California Dreaming
By Ryan Huber on 01/29/2013 in California, National Debt, Spending, Taxes, TCKB with 5 CommentsRead Time: 4 - 6 minutes
“Why did the population of Southern California explode so fast in the last 50 years?”
“The Rose Bowl.”
This short conversation was between a long-time Orange County resident and me in the summer of 2011. He was explaining how the once wide-open spaces of Southern California have gotten so cramped and crowded in the last half of the 20th century. His conclusion? Weather. That was the summer my wife and I (in LA for an internship) decided that, if we could swing it after finishing some schooling in Boston, we would head back to California. We moved out in the fall of 2012 on a wing and a prayer and miraculously, we’re making it.
Sadly, fewer and fewer of my fellow Americans are going west to pursue the California Dream. Despite the televised Rose Bowl drawing cold-weather converts for years, despite Disneyland, despite sunny beaches, Silicon Valley tech booms, and one of the largest (currently 9th) economies in the world, people are not coming to California from other states; they’re leaving it.
California has had its share of ups and downs, booms and busts, but the trend of the last 20 years is more and more red ink – along with higher rates of taxation, relative job loss, and those negative migration patterns.
Remember that these numbers compare California to the nation as a whole.
But wait, there is some good news. Recently re-elected Governor Jerry Brown (D) has just announced a balanced budget for the coming fiscal year; this is something that makes us here at The Can Kicks Back very happy. We love balanced budgets. But that’s not the whole story. The balancing of the budget was achieved primarily through new taxes, 80% of which fall on the wealthiest Californians in the highest tax bracket. CNN adds a cautionary note: “the Legislative Analyst’s Office warns that the measure depends heavily on the income of the wealthiest residents, which is volatile and difficult to predict.” Keep in mind that the wealthiest tax payers are also the ones with the most resources to pack up and move across state lines, or find loopholes to avoid paying those increased rates.
Numbers from the tax foundation.
Furthermore, a short-term balanced budget does not address California’s very real, very large long-term “wall of debt” (Brown’s phrase), accumulated through years of big promises to various groups. The LA Times reports that “The governor’s budget does not address hundreds of billions of dollars in debt the state has accumulated.” Steven Greenhut of the LA Daily News says that “in reality, the Brown approach is the latest in a series of “kick the can down the road” budgets that ignore the buildup of debts. It rewards public-employee unions with pay and benefit increases, while shielding them from desperately needed pension reforms, and ignores deep problems within the state’s economy.”
Uh-Oh.
We do not like can-kicking here at TCKB.
California’s problem, like the problem of the United States as a whole, is the existence of long-term systematic deficits due to entitlement (or for the states, pension and benefits) spending. California owes its current and former employees a whole lot of money, in addition to the billions of dollars in debt it owes to Wall Street, among others. Another critical issue is the direct democracy or “Proposition” system in California, which has led to incredible deficits in the state budget. For example, Prop 13 of 1978 limited the amount of property taxes the state could collect (money necessary to fund education and neighborhood development), yet Prop 98 of 1988 required the state to place increasing amounts of money into education – money which could no longer be raised legally through property taxes. These inherent flaws have contributed to the huge debt problems that California has yet to meaningfully address.
Balancing one year’s budget does not get California out of debt any more than cutting discretionary spending or raising marginal income tax rates will for the United States. California and the United States can tax as much as they want, and even cut spending in certain areas, but significant damage has already been done. The good news for well-to-do Californians like pro golfer Phil Mickelson is that they can leave if they don’t like it (many wealthy golfers like Tiger Woods have already left California for Florida), but where do Americans go if our Federal Government refuses to tackle the long-term debt through entitlement reform?
I hear Greece is nice this time of year.
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5 Comments
Lucas Eaves
01.29.2013
@lucaseaves
It is true that the appearance of a balanced budget this year in California, comes from a one time big increase in revenues, thus making it look like the system is fixed when its not. But we also have to consider that California is one of the few states that gives more to the federal government that it receives, getting 70 cent for every dollar it gives. Maybe this should be the issue to address as it would help solve California’s deficit problem.
Jenny Jo
01.30.2013
Should we tackle this problem in every area? Last I heard, DC takes over 6 dollars for every 1 it contributes? Perhaps we should start getting rid of the waste there.
Jenny Jo
01.30.2013
California also has the 2nd highest expenditure of tax dollars in the form of the Department of Defense.. since we know fascists and leftist extremists love to harp on that, should we remove some of the money spend on defense there? Should we balance expenditures in all area, in every state? All states get equal funding in defense, social programs, roads etc?
Not sure what your point is really, since expenditures and incomes are never balanced across states due to various different things.. size, population, density, framework structures and various programs.. also, since states do not fund the “fund” the federal government, none of this is really relevant. States contribute to the federal gov which then holds that money hostage and requires compliance from the state before it will turn back around and send (almost) the same amount back, in most cases, for the state to use on its roads and programs. The state funding pool is nothing more than a way for federal lawmakers and the administration to strong arm the states into doing as they say, or they withold funding for roads, social programs etc.. which is basically a suicide option for the state, because people will move if roads and schools and such are not maintained. Federal gov maintains the chokehold on the states, and in the process also get to dictate states laws to them by blackmail (illegal due to the Constitution and states’ rights, but what does the fed care about the Constitution?) since no state legislature is ballsy enough to tell the fed to screw off and try to survive on their own and keep their taxpayers. I swear, this whole country and possibly world, needs a civics lesson… too many people who think their government is out to do nothing but help them.
As far as California giving more than they get.. the amount of money given by states to the fed and then given back, even accounting for the couple dimes (Californias was 81 cents btw, not 70), its miniscule compared to the money thats funneled through, and those figures are misleading anyways, since they only account for tax dollars paid out and stimulus coming back in, none of the intangibles, like federal support for logistics, good will and faith of the state itself, and lets not forget greasing palms on the way there and back.. Our system is pretty screwed up, but at least get to know all the intricacies, benefits and faults associated with relying on a federal system before laying blame for debt problems on other states lack of “tax funding”.
Jenny Jo
01.30.2013
Good article. I think this one should be cross linked with the other article that is about California legislature trying to raise the pensions back up, as an example as to why this state is wreck. As mentioned in the article.. one year of a balanced budget doesn’t stop massive debt from continuing to compound. Entitlement, mandatory “social” spending, excessive and misplaced education funding.. this state has serious problems… Unfortunately, I think most of them stem from the attitudes of the voters and citizens there, and the entitlement. Maybe some day they can fix it and people such as myself, who love the land, but not the attitude and worldview of the people, can return, possibly with our families and businesses. Until then, all I can do is wish those mountains and streams good luck.
Javier Gonzalez
01.30.2013
@jgonzalez
War. War. War. Wall Street takes worker’s pension funds and blows it. Government bails them out. They pay themselves raises. Now wall street wants to end “defined benefits” pensions to 1) have more of our money to blow on themselves, and 2) shift blame for budget shortfalls to worker pensions.
We spend too much on war. (period. Period. Period)