Not too long ago I found out that not only does California have incredibly high state income taxes, but it also has really high state capital gains taxes. It actually amazes me that silicon valley has thrived under those burdens which leads me to ask two very important questions:
1. Why hasn't the high taxes driven people out of Silicon Valley (and will it?)
2. How is California broke?
I come from Florida and in Florida, there are barely no state taxes at all because it's all on tourism. Somehow California has these insanely high taxes and still can't pay any bills. Other than blaming illegal immigrants (a dubious politically motivated response), I've never really gotten a straight up answer on what makes California and Florida so different.
1) Extremely generous social services
2) A bizarre (and arguably unfair) property tax regime. Property taxes on owned property only rise 2% a year. (very low, consider that my parent's Bay Area home has risen by about 5.7% yearly since the 1980s) What that leaves you with is entrenched residential and commercial property owners paying relatively very little in taxes. If you are a new resident though, you get no immediate benefit - your taxes are assessed at the purchased value.
According to supporters, the law that set this up (Proposition 13) has saved taxpayers $528 billion (http://www.hjta.org/about-hjta/history-hjta); that's $17.6 billion a year - pretty much the budget deficit of the state.
I'd love to spend 20% more than I get to keep after taxes, but to do so would be irresponsible.
Prop 13 has been law for decades. It isn't a surprise. The legislature and governor knew how much they had to spend and decided to spend more. The fact that they chose $17B is completely arbitrary on their part, so it's absurd to use it as an argument about prop 13.
CA govt has a lot of money to spend. Why isn't it reasonable to expect it to stay within those bounds?
If not the current bounds, then what bounds?
Note that CA has ramped up its spending significantly (beyond inflation) over the past few decades with almost nothing to show for it. In fact, CA govt spending during the "golden era" was significantly less (inflation adjusted) than it is now....
Based on what we're getting, CA govt arguably spends too much. If you want something more from govt, find something to cut. LIFO works for me.
Actually the biggest expense for the state is K-12 education (over 43% of the budget).
You're forgetting that their property taxes are continuing to go up even though property values have gone down significantly. Why? Because their assessed value is below market value and as long as that's true, their taxes go up.
That factor makes property tax revenues far less volatile than they would be otherwise.
We know what counties and cities do when property tax revenues boom without a cap - they ramp up their spending. When property values crash, as they do every decade or so, that tanks their revenue, so cities and counties jack up the rates.
> If you are a new resident though, you get no immediate benefit - your taxes are assessed at the purchased value.
You get the benefit of knowing how your property taxes will behave. (If you buy right before a crash, you do get a respite until values recover.)
> that's $17.6 billion a year - pretty much the budget deficit of the state.
It's also significantly less than state spending has increased in the last few years. Note that the state isn't supposed to get property tax revenues - they're collected by cities and counties.
Some major problems: California's state constitution is a mess; its initiative process is out of control; conventional tax increases are impossible; Prop 13 distorts incentives. Many of these are structural issues. A bunch of articles have appeared on HN lately about how powerful, complex societies and institutions fail by being unable to flexibly adapt to change. That, in a nutshell, appears to be California's problem, which has been papered over to some extent by Silicon Valley Hollywood, agriculture, and weather. But even those rich sources of income can eventually be exhausted by the infinite demands of special interests and others.
Our spending and policies are definitely out of whack, as demonstrated in the article, but not being able to raise taxes to compensate isn't helping either. I'm not a fan of raising taxes, but I consider our state being broke to be a bit worse.
Why is cutting spending not an option?
CA's tax revenues are significantly higher than the spending just a few years ago. Would it really be unreasonable to cut back to that level of spending? (Note that unemployment is largely paid for by the federal govt, so ....)
Reference? I'd like to see what percentage of California's population is the result of post-1960's immigration, the total tax input from this segment and their costs in government services.
I only point this out because some people I've come across on HN who think a Canadian-style immigration system is racist seem to think that public display of their own good intentions is much more important that looking up the numbers.
This is the most shocking line from the article. How did they let costs balloon so badly?
Expenditures are estimated to drop from $78.1 billion in 2002-03 to $70.8 billion in 2003-04, a 10 percent decline. Most of this decline can be explained by four factors: the VLF rate increase (which reduces state subventions to backfill local governments), new federal funds, borrowing to cover the state's 2003-04 pension obligations, and the Medi-Cal accounting shift from an accrual to cash basis. Absent these factors, underlying spending would be roughly equal between the two years. The 2003-04 spending level is considerably less than what would be required to maintain baseline spending for the year.
http://www.lao.ca.gov/2003/major_features_03-04/major_featur...
* California has a huge budget deficit
* California is declining economically
I don't doubt that these two facts are true. Nor do I doubt that both facts affect each other. However, California is one of (if not the) largest economies in the US. I seriously doubt the situation is this simple. To place this solely at the feet of the state's progressive politics is a bit partisan. To me, this reads like a set of conservative talking points dressed up as an intellectual policy paper.
EDIT: Not coincidentally, City Journal is published by a conservative think-tank: http://en.wikipedia.org/wiki/Manhattan_Institute
