Suspension of Prop 98 May Be Last Sticking Point –
Suspension of Prop 98 May Be Last Sticking Point – Late last night it was announced that talks had stalled and word leaked out that the point of difference was what to do about education, specifically Proposition 98. Education has already suffered cuts of well over $10 billion and that number could increase even more if the legislature agrees with the Governor to suspend it.
Right now, according to the Legislative Analyst’s Office (LAO), Prop 98 spending represents around 45 percent of General Fund revenues. The legislature has the power to suspend Prop 98 with a two-third vote and can then provide any level of K-14 funding. Obviously a vote to suspend Prop 98 would be a prelude to far greater cuts to education.
Advocates for education argue that education is an investment in this state’s future and further efforts to cut from educational spending is tantamount to robbing from our future to finance our current budget shortfall. There is a real danger here if we look at proposed cuts to education on top of the $10 billion plus already cut, tuition increases at UC and CSU, furloughs and programmatic cutbacks at UC and CSU, cuts to Cal Grants which help fund low income students tuition, etc.
Marty Hittelman who is President of the California Federation of Teachers, the smaller of the two teacher’s unions in the state argued in an Op-ed recently that we have already cut education to the bone.
“California schools have been cut $11 billion in the past year. Suspending Prop. 98 would further drain basic resources from schools that have already been forced to increase class sizes, cut programs critical to student learning, cancel bus routes and eliminate summer school programs, as well as librarians, counselors and arts and music classes.
Educating our kids is investing in our future. Closing corporate tax loopholes that benefit only a handful of the largest corporations is a common-sense step to take. California can’t afford tax breaks for big corporations while our kids are neglected.”
Instead he proposes increased taxes to the wealthiest people in California and repealing corporate tax breaks.
“The wealthiest people in California and large corporations, after years of tax reductions, could afford more taxes to support the well being of the entire population. CFT proposes to increase state revenues with fair tax policies for individuals and businesses that can afford it.”
Critics will argue that this will continue the trend of forcing the wealthy and business out of California. However a recent study by the Public Policy Institute of California (PPIC) found that contrary to that argument, wealthy individuals have not been leaving California in large numbers. They found that the proportion of wealthy people leaving to those arriving from other states is only 1.09, which suggests for every 1000 people who come to California, 1090 people leave.
So far as we have suggested, those who can least afford to take the hit have done so whether it be cuts to programs helping the elderly, disabled, the poor, or education or the increase in regressive taxation such as the sales tax.
As Mr. Hittelman writes:
“California is the richest state in the richest country on earth. The problem is not that we don’t have the money. The problem is one of priorities, and that the money is in the wrong pockets. The top 1% of wealth holders owns 34% of the wealth. Their tax rates today are lower than they used to be. In 1993 the highest tax bracket in the California was 11% of income; today it is 9.3%. The same is true for corporations. In 1980 California corporations contributed nearly 15% of the state budget; today they pay 11%. The Legislature has enacted more than $12 billion in tax cuts for individuals, families and businesses over the past 15 years. It is time to reverse this trend so we can continue to provide necessary services to Californians. We need to address the state’s structural budget problem, with progressive tax policies that largely do not adversely affect the average Californian.
Repeal corporate tax loopholes put in place during last year’s state budget deal would save more than $2.5 billion a year. That’s preferable to suspending Prop. 98 and cutting billions from public education. Our kids get only one chance at their youth and their education.”
Unfortunately Governor Schwarzenegger has demonstrated that he really does not understand the budget process. He showed that on July 3, in an Op-ed in the Los Angeles Times, “Waste is Killing California.”
He writes:
“Legislators want to save programs. Well, let’s save them, but let’s do it by getting rid of the fraud and waste, with common-sense reforms that will make government more efficient and reduce costs. Put together, the ideas I’ve laid out will save approximately $2 billion in this current year — toward our $26.3-billion problem — and phenomenally more in coming years.”
First, I will dispel the myth–yes there is waste in government spending. Any large bureaucracy is going to have inefficiency and waste. But at the end of the day, we are not going to save programs by finding waste along the margins. If we can find $2 billion as he suggests, great, but the Governor went on to make more dubious claims such as a 25% fraud rate in IN-HOme Support Services program (IHSS).
As the Sacramento Bee wrote yesterday,
“While IHSS certainly has problems with fraud, it is nowhere near the level suggested by Schwarzenegger, who was forced to backpedal from that claim.”
