William Voegeli, a contributing editor at The Claremont Review of Books, has an excellent essay in Manhattan Journal comparing the economic performance of California and Texas. (I believe a short opinion page version appeared recently in the LAT.) Among other things, the article provides a good example for how a public choice analysis can be applied to show, in this case, capture of public revenues and the process of increasing public revenues by public employees in California.
The most interesting feature of the article, however, is that it does not start out from a position of hostility toward California and its high tax model. On the contrary, it says that there is a tradeoff that different people will make differently with respect to high tax/ high public services jurisdictions and low tax/ low public services jurisdictions. There is a perfectly good argument for the former as well as for the latter.
It’s true that many people are less sensitive to taxes and more concerned about public goods, and these consumer-voters will congregate in places with extensive services. But it’s also true, all things being equal, that everyone would rather pay lower than higher taxes. The high-benefit, high-tax model can work, but only if the high taxes actually purchase high benefits—that is, public goods that far surpass the quality of those available to people who pay low taxes.
I grew up in California and despite my Upper Upper NW DC address, will always count myself a Californian, product of its public schools and a proud graduate of UCLA. I was a beneficiary of the high tax/ high benefits model, and gravitate toward it. The problem, as Voegeli documents, is two fold. First, California is today a high tax/ low benefits model, while Texas, even with relatively low taxes, has managed remarkably to catch up and even pass California in ways I would not have believed possible. But Voegeli’s data, as I have discussed it with other Californians and Texans, seems to me pretty robust. His conclusion?
“Twenty years ago, you could go to Texas, where they had very low taxes, and you would see the difference between there and California,” Joel Kotkin, executive editor of NewGeography.com and a presidential fellow at Chapman University in Southern California, told the Los Angeles Timesthis past March. “Today, you go to Texas, the roads are no worse, the public schools are not great but are better than or equal to ours, and their universities are good. The bargain between California’s government and the middle class is constantly being renegotiated to the disadvantage of the middle class.”
Similarly, the CEO of a manufacturing company in suburban Los Angeles told a Times reporter that his business suffered less from California’s high taxes than from its ineffectual services. As a result, the company pays “a fortune” to educate its employees, many of whom graduated from California public schools, “on basic things like writing and math skills.” According to a report issued earlier this year by McKinsey & Company, Texas students “are, on average, one to two years of learning ahead of California students of the same age,” though expenditures per public school student are 12 percent higher in California.
State and local government expenditures as a whole were 46.8 percent higher in California than in Texas in 2005–06—$10,070 per person compared with $6,858. And Texas not only spends its citizens’ dollars more effectively; it emphasizes priorities that are more broadly beneficial. In 2005-06, per-capita spending on transportation was 5.9 percent lower in California than in Texas, and highway expenditures in particular were 9.5 percent lower, a discovery both plausible and infuriating to any Los Angeles commuter losing the will to live while sitting in yet another freeway traffic jam.
What happened? According to Voegeli, two things. One is that scarce tax dollars in Texas are spent on priorities that have broad appeal, while California spends far more of its tax dollars on transfer payments to particular groups with political clout. Second (and a subset of the first, really) is that the tax dollars in California go to public employees, public employee pensions, public sector unions — nominally to the service providers of the “high benefits” received in exchange for high taxes. Voegeli reports that they soak up the additional revenue but provide increasingly poor services at an ever increasing cost.
In California, by contrast, more and more spending consists of either transfer payments to government dependents (as in welfare, health, housing, and community development programs) or generous payments to government employees and contractors (reflected in administrative costs, pensions, and general expenditures). Both kinds of spending weaken California’s appeal to consumer-voters, the first because redistributive transfer payments are the least publicly beneficial type of public good, and the second because the dues paid to Club California purchase benefits that, increasingly, are enjoyed by the staff instead of the members.
Californians have the best possible reason to believe that the state’s public sector is not holding up its end of the bargain: clear evidence that it used to do a better job. Bill Watkins, executive director of the Economic Forecast Project at the University of California at Santa Barbara, has calculated that once you adjust for population growth and inflation, the state government spent 26 percent more in 2007-08 than in 1997–98. Back then, “California had teachers. Prisoners were in jail. Health care was provided for those with the least resources.” Today, Watkins asks, “Are the roads 26 percent better? Are schools 26 percent better? What is 26 percent better?”
Watkins is not referring to the mythical golden past in which I grew up outside of LA; this is a mere decade ago. But Voegeli observes that the task for California is inherently harder for it than for Texas; there is an asymmetry baked in:
If California doesn’t want to be Texas, it must find a way to be a better California. The easy thing about being Texas is that the government has a great deal of control over the part of its package deal that attracts consumer-voters—it must merely keep taxes low. California, on the other hand, must deliver on the high benefits promised in its sales pitch. It won’t be enough for its state and local governments to spend a lot of money; they have to spend it efficiently and effectively.
Agency capture of public institutions, their tax mechanisms and their benefits, is far from an unknown phenomenon. But I have to say that the idea that California could ever be surpassed on any of the metrics above — education, liveability, transportation, quality of life, etc, — by Texas is ... shocking.
(Note — and before everyone gets all p-o’d in the comments. I do freely admit and guilty as charged that I feel pretty much about my home state as every Texan I’ve ever known feels about Texas, so no need to abuse me in the comments. And I will also say that if I were able to move back to California today, and not have to worry about gainful employment as a law professor, I would move to ... Carson City, Nevada, just below the Nevada side of Tahoe, on Highway 395 in the Eastern Sierra Nevada corridor, and have two-thirds the benefits of California (the mountains and the desert, minus the Pacific and the California coastal foothills) without the taxes. I’m headed out to give a talk at Stanford Law School next week, and while terrifically excited to go talk about robots and war and grateful for the invite, I have serious regrets about not being able stay just long enough to drive over the Sierras.)
Splunge says:
There is a perfectly good argument for the former as well as for the latter.
What this demonstrates most clearly is that relying on the quality of the argument for deciding how to structure a society is suicidal madness. Theoretical arguments about what ought to happen when you do this and such are the least reliable guides to what will actually happen.
What you now have in front of you is strong experimental evidence that there is no such thing as a “high benefit/high tax” state, at least as a long-term stable entity. One can argue theoretically about why, of course: my favorite argument is simple and Californian: fruit attracts fruit flies.
The centralization of power and wealth implied in a high tax state inevitably attracts highly motivated and efficient parasites, who want to drain off that wealth and power for their own benefit, and notwithstanding the ineffectual hopes of the voters and taxpayers — ineffectual because the ability of taxpayers and voters to protect the booty is very limited. It has to be, because otherwise each taxpayer could alienate his share of the tax base in random ways.
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November 2, 2009, 9:41 pmJmaie says:
The problem with living in Carson City is that you are four hours away from a good Chinese restaurant.
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November 2, 2009, 9:41 pmDavid Welker says:
Kenneth Anderson,
Maybe you should focus on facts. That facts are that California’s tax burden is not out of line compared to other states. I could provide links, but you can use Google as well as I can. Of course, I would prefer you live in Nevada, but that is another issue entirely.
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November 2, 2009, 9:47 pmMark N. says:
Having lived for several years in Texas, I like plenty about it, but it’s a fairly tricky comparison. For example, due to no zoning, homeowners’ associations are much more widespread in Texas, covering entire subdivisions of many square miles. They provide something like a de facto additional layer of municipal government, complete with what is, in effect, an additional layer of property taxes, which are used to pay for some things that, in California, a municipality’s or city’s taxes would pay for (maintaining parks, mowing medians, etc.). Presumably these expenditures aren’t counted as “government”, even though they function quite similarly to those of a local government (and are similarly coercive— you have a choice of paying their taxes, or moving out of their territorial jurisdiction).
