The California Effect
- Posted by ryan on July 6th, 2009 filed in Economics, Policy/Politics
A growing number of people on the left appear to be picking up the third stimulus torch, and continued bad jobs numbers might well push another round of stimulus into the realm of the possible. If that were to happen, then the obvious structure of the stimulus would be as a state budget booster shot, since:
1) The second, large stimulus took care of a lot of the long-range investment stuff,
2) A growing number of state budgets are approaching crisis points, and
3) That’s probably the best way to do the most the fastest — preventing new service and benefit cuts and tax increases, and undoing old ones.
The huge obstacle to getting this done, however, is California. California is the state in the worst shape, and it’s also the state no one wants to help, because its problems stem from terrible institutions and a horribly dysfunctional government. They’re not just cyclically screwed; they worked very hard to get themselves into this mess, and the rest of America, quite reasonably, doesn’t want to bail them out. But this is a problem for the rest of America, because rare is the state that couldn’t use some additional help right about now.
This is the part where I’d recommend a negotiated, conditional aid package to California, combined with a broader state budget resolution authority designed to facilitate countercyclical aid in situations like these. But at this point, I kind of think that California is screwed, and that by extension America is screwed, and will suffer a longer and more painful recession than is necessary thanks to the intractable politics of the issue.
July 6th, 2009 at 12:14 pm
I think you are just right. California has been in “crisis” since 2001 and the short term solutions that create the space for long-term reform have, every year, meant no reform. My livelihood is directly affected by the state budget but I have to say, given a vote on aid to the state, I’d probably just do what I’m doing and send out resumes.
July 6th, 2009 at 2:35 pm
This is a rather superficial reading of the problem in California. Perhaps that’s a consequence of the brevity of the post, but the implication that all Californians are to blame here is quite simply wrong. Our government isn’t dysfunctional, it functions quite effectively at its actual purpose, which is to give power to the right-wing and prevent any fiscal policy that comes from any other place on the political spectrum from becoming law.
Most Californians have shown they are willing to increase taxes to provide services. The problem is that they are prevented from actually doing this by the 2/3 rule. I’m all for making its repeal a condition of accepting federal aid. But I don’t think we (either here in CA or in the US) are in any position to simply write off the problem as “intractable.” Solving California’s crisis without letting Arnold Schwarzenegger use it as a shock doctrine moment is all that stands between the US and an outright Depression.
July 6th, 2009 at 2:50 pm
Robert, I have a real problem with your interpretation. I work closely with state government and while I agree that the Republicans are an obstacle to progress so are the Democrats. I work closely with the state, testify before and meet shadowily with members of our legislature and what they haven’t done in the 8 years I’ve been doing this is anything remotely constructive about (1) trying to make sure the work we agree to do is done efficiently (so it isn’t) or (2) trying to make sure that the work we agree to do actually gets done (so it often doesn’t.)
A lot of people might like the programs but want them more deliberately and cautiously done and prefer better outcomes for less money. Californians who resent Democrats right now talking about higher taxes to perpetuate the same expensive and listless activity aren’t wrong. Unless they’re also Republicans.
The problem I can’t untangle is that you can’t make smart reform in a crisis and we won’t do it without one.
July 6th, 2009 at 2:56 pm
Actually, California taxpayers like myself are subsidizing the rest of the country. If you would end this subsidy, the state would be in fine shape.
A recent study by J. Scott Moody, senior economist for the Tax Foundation (www.taxfoundation.org), demonstrates that Californians not only pay more federal tax per capita than most Americans, but also get less in return from the federal government.
Uncle Sam is ripping off California.
In 2002, Moody reports, the per capita federal tax burden in California was $7,313-or 116% of the national average. On the other hand, per capita federal spending in the state was only $5,592-or 88% of the national average. For every dollar California sent in taxes to Washington, D.C., it received only 76 cents in return.
“Since both of the federal government’s largest revenue raisers, the individual income tax and the payroll tax, are levied as a percentage of income,” Moody writes, “states with a high income per capita will also have high federal tax collection per capita. This effect is exacerbated by the progressivity of the federal tax system which causes tax burdens to rise more rapidly than income as the economy grows.”