As the San Francisco Chronicle wrote on July 11, 2009:
“Schwarzenegger said he believes that from 5 to 25 percent of the claims made to the $5 billion program that provides home-based care for about 440,000 low-income and elderly Californians are fraudulent. If the fraud is just 10 percent, he said, the state could recoup as much as $500 million – enough to save a popular health program for low-income children, which is on the chopping block due to the state’s budget crisis.
But fraud estimates involving In-Home Supportive Services are tough to substantiate.
Likewise, the Sacramento Bee on July 10, 2009:
“The governor is unable to substantiate a centerpiece claim that fraud wastes as much as a quarter of the In-Home Supportive Services program, which provides home health care workers for low-income elderly and disabled.
“I’ve never had anyone tell me where that number comes from,” said Virginia Bella, who specializes in studying the IHSS program for the nonpartisan Legislative Analyst’s Office.”
This controversy illustrates the disconnect between the Governor and reality. It was reminiscent of President Ronald Reagan’s claims about welfare cheats. One of the more famous ones was the a food stamp recipient purchased an orange with food stamps and then with the change a bottle of vodka. It made for good show, but the problem was that even at that time, one could not receive more than change with food stamps, not nearly enough to purchase even a cheap bottle of vodka. But it sounded good.
And it sounds good to say there is waste and fraud–and there is some, but not enough to make a serious bite in the budget. The serious bite right now is going to come from programs that people count on to literally survive. Education has been cut to the bone, no further cuts are going to cut out fat, they are coming exclusively from teachers. We are putting our children’s education at peril with these policies and we will pay for them in the long run.
–David M. Greenwald reporting
And it sounds good to say there is waste and fraud–and there is some, but not enough to make a serious bite in the budget.
says who? the waste that goes on in government is what we actually hear about. There is no telling how much goes on that we don’t.
Also, how is increased taxes to the wealthy going to get us out of this mess? that will trigger more layoffs. who do you think the financial pain is going to trickle down to?
“says who?”
Mathematics.
Here’s an amazing thing, The National Journal ([url]http://www.nationaljournal.com/njonline/no_20090713_9497.php[/url]) Ranks the top 6 most dysfunctional statehouses and we’re not No.1–in fact we’re only No.6. Ahead of us: South Carolina, Alaska, Illinois, Nevada, and No.1 is New York.
[quote]Critics will argue that this will continue the trend of forcing the wealthy and business out of California. However a recent study by the Public Policy Institute of California (PPIC) found that contrary to that argument, wealthy individuals have not been leaving California in large numbers. They found that the proportion of wealthy people leaving to those arriving from other states is only 1.09, which suggests for every 1000 people who come to California, 1090 people leave.[/quote]
So, what is the fiscal impact to California if we raise taxes on the wealthy and this number increases to 1.25? Also, did the study differentiate the level of wealth that is leaving? Tiger Woods was born and raised in California and attended Stanford, yet he lives in income tax-free Florida.
Small businesses are owned and operated by the “wealthy” people being targeted. When personal and corporate income taxes are raised, a percentage of these business models no longer pencil out. These owners will close up shop and either move out of the country or seek employment in their field. The result will be less tax revenue and less jobs.
Lastly, to focus just on the income tax rate misses the total tax and regulatory costs. California’s businesses pay more special taxes and fees than almost any other state.
[quote]Educating our kids is investing in our future. Closing corporate tax loopholes that benefit only a handful of the largest corporations is a common-sense step to take. California can’t afford tax breaks for big corporations while our kids are neglected.”[/quote]
Here we go again. The message is that the greedy wealthy people are hurting the kids by not paying more taxes. This is an emotive Democrat & Union political marketing message that has no basis in fact. There is absolutely no correlation between per state per-student spending and the quality of education.
The “wealthy” are the givers of lifeblood to the state. If we need to raise taxes then we need to raise taxes on everyone. This will cause a higher percentage of income folk to vacate the state. Lower income folk have most of the kids. Lowering the number of kids in this state will increase per-student spending. This is one metric we don’t talk about as it relates to California’s per student spending. California has a larger population of socioeconomic and ethnic groups that have a lot of kids. So, we have more families that consume state resources (like education and healthcare) without the means to pay for it. Make them pay something for it and some will leave. Sounds like a bad thing, but this is a a time when fiscal discipline trumps emotion. The fact is that California can no longer afford its bleeding heart.
