Will California Tax Itself to Prosperity?

That assessment came from Syndicated Columnist Tony Blankley. It was Christmas Eve morning, December 24th, and we were each guest hosting local shows at Washington, DC’s 630 WMAL talk radio.

I was in to cover for vacationing host (and former Congressman) Fred Grandy in the early morning “drive time” hours, while Blankley was filling-in for DC favorite Chris Plante during the late morning (9a-12n Eastern) show.

I had asked Blankley to join me in-studio for a segment on my program, and to talk about a place we have both known and loved, California. While I was born and raised there, Blankley, a native of the U.K., spent some of his youth and young adult years in the Golden State. And we were both marveling – in a “troubled” sort of way – at the amazing ability of California leadership to ignore its very serious problems.

As if the $6 billion budget shortfall that he presided over didn’t really exist – a deficit that is expected to expand to a whopping $24.5 billion over the next eighteen months - outgoing Governor Arnold Governor Schwarzenegger had just called the legislature in to a “special session,” but then had called a press conference to announce his “really big plan.” For a second and final time before leaving office, he was going to try and legislate a state-wide ban on plastic grocery bags. This, he explained, would help save the planet, but would also help create so-called “green jobs.”

Indeed, this was a matter of “ideology trumping reality.” And never mind that Rome is burning -California will “be green.”

But that was last month. Now, a guy who was Governor for eight of my elementary, junior high and high school years is Governor yet again. A perennial government employee, Jerry Brown is back in Sacramento, and it looks like his third term is going to be as ideological as ever.

To be fair, I must admit my tremendous respect and admiration for our “new” Governor. At age 72, Brown is (amazingly) just as articulate and energetic and erudite as he ever was. In many ways he seems like he’s more at the “top of his game” now than when I was a kid. But his energy and mental sharpness aside, Jerry Brown is a big-government liberal – and right now, California desperately needs to move in the direction of New Jersey (especially given current Governor Chris Christie’s success at cutting government spending), and not in the direction of Greece.

But ideology still trumps reality in California, even in this new, “post Arnold” era. And so it was that, less than twenty-four hours after his inauguration, Governor Jerry Brown began laying the groundwork for raising taxes in California, rather than cutting government spending.

The problem with the state budget, so the Governor reasoned, was not that politicians had spent too much or that government agencies are wasteful. No, no, Californians aren’t taxed enough – they’ve been given an “unfair” break on their property taxes via the state’s famous, 32-year-old “Proposition 13,” and if that could be undone, then the state budget would be fixed.

Proposition 13, in case you’ve forgotten, was a landmark ballot proposition that drew a record number of voters to the precincts in 1978. The law passed in a landslide, and imposed a statewide limit on the rate at which local counties and cities could levy property taxes.

I remember the fight over Proposition 13 quite well. I recall the night my father and I attended a special “informational meeting” at my elementary school, presented by my school’s Principal. “If Proposition 13 passes,” the Principal reasoned, “we won’t have enough money to afford textbooks and classroom supplies…some schools in our district might even have to close down..”

“Ma’am, with all due respect, you don’t have enough text books now,” my father replied, “and property taxes have been escalating in our county for twenty-five years. The problem is not a lack of funds, it’s a mismanagement of funds…”

My late father, whether he knew it or not, was creating a “teachable moment,” and it was an economics lesson that I never forgot. My school’s Principal, of course, was doing what government employees typically do, and arguing for higher taxes and more government spending. And she was using the same “talking points” that Governor Brown had been using at the time, as he traveled up and down the state begging for a “no” vote on Proposition 13.

Yet after the proposition’s landslide victory on June 6 of 1978, Brown changed his tune, agreed to realign California government in such a way as to comply with the property tax limitations, and thus won re-election handily in November of that year.

Today, Governor Brown oversees a state debt that is more than twice the size of California’s annual operating budget back in the late 70’s. And it seems that the “early 1978” version of Jerry Brown is about to re-emerge.

Yes, indeed.

States like New Mexico and Mississippi have become increasingly dependent on states like California for their support. New Mexico and Mississippi receive twice as much federal government subsidies as they pay in taxes. Such parasitic states have grown increasingly dependent upon states like California and New Jersey (which pay far more in federal taxes than they receive in federal spending).

A table of this Donor vs. Parasitic state relationship can be found here.

