Is the California Recovery an Illusion?

Vauhini Vara:

Three years ago, the iconic images of California were overcrowded prisons and shuttered schools; now people seem ready to picture strong-shinned blondes frolicking on a beach newly cleaned by government-hired custodians, or a fogless view of the Golden Gate Bridge freshly reddened with government-purchased paint. And, absolutely, Brown deserves credit for what he’s done: persuading Californians of the virtues of the tax hikes, cutting billions of dollars in spending, and starting to shovel away the state’s towering pile of long-term debt.
But if reports of California’s death during its fiscal crisis, which began after the dot-com crash and ended only in recent months, were greatly exaggerated, so are the latest reports of its revival. Sure, California is doing better than in recent years, but another crisis—perhaps before the decade is through—is nearly inevitable.
This might seem unnecessarily gloomy. But if the governor’s actions have helped the state’s finances, an equally important reason for the comeback is the economic recovery that has boosted the stock market and, in turn, the state’s income-tax revenue. Bill Lockyer, the state treasurer, told me on Thursday that he thinks the state’s improvement is “largely due to an uptick in the private sector,” though the governor’s moves also helped. And because of the peculiarities of California’s budget, this means that the state’s latest comeback could end when the latest stock run-up does.
To pay for schools, health care, and all the other services it provides, the state relies disproportionately on the income taxes generated by rich people’s capital gains. That’s partly because California taxes the rich at a much higher rate than it does lower-income people, and partly because so many rich people live in California. The problem is that the stock market often fluctuates significantly from year to year—which means this source of tax revenue does the same. Today, California happens to be on its latest climb to the top of the roller coaster’s tracks—at which point there’s a good chance it’ll fall again, judging from the fluctuations of the past decade or so. Other states, which collect their revenue from more diverse sources, do not face the same risk.

This is the same problem Ohio's income tax runs into, but here the Republicans are in charge, so when revenues are coming in they cut the income tax.  then when the stock market falls and those capital gains go away, the state slashes spending.  Lather. Rinse. Repeat.  Good times mean lower taxes, bad times mean slashed spending, and the noose gets tighter.  If they decide to raise taxes during the downturn side of things, it is a sales tax increase.  The main problem is that the rainy-day fund is too small.  Anytime money starts accumulating there, they cut taxes.  Even though that fund is generally only a few percent of the biennial state budget.  Anyway, at least the topic is being discussed.