July 6th, 2009 at 3:04 pm
The problem with California is very simple: Proposition 13.
July 6th, 2009 at 3:34 pm
I don’t disagree as to what the problems are with the structure of California’s government, but there is an additional problem that should be mentioned. Namely, that the federal spending in California is nowhere near the amount of money paid to the federal government by Californians. If federal tax revenue were spent in the states proportionally to how the federal government received it, California would be a lot better off. Instead, you have a federal system that essentially relies on California and other large states to subsidize smaller states. Take away those subsidies and return them to California, and things would be a lot easier.
In other words, it’s not that people in other states don’t want to “bail out” California, it’s just that they don’t want California to get its proportionate share of federal spending at the expense of their subsidies paid for by Californian’s tax dollars.
July 6th, 2009 at 3:56 pm
>A growing number of people on the left appear to be picking up the third stimulus torch
I repeated this in a discussion with some friends and am being asked to back it up. Can you point me towards some economists who agree that we need more stimulus spending rather than less?
July 6th, 2009 at 4:00 pm
BDC, here’s a starting point.
July 6th, 2009 at 4:08 pm
Let’s just give a population proportional amount to each state of a 500 billion pie.
July 6th, 2009 at 4:15 pm
Both paychecks in my household come from the state.
California can’t be fixed by money. It has structural problems that can be fixed only by one (or more) of three things:
(1) a Constitutional convention
(2) redistricting that gives one party the ability (>2/3 of the legislative houses) to pass budgets and to increase taxes
(3) an incredibly popular leader cpable of explaining to the public why the state is such a mess and why it can’t be fixed without (1) or (2).
#1 is incredibly difficult to pull off and probably can’t happen until things get much, much worse in the state.
#2 is and will continue to be the target of Republican efforts to take redistricting out of the hands of the legislature and into the hands of some mythical “neutral” group that will probably be told to do things like create “compact districts” (which concentrate Democrats into urban districts with supermajorities of Democratic voters).
#3 doesn’t exist and probably wouldn’t be effective until the crisis gets much, much worse.
Proposition 13 truly is at the heart of the problem. Among other problems, it creates a ratcheting effect where taxes can be cut by 50% votes, but increased only by 2/3 votes.
As a practical example of what that means: auto registration fees were cut by 2/3 about a decade ago when the tech bubble was creating an explosion in California wealth (and resulting tax revenue). The rationale for the cut was that the government couldn’t make good use of all the revenue. The cut, of course, was permanent rather than tied to the business cycle. Today, when the State is desperate for revenue, the registration fees remain at the reduced level. The Republican governor and legislators won’t even increase taxes on cigarettes to help out with the current crisis.
Under the current Constitution, it is easier to make additions to the California Constitution than it is to pass an annual budget.
July 6th, 2009 at 4:18 pm
Thanks.
July 6th, 2009 at 4:24 pm
The 2/3 rule is obstructionist and makes the minority party have more power than they deserve to have. That CA supplies more money to the feds than we receive is a problem that also needs addressing. We shouldn’t be subsidizing the South, they should pay their own way. Every state should pay a equal share and get back an equal amount. Prop 13 property tax assessments are the third problem (and personally, I benefit tremendously from this, but for the good of the state I’d rather see it go away, maybe leaving only retirees to pay less property taxes). We’ve voted many times for a tax hike, but we rarely if ever get the 2/3 necessary to see it happen.
July 6th, 2009 at 5:18 pm
exhuming mccarthy @ 4, dan @ 6:
While I don’t dispute the current outflow of taxes from California to the U.S. Treasury, I do wonder whether anyone has done the analysis to see the overall impact from the post-war years when, as I understand it, California received substantially more in federal investments and expenditures than its residents paid in federal taxes.
July 6th, 2009 at 5:34 pm
The internets tell me that California only gets back 78 cents on each dollar of federal tax paid. See http://www.taxfoundation.org/press/show/22659.html
I’m not sure how this compares historically, but the federal government using money from richer states to help poorer states, aka “redistribution”, has been going on for a long time.