The University of Texas system is also considerably less of a burden on state finances than the University of California system, in large part because of the Permanent University Fund collected from taxes/fees/royalties on oil revenues. The mere existence of this fund may point to better planning in the past, of course. But it also points to Texas historically actually having higher taxes than California: Texas levied significant extraction taxes and fees on oil, and charged considerable royalties on oil drilling on state-owned land (which was much of the land), whereas California has never had an oil-extraction tax (an attempt to introduce one a few years ago failed).
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November 2, 2009, 9:56 pmJmaie says:
Seriously though, I would guess a good percentage of people currently moving into the state are drawn by high wage employment as opposed to any interest in the (alleged) high quality public services. The tax burden, although high, is only a small part of the total cost of living. This is mostly driven by cost of housing, which tends to overwhelm everything else in a person’s perception.
I’m guessing those people moving out for cost reasons are leaving to escape the overall cost of living rather than just the tax burden.
I agree with your premise, but don’t think it’s a particularly important consideration for those deciding whether to locate in California.
I say this as a California native who moved to Washington State for economic reasons. It’s also a high tax state, just not quite as bad as home. And yes, I will always be a Californian no matter how long I stay away.
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November 2, 2009, 10:01 pmKenneth Anderson says:
Jmaie, where do I get to decent Chinese food in four hours from Carson City ... and how fast do you drive?
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November 2, 2009, 10:12 pmAlice Aforethought says:
The “net internal migration” numbers don’t tell the whole story for California, because they don’t take into account differences in who is moving in and out. Many people moving in come to enjoy the entitlements and transfer payments, while many of the people moving out used to pay for them.
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November 2, 2009, 10:12 pmmatt d says:
We live in California. My wife works as an H.R. consultant for biotechs, and often talks about the “sunshine tax”; despite the higher cost of living in southern California than most other places, the wages are only a little higher. A good chunk of your salary is paid in weather.
–m@
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November 2, 2009, 10:18 pmJimbino says:
It would be sad to lose California, that legendary laboratory of democracy, the testing station of all ideas, crazy and otherwise. We Texans are grateful for California guinea pigs, and we do actually consider implementing those ideas of theirs that haven’t ended up impoverishing and killing Californians.
Like wine, semiconductors, computers, live music, and live film.
But not income tax, unions, exalted wages for public employees, and other left coast weirdness.
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November 2, 2009, 10:21 pmAlyssa says:
Mark N.,
Only Houston has no zoning, of the large cities in Texas. And homeowners’ associations fees range from $200 — $1000/year. Of course, don’t get me started on how much I hate property taxes, but, suffice it to say, I don’t see the inconsistency you’re pointing out.
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November 2, 2009, 10:21 pmMnZ says:
California’s problem is that for every problem great or small. They decided to pass a law to address it.
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November 2, 2009, 10:25 pmTexas and California, another good volokh post « The Gut Cup says:
[...] Here is a great Volokh post. [...]
Glen says:
Somewhat true, but beside the point. If California delivered relative higher services for its relatively higher taxes, then most would likely feel it to be an equitable exchange. As both Messrs. Anderson and Voegeli note, California has failed to do so.
California has rampant homeowners associations, too, that collect additional “property taxes.” These are in addition to an existing “high-tax/low-benefit” layer of municipal government.
I think this is what many of us have known for some time. But it is now only beginning to be appreciated in the academy, media, and (begrudgingly) government.
As a 20+ year transplant to California, many of my current neighbors find resonance with the statement “the dues paid to Club California purchase benefits that, increasingly, are enjoyed by the staff instead of the members.”
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November 2, 2009, 11:04 pmRandy says:
When it comes to rankings of student performance, Texas is near the bottom at 41, while CA did better at 36.
Incidently, MA, which people complain about its high taxes, ranks No. 3, while the bottom is loaded up with low tax states such as Georgia, Alabama, Florida, Lousiana and SC. Washington, DC, of course, was dead last.
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November 2, 2009, 11:11 pmSarcastro says:
[Hah! Southern Cal is great and all, but I yearn for the fruit-filled days of NorCal more. (Born and raised in NY, undergrad in Claremont, Grad in Davis. Now in DC)]
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November 2, 2009, 11:18 pmStrick says:
The major university systems in Texas are effectively land grant universities, no different from those found in almost every other state in the US, except for being more fortunately placed, of course. The universities draw revenue from their grants of land, which in Texas does include a lot of oil and gas royalties, but at the time they were first granted, the land was worthless for anything but grazing cattle. BTW, not all major state universities in Texas have land grants and are funded out of the general fund, just like California’s.
The article also mentions roads. Texas has always had the best roads in the country, paid for by oil and gas severance taxes dedicated to road construction and maintenance. Since consumers ultimately paid the tax and most oil and gas left the state, relatively little of the burden fell on Texans. Production and the resulting taxes have been falling for many years now, so we’re turning more and more to toll roads.
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November 2, 2009, 11:23 pmJames N. Gibson says:
The problem with California is we have been deficit spending for over fifty years, paying off the overdraft with bonds on future earnings, while Texas has been more frugal. Now we Californians spend a great deal of our taxes just to service the interest on the debt, A 2006 study indicated debt service costs would peak in 2010 at $7.6 billion dollars. The amount of debt from the bonds was estimated at 44 billion dollars, not counting another 32 billion in bonds already authorized but not yet released.
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November 2, 2009, 11:29 pmA T Garvin says:
When you say rankings, do you mean in multiple comparisons between states, Texas consistently pops up at #41?
For instance, the NAEP’s assessment of math education places Texas above the national average, and above California: http://nationsreportcard.gov/math_2009/gr8_state.asp . The 2007 results for writing show Texas at 37–below average, yes, but California is five places further down. Other categories show Texas above California consistently. Of course, the NAEP is not the only state ranking system, but it’s the official Dep. of Ed’s one. It’s a long way from the ‘Thank God for Louisiana’ days where we were guaranteed to have one state below us.
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November 2, 2009, 11:32 pmD.R.M. says:
Which would be a great deal if you couldn’t, say, live in El Paso instead. Warm, dry, sunny weather is hardly specific to southern California.
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November 2, 2009, 11:36 pmDiversityHire says:
I can’t get the nation’s report card to rank Texas below California in anything.
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November 2, 2009, 11:38 pmTruePath says:
You have to be careful not to overlook certain public goods when you do this analysis just because you don’t get utility from them and may even find them repugnant.
Many people in the bay area I know received a substantial benefit in exchange for their high taxes. They got to tell themselves what good, compassionate, progressive people they were for having such a more enlightened public service system than the rest of the country. Plus they got to look down their noses at places like Texas for not having the same kind of environmental laws they did.
The problem when you make this kind of argument is that it’s very easy to confuse money with utility. As long as you only associate with other people who have similar effective incomes as you it really doesn’t make much difference to your happiness that you aren’t actually able to consume more (past a certain point utility ceases to rise with national income). So as long as the people in california get a benefit out of believing they are soo very progresive and the texans get to think how much better they are for not wasting all that money it might be to both groups advantage.
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November 2, 2009, 11:43 pmJmaie says:
Kenneth — Sam Wo’s on Jackson is a favorite for sentimental reasons. It’s only 250 miles, that can be done in four hours even following the speed limit (at least at night).
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November 2, 2009, 11:44 pmBlue says:
Not only does Texas do reasonably well in NAEP, we do so with a much more diverse and challenging student population. In fact, I did a study a few years back where I took the disaggregated results by race/ethnicity for all 50 states, set each state’s share of these populations at the national average, and ranked the results. Texas was at number 4.
