state budget crisis

This is a gift on so many levels. New York governor David Paterson doesn't seem to have the stones to hike sales and income taxes across the board, so the result is a series of 88 tax increases on services people use every day -- like iTunes downloads and taxis:

The record labels couldn't do it, but New York's Governor wants to make Apple (AAPL) iTunes shoppers pay more than 99 cents per song.

Much of Wall Street is gone now and so are the fat tax revenues it used to earn for New York state.

In order to close a resulting $15.4 billion budget gap, New York Govenor David Paterson wants proposed 88 new fees and taxes.

Among them, an "iPod tax" on the sale of downloaded music and other "digitally delivered entertainment services."

The Daily News reports that the the Governor also wants to tax movie tickets, taxi rides, soda, beer, wine, cigars and massages. Clothes under $110 would also lose their tax exemption. Cable and Satellite TV would become subject to sales tax.

This is eerily reminiscent of the sky high Dinkins-Cuomo hotel occupancy tax rates. When Rudy Giuliani cut them, it sent an immediate signal that New York was open for business, literally and figuratively. Our candidate for governor, and it could be Giuliani, now has a ready-made issue: kill the iTunes tax. And restore a sense in which New York is one state, not an agglomeration of petty interests to be bought off by tax differentials. Comically, Paterson is going to force you to drink diet soda by taxing it less and directing the proceeds to obesity prevention. (No word yet on Albany's obese state budget.)

This is a template that could resonate state-to-state. As Soren has detailed, the states face an unprecented fiscal emergency. And most statehouses are now controlled by Democrats. Many governor's seats will be open -- a lingering impact of the 1994 tidal wave when so many states pressed the reset button, electing and re-electing Republicans. Their 2002 replacements, mostly Democrats but some Republicans, are now largely term-limited.  

This necessitates three things. First, governor's races should be a massive focus of attention in then next two years. Instead of being a sideshow for the next RNC, in their typical DC-centric quest to prop up our numbers in the Senate and House, we should be putting most of our eggs into winning statehouses and salvaging what we can out of the 2010 redistricting cycle in state legislatures.

Second, Republicans at the state level need to get their story straight on tax increases and bailouts. No Republican looking to run statewide in 2010 should have any complicity in "revenue enhancements" or any suggested federal bailout of the states so we can plausibly seen as agents of change and claim a mandate for smaller, more responsible government at the state level.

Third, with out-of-control health care costs being a big driver of spending at the state level, will the GOP put forward a compelling agenda on controlling health care costs? The health care debate at the federal level has focused mostly on the question of access -- but the problems people experience most directly are on different axes: cost and quality. With waste accounting for up to half of U.S. health care spending, it is the states -- as the biggest direct consumers of health care -- that have the biggest incentive to do something about it. Will any of them step up and do something radical?

Earlier this week, an extraordinary story hit. CALPERS, the California Public Employee Retirement System, announced that it took a HUGE hit. From the WSJ:

This is a transfer from already overburdened taxpayers to public employees that they didn't even get to vote on. This is a political opportunity for the right. Corrupt unions are asking for money from the taxpayers to fill their pensions while their own pocket books are getting slimmer.

This is a bailout. And Americans didn't like the bailout.

Note that when the bailout bill came through Congress, AFL-CIO and other unions wanted their piece of the action too:

He also said the bailout must include protections for worker pensions which suffered large losses because of Wall Street irresponsibility--a point Teamsters President James Hoffa echoed--and it must “ensure that taxpayers receive any future profit from mortgages bought by the Treasury.” 

Whether you agree with the framing of "Wall Street irresponsibility" (I do, to an extent) the unions and their lackeys in Congress are going to have to explain why they deserve a bailout on the backs of the rest of us.

This is an opportunity for the right. These fights will often be at the state level over an issue that people understand: their taxes. The leaders who articulate why this is wrong will become recognizable voices on behalf of all Americans, not just the 12% in union pension programs, will become public figures.

Between this issue and the broader issue of the state budget crisis, there are the seeds of the rebirth of the next right.