California small businesses are hurting like never before. The default rates are climbing. More commercial foreclosures are occurring all over the state. Raise personal and corporate tax rates and we will accelerate the problem and push more marginal businesses and owners over the brink.
Jeff Boone is right. Higher taxes won’t save us.
The basic problem is that the incentives for the state legislature to spend and overspend are higher than the incentives to budget rationally. Whatever level of revenue they have, they will overspend to buy votes and favors, with unions, constituents and donors. Creating fiscal train wrecks that are a few years away doesn’t cost them votes (except in a few Republican districts) so they have little incentive to avoid them.
“California small businesses are hurting like never before”
And you think small businesses are special? I mean disabled people are hurting, children are hurting, people in poverty are hurting, people on special health care are hurting, schools are hurting, the tax payers are hurting, state workers are hurting–everyone is freaking hurting. You know who is getting raped in this? Everyone but the weathly.
“Jeff Boone is right. Higher taxes won’t save us.”
Neither will spending cuts.
Another thing… We cannot compare past corporate and income tax rates to modern times. We have a dynamic global information economy. States are in competition with other states and even other countries for businesses. Business is much more mobile.
California has a lot going for it to attract people to live here and locate their business here, but our brand is severely tarnished. We have just about fully leveraged our good weather. Wild enthusiasm builds for trends, and we don’t want one to build for people with money to leave California. It has already started. Considering the current state of the golden state, go visit Utah with a top tax rate of 5.35% and suddenly the scenic ocean bluff doesn’t hold the same attraction.
Raising income tax rates on the wealthy to fund social services is no longer a viable strategy. Instead, we need to reduce taxes and regulatory burdens to attract more business. See the laffer curve.
We can continue to go for the short-term fix and continue to spiral downward, or use our pain to motivate changes that benefits us for the long haul. It takes leadership. California has been led by spending Democrats in the legislature for decades. Amazingly, the unions and the media have tirelessly and successfully deflected responsibility for this mess on the fiscally-conservative governor. We have no choice but to cut spending. Hopefully voters in this state wake up and stop believing the lies and start electing a few more Republicans to provide the muscle to make it happen.
[quote]And you think small businesses are special? I mean disabled people are hurting, children are hurting, people in poverty are hurting, people on special health care are hurting, schools are hurting, the tax payers are hurting, state workers are hurting–everyone is freaking hurting. You know who is getting raped in this? Everyone but the weathly.[/quote]
I don’t think you get it. I have kids going to college, and our family is hurting as the restult of salary and benefit reductions. I donate to charities that are huring. We all want to help the needy. I have family members with kids in crappy schools and with problems getting affordable health insurance. It all sucks!
However, you are completely wrong to demonize the “wealthy” and seek your “pound of flesh” from them. It is just like beating the cow to produce more milk. It does not work.
If a store wants more revenue it must improve the products and services it provides to attract more paying customers. The same is true with the state. California has had one of the best products… the weather, the wonders of nature, the culture… BUT these things cannot continue to overcome the piss-poor service. Higher tax and burdensome regualtions are state service issues for business owners. Wealthy people (paying customers) are much more mobile than the population with their hand out. If they can find a way to maintain a viable and profitable business elsewere, they will relocate. Maybe more importantly, new businesses or businesses outside of CA will choose not to locate here. That is already happening. I work in small business economic development (i.e. jobs creation) and our industry in this state has been down 50% for almost a year. Raise taxes and it will worsen and prolong this trend.
“However, you are completely wrong to demonize the “wealthy” and seek your “pound of flesh” from them.”
I’m not demonizing the wealthy, I’m asking them to pay with their pound of flesh as everyone else has already been asked to in the current budget.
“Here’s an amazing thing, The National Journal Ranks the top 6 most dysfunctional statehouses and we’re not No.1–in fact we’re only No.6. Ahead of us: South Carolina, Alaska, Illinois, Nevada, and No.1 is New York.”
So Alaska is considered more dysfunctional than California… I wonder what Palin did to overcome that. It doesn’t look like Schwarzenegger has shown especially brilliant leadership in dealing with the California Leg.
“”However, you are completely wrong to demonize the “wealthy” and seek your “pound of flesh” from them.”
I’m not demonizing the wealthy, I’m asking them to pay with their pound of flesh as everyone else has already been asked to in the current budget.”
There is a valid point that many wealthy in California earn there fortune through the benefit of public programs and infrastructure — schools to educate their workers, road repairs for their trucks to drive on, etc. So for them to pay a little extra in times like this is not unreasonable.