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November 2, 2009, 11:46 pmMark N. says:
I wouldn’t describe El Paso as having nice weather: it’s got winters that regularly get below freezing, and summers with highs above 95 for a huge portion of the year. The average daily high in El Paso is over 85 for a full 5 months of the year, and above 95 in June and July. There is no part of Los Angeles with weather that hot, and the nicer parts (near the coast) average high 70s and low 80s all summer. They also have warmer winters— January lows in Westwood are around 50, while they’re 33 in El Paso.
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November 2, 2009, 11:46 pmBlue says:
Oh, and one more thing–we have a strong limiter on the size of government because our Constitution prohibits the state budget from rising faster than the underlying rate of economic growth. Because of this the state government cannot outgrow the economy.
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November 2, 2009, 11:49 pmNathaniel says:
+500,000
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November 3, 2009, 12:01 amMitchell J. Freedman says:
When you factor in the cost of land in California (and homes in California) and compare it to Texas, the Claremont propagandist’s 12% difference in school spending evaporates. It’s not like the public employees in CA are commuting from Nevada or New Mexico.
Only a libertarian could find the Claremont propagandist’s article more compelling than Rebecca Solnit’s analysis that actually showed what is happening tax wise in CA, and how there’s been a party for business in this State in the last 20 years, and the State has little in the way of public investment to show for it.
And where is the libertarian cry for reforming 3 strikes laws to stop the madness of prison spending and prison expansion? The increases there are more than the school spending increases.
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November 3, 2009, 12:22 amTim says:
I think it’s important to point out that most of the things discussed as “Public goods” in this article (where quoted anyway), aren’t. I think it’s very important for someone who understands economics to know the difference between a “public good” and “public services.”
In fact, I think it’s something I should probably blog about soon. Economics is full of vocabulary, and misunderstanding the definition misdirects an awful lot of highly intelligent people.
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November 3, 2009, 12:25 amLarryA says:
I found that to be true when I moved from schools on military bases in Germany to Barstow, attended the sixth and seventh grade in California, then moved to Texas. That was back in 1960.
Plus, Texas actually allows drilling for oil and refining it. You can’t tax oil until you pump it.
Barstow, on the other hand... There are two seasons in the Mojave Desert: The dry season and the day it rains.
I have no problem with that; to each his own. The only Californians that really tick me off are the ones that move to Texas and bitch because we don’t have the right kind of gun control, etc. Just like damnyankees.
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November 3, 2009, 12:32 amNickM says:
Barstow exists because most cars can’t get from Los Angeles to Las Vegas without refilling the gas tank.
Although I do have to admit that the Lenwood Mall exit from I-15 has the best collection of fast food restaurants I’ve ever seen.
Nick
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November 3, 2009, 12:43 amStrick says:
Sorry, should have read the rest of your post. Texas has a severance tax, not extraction tax. There’s a difference. Can’t find what the revenue from the tax was 20 years ago, but in 1992 it amounted to 6% of Texas’s total revenues. In 2008, it was 4.8% of taxes collected by the state.
Census data for 2004 shows the per capita tax in California was $2,391.65 versus $1,368.45 for Texas. That 5%-6% addition in severance taxes doesn’t go very far toward making up the difference.
As for royalties Texas collects on public land, are you saying that California doesn’t collect royalties on production from its land? I assume both states are taking advantage of revenue opportunities from public lands even beyond oil and gas.
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November 3, 2009, 12:59 amAmerican Psikhushka says:
What happened? According to Voegeli, two things. One is that scarce tax dollars in Texas are spent on priorities that have broad appeal, while California spends far more of its tax dollars on transfer payments to particular groups with political clout. Second (and a subset of the first, really) is that the tax dollars in California go to public employees, public employee pensions, public sector unions — nominally to the service providers of the “high benefits” received in exchange for high taxes. Voegeli reports that they soak up the additional revenue but provide increasingly poor services at an ever increasing cost.
Actually another model is being applied.
It’s not high taxes/high services vs. low taxes/low services.
It’s high taxes/weak-stagnant economy vs. low taxes/strong-growing economy.
With the high tax model your economy is going to be weaker. And as taxes rise above a certain point growth will by turns slow, stop, stagnate, and then shrink. This process may be put off by certain events — like the tech boom, for instance.(Which was artificially and unsafely magnified by the Federal Reserve increasing the supply of money and credit.) And then when the boom crashed the bite of the high tax rates — and all the growth in government they fueled — were felt even more.
Put more simply, the economic “pie” in TX is growing or growing more quickly because of the lower tax rates. The larger pie can more easily fund the same level of services. Note there is a multiplier effect as well — if discipline on government spending is maintained and taxes stay the same or are even reduced — the economy can grow that much faster as wealth left in the hands of citizens is reinvested.
With the high tax model you are left trying to pay a high tax burden with an economy that is growing more slowly at best and is stagnant or shrinking at worst. You also have an economy that is more vulnerable to economic cycles.(Especially the exaggerated ones caused by Federal Reserve manipulation.) Witness the results after the Tech Boom/Crash that then transitioned into the Real Estate Boom/Crash. A high tax economy is like an individual in a very volatile business that barely covers their expenses, even when times are good.
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November 3, 2009, 1:11 amAmerican Psikhushka says:
Correction, first line in message above should read:
“Actually another model can be applied.”
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November 3, 2009, 1:12 amDangerMouse says:
California has one thing going for it: it’s not New Jersey.
Seriously, New Jersey is the crappy version of an East Coast California: more corrupt, smaller, dismal, high taxes, pathetic unions, etc.
I’d love to see either California or New Jersey go bankrupt. Eventually, there’ll be no one left to tax.
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November 3, 2009, 1:16 am24AheadDotCom says:
The article, this post, and none of the comments mention immigration, and that shows why you can’t trust what William Voegeli says. You also can’t trust what Kenneth Anderson and all the other promoters of the article tell you; they aren’t intellectually honest about one of the root causes of the problem. Some of those promoters are living in a libertarian fantasy world where we can have low spending and high immigration, and it just doesn’t work that way here in the real world.
Let me know when, just as an example, the Voegelis and Andersons start opposing things like this.
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November 3, 2009, 1:46 amDavid Nieporent says:
Better, since you were unable to find out that California ranks as one of the highest tax burden states.
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November 3, 2009, 2:15 amdew says:
Randy: Incidently, MA, which people complain about its high taxes, ranks No. 3, while the bottom is loaded up with low tax states
Mass is #1 in the NAEP reading & math rankings. MA does have high state and municipal taxes, but has little to no county government and associated taxes at that layer. On the other hand, MA has an extremely high per-capita debt level (much higher than CA) which is becoming a huge drain on that state.
Randy misses NH, which is close to the bottom on the tax list but close to the top on most education rankings. That’s a little factoid which NH residents love to point out to much higher taxed Mass (and VT/ME) residents.
I am happy though to pay higher taxes anywhere to avoid the petty rules and rule-enforcers in a homeowners association. Unfortunately they seem to be popping up everywhere, even though I know few people who actually like living under the thumb of one.
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November 3, 2009, 2:28 amDavid Welker says:
David Nieporent,
One of your links is to the Tax Foundation, which is arguably a deceptive and partisan organization. Also, a “$ per capita” figure for taxes does not really make sense as a measure of tax burden. Yeah, in Alabama or Mississippi isn’t going to have as high of a dollar figure per capita. That is because their income and property values are so much less, which isn’t exactly a sign of economic success. So quoting dollar amounts per capita is totally useless as a measure of tax burden.
Anyway, I could easily provide links such as this one here, here, or here that would bring a little bit of perspective.
I could go on. But, you can use Google to find BOTH sides of the story, if you really want to.