July 6th, 2009 at 5:41 pm
The idea that every state should give and receive exactly the same amount of money to the federal government is ridiculous. We are a nation. Right? And those industry poor states are often the same ones that provide the food to feed the teeming coasts. Or otherwise provide value beyond just $$$$’s of tax revenue.
Granted, many of those states are dedicated to willful ignorance that keeps the worst elements of our society clinging to power, but none of those states had their citizens vote for Proposition 13 either, so who the hell are californians to judge? And Californias sophisticated and educated populace also led the housing boom/bust cycle in the first place.
I would have been much happier to see california bailed out than Goldman Sachs and AIG. The nation is screwed if California goes bust. But Californians need to recall swartzenager, repeal prop 13, and take their share of the responsibility for their housing bubble. No amount of whining about tax dollars (which mostly has to do with the very high income of californians, which has to do with the very high cost of living california has allowed to develop)is going to fix anything while those three problems still dominate their economy.
July 6th, 2009 at 7:45 pm
To expand on the Prop 13 angle:
It’s not just the long-term effects of Prop. 13. (One effect was the immediate rollback of tax rates and fixing them for property holders; that’s pretty much washed through. The second was the cap, where counties and the State can’t tax at assessed rates until a property transfer; that’s structural. And the third is the 2/3ds rule; that’s fatal).
A larger problem is the initiative process itself. CA has passed some awfully weird propositions. At once we seem to love to be tax-free and love to be state-regulated at the same time. A deliberative Legislature might balance these things; the CA electorate just runs away with them, and initiatives pass based on the quality of ad campaigns rather than on the merits. And some of those propositions, like 13, can get very, very expensive.
But the deliberative legislature is also a farce, due to another proposition: term limits. The ongoing budget crisis started, not coincidentally, when the last career legislator got termed out in 2004. Since then, the only people in Sacramento with long-term legislative experience are the lobbyists, who are not term-limited. Partisan posturing, inability to compromise, complete failure of the institutional knowledge of how to pass a budget can all be traced to the “citizen legislators” who have no choice but to springboard their posts into executive, lobbying, or corporate careers, because they have no future in actually running the state well.
July 6th, 2009 at 8:17 pm
Either we’re all one nation as far as collecting and deciding how to distribute taxes, or every state is a sovereign. You can’t say that, when it comes to collecting taxes, we’re all Americans and we should use the same tax tables equally, but when it comes time to decide how to spend that money every state should have an equal say and a North Dakota voter should get fifty times as much a say in how that money is spent as a California voter. As long as there’s a United States Senate, the federal raid on Californians to subsidize smaller states is immoral and the money should be distributed among the states as it is collected. But if you’d rather give me proportional representation, starting with an abolition of the Senate and popular voting for the President, I’ll take my chances with that, too.
July 6th, 2009 at 8:26 pm
The idea that every state should give and receive exactly the same amount of money to the federal government is ridiculous. We are a nation. Right?
Of course, but the reason you’re starting to see the “let the states keep their own taxes” meme is that it feels like the poorer states keep taking California’s money and then sneering at us for being “elitist.” After a while, the feeling becomes, “Well, then, give us our damn money back if you hate us so much!”
July 6th, 2009 at 10:01 pm
There should be federal income taxes on state governments, with negative taxes as required (as proposed for individuals). Counter-cyclic measures can’t be ad hoc, and payback for bailouts must be institutionalized.
July 7th, 2009 at 8:40 am
The fact that California pays more to the Federal Government than it gets back is simply a reflection of the fact that California is wealthier than most places. If everyone pays to the Feds no more than they get back a national government becomes impossible.
Get over it.
July 7th, 2009 at 10:40 am
One of the interesting things here is how putting the regulation of drugs into the hands of policemen has turned out NOT to be a trivial event. Things have gotten so bad now that California spends more on prisons than on schools, but nobody has the courage to change this. It’s a sad day for us when Mexico is displaying more of the courage needed for democracy than we have.