[quote]Here’s an amazing thing, The National Journal Ranks the top 6 most dysfunctional statehouses and we’re not No.1–in fact we’re only No.6. Ahead of us: South Carolina, Alaska, Illinois, Nevada, and No.1 is New York.[/quote]
From the report: “There’s no whiff of criminality in California’s current mess. That one factor saves the Golden State from ranking much higher on this list.”
So the only reason that we are not ranked as #1 is fewer convicted criminals in CA government. Given the lack of robust media attention paid to Democrats in this state, and the fact that the trial lawyers have Democrats in their pockets, we could venture a guess that we have not yet discovered the level of criminality.
However, assuming that our state is the beneficiary of so many law-abiding politicians, this piece of the ranking puzzle would seem to not support David’s claim that California legislature is somehow more effective than Alaska’s. You don’t have to be a criminal to be an idiot, right?
Back to education, the number of students graduating from high school in the last two years has been the highest in California history, but rather than expanding to absorb this cohort, the three public college systems (UC, CSU, Community Colleges) have had to dramatically reduce the number of students they can serve. At my college, many classes that normally don’t fill until days before school starts are already closed. A LOT of well qualified kids are going to be turned away, and that benefits no one. In terms of having a trained/educated workforce, California will pay the price for generations to come.
[b]Marty Hittelman:[/b] [quote] In 1993 the highest tax bracket in the California was 11% of income; today it is 9.3%. The same is true for corporations. [/quote] Here is a list of each state’s top marginal income tax rates: [quote]VT–9.50
[b]CA–9.30[/b]
OR–9.00
IA–8.98
NJ–8.97
DC–8.50
ME–8.50
HI–8.25
MN–7.85
ID–7.80
NC–7.75
AR–7.00
SC–7.00
RI–7.00
MT–6.90
NY–6.85
NE–6.84
WI–6.75
WV–6.50
KS–6.45
OH–6.24
GA–6.00
KY–6.00
LA–6.00
MO–6.00
DE–5.95
VA–5.75
ND–5.54
MD–5.50
OK–5.50
MA–5.30
NM–5.30
AL–5.00
CT–5.00
MS–5.00
UT–5.00
CO–4.63
AZ–4.54
MI–4.35
IN–3.40
PA–3.07
IL–3.00
AK–0.00
FL–0.00
NV–0.00
NH–0.00
SD–0.00
TN–0.00
TX–0.00
WA–0.00
WY–0.00[/QUOTE] We are already the highest taxed state of all 50 states (when you account for sales taxes, property taxes, income taxes and other taxes and fees). My guess is that if Mr. Hittleman had his way, we would gain more tax revenues in the short run, but in the long run we would drive away our most productive people and businesses which can relocate anywhere.
This is an emotive Democrat & Union political marketing message that has no basis in fact. There is absolutely no correlation between per state per-student spending and the quality of education.
right on. couldn’t have said it better
If you overtax the wealthy and businesses, they are going to leave the state (many businesses already have) or it will discourage businesses from coming – and the jobs they generate/would generate are going to go w them.
There is enormous waste in CA gov’t, of that I have no doubt. The article in the Davis Enterprise about Yolo’s prisoners shows that. The Yolo County Jail decided to institute the following cost cutting measures:
1) Removing mayonnaise, margerine, sugar – $8,000 savings per yr
2) Eliminating desserts 6 days a week – $25,000 savings per yr
3) Milk alternative for one meal a day – $43,800 savings per yr
4) Threat to put competive bid out for milk, vendor dropped price – $24,000 savings per yr
5) Cut carrots on-site instead of pre-packaged – $16,000 savings per yr
6) Homemade instead of commercial syrup – $3,120 savings cost per yr
A total annual savings was found of $149,000 per year. The cost of a meal was reduced from $1.05 to $0.80. Capt. Cecchettini stated “It opened our eyes to other ways to save money in the department.” The jail has since adopted the competitive bidding process for its uniform and shoes, reducing costs as well.
Imagine, the Yolo County jail couldn’t figure out that a competive bidding process is an essential element to budgeting to keep costs down. Dah! $149,000 is the equivalent of three teachers salaries!
