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Is California Getting a Raw Deal?

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This is an original spin on the California fiscal crisis from Neil Sinhababu:

"Californians only get back 78 cents for each dollar of federal taxes, ranking it 43rd of 50 for money tossed back into the state." I'd seen those numbers before, but I hadn't thought of them in the context of the California budget crisis. It's going to be hard to balance your budget when 22% of the money