxes that led directly to Prop. 13. Then to Ronald Reagan being elected president in 1980, followed by his federal tax cuts of 1981 that brought us the Reagan prosperity of the 1980s.
Graves also is delusional to think the state’s current huge surpluses will continue. Even under Gann, the state has suffered spending binges that, when recessions came, resulted in record tax increases of $7 billion in 1991 under Gov. Pete Wilson and $13 billion under Gov. Arnold Schwarzenegger, both Republicans.
I’m not a stock prognosticator. But it’s worrisome the stock market plunged 11 percent to start the year for the first time ever. “The downturn comes as traders brace for the Federal Reserve to tighten monetary policy and a surge in U.S. Treasury yields weighs on the outlook for stocks,” reported Bloomberg. “A host of technical signals also suggest that more volatility may be coming up ahead.”
It quoted Rich Ross, technical strategist at Evercore ISI, who said, “The Fed pulled the punchbowl, liquidity has evaporated, and the S&P and NDX broke below their 200dma [200 day moving average] for the first time since the Covid outbreak.”
Gann can be compared to a family budget. If you get a 10 percent raise, it’s prudent to increase family spending by 10 percent or less. If you spend 20 percent more, expecting another raise, you will get into trouble fast.
The first Gann refund was sent to taxpayers in 1987 to cover the 1986 tax year. The Reagan national economy was booming. California Gov. George Deukmejian—unlike his two GOP successors—held the line on tax increases. The computer revolution was roaring. It was a great time to be a Californian.
Last year, the Gann Limit was about the be reached. Then Gov. Gavin Newsom issued checks up to $1,100 checks to the bottom two thirds of taxpayers, conveniently announcing them just before the September recall attempt. That was of dubious constitutionality. It also could happen again this year.
But if Gann is triggered this year, Newsom said the tax refund would be $2.6 billion—out of a budget proposal of $286.4 billion! So it wouldn’t even amount to 1 percent.
For that the state is supposed to broach a longstanding, effective limit on government largesse? And what an insult to the state’s long overburdened taxpayers. They work their fingers to the bone to fund a wasteful, dysfunctional government. And Graves wants to grab even their small potential reward.
No, thanks. I never liked Disco. I’m more a Beatles fan. But for a tax refund, I’ll dance like John Travolta in “Saturday Night Fever.”
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