Furthermore, CA is spoiled rotten. It has many services other states do not. For instance, back on the East Coast, there are no public pools and fancy Recreation programs like we have here. The town of Davis has how many public pools? Manor, Civic, Community, West Manor, paved over the Emerson pool, and the UCD pool is open to the public. Where I grew up in MD, there was one PRIVATE pool for the entire area. There is no trash pickup for yard refuse back East. Most high schools back East have a high school gymnasium, not a separate city/school entertainment venue. At one time CA was giving a free college education, until they realized the state would go bankrupt paying for it. CA needs to start living in the real world, and realize they cannot afford to have everything.
“There is absolutely no correlation between per state per-student spending and the quality of education. “
That’s a far more complicated point than you make it seem. To correlate state per student spending and quality you would first have to have an accurate and reliable measure for quality of education.
The problem is that you really do not have a good measure for quality of education. If Davis students score in top 10 percent on a particular test–the only real measure we have for quality–does that mean that our schools are really good or that the students are from a characteristic that is more likely to succeed than others.
Many have in fact argued that we do well on these tests despite the quality not because of. Would the same teachers and same classrooms and same level of spending produce the same scores in inner-city Oakland? No.
That fact alone makes it very difficult to measure quality education.
It also means if you correlate spending with performance, the more you spend, statistically it may seem at times the less the students perform. Even using control variables up the wazoo it’s going to be a very complicated task to do a proper correlation.
So a statement that appears to have meaning, really does not.
“If you overtax the wealthy and businesses, they are going to leave the state (many businesses already have) or it will discourage businesses from coming – and the jobs they generate/would generate are going to go w them.”
There is no evidence that that is happening right now. And if you cut out services for the poor and disabled some of them are going to die. Yes I said. People are going to die as the result of these policies. Kids are not going to education, some will turn to crime, and people will die. Poor people will not get medical attention and some of them will die as a result of that. I’m sorry that that sounds extreme, but when you do these sorts of cuts, people are going to suffer. So yes, I am sick and tired of the policies that aim to protect taxes and wealthy people as though somehow they are sacrosanct. Everyone has to suffer in this system, if the businesses want to get up and try to move and establish themselves in a new locale during this downturn, more power to them. But at the end of the day, everyone has to pay a price together or the most vulnerable–you know those poor people who have to live day to day on meager public assistance because they are disabled and cannot work–are going to be the ones to pay some of them with their lives.
“Everyone has to suffer in this system, if the businesses want to get up and try to move and establish themselves in a new locale during this downturn, more power to them. But at the end of the day, everyone has to pay a price together or the most vulnerable–you know those poor people who have to live day to day on meager public assistance because they are disabled and cannot work–are going to be the ones to pay some of them with their lives.”
I fail to understand how people can miss the basic point that business in CA helps the poor – it provides jobs and tax revenues. No business in CA means not enough tax revenue to support the poor. And to top it off, business also helps the middle class by providing jobs, which generates more tax revenue. Let me put it another way, w an example.
Way back when, and I don’t remember exactly when this was tried, but this nation decided to heavily tax the wealthy. What happened? The wealthy moved to places like Monaco, or wherever they could get tax savings. As long as there are tax havens we have to compete with, we have to be careful how much we tax the wealthy and businesses. I suspect a better idea is to institute some regulation of business, that requires upper management compensation be tied to how well the business is doing financially. What has been happening lately is right before the company is going to go belly up, upper management has been looting the assets of the company, a la Enron. Or bailout money is taken, and used for bonuses to upper management.
“I fail to understand how people can miss the basic point that business in CA helps the poor – it provides jobs and tax revenues.”
Nobody is missing that point. The question is which is more direct and immediate and right now cutting off programs is far more direct. If we raise taxes the right way in the right places the impact should be minimal on business and the poor. Cutting programs to poor also harms the economy. Everyone is getting hurt by this, right now the impact seems disproportionate on those living month to month rather than those with more cushion.
If there are more write-offs/loopholes offered in CA vs. other states, the top marginal income tax rate list might be a misleading.
[Quote]”If there are more write-offs/loopholes offered in CA vs. other states, the top marginal income tax rate list might be a misleading.”[/quote]
There are quite a few Federal income tax write offs that CA does not allow. For example, health savings account contributions are taxed at the individual level by CA and not the fed. Also, CA has different rules for depreciation that tend to mean less state tax write offs than what can be written off at the fed level. Most states mirror the fed tax code for these things.
