Simple question. I am asking for a factual basis. What are the underlying causes? Why has California taken such a beating?
In addition: This last one is more of an opinion question: who all is to blame?
The tendency of California voters to demand that the goverment pay for all sorts of silliness combined with the refusal to pay for it.
Even as a liberal I kind of have to agree with the above.
However, to clarify, there are a few issues. By California law, it’s really easy to pass bills, either in legislature or by proposition, that require new spending. Generally a simple majority is all it takes. It’s really hard to pass bills that call for tax increases. Supermajorities are almost always needed. As a result, the difference betweeen what the government can raise and what it must spend tends to increase.
Beyond that, there are some other factors. The state got a lot of extra income at the height of the dot-com boom and stupidly expected the money to come rolling in at that pace forever, and budgeted accordingly. In fact, the loss of that income is the primary reason for the last several decades of budget problems.
Yeah, as **suranyi **says, the biggest problem is that California requires a supermajority to raise taxes, but only a simple majority to approve new spending. Plus, it’s easy to get public initiatives on the ballot, so voters can bypass the legislature and directly approve spending and tax cuts without having to engage in any sort of negotiation to arrive at a balanced budget. The resulting initiatives significantly limit what the lawmakers in Sacramento can do to fix the problem.
In 2003, Warren Buffett was an advisor to Arnold Schwarzenegger’s election campaign and advised Arnold to consider scrapping Proposition 13. I read somewhere that a state with a properly managed budget should get roughly one-third of its revenues from property taxes, one-third from sales taxes and one-third from income taxes. Prop 13 limits property tax revenues and the other two taxes suffer in an economic downturn, so the state budget does really poorly in a bad economy.
The California State Legislature has long been (and will likely remain for the foreseeable future) dominated by Democrats, who believe that part of the balancing of he state budget should be through raising of taxes.
However, Proposition 13, passed in the 1970s as as part of the state constitution, mandates that taxes can only be raised by a supermajority in the State Assembly of (IIRC) 60%. Republicans in the Assembly have, for years, been completely and monolithicly intransigent about passing any tax increases whatsoever (even when a moderate Republican governor, Arnold Schwarzenegger, urged them to compromise), and have enough seats to block all attempts to do so. They wish to balance the budget solely via spending cuts, many of which Democrats deeply oppose. Not unreasonably, the majority party is unwilling to cede all control over the budget to the minority (their constituents would hardly forgive them if they did). Although the Democrats have frequently offered compromises involving both extensive cuts and fairly modest tax increases, the minority Republicans have refused to budge. Thus budgets are not passed, and no progress is made.
Lack of available tax increases is part of it, but …Ahem…there’s also the small matter of real estate property values plummeting and sucking tax revenues down with them. Regardless of the idiots who believed the trees were growing to heaven.
If balancing the budget were really as simple as getting rid of the Democrats…
Yep. Combined with a hostile business climate, which is driving companies out of state, and you lose tax revenue.
California is Exhibit #1 for anyone who claims that we could solve the country’s problems with direct voting on more issues (or on the budget!) Representative government has its problems, as we’ve all seen from the gridlock in Congress and the California legislature, but letting the voting public make the state’s taxing and spending decisions has truly been a disaster.
In the past years bond issues have been on the ballot and the pro arguement has been pass this bond for this wonderful thing and it will not raise the taxes (ie you will not have to pay for it). The bonds were going to paid back from the general fund but no new taxes to pay for them. Over time a larger and larger part of the gereral fund was required to pay off bonds.
Don’t forget about legislative term limits; they might have seemed like a good idea, but in practice they’ve concentrated all power in that hands of the party leadership to an extent more typical of parliamentary systems than presidential ones (at least in the US).
And any law passed by a ballot proposition can only be overturned by another ballot proposition. The state constitution itself is far, far to easy to amend. It’s not that much harder to put an amendment to the people than it is a regular law. CA needs to toss the whole thing & start over from scratch.
The above reasons all contribute. Additionally, the legislature chose not to accrue money to the retirement funds of public employees’s when they should have. The state now is looking at hundred’s of billions in shortfalls. Some say $100B, $200 B & some [like, umm, Stanford] say $500 B, but regardless it is a LOT of money.
