By Dan Walters
dwalters@sacbee.com The Sacramento Bee
Published: Sunday, Dec. 5, 2010 – 12:00 am | Page 3A

The loudest voices in California’s budget crisis belong to those on the political right who contend that raising taxes to cover the deficit would doom the state to perpetual recession and those on the left who argue that reducing spending would likewise devastate the economy.

The volume of those shrill arguments is rising as the Legislature reconvenes, as outgoing Gov. Arnold Schwarzenegger calls a symbolic special session on the budget, and as Gov.-elect Jerry Brown prepares to confront the state’s most vexing political issue.

One says “political issue” because the thunder on the left and right about the supposedly cataclysmic economic stakes is just hot air, as new data from the U.S. Department of Commerce underscore.

The Commerce Department pegged California’s largest-in-the-nation economic output in 2009 – even with a severe recession – at $1.9 trillion, nearly as much as the next two states, Texas and New York, combined.

The state’s structural budget deficit – the difference between its spending commitments on paper each year and its general fund revenues – is about $20 billion, according to the Legislature’s budget analyst.

Now $20 billion is a lot of money to anyone not named Gates or Buffett, but it’s scarcely 1 percent of our economic output, so closing the gap with either new taxes or spending cuts would have virtually no impact on the world’s eighth largest economy.

That’s especially true when one considers how public funds fit into the economy. Raising taxes by $20 billion a year or cutting that much in spending would reallocate who gets to spend what by a relatively tiny amount – and while it might affect the pocketbooks of individual taxpayers or individual recipients of state funds and services, it wouldn’t change the amount of money circulating in the economy.

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