States like California aren't the source of the the federal budget problem. We need to do something about the dependency that has developed in the Parasitic states.

Proposition 13, in case you’ve forgotten, was a landmark ballot proposition

Indeed it was, and I blessed the initiative system then as I was there. My house had risen in value from $35,000 to $75,000 in a matter of a few years and it seemed that every six months my mortgage was going up another $50 because of rising taxes. I felt like I was a serf and would never "rise above my station".

Brown and Crew must be salivating over what money could be raised if Prop 13 is somehow done away with. Check out this Interesting chart.

They know they will get bailed out. They always have and they always will until the system collapses. Half the public debt in the United States (excluding federal) belongs to CALIFORNIA!! Obama and Bernanke will NOT let California implode the entire muni bond market, triggering downgrades across the board and casing the dumping of US debt worldwide. They will print money until they can’t—and that could take years.

The idea that some states whose citizens are taxed more by the federal government than others, then must get more federal spending than others is a non argument. States are not taxed, citizens are. If those citizens choose to spend their careers in a high tax State like California or New Jersey, then leave that State when they retire, federal dollars for Social Security and for Medicare will follow them.

It makes no sense to say that because citizens of one State are taxed more than another, that the federal government then owes that State more than another. Would you make the claim that because a citizen pays more taxes than another, that the citizen should be the recipient of more federal dollars?

It is not reasonable to make this claim. It is simply worded to make it sound reasonable. The State is not being taxed. The citizens are.

Federal tax rates are uniform across the country.

Explain again:

1) Why does Mississippi and New Mexico receive from the federal government more than they pay to the federal government in taxes?

2) Why does New Jersey and California receive from the federal government less than they pay to the federal government in taxes?

3) What do these facts imply about which of these states are the more productive and which are less productive?

“Federal tax rates are uniform across the country.”

Exactly correct. States are not taxed. Citizens are taxed.

Mississippi and New Mexico do not pay into the federal government. Their citizens do. We do not know how much more an individual citizen may pay or receive from the federal government.

It is true that some states receive less federal dollars than their citizens pay. This is especially likely in highly populated States, because federal expenditures are for the whole country, not for each state. It would be expected that highly populated states would receive less federal dollars per person.

If a citizen living in California pays a lot of Federal taxes, then retires, pays little taxes, and moves to Alaska where they then receive lots of social security and medicare dollars, then the federal dollars have moved from California to Alaska.

As States do not pay federal taxes, it is irrational to attribute federal gains and losses by state rather than by individual.

Moreover, as I have stated, a great many people move between states.

If Californians, on retirement, leave their heavily taxed state and move to another, thus taking Federal Socialist Insecurity and Medicare funds with them...

But who would leave the Golden State? We have that super Bullet Train! (Oh...wait...maybe we don't have it quite yet.)

Okay, let's express it your way. The facts remain the same. The figures we're discussing demonstrate that:

1) The citizens of California and New Jersey are on average more productive and less dependent on the federal government than the citizens of Mississippi and New Mexico.

2) The citizens of Mississipi and New Mexico are on average less productive and more dependent on the federal government than the citizens of California and New Jersey.

Maybe you can now understand why the citizens of Donor States like California and New Jersey get a little irritated when they hear a resident (like you) of a Parasitic State (like Arizona) complain about "bailing out California."

Why don't we all work together to see if we can't find ways to reduce the dependency on the federal government of states like Arizona, Mississippi and New Mexico or, as you prefer to put it, why don't we all work together to see if we can't find ways to reduce the dependency on the federal government of citizens of states like Arizona, Missippi and New Mexico?

“Maybe you can now understand why the citizens of Donor States like California and New Jersey get a little irritated when they hear a resident (like you) of a Parasitic State (like Arizona) complain about “bailing out California.”

Can the fiscal plight of CA and NJ seriously be laid at the feet of their being “donor states”? If that truly were the case, then I’d argue in favor of their shedding some of their excess obligations—perhaps by challenging the constitutional foundations of them (for example, the Medicaid formula is structured precisely to redistribute funds from “rich” states to “poor” states, but this would appear to violate the principal that taxes be levied proportionately among states etc.). But if eradicating this fiscal imbalance would only solve, say, 10% of CA’s fiscal problem, then I would say that hiding behind this excuse is not very defensible.