Good job demonstrating that you could fetch a bunch of deceptively one-sided links, Mr. Nieporent. What exactly that has to do with the actual truth remains uncertain, however.
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November 3, 2009, 2:41 amEvilDave says:
California: Every time I watch the first “Superman” movie, I keep hoping it has a different ending.
The only other film I feel that way about is the original “Day of the Jackal”
Yeah, I brought a date to an abrupt halt once when I said that homeowners associations were like socialism, great in theory but a nightmare in real life.
Oh well, that date wasn’t going anywhere anyhow.
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November 3, 2009, 2:53 amDavid Nieporent says:
And arguably it isn’t. But obviously if you just ignore everyone who disagrees with you — something you seem to do a lot — and focus on unarguably deceptive and partisan people like Paul Krugman and Ezra Klein, you can convince yourself of anything. (Neither Krugman, Klein, nor you seem to realize that regulations are taxes, though.)
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November 3, 2009, 3:00 amDavid Welker says:
David Nieporent,
An argument on the relative partisanship of the links we provide certainly does very little to advance debate, although it is nonetheless worth mentioning in passing. My response to you is to merely point out that the links you have produced are all one-sided. I am not that inclined at this moment to have an actual substantive debate on this issue due to time constraints, although I could change my mind if you insisted. I am just pointing out that the links you provided were one-sided. I was not asserting that the links I provided were not from opinionated sources (which are nonetheless right on the merits). However, my one-sides links nicely balanced your one-sided links and also have the added advantage of making the better argument. In contrast, you put forth your one-sided links in a context where no other information was provided in terms of links and also made a snarky comment about how this is a “better” Google search, perhaps implying that alternative sources were not available.
And ultimately my criticism of Kenneth Anderson stands. Whether he takes a position that taxes in California are unusually high or not, he should definitely acknowledge the complications inherent in that position. The point that California is a state with an unusually high tax burden was merely asserted without any analysis or critical thought evident whatsoever.
Finally, lets turn to your last argument.
Regulations are taxes?
No. They are not taxes. Not according to the law in California (where tax increases require a two-thirds vote to increase but new regulations have no such requirement) and not according to common sense.
Are regulations like taxes? In some respects, yes, in some respects, no. A regulation that prevents pollution may cost money to comply with (and thus is a little bit like a tax) but that regulation may be justified because no one has an automatic right to harm the health and welfare of third-parties. In other words, no one has a right to engage in an activity in an manner dangerous or unsafe to others. In contrast, people do have a right to own property or earn income and such activities are not automatically harmful to other individuals. So, rather than thinking of the requirement to behave safely as tax, that is probably conceptually thought of as a cost of engaging in the potentially harmful activity. One might be required to engage in safety precautions when using dynamite or other dangerous explosive, for example, and those precautions might incidentally cost money. But I don’t think these should necessarily be considered “like” taxes, because reckless use of explosives is not something one has an inherent right to do, especially since others do not consent to the risks (which are costs) where the person engaging in the activity gets all the benefits. Also, it may much less expensive to prevent a harm like pollution or the harm from unsafe use of explosives than it would be to impose taxes to clean up the mess after the fact. Therefore, taxes after the fact are clearly not an adequate substitute to regulation. It is not the case that for every regulation, you could replace it with a tax and achieve the exact same result.
So, it is clearly not true that regulation is equivalent to taxation. It is no wonder that neither I, nor Klein, nor Krugman would agree that it was.
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November 3, 2009, 3:51 amAmerican Psikhushka says:
David Welker–
In other words, no one has a right to engage in an activity in an manner dangerous or unsafe to others. In contrast, people do have a right to own property or earn income and such activities are not automatically harmful to other individuals.
Not quite. There are all kinds of examples of behavior that potentially poses a danger to others that is protected. For example I have a right to refuse medical treatment, even if that could prove dangerous if I had a heart condition and had a driver’s license.
And this is dangerous ground. Statistically, some ethnic groups have a higher rate of violent crime than others. By your logic just them living their lives is “dangerous” or “unsafe” to others. Does that mean you want to imprison, chemically castrate, drug, monitor, etc. innocent members of those ethnic groups? Make them wear warning labels?
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November 3, 2009, 7:35 amAmerican Psikhushka says:
24AheadDotCom–
Actually TX has similar concerns with undocumented or illegal immigration. It may not be an exact match, but its similar.
Also other high tax states that are not border states are having similar economic problems.
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November 3, 2009, 7:47 ammattski says:
David Nieporent, do you project much?
Just for perspective, let’s remember that it was you who recently wrote that we can “eliminate government failures by eliminating government.” Another gem, “taxes are not a natural phenomenon.”
Maybe you should spend a few years living in the jungle (a truly tax-free paradise) and then report back on your findings.
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November 3, 2009, 7:49 amDavid Chesler says:
I’ve got to agree with Splunge in the first comment. I grew up in Co-op City in the northeast Bronx, the world’s largest cooperative housing project. And it was plagued with graft from the start, because nobody was in charge (the unions? United Housing Federation? State of New York?) Forty years later, it’s still not clear who is in charge, whether it’s truly a cooperative or just a middle income housing project. My recollection was the every three years a new board of directors would run on a platform with two planks: 1) We are going to replace the old, corrupt board; 2) We are going to put out to bid a contract to replace the 100 high-rise elevators. (Some years it was all the windows, or the power plant...)
Accidents of fate have me living in a low-tax city in Massachusetts, 10 miles from Boston, and I wish I didn’t get all the government I’m paying for. (The city swimming pool and garbage pickup is nice, it’s the schools I have trouble with.) If I ever do move to New Hampshire, whose laws I like better, I doubt the taxes will be as low as the advertising, or Dew, would have me believe. Property taxes tend to be a lot higher (especially since they instituted statewide school funding), the meals sales tax is higher, and there most certainly is an income tax (just not on wages.) I’d probably have a bigger house.
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November 3, 2009, 9:05 amMitchell J. Freedman says:
Okay folks. Let’s stop the whole NH v MA comparison as if taxes tell the story. The reason NH seems to work well is that many of its workforce work in....MA. Tell me how well low tax NH (as a previous commenter noted is no longer so low tax) would work if it was surrounded by other low tax states such as Alabama or Mississippi.
Here are two rather enlightening articles from New Hampshire media sources:
http://www.unionleader.com/article.aspx?headline=Deroy+Murdock%3A+Romney+raised+taxes+on+NH+commuters&articleId=6d1e7087-4e6c-4e05-ad11-81ec4e5e8509
http://www.wmur.com/news/18432832/detail.html
You want services like roads and schools? They cost money. You can live in a Libertarian fantasy, like the American Stalinists of old, or you can get into the discussion about public policy making.
As I said in my 12:22 a.m. post (9:22 p.m. CA Time), the Claremont fellow’s “analysis” lacks credence because he does not take into account the fact that land values are higher in CA, and when you pay people in CA compared to TX, whether private or public sector jobs, the people need more money to make the mortgage. The 12% difference in school spending between TX and CA therefore evaporates. And check the SAT scores in TX and CA, and you’ll find CA beats TX on all three aspects of the test, and that TX SAT scores are largely declining these past 5 years.
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November 3, 2009, 9:31 amAbdul Abulbul Amir says:
Ah yes, may Edsel Ford Fong rest in peace. Last there the food was still good, but the “floor show” was sadly missed.