Naturally the Mexican mafias are loving this. What could be better, from a gangster’s viewpoint, than several American and Mexican states in virtual anarchy, and the entire US and Canada as lucrative black markets. If I was a gangster I would be sure to donate lots of money to the rightwingers who make this possible, and in fact gangsters like Al Capone did donate to the churches and other social institutions which kept Prohibition in place.
As for me, I’ve had enough. If legislators have enough money to keep arresting pot smokers and don’t need the money a tax on legalized pot would provide, they can just raise the taxes and cut the services on their own. They won’t get my blessing.
Somehow people imagine that democracy, as practiced by the people, should be cleaner and more noble than representative democracy, as practiced by legislators. In reality, the people’s democracy has, more often than not, consisted largely of smashing and burning stuff to scare the hell out of the people who actually run the place.
And rest assured, there are people who really run the place in California- a category which includes the prison guards union. It’s a weird mongrel ‘democracy’ that fittingly emerges in a state dedicated to making war and propaganda. What remains to be see is if the people who run the place can be scared- or whether the rest of the country will bail them out.
July 7th, 2009 at 12:00 pm
California has screwed itself so bad with Prop 13 and Davis’ recall. Yeah, an actor has fooled all of California again.
The link to the Tax Foundation (what, you c0uldn’t find more recent info on the IRS site?) is from 2005. Before Gov Ahnold helped the Bush Admin trash the economy.
California now gets back more money than it sends in due to job loss (fewer payroll taxes coming in) and tourism loss. (Boy, shutting down the parks which had a 2:1 profit ratio really helps [/snark].)
So basically STFU until you do your homework and get rid of the Guv who brags about going home and smoking stogies in his jacuzzi while the rest of your drown in debt.
July 7th, 2009 at 12:22 pm
Thanks Federalist. It’s nice to know that there is absolutely no connection between the entirely irrelevant fact that a person from Montana gets roughly thirty-six times the say in the operation of the primary chamber of the legislative body of the federal government and the completely coincidental fact that that same person from Montana gets half again the federal expenditures as what he or she pays for.
Of course if, as you say, it is true that there is absolutely no correlation between the allocation of political power in a government and the allocation of political benefits, then surely you would join me in calling for the abolition of the Senate. After all, there are those who would say that equal representation is a worthy goal in itself.
July 7th, 2009 at 1:18 pm
Dan sez: “Of course if, as you say, it is true that there is absolutely no correlation between the allocation of political power in a government and the allocation of political benefits, then surely you would join me in calling for the abolition of the Senate.”
Keep in mind that Montana has 1 rep, due to population, but they get 2 senators just like every other state.
My state has 9x the reps in in the US House. Do you really think my state should have 9x the votes that Montana has?
Why should my little state have more say than Montana’s state? We have more citizens.
California has 53 times the representation than that of Montana in the US House, but are equal in the number of Senators.
Check meet balance.
Are you sure the Senate should be abolished?
July 7th, 2009 at 1:52 pm
Doug, I have a real problem with YOUR misreading of Robert’s post. You, like so many people, are constantly confusing Democrats with liberals. Not once does Robert mention political parties, he talks about keeping power with the right-wing. The fact is ALL Republicans follow conservative fiscal theory as God’s own law. The Democrats are mixed, enough of them proudly proclaim themselves “fiscal conservatives” and hence, our problems.
The difference between liberals and conservatives on govt fiscal issues is this: liberals believe that the government can and should help people directly through grants, subsidies, food stamps, etc. Conservatives think that governments only role is to help BUSINESS and if business is running well everything else will magically take care of itself. Unfortunately, business only cares about making as much money for itself and couldn’t care less about the people. It’s decades of following this so-called “fiscal conservative” theory that’s at the heart of the problem.
July 7th, 2009 at 2:38 pm
Sailor — call me naive, but I’ll support a democratic system based on equal representation. One person, one vote. If regional group “A” has the same number of people as regional groups “B” and “C”, then each should have the same say in selecting members of legislative body “X”, legislative body “Y”, and executive position “C”. This is true even if “A” is called a state, “B” is called a county, “C” is called a city, and “X”, “Y”, and “Z” are called the House, the Senate, and the President. Anything else gives some people greater say in the operation of the government than others, and being in favor of democracy and equality I’m opposed to that.
