- New York: $6413
- California: $4517
- Illinois: $4081
- National Average: $4001
- Florida: $3693
- Texas: $3235
The Center for Continuing Study of the California Economy has an interesting 2007 paper about California state taxation that echoes some of the above sentiments plus provides detail about the highly progressive (and thus volatile!) nature of California taxation. It also has this cool graph showing that prior to the passage of proposition 13 California was a "high tax" state, but proposition 13 brought us in line with other states.
This suggests to me that our budget shortfall is the result of excess spending, not insufficient taxation. There is perhaps some room to increase the tax burden but real progress will only come from spending cuts. The progressive nature of our taxation does increase the sensitivity to economic downturn but one could argue this is an automatic stabilizer and should be retained.
It's always scary to agree with an organization with an Orwellian name like the Reason Foundation, but they come to the same conclusion:
"A good rule of thumb in government budgeting is that the rate of spending increases should not exceed the rate of population growth, plus inflation ... Over the entire 18-year period, state spending grew at an average annual rate of 5.91 percent, while population plus inflation grew only 4.38 percent a year, on average ... Gov. Schwarzenegger and state lawmakers won't fix the underlying budget problems until they admit the state has a spending addiction."But addicted to spending on what, exactly? An investigation for another day.
If you look at the last table in the PPIC paper you provided, they break down the tax revenues for the state vs the US as a whole. Just eyeballing that data, you see that the average Property Tax represents a much larger section of the pie than in CA. So California has a much larger Income and Sales Tax burden to make up for it.
ReplyDeleteIt would be interesting to see if concentrating on Income Tax over Prop Taxes leaves us more vulnerable to recessions. I know that most research on consumptive (i.e. sales) taxes indicates they are more stable than income (which is counter-intuitive).
As for how we are spending our money, you aren't going to find one or two silver bullets. Instead you find that year-over-year, each budget increases by a little more than the InflatoPop Index, until we are sitting at a systemic overspending.
Most people don't even recognize this as a problem, as we spend in similar manners. The difference is that the average worker is almost always ratcheting up their income, with a moderate risk of stagnation and a minor risk of no income (unemployment). CA, OTOH, has a high risk of low revenue every business cycle. The former risk is mittigated by easy debt. The latter example, not so much, as you constantly take debt to cover shortfalls but never have a long enough period to pay back before another recession.
I think this misses the larger picture problem though: many of the cuts in spending we're looking at have matching fed funds from them. It seems horribly unwise to turn away those dollars when California already sends more to the Feds than it gets back.
ReplyDeleteIf you think about it, because of our messed up tax code, it only makes sense for California to keep boosting taxes to keep more of the money inside the state, even with the negative impacts that has on the efficiency of the economy.
You aren't going to keep "more of the money inside the state". So long as California has a higher proportion of high-income earners than the national average, the Progressive tax system we've created at the Federal level will tend to take more from us than we get back. And since California is never going to have an income-tax as high as the Fed, there is always going to be an imbalance.
ReplyDeleteWe aren't going to find $40 Billion in the FY2009 budget. Instead, we have to find $10 Billion in 2009, and $5 Billion in 2010, and $7 Billion in 2011, etc. The problem with California is that every time we have a small surplous, it is spent.