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November 3, 2009, 9:55 amMark Field says:
Actually, one of DN’s own links makes this very point:
“The modest range of burdens implies that generally richer states have higher tax burdens and poorer states have lower burdens, but the second map shows that there are many exceptions. Richer states with higher tax burdens include (a small difference in tax and income ranks) District of Columbia, New Jersey, Connecticut, New York and Maryland, and poorer states with a moderately low tax burden are few – Alabama, New Mexico and Montana. Poorer states but with a high tax burden are Arkansas, Kentucky, Utah and Idaho, but this finding perhaps tells us the statistical problem or risk in using per capita rather than per household measures. Strongly Mormon Utah and Idaho, indeed all four states have high average household size, so are not as disadvantaged as the data suggest. For a similar reason, Florida may not be as good as it looks, since it has a quite low average household size.
Most interesting may be the richer states with lower ranking tax burdens, notably Wyoming, New Hampshire, Washington and Nevada. Other states with a relatively low burden (lower tax rank than income rank) include Alaska, Colorado, Florida, Massachusetts, and Texas and other states with a relatively high burden (much higher tax rank than income rank) include Georgia, Kentucky, Ohio and West Virginia.
Finally states with close to the same rank in income and tax burden include a set of contiguous Midwestern states, Iowa, Minnesota, Missouri, and Kansas, then Michigan, Oregon and California.
But in sum, choosing a state based on its local and state tax burden could be worth the effort, but the effects by themselves could be more limited than commonly supposed.”
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November 3, 2009, 10:05 amHouston Lawyer says:
Notwithstanding all of the back and forth above, Texas is fiscally sound while California is not. The Texas Constitution was written in response to events that happened during Reconstruction following the Civil War. Once the Damn Yankees were no longer in control, the citizens of this State decided to put serious limits on the power of state government. The constitution prohibits deficit spending by the legislature. It also limits the legislature to 140 days in session once every two years. These limits have applied regardless of whether the dominant party was the Democrats or Republicans. So a large part of the problem in California is that they aren’t prohibited from doing themselves harm through overspending. Of course Congress is following the California model.
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November 3, 2009, 10:08 amDotar Sojat says:
Depends on whether Carson City has I&O Burger.
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November 3, 2009, 10:27 amMark Field says:
Carson Valley does.
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November 3, 2009, 10:42 amTRUTH ON THE MARKET » Some Links says:
[...] Kenneth Anderson has been a great addition to the Volokh Conspiracy [...]
adam says:
Carson City does have an I&O Burger. I live in Lake Tahoe area, and visit Carson City and Reno frequently. Half the people living in this area are California tax and quality-of-life refugees (including myself). I think you would find that the consensus is that we are relieved and happy to have departed California. My only fear is that fleeing Californians will bring their liberal politics and bad attitudes with them, and so destroy our low-tax, laid-back lifestyle.
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November 3, 2009, 11:00 amPubliusFL says:
CMC ’98
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November 3, 2009, 11:05 amMartyA says:
I moved from California (Thousand Oaks) to Texas (Tarrant County) years ago but get back to California frequently. It has long been my thesis that the California problems began with the outrage that the politicians and public sector employees took on with the passage of Prop 13 in 1978(?).
The legislature wouldn’t stop squandering so the voters truncated the revenue stream that came from real estate taxes. It worked, but caused the people who worked for the tax payers to view the taxpayers as the enemy, not bosses. It has been that way ever since. In Texas, the pols know who the boss is and while some spend a lot of time and effort feathering their own nests, the know their role.
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November 3, 2009, 11:10 amroystgnr says:
As long as you only associate with other people who have similar effective incomes as you it really doesn’t make much difference to your happiness that you aren’t actually able to consume more (past a certain point utility ceases to rise with national income).
Are you referring to those surveys that ask people to evaluate their “happiness” or “personal satisfaction” or some such on a numeric scale? I’ve seen one or two of those, which did indeed have the result that the reported values correlated positively with wealth within a country but that average values from country to country were nearly independent of the countries’ average wealth.
I would be wary of concluding from such results that peoples utility is really independent of wealth aside from “envy” effects. I’ve seen some very similar results in surveys of satisfaction with medical care, for example, even when comparing first-world and third-world countries with greatly different objective survival rates. Is this because people don’t really assign any utility to living longer, as long as their neighbors don’t either? Or is it just because peoples’ expectations are set by their immediate environment, which sets the benchmark for them to compare against?
Veering slightly closer to the topic: comparing dollars from state to state isn’t as troublesome as comparing “utility” from country to country, but it’s still not straightforward. The cost of living in much of California is high enough that a wise Texas teacher would demand a pay raise before taking the same job there, for example; thus if California spends more per student on education, the discrepancy must not be entirely waste. The same applies to many other facets of local government spending, meaning that “$10K per capita vs. $7K per capita” is less grossly different than it would initially appear.
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November 3, 2009, 11:49 amGordo says:
Might I suggest that California also be compared with its two neighbors to the north on the Pacific coast of the continental United States.
One (Oregon) has state income taxes higher than those of California, but no sales tax. Property taxes have also been limited by voter approved ballot measures.
The other (Washington) has no state income tax, but sales taxes as high as those of California, and also has not had property tax because property taxes never escalated as they did in California and Oregon.
As for public services, I haven’t seen any studies that quantifiably compare the two states with services provided by California (or Texas), but my anecdotal information as regards post-secondary education is that Oregon does not have a very highly-ranked university system, while Washington does.
As for other factors, both states have spectacular mountains, deserts (to the east), and (non-swimmable, without a wetsuit) oceans. The weather is actually very similar in pattern to California’s with the addition of more rainfall and lower winter temperatures. Summer humidity is not an issue, as in Texas.
As for the tax issue, the best arbitrage for the two systems is to live and work in Vancouver, Washington, and shop in Portland, Oregon.
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November 3, 2009, 11:49 amCCTrojan says:
I moved to Carson City about two years ago. I love it here. It is much cheaper than California but you can drive over the border to enjoy the Sierras/Lake Tahoe at any time. However, you are 100% correct about the lack of quality restaurants. I have yet to find any good Indian or Greek food.
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November 3, 2009, 11:58 amCCTrojan says:
It does. :)
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November 3, 2009, 12:00 pmRandy says:
“Randy misses NH, which is close to the bottom on the tax list but close to the top on most education rankings. That’s a little factoid which NH residents love to point out to much higher taxed Mass (and VT/ME) residents.”
I pulled my stats from ALEC, the American Legislative Exchange Council . ALEC bills itself as a conservative policy institute, with Paul Weyrich on the Board. I figured that if this is what a conservative site says, you folks would find it much more credible than what the NEA or other institutes might offer. Apparently, I was wrong.
‘I am happy though to pay higher taxes anywhere to avoid the petty rules and rule-enforcers in a homeowners association. Unfortunately they seem to be popping up everywhere, even though I know few people who actually like living under the thumb of one.’
Which is one reason I would never live in these places. They value the perception of better property values over individual freedom, which I find abhorrant.
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November 3, 2009, 12:05 pmguy in the veal calf office says:
If you periodically move in and out of the state to take jobs, don’t ever say: “I grew up in California and despite my Upper Upper NW DC address, will always count myself a Californian”
The FTB will hang a residency dunce cap on you with that public statement of intent, nothwithstanding powerful countervailing evidence. I have witnessed it.
And if you’re getting paid to give a speech here....
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November 3, 2009, 12:50 pmdew says:
Mitchell J. Freedman says:The reason NH seems to work well is that many of its workforce work in....MA. Tell me how well low tax NH (as a previous commenter noted is no longer so low tax) would work if it was surrounded by other low tax states such as Alabama or Mississippi.