In light of all the horror stories we’re heard about outrageous pensions etc., my guess is that the truth may be closer to the latter than the former.

We here in California will fix our own economic problems. The people of California are among the most productive and capable populations in this country. We know this:

California certainly isn't going to improve its economic situation by emulating or by trying to become more like Mississippi, Arizona, New Mexico, Alabama, Kentucky or any of the other Parasitic States that have become so dependent on the federal government and who are being bailed out on a daily basis by Donor States like California and New Jersey.

California and New Jersey are among the producer states that have been pulling the wagon in this country. States like Mississippi, Arizona, New Mexico, Alabama, and the other Parasitic States have been riding in the wagon. How do you expect Californians to react to criticism from inside the wagon that we're not pulling fast enough to suit the free riders?

If we're going to solve our economic problems in this country, we need to reduce dependency on the federal government. Instead of castigating the producer states, maybe we should see if we can find ways to make the residents of Parasitic States more productive and less dependent on the federal government.

Californians will benefit from a reduction in size of the federal government. We will gain from that transaction. Mississippians, Arizonans and New Mexicans are either going to have to learn to become more productive and self-sufficient or are going to have to just learn how to make do with less.

“States like California aren’t the source of the the federal budget problem.”

California has representation commensurate with its population. For years they have been sending Democrats to D.C. to vote for liberal policies.

You can’t absolve Cali and the other liberal meccas for the federal problems.

I suggest you use some data to make your case.

1. CA’s “structural deficit” over the foreseeable future is $20 B. a year. http://online.wsj.com/article/SB10001424052748704723104576061842891382606.html?mod=googlenews_wsj

2. In 2005, CA residents paid $1300 more in Federal taxes than they got back in Federal spending (78 cents per dollar paid). http://www.taxfoundation.org/taxdata/show/22685.html
Presumably that figure is even higher in 2010.

3. CA’s population is 37 million. http://www.google.com/publicdata?ds=uspopulation&met=population&idim=state:06000&dl=en&hl=en&q=california+population

4. Thus, the $1300 “fiscal gap” that makes CA a “donor state” alone creates a $48 billion annual fiscal windfall to the feds that would more than cover CA’s current spending gap.

5. CA already has the 6th highest state-local tax burden in the country. http://www.taxfoundation.org/taxdata/show/336.html Thus, taxing its way out of its current fiscal mess is not prudent. Indeed, excessive taxes may have already contributed to a decline in the state’s tax revenues. http://online.wsj.com/article/SB10001424052748704723104576061842891382606.html?mod=googlenews_wsj

It’s obvious from #1 that CA hasn’t behaved in the most fiscally responsible manner. That said, its fiscal plight is considerably worsened by the federal tax dollars siphoned out of the state to pay for spending elsewhere.

You are correct. Federal mandates to low population states, failure to enforce national borders, and the welfare state imposed upon the country by Washington are the cause of “Parasite States”. The question is why California pays more taxes to the feds than do some other states. And the answer is liberalism. Liberalism caused this and in liberalism California led the way. Further, it had a leading role in spreading the liberal philosophy throughout the nation. And now the chickens are coming home to roost. Besides, California's basic problem is excessive state spending, not federal taxation. Not the distribution of federal taxes. I do feel for the good and decent people of California who have had their state and futures stolen from them. But they are not alone. It seems to me that the nation and our futures have been stolen from us by the same type of people.

The entire idea of “donor” states and “parasitic” states is a non-starter. The federal government is responsible for the defense of the entire nation, and does not make defense decisions in ways to ensure that States get federal expenditures proportionate to the taxes that their citizens pay.

I notice, looking at the data from your source, that California, as late as 1993, had about 98 cents on every federal tax dollar sent from California, spent in California. I also know that this was a time when several military bases in California were shut down because of the encroachment problems of being next to an urban area and to somewhat anti-military attitudes on the part of some local governments (remember San Francisco?). Many of those defense dollars and jobs moved to Arizona.

Thus, because Arizona is friendly to the U.S. military, and federal defense dollars are spent here instead of California, Arizona becomes a “parasitic” state and California becomes a “donor” state.

Again, States do not pay federal taxes (they used to under the original Constitution). Citizens pay taxes, they also live in states and they move about. The idea of “donor” and “parasitic” states doesn't, and cannot, take all the complexities into effect to make sense.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.