However, the write-off complaint is generally another political marketing stunt from those that want to soak the rich. There is a line item on a tax return “Adjusted Gross Income”. That is the income we all pay our income taxes on. It is after all expenses are deducted (e.g., written off). In CA, the top 9.3% is assessed for individuals making $47,056 AGI or more. This is one of the infrequently noted points about CA income tax rates: you only need to make $47k in adjusted gross income and you pay the TOP tax rate. So, many “wealthy” teachers pay the top tax rate in CA. The exception to this tax rate is for those that show an AGI of $1 million or more have another 1% tacked on as a surcharge. Don’t forget that the top 10.3% is 10.3% more than wealthy business owners pay in Florida and Nevada.
Also, don’t forget that the Alternative Minimum Tax kicks in with many upper-end tax payers who get too aggressive with their write offs.
For corporate taxes, the write offs are based on Generally Accepted Accounting Practices (GAAP), and are largely the same state to state. The differences are related to special tax incentives that CA put in place to support specific PC-correct activities (like save the delta mud bug) and PC-correct industries (like bird-killing wind farms).
But Rich you left off property taxes. When you look at the total tax burden in California it is not as high as your post would lead one to believe if property taxes are included especially for owners of homes that have not been reassessed in a long time due to the property not changing hands, being inherited or otherwise being passed down through the family. So someone who lives nearby might actually have a low overall tax bill just by the fact that they have lived there a long time, same goes for commercial property that changes hands more slowly. This is, of course, the argument for a split property tax roll for commercial property being reassessed more often. It does seem that the California tax code favors long time property owners, who, might be the richer people in California. If they sell out and leave and their property is sold and reassessed it might actually be a net gain for the tax collectors of the state. So if we raise taxes on the wealthy and they choose to leave the state gets the money one way or another. What I find funny is people who pay low taxes throuh longevity of ownership whining about how high taxes are in California.
The real math for those that believe the myth that Prop-13 is the reason for our budget problems…
http://weblog.signonsandiego.com/weblogs/afb/archives/034048.html
Prop 13 is part of the problem, but that piece really doesn’t address the problems that have been laid with regards to Prop 13. The biggest problem with Prop 13 is not that it reduces revenue but it makes it difficult to raise revenue at the local level. That has shifted the money mechanism to the state which has as your piece suggested gotten around it but also made it a good deal more inefficient.
[b]Disagree with both:[/b] [i]”There is no evidence that (businesses are leaving California because of the tax and regulatory environment) is happening right now.”[/i]
This is a few years old, but it comes from The San Francisco Chronicle and suggests Disagree might be wrong about there being “no evidence”: [quote]Discouraged by high costs and strict regulations, just under 60 percent of California business leaders interviewed for a new study said they have policies to restrict job growth in the state or move jobs to other locations in the United States….
The consulting firm [Bain] interviewed chief executives or senior managers of about 50 small, medium and large companies with extensive operations in the state.
About 40 percent said their companies have an explicit policy to move jobs elsewhere in the United States, with Texas cited as the most frequent destination. Not counting those companies that must stay in California, such as retailers or health care providers, the proportion of businesses that said their policy is to move jobs rose to 55 percent.
Another group of executives, just under 20 percent of those interviewed, said their policy is to avoid adding jobs in California, except when absolutely necessary.
Businesses are clamping down on California job growth because of high costs and a burdensome regulatory environment, Bain concluded.
The cost of doing business in California is about 30 percent higher than in the average Western state, largely because of higher wages and benefits, according to the study.
Bain also attempted to measure the cost, uncertainty and complexity of California’s environmental, labor and other regulations. It constructed what it called a regulatory hassle index that took into account such factors as compliance costs, the threat of lawsuits and delays in obtaining permits that hamper operations.
The index showed that “California is far worse than any other state in the union, by a very significant margin,” said Jeff Melton, a partner in Bain’s San Francisco office.[/quote]
Rich: If you read the PPIC study from last week that the blog paraphrased from you see they pretty much debunk that myth.
Linkletter: [i]”But Rich you left off property taxes. When you look at the total tax burden in California it is not as high as your post would lead one to believe if property taxes are included especially for owners of homes that have not been reassessed in a long time due to the property not changing hands, being inherited or otherwise being passed down through the family.”[/i]
I didn’t leave out property taxes. I wrote this: [quote]”We are already the highest taxed state of all 50 states (when you account for sales taxes, [b]property taxes,[/b] income taxes and other taxes and fees).”[/quote] It is true that our property tax rates are low compared with other states, because we have many properties taxed at a rate lower than a fair market evaluation. Based on “percentage of home value,” California ranks ([url]http://articles.moneycentral.msn.com/Taxes/Advice/PropertyTaxesWhereDoesYourStateRank.aspx[/url]) 45th of the 50 states. However, because property values in California are higher here than in most other states, California ranks 17th in property taxes as a “percentage of income.”