I am having trouble finding a coherent argument in your post. MA, VT, and ME do not pay to educate NH students, nor do they maintain NH roads, or anything like that. The claim I made was NH has very high education rankings, without the high taxes of the surrounding states. If you are trying to claim that good MA jobs enable higher HN taxes, that is probably true, but if that was your argument it would be clearer to just say that without so much extraneous frothing. But NH residents working in MA pay full MA income tax without the services that would be required if they also lived in MA, so the benefits go both ways — MA taxes would be even higher without collecting income tax from out-of-staters.
Yes, NH taxes have gone up a little recently to subsidize poorer northern rural districts, but most NH people I know actually pay less in property taxes than most MA residents in similar housing (higher tax rate does not mean higher $$$ when the typical property values are usually lower in NH).
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November 3, 2009, 12:53 pmBen says:
I think this is an interesting article, but the taxelephant in the room — unmentioned by Voegeli or Anderson — is Proposition 13’s limit on the type of taxes that California collects, and specifically, property taxes. The state’s current budget problems stems almost entirely from the shortfall in the state’s general fund, which is made of up of income and sales taxes — both of which are very sensitive to economic downturns. In contrast, property taxes are a relatively stable source of tax revenue, and thus allow for consistent budgeting and even long-term planning. (Incidentally, it’s partly for this reason that Milton Friedman favored property taxes over other forms of raising state funds.) And remember, California is one of only a handful of state’s that requires a 2/3rds majority to increase any tax (another gift of Proposition 13).
The real problem in California is not that voters here have elected the “high-benefit, high-tax” paradigm but the state has failed to deliver the promised public services. Rather, voters have chosen an unorthodox “high benefit, but constrained-and-erratic tax” paradigm that makes the delivery of public services equally constrained and erratic.
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November 3, 2009, 1:16 pmAllan Walstad says:
Never been to Texas. Found CA a cool place to visit, not interested in living there. People can debate the merits, and they can choose freely to vote with their feet. That’s the great thing about having a federal system with sovereign states: 50 experiments to compare and choose from (in theory–granted, moving is not a trivial matter). Also, 50 experiments to evaluate when choosing what to do in your own state. This fount of information is in danger of drying up as the feds trample their Constitutional bounds to impose one-size-fits-all.
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November 3, 2009, 2:08 pmDilan Esper says:
Ben got it right.
Look, California is just about a perfect demonstration of why direct democracy doesn’t work. The voters do two things– they mandate that their taxes stay forever low, and they mandate that their services, whether it’s schools or prisons, stay forever high. Voters don’t do trade-offs. Only politicians do that. And voters also lock in very inefficient forms of every sort of policy. For instance, there might be all sorts of innovative things you could do to stop career criminals from committing further crimes. But you can’t do them in a state where the voters pass “three strikes”. And as Ben noted, we could design a tax system that is revenue neutral to the current system over the course of time (and thus would not be a tax “hike”) but which is less subject to boom-and-bust– but Proposition 13 doesn’t allow it.
And whatever residual authority the legislature might have is curtailed by a 2/3 majority requirement to pass any budget, giving a minority of cranks in the legislature veto power over just about everything.
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November 3, 2009, 2:39 pmdew says:
I figured that if this is what a conservative site says, you folks would find it much more credible than what the NEA or other institutes might offer. Apparently, I was wrong.
I am a little confused if this was directed at me. I am not sure who “you folks” are (I am a democrat) and NAEP is the National Assessment of Educational Progress from the U.S. Department of Education (already linked to above, and again here), not the NEA.
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November 3, 2009, 2:57 pmdew says:
Ben says: I think this is an interesting article, but the taxelephant in the room .. is Proposition 13’s limit on the type of taxes that California collects, and specifically, property taxes.
Mass. has a similar “proposition 2 1/2″ limit on property taxes, and does not seem to be the economic basket case that CA is. I think a few other western states also have prop-13-like limits on property taxes and are not as sickly as CA.
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November 3, 2009, 3:14 pmPerseus says:
The greater reliance on income and sales taxes does create greater variability in revenues, but without Prop. 13 California would go from an above average tax state back to a top tax state as it was prior to Prop. 13 under Governor Moonbeam (who is attempting to have California experience a 1970s flashback of his misrule). See page 2 here.
Of course, the College Board specifically cautions against comparing different states (and yearly changes) due to the differing compositions of test-takers.
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November 3, 2009, 3:41 pmDilan Esper says:
Mass. has a similar “proposition 2 1/2″ limit on property taxes, and does not seem to be the economic basket case that CA is. I think a few other western states also have prop-13-like limits on property taxes and are not as sickly as CA.
Well, do they also have 2/3 majority requirements to pass budgets? Do they have large unfunded spending mandates passed by voter initiatives? Do they have supermajority requirements for raising other sorts of taxes?
Proposition 13 was a bad idea on its own, but the other features of California’s system made it a lot worse.
The greater reliance on income and sales taxes does create greater variability in revenues, but without Prop. 13 California would go from an above average tax state back to a top tax state as it was prior to Prop. 13 under Governor Moonbeam (who is attempting to have California experience a 1970s flashback of his misrule). See page 2 here.
But, you know, life was a heck of a lot better here in many ways back then. Our schools were in the top echelon, our social services worked better, our infrastructure wasn’t crumbling, etc.
The reality is that many societies in the world have high taxes and very happy populations. You can find a number of them in Northern Europe. (It’s also possible to have very low taxes and a happy population too.) This idea that having a high tax rate automatically would make California a terrible place to live is bonkers. The issue is what you get for your money.
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November 3, 2009, 3:50 pmJmaie says:
California’s budget shortfall comes from the fact that the legislature will not control spending.
Prop 13 only capped tax increases on homes in between sales, with the taxable value being revised to the purchase price with each new owner. Tax receipts have NOT been languishing at 1978 levels or anywhere close.
California budget as per:
http://www.usgovernmentspending.com/California_state_spending.html#usgs302
FY 1992 — $114B
FY 2009 — $440B (+285%)
During this same period population increased about 20% and inflation came in around 51% for a combined increase of 81.2%. What’s wrong with this picture?
Incidentally I did not cherry pick 1992 for any particular reason — that was the earliest year I could find at a usable source.
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November 3, 2009, 4:45 pmdew says:
Dilan Esper says: Well, do they also have 2/3 majority requirements to pass budgets? Do they have large unfunded spending mandates passed by voter initiatives? Do they have supermajority requirements for raising other sorts of taxes?
Dilan, I think you are trying to play Calvinball. If California is such a special case because of all of these particular issues, then is says little about direct democracy in general. If direct democracy in general is so bad, then you need to explain why other states with ballot initiatives are not dysfunctional, or at least not as bad as CA. Me? I think CA has some particular oddities that makes it not work well there.
Direct democracy can work quite well. Here in New England, most non-city local governments are very direct democracy — the “legislative body” of a town is whatever voters show up to a town meeting (which are scheduled 1–3 times a year). Town officials have to really do their homework to pass a budget, a new zoning law, etc. The town where I live just had a town meeting — hundreds of my neighbors showed up to decide some tough issues, including whether to spend a lot of money on a new school in tough economic times. Of course, we also have statewide initiative petitions.
Do you just dislike allowing the little people to decide how they are governed?
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November 3, 2009, 5:25 pmtickknob says:
You can live in a Libertarian fantasy, like the American Stalinists of old,
Please elaborate. Stalinest living in a Libertarian fantasy — it boggles the mind.
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November 3, 2009, 5:50 pmDilan Esper says:
Dilan, I think you are trying to play Calvinball. If California is such a special case because of all of these particular issues, then is says little about direct democracy in general. If direct democracy in general is so bad, then you need to explain why other states with ballot initiatives are not dysfunctional, or at least not as bad as CA.
Well, how deep in the weeds do you want to get? Other states enforce their single subject rules more rigorously, rule certain subject areas outside the scope of initiatives, require more petition signatures or a legislative referral to get something on the ballot, and permit legislative amendment of initiative statutes.