Even in GQ, there is no plausible way to ascribe California’s budget issues to a failure of the taxing power. At least not where the baseline is other American jurisdictions. The California state+ local tax burden is top-10 in the country, with the precise placement within the top 10 dependent on personal choices (e.g., home ownership (whether the taxpayer owns a house - and, as important, when it was purchased), income level, locality, fee-based services elected and purchases (for sales tax purposes)).
Entirely? No. But it’s certainly a large part of it. When it’s easy to get spending increased but hard to get taxes increased, debt will inevitably result. Now, maybe it wouldn’t be a problem if it were also hard to raise spending, but that isn’t the case.
Tax rates are not even a little part of it. Name the tax - personal income, business income, sales, gasoline, usage fees - and California’s rates are the top or near the top in the nation. Only Proposition 13, and the benefits that accrue to long-time California property owners, keep the major state income sources from making a clean sweep of the top-tier.
I am not making the political point that California tax rates cannot or should not be higher. That would involve argument.
Rather, the point here is simply that California cannot be distinguished from other, more solvent, states by a failure of the taxing power. By any standard, Californians are taxed at a level that already is equal to or in excess of residents of any other state (again, the precise ranking depends on assumptions). In the context of American polity, California’s budget issues are entirely a function of how the state chooses to spend its money, not the ability to impose taxes to acquire it.
ETA: An example from upthread: California mapped future expenditures against assumptions about capital gains and other revenue that Silicon Valley would kick off. The money did not come in - not from the inability to levy taxes, but because there were insufficient capital gains against which to levy (compared to the assumptions).
Here is a chart of California state spending over time. As you see, it had a small increase from 2008 - 2009, and has remained steady or declined since. The way we do things is that this budget contains money for all schools, so there is less flexibility than it might appear.
California’s revenue is highly dependent on sources - income tax and sales taxes - which fluctuate with economic conditions, unlike property taxes which do not. Thus recessions lead to a sharp drop in income.
[url=2011 CalFacts] Here is a nice set of facts about California, though from January 2011. A bit down the page you’ll find a pie chart comparing the source of revenues from 1970 - 2010. Income tax revenues as a percent of total has risen from 27% to 51%. You’ll also fine a bar chart comparing tax burden - we are slightly higher than Ohio and way lower than New York.
As for property taxes, for what its worth I’m paying only slightly more than I did when I moved in 16 years ago though the value of my house and our family income has about doubled. It is much, much more than the people living here before (and a neighbor) and much, much less than the people who just moved in next door.
That’s not right. Not unless you think the US deficit is purely a taxing problem, not a spending problem, because our taxes are lower.
Maybe Californians want their government do do more for them than other states. That’s fine; after all, that’s why we have different states with different governments, right? If they wanted to vote for high government spending and the high taxes to pay for it, that would work. The fact that they can’t do that, though, simply must be regarded as part of the problem.
One reason that’s often overlooked is that California pays way more to the Federal government than they get back. Other states have way more money incoming per capita from welfare, Social Security, highways, and I assume, ag subsidies and defense spencing. The money that comes in to other states has a multiplier effect as its spent in the local economy on the backs of rich California taxpayers.
Some accuse California of being tax-and-spend, but they could have much lower tax rates if this inequity were remedied. Now if they actually would take advantage of this opportunity is an open question.
On first-order effects, no, but tax revenue that hits one sector too hard might make for an inefficient economy. In fact, one could argue that Prop 13 contributed to the real estate boom and bust in California, causing much housing to be built needlessly due to relatively too-low property taxes.
In fact, I do think that it contributed to the American bubble, but I am not 100% as to whether California’s economy would be better if taxes were lowered on income and raised on property, but I’m open to the idea of it.
A hostile business climate is the main problem the “Rust Belt” states have. Politics around here has been dominated by Labor Democrats for decades, with the result that it’s extremely difficult to get anyone or anything to come into the area.
Here in Michigan, we’re also starting to see constitutional ammendment power plays by all sorts of special-interest groups. Including the one to require a supermajority to raise taxes. As others have said, it’s way too easy to ammend the state constitution by ballot initiative, and it’s very possible that we might end up in a situation where the only feasible way out is to draw up a new state constitution and abandon the old one.