The question in my mind is [i]total government revenues[/i] per capita. On that measure, we are the most highly taxed of any state*. (Since the recession began, this might have changed. Hawaii is traditionally very close to us. Also, because of its oil revenues, Alaska has greater government revenues per capita. However, Alaska’s oil revenues largely flow into a “permanent fund,” which does not cover any ordinary state expenses.) We have by far the highest sales tax rates; and only Vermont has a higher income tax rate.
*I could not find the Sacramento Bee article on-line where I read that. I think it was in a Daniel Weintraub column.
[b]Disagree with both:[/b] [i]”Rich: If you read the PPIC study from last week that the blog paraphrased from you see they pretty much debunk that myth.”[/i]
Dis, I read the PPIC study — you can read it right here ([url]http://www.ppic.org/content/pubs/jtf/JTF_LeavingCAJTF.pdf[/url]) — and it does not deal with your contention. The question it addresses is whether our high tax rates on individuals is causing individuals to leave California. It does not focus on businesses, which is what the Chronicle piece discussed. The PPIC writes: [quote]California does have high income taxes: a top marginal tax rate of 9.3%, plus an additional 1% for millionaires. Three states with no personal income taxes—Nevada, Texas, and Washington—are among the top five destinations for the highest-income fifth of California households.[/quote] Yet the authors of the study don’t think income tax rates alone explain the outmigration of wealthy Californians: [quote]If high income taxes were chasing away rich Californians, high-income households would be more likely than low-income households to move to states without income taxes—but they aren’t. How come? States without income taxes are cheaper than California in other ways—housing costs, for example—that matter to all types of households, not only to those with the highest incomes. In other words, California does lose people to lower-tax states—but not just because of income taxes.[/quote]
NPR has been running a series on the California budget situation.
The one on California prisons noted that California has the most expensive prison system in the country:
[url]http://www.npr.org/templates/story/story.php?storyId=106606909[/url]
Rich:
You’re right. I’ve read most of the PPIC’s for the last five years or so. It’s a staple. Here’s the one that did debunk that myth:
[s=http://www.ppic.org/content/pubs/op/OP_207JKOP.pdf]PPIC[/s]
[quote]Claims that California is losing employment because its businesses are choosing to expand in other states – rather than staying put – are inaccurate, according to a study released today by the Public Policy Institute of California (PPIC). Building on previous PPIC research that found state employment has not suffered from business relocation, the new study shows it also is not being hurt by companies shifting jobs to other states.[/quote]
and
[quote]While some California firms have moved operations to other places in the nation, the effect is more than offset by companies based in other states moving operations and jobs into California – especially recently. The overall result of business operations moving in and out is that California’s share of national employment has remained roughly constant – and even risen between 2000 and 2004 when concerns about the business climate were raised most strongly.[/quote]
Dis, yes, I read that study as well. I’m familiar with one of its authors, David Neumark, and believe he is credible. That study, though, comes from 2007. I doubt (in any long-term sense) that makes it dated. It suggests to me that the reasons for locating or relocating business operations are complex, and things which make doing business here more expensive are only a part of the larger picture.
An anecdote I do know, however, tells me something which may be missed by survey research: there are some (perhaps a large number) of high income Californians who are capable of moving their income out of state for income tax purposes, while they physically remain residents. The people who do this — I should repeat that I only know this anecdotally — have soft incomes from sources in the arts (including movies and TV) and in various aspects of high tech (from financial investment to earned royalties). They have the ability to go out of state to sign contracts, to reside a part of the year in the state they sign their deals, and the ability (perhaps not technically legal) to regard themselves for income tax purposes as residents of states like Nevada, Texas and Florida. By doing so, these folks have been “leaving” California. I’m sure, even if the anecdotal cases I know of, are widespread, the vast majority of high income Californians cannot and do not do that. But I have been told that it is our high rates which drives people to move their incomes. (I have never personally been told this, but I could imagine, also, a multi-state or international business in California shifting its business “profits” to other states, as well.)
“There is absolutely no correlation between per state per-student spending and the quality of education. ”
I would add an additional wrinkle to that, beyond what has already been mentioned in response.