July 7th, 2009 at 4:28 pm
To abolish the Senate you would need support of two-thirds of both houses(impossible) or a new constitutional convention called by two-thirds of the states. Since a con-con would through open up
the WHOLE constitution for revision there would be a lot of opposition to it.
But, even if you got the con-con and the amendment abolishing the Senate it would still have to approved by three-fourths of the states.
I think secession is more realistic. If it could happen in the old USSR, it could happen here.
July 7th, 2009 at 4:34 pm
Fair enough, Danno. But take the parties out of it and I still don’t think liberals, whoever they might be, want government to help people badly. Whatever the scope of government should be, can’t we at least agree that we want the cost of government to be as small as possible and the impact as large as possible. My complaint has to do with the lack of interest on both sides of the aisle in efficiency and efficacy.
There are those, and I’m not one, who argue that liberals think governments only role is to help government employee unions and if their membership is up everything else will magically take care of itself. I don’t agree, but I wish there were more evidence on which to build my response.
July 7th, 2009 at 6:49 pm
Dan “One person, one vote.”
OK. Every state with more people can control everything in any state with less people. Yeah, that’ll work.
Sorry for the snark, but that model doesn’t work. CA has proved it with Prop 13. and Prop H8.
Maybe a more representational model where different factions have to ally to form a gov’t is better than what we have, but it’s still not 1:1.
It seems like the majority should rule … but what happens when you’re not the majority?
July 8th, 2009 at 10:21 am
The United States Constitution includes plenty of devices to avoid abusing majority power. The Senate is the only thing that involves granting affirmative power to a minority.
When that obnoxious person on MSNBC — I forget the name — starts ranting and raving about how “real Americans” like Sarah Palin, she’s just articulating the values set by the creation of the Senate — that people in less populous, arbitrarily defined political units are inherently superior, more “real” and deserve more political power than people in more populous, arbitrarily defined political units who are inherently inferior, less “real” and deserving of less power.
I disagree with Propositions 8 and 13, but they at least were the product of a democratic system of government. (Although I should point out that Prop 13 was a constitutional amendment, and I would support requiring constitutional amendments to gather a supermajority, as is the case with the federal constitution and which, if it were in place in California, would have negated the example). The Senate’s greatest hits (all the way from blocking anti-lynching legislation decades ago to blocking cap-and-trade and probably health care reform today) is much worse, and doesn’t even have the virtue of representing the will of the people — if the federal government were a democratic government, we would have had universal healthcare decades ago, back when a majority of people started supporting it, like when Harry Truman was elected in 1948 when he ran on the issue.
And if you’re worried about the protection of gay rights, you may want to consider what it means to give Arkansas, Kentucky, Louisiana, and Alabama four times the power as you give a progressive state that’s come closer to approving gay marriage by referendum than any other state and that has more than twice the population of those four states combined.
But if you’re worried about protection of minority rights, I have a proposal. Let’s add a third house of congress, through which every piece of legislation should pass. This third house, called the “council of types”, would consist of twelve members. Three of the members would be elected only by people with blood type “A”, three will be elected only by people with blood type “B”, three by blood types “AB”, and three by blood types “O”. Since every bill will require a majority of the council to become a law of the United States, this chamber will prevent the 40+% of people with type “O”s from infringing on the rights of minorities like the 4% of people with blood type “AB”.
Or, you know, we could try democracy instead, and just accept that, if we’re in the minority, we’re in the minority. Radical idea, that.
July 12th, 2009 at 6:33 am
Splitting the State into two (and forcing each half to redefine its politics) would solve the problem. Have you ever noticed that California’s Congressional delegation has the worst record for intrastate cooperation?
July 12th, 2009 at 6:37 pm
And of course the roads that link California to the rest of the nation and the massive water projects in other states that funnel water to California do not benefit California at all….