It is, of course, possible to have ELEMENTS of direct democracy in an otherwise republican system. But delegating broad legislative powers directly to the voters is a causal element of the mess we have in California.
Direct democracy can work quite well. Here in New England, most non-city local governments are very direct democracy — the “legislative body” of a town is whatever voters show up to a town meeting (which are scheduled 1–3 times a year).
Well, that’s like saying that communism can work really well in small groups. (It can.)
California’s budget shortfall comes from the fact that the legislature will not control spending.
Much of the spending in our state is on K-12 education and prisons and law enforcement, as well as bond interest. That spending was all MANDATED by the voters.
Further, because we have a balanced budget requirement, the rump Republicans in the legislature have to spell out what they are willing to cut in order to avoid tax increases. And it turns out that you can’t do it by singling out wasteful programs, unless you consider, say, allowing the professors in the state universities to teach a full semester’s worth of classes rather than being “furloughed” 2 days a month constitutes “waste”.
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November 3, 2009, 6:07 pmMark Field says:
For the flaws in your logic, see this column.
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November 3, 2009, 6:40 pmJK says:
Does Prop 13 affect the CA state budget? Property taxes in Texas are collected only at the county and school district level. Due to equalization rules, some of the school taxes are redistributed from richer to poorer districts but there is no statewide property tax.
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November 3, 2009, 6:41 pmbruce says:
8 years in Austin after 20 years in Silicon Valley...
Public Higher Ed: in CA you have UC, UCLA, UCSD, UCSF, Davis — all top tier universities. TX has UT and A&M and then... not much. TX higher ed is comparable to much smaller states such as NC or VA, not CA. Not even considering TX colleges for my daughter (UT would be OK but I’m a strong believer in NOT going to college where your parents live). K-12 ed: TX is mediocre, but no evidence that CA is ahead. Yes in TX we have more of the vocal morons who are anti-evolution, who claim that the Civil War had nothing to do with slavery but then wonder why blacks can’t “get over” slavery, who believe that criticism of any past action of the USA (or CSA) is impermissible although they believe government is inherently bad — but they seem to have little actual impact on the classroom.
TX seems to do a better job filling potholes and keeping what they have smooth, but the transportation infrastructure is decades behind CA. I-35 between Austin and Dallas/Ft Worth is still mostly the 2-lanes-each-way road built in the ’50’s — it’s ridiculous. The Austin area had far too little highway capacity until a recent spate of toll road building. Austin is supposed to be the most CA-like city in TX, but compared to Silicon Valley, bike lanes are almost non-existent, surface streets are narrow — few boulevards, many highways lack modern interchanges, requiring you to go through multiple lights to get from one “freeway” to another. Most traffic signals in Austin are still on timers, whereas Silicon Valley lights are mostly on traffic sensors and have been for at least the last 25 years. Of course Austin is adding light rail, so they will be catching up some to CA in wasting money.
Obviously CA is screwed up financially, but TX is NOT offering “equivalent service for less” in many areas. Personal circumstances permitting, I’d go back to CA in a heartbeat for the much better weather, greater outdoor activity opportunities and variety, and the more relaxed social attitudes; it’s worth the extra cost.
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November 3, 2009, 7:17 pmRandy says:
dew: “I am a little confused if this was directed at me.”
Sorry. It was meant to be directed at anyone who assumes that Texas is a low tax state and yet have good schools. According to at least one conservative think tank, they don’t.
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November 3, 2009, 7:27 pmBen says:
Jk asks, “Does Prop 13 affect the CA state budget?” Yes, in a variety of ways. Let’s take one of the most interesting examples: education.
The immediate effect of Proposition 13, passed in 1978, was to reduce property taxes by approximately 60%, and school districts were (and are) no longer authorized to increase property tax rates for operational revenues. As a result, school districts overnight became almost entirely dependent on general fund revenues to stay operational, and thus subject to the annual budget battles in Sacramento. Along with something called a “Gann limit,” which we won’t go into here (but was sponsored by Paul Gann, the co-author of Prop. 13), the result was that education in California suddenly (a) had a less stable source of funding, and (b) was subject to far more political wrangling than ever before.
What happened next? In 1987, the education community — i.e., unions, and school boards’ associations — decided to take their cause directly to voters via Proposition 98. Although only understood by a now-extinct near-medieval set of scholastics living in Plato’s cave, the basic idea behind Proposition 98 is that education funding will never be less than 40% of the state’s general fund budget, no matter what. In addition — and you might want to pop an advil before I continue — when general fund revenues decline in a bad economy, Proposition 98 requires the state to make up any cut to education in future budgets. For example, for the most recent fiscal year, the state is obligated to pay back $11 billion to education if/when California ceases to operate like a banana republic.
So, what we have here is a failure to communicate. The Proposition 13 voters want to “starve the beast!”, limit property taxes, and make education funding dependent upon state (rather than local) revenues. But the Proposition 98 voters don’t want to starve the education beast, and they’ve amended the state constitution to guarantee education funding that simply isn’t there. It’s illustrative of what some of us here in California call the “Two Santa Clauses” theory of government, and it simply doesn’t work.
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November 3, 2009, 7:56 pmCareless says:
The next problem is that your source doesn’t say what you said it did. It has California bottom 5 on the 4th and 8th grade assessments and in the low 40s overall while Texas is has ratings of 19,30,12,31 for assessments and number 26 overall (improving from 41 in 2003)
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November 3, 2009, 8:09 pmsmurfy says:
When I first emigrated to Nevada I spotted the following bumper sticker on a mini-van: “I don’t care how you did it in California.” Point taken. But I do fear our low tax days are gone, not because of population change but because we have been financing everything on the backs of tourists/gamblers and the consumers of mining products. That income aint there anymore and legal prostitution just doesn’t seem to be a big enough draw.
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November 3, 2009, 8:15 pmStarman says:
A Prop. 13 example.
We bought a house in CA in 1973, and as usual in those days, did it with 20% down, 30 year fixed mortgage. 5 years later, does 1978 ring any bells? Our property tax bill was the same as our mortgage bill.
Let me repeat that: after 5 years our property tax had increased such that we paid the same amount every month toward our property tax as we did toward the mortgage.
I should think this might go a long way toward helping to understand Prop. 13.
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November 3, 2009, 8:40 pmDilan Esper says:
I should think this might go a long way toward helping to understand Prop. 13.
I fully UNDERSTAND Proposition 13. That said, the people who voted for it acted as if the only consideration that can possibly matter to a tax system is making sure that people don’t have to sell their homes when massive gains in value result in large property tax bills. (And remember, even if one was forced to sell in that situation, the homeowner still made a boatload of money– that, after all, is the REASON the homeowner’s tax bill got so high, as it is based on assessed value.)
As noted above, property taxes provide a more stable tax base than income taxes. Having a stable tax base is actually really important. Which is worse? What we are going through now or the fact that some homeowners who made a bunch of money in the real estate market might have to sell their homes?
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November 3, 2009, 9:03 pmStarman says:
One might think hard about whether it actually provides a more stable tax base. Yes, pre-Prop 13 the property tax revenue to the state was fairly stable. But the state was either increasing property valuations or, when they just couldn’t with a straight face claim that values had gone up, they would increase the rate.
In any business, an extremely *stable* increase in revenue or profits should be a red flag–think of the extremely stable returns for the investors in Madoff’s funds. The CA property tax revenues were stable because they were actively managed by the state such that they were stable. We could make the income tax in CA stable by just taking our best estimate of what the reported income will be next year, stating how much income tax revenue is needed next year, and then just set the rates each year to get the required revenue.