Here’s another PPIC report (Jan. 2007) that is relevent:
[url]http://www.ppic.org/content/pubs/report/R_107TGR.pdf[/url]
Around page 49 the report summarizes three things about California K-12 education:
1. per capita spending on K-12 education in California is not significantly different from other states
2. public school students per capita is higher in California than the rest of the US, on average. A higher percentage of Californians are in K-12 education than in other states. That means overall less spending per student.
3. public school employees are more highly compensated in California than in other states, meaning fewer staff per student.
The report goes on to infer that the poorer performance of California students relative to other states IS connected less money per student.
And what does Rifkin produce that adds to our economy?
“And what does Rifkin produce that adds to our economy?”
No personal attacks, remember?
The PPIC report reminds me of Barney Frank in 2003 telling the NYT: “These two entities – Fannie Mae and Freddie Mac – are not facing any kind of financial crisis.”
Are we looking backward or forward?
We could pay attention to the PPIC report assessment of what HAS happened to date, or pay attention to what the business owners are telling us will happen… like the Bain survey pointed out by Rich, and the following survey from MerchantCircle – the largest social network of local business owners in the nation:
[quote]LOS ALTOS, Calif., March 10 /PRNewswire/ — MerchantCircle today released survey results compiled from 785 local business owners in California. More than 76% of business owners say they have seen a “moderate” to “severe” decline in sales and revenue from the same point last year. Over 50% say their business is “unhealthy” or “in danger of failing”.[/quote]
The Obama administration will likely raise taxes on business to pay for government-run healthcare and to help reduce the recent trillions in added Federal debt. If California also raises corporate and personal income tax, the total cost impact will force many CA businesses to close or relocate to more affordable locales. Even when the economy was humming, many businesses survived on thin margins that would be decimated with a tax increase. It is asinine to consider it now.
The bigger consideration is somewhat ideological: are we better off with government providing high levels of direct programs and assistance through higher taxation, or are we better off with fewer programs and lower taxes attracting more business providing more jobs so that more people can take care of themselves while adequately funding important services like education? The Democrat political talking point is that the trickle-down theory proved to not work as evident by the current crash of the financial market. The main problem with this argument (other than the lack of acknowledgement of 25 years of tremendous American prosperity) is that there is no evidence that higher taxation leads to a sustainable alternative.
[quote]Prop 13 is part of the problem, but that piece really doesn’t address the problems that have been laid with regards to Prop 13. The biggest problem with Prop 13 is not that it reduces revenue but it makes it difficult to raise revenue at the local level. That has shifted the money mechanism to the state which has as your piece suggested gotten around it but also made it a good deal more inefficient.[/quote]
Doesn’t Prop-13 include annual increases in assessed values to the lesser of 2% or the increase in the cost of living for the year?
Since Prop-13 passed (1978 I believe), here is the CPI through 2007:
1978 7.6
1979 11.3
1980 13.5
1981 10.3
1982 6.2
1983 3.2
1984 4.3
1985 3.6
1986 1.9
1987 3.6
1988 4.1
1989 4.8
1990 5.4
1991 4.2
1992 3.0
1993 3.0
1994 2.6
1995 2.8
1996 3.0
1997 2.3
1998 1.6
1999 2.2
2000 3.4
2001 2.8
2002 1.6
2003 2.3
2004 2.7
2005 3.4
2006 3.2
2007 2.8
2008 3.8
AVERAGE 4.2
The average CPI for that period (even including the hyper inflation of the 70s) is 4.2%. So, a 2% increase in property tax assessment fails to keep up with inflation. However, a lot of property changed hands and a lot of new property was developed. The actual average annual increase of property tax revenue during that time from 1980-81 to 2006-2007 was 21.43% per year (going from $6.36 billion to $43.16 billion over these last 27 years).
So, California has been served very well by property taxes since passage of Prop-13. The problem is over spending at the State level, and then attempting to balance the budgets by reducing State payments to counties and cities. Raising property taxes will only serve to perpetuate the State spending problem while causing a whole bunch of other negative consequences.
“So, California has been served very well by property taxes since passage of Prop-13. The problem is over spending at the State level, and then attempting to balance the budgets by reducing State payments to counties and cities. Raising property taxes will only serve to perpetuate the State spending problem while causing a whole bunch of other negative consequences.”
This is exactly right. I would add further that the state lessens payments to cities and counties, at the same time it increases the level or number of state mandated services cities and counties must provide. State and local gov’t cannot be all things to all people.