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November 3, 2009, 9:09 pmLagrangian Mechanic says:
MA.s “Prop 2.5″ is very, very different than CA’s Prop 13. In MA, the 2.5% cap on property tax increases is on the total levy of a municipality. There is no cap on individual properties, so you don’t have the CA insanity of identical properties having wildly different tax bills. Further, the property tax cap can be raised to whatever arbitrary amount that a majority of of the registered voters of the municipality will approve.
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November 3, 2009, 9:15 pmSandy MacHoots says:
You’ve got to admire someone who can create the idea of a “libertarian Stalinist.” Very Frank Rich.
No, wait, why not? I think it’s a terrific idea. Somebody tell the California legislature. Why should all those valuable natural resources not be taxed just because they can’t be severed? And the best thing is that when you tax the resources the land can’t move out of state!
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November 3, 2009, 9:16 pmDilan Esper says:
One might think hard about whether it actually provides a more stable tax base. Yes, pre-Prop 13 the property tax revenue to the state was fairly stable. But the state was either increasing property valuations or, when they just couldn’t with a straight face claim that values had gone up, they would increase the rate.
In any business, an extremely *stable* increase in revenue or profits should be a red flag–think of the extremely stable returns for the investors in Madoff’s funds.
That’s silly, though. There are lots of stable taxes. A capitation is relatively stable. The car tax (vehicle registration fee) is relatively stable. Estate taxes are relatively stable. And it happens that property taxes are relatively stable, even when assessed at market value. Certanly more stable than income and sales taxes, which California primarily relies on now.
What makes it worse is balanced budget requirements. In the abstract, I think these are a decent idea. But NOT if there are structrual limits on taxation. Because when you have taxes that are so deeply tied to the fortunes of the economy, a balanced budget requirement means deep spending cuts exactly at the time when you most need the government to be spending money, to stabilize the economy during a recession.
The point is, you want your tax policy to continue to produce decent revenues during a recession so that you don’t have to do draconian budget cuts. Property taxes give you a fighting chance to do that.
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November 3, 2009, 10:04 pmJmaie says:
Mark — the column you linked purports to show how the offending party cherrypicked figures from different time periods in order to cook the books. Then they asserted much smaller spending increases without giving any sources (other than the name of the person making the claim). Not particularly convincing.
Please tell me why the figures I used are incorrect and I’ll be happy to admit I am wrong (assuming you are right).
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November 3, 2009, 10:09 pmTen Four says:
@Bruce
Austin was for many years built mainly around UT and the state government, plus some people attracted to the “relaxed” atmosphere, Willie Nelson and the boys. Folks actively resisted building roads because they wanted to limit growth — sort of “if we won’t build it, they can’t come”.
They came anyway, and Austin’s been trying to catch up ever since. Not as nice a place as it once was — the place is overrun with Yankees and refugee Californians :)
You might consider Rice U in Houston. Good school, small, nationally ranked.
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November 3, 2009, 11:03 pmMark Field says:
IIRC, that was one of the reasons Milton Friedman favored property taxes.
It wasn’t just that, though that was part of it. The other part was failing to account for economic growth over the time frame, which I believe you didn’t account for either.
To compare taxes over time, you need to account for (a) inflation, (b) population increase, and (c) economic growth. You (if I understood you correctly) left out (c).
There’s another feature of CA’s economics which I haven’t seen mentioned here. CA gets back from the feds only about 70% of the tax dollars we pay in to them. I have no particular gripe about that ceteris paribus. Where I think it’s unfair is that CA is left to provide for immigrants when the feds should be handling that expense. It’s one of the things which makes comparison with states like MA less relevant (obviously, TX would be comparable to CA in this respect).
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November 3, 2009, 11:06 pmMitchell J. Freedman says:
For the two poor souls confused by my statement about Libertarians and American Stalinists of old, what I mean is that they are each blindly wedded to a dogma that is not reliant on facts and they look to punish heretics than compromise in the world of public policy. The recently released Ayn Rand biography points to a particularly virulent strain of this sort of thinking. It is amusing to note how Rand, who ran away from Bolshevism, created her own “-ism” and groupthink among her followers.
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November 4, 2009, 12:09 amTGGP says:
Randy on MA forgot to correct for the most important correlation in American social science.
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JaimeInTexas says:
You stole my thunder. Unfortunately the Texas Legislators think that the 140 day limit is an excuse to cram all kinds of laws rather than a constraint on them to leave us alone.
An unfotunate side effect of the large number of new immigrants (the legal kind from other States) into Texas is that they come here vote the same way that gave them the hell-hole they now have to flee. Sadly, Texas is slowly becoming indistinguishable from other States.
Hey, guy from Austin ... go back to Silicon Valley.
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November 4, 2009, 1:37 pmJaimeInTexas says:
Dilan Esper:
How about the size of the government remaining small, regardless. In that way the economy does not have to account for the interference from government activity and artificially create the illusion of prosperity.
Read some non-Keynesian economics.
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November 4, 2009, 1:44 pmSG says:
To compare taxes over time, you need to account for (a) inflation, (b) population increase, and (c) economic growth. You (if I understood you correctly) left out (c).
No you don’t. (a) and (b) are sufficient to maintain the status quo. Accounting for (c) would allow you to increase spending/services (although the two are not synonymous) without increasing the overall governmental burden, but that’s hardly a requirement. There’s no mandate that the government always consume (say) 10% of GDP. The government should consume as much GDP as necessary to provide the services the citizens desire. Were California’s governmental services so seriously deficient back in (pick the year)?
If the level of services were acceptable in (pick then year), then it’s your responsibility to defend increases in spending above (a) and (b) over the intervening years — economic growth in the state is irrelevant to that.
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November 4, 2009, 1:53 pmDilan Esper says:
How about the size of the government remaining small, regardless. In that way the economy does not have to account for the interference from government activity and artificially create the illusion of prosperity. Read some non-Keynesian economics.
Jaime:
FYI, most “non-Keynesian” economics, just like Keyensian economics, does not attach particular economic importance to the absolute size of the public sector vs. the private sector. Libertarian political theorists (which include some economists) certainly are obsessed with it, but mainstream economics holds that it’s possible to achieve relative efficiencies in particular fields through either governmental or private economic organization.
Moreover, though, there are VERY few economists who reject Keynes’ insight into countercyclical fiscal policy. There are economists who don’t like it for ideological reasons and therefore tend to deny in any particular situtation that there is a need for fiscal stimulus, but the only economists who really believe that fiscal stimulus can’t work at all in any situation are followers of discredited and debunked theories such as Austrian school economics.
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November 4, 2009, 6:19 pmMatt Raft says:
Some of you may enjoy this article, “California’s Tipping Point”:
http://willworkforjustice.blogspot.com/2009/01/californias-tipping-point.html
From what I hear, California’s government just started withholding an additional 10% from employee paychecks to bolster its financial health.
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November 6, 2009, 2:50 pmJaimeInTexas says:
Esper: Government does not spend unless it first takes it away from the private sector, through direct taxation or indirect taxation by the debasing of the currency. So government expenditures, at best, distorts allocation of resources.
A bigger government, sucking a larger portion of private resources, does “attach particular economic importance to the absolute size of the public sector vs. the private sector.” Good grief!
Can you tell me where Austrian economics is currently in use and its validity being popped?
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November 7, 2009, 4:17 pmJeff H says:
The issue isn’t what public employees “need”, only whether they are overpaid compared to the market, i.e. if the government cut CA teacher salaries by 12%, could it still hire teachers of sufficient quality in sufficient quantity. If so, then tax payers are being fleeced at current pay levels.
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January 26, 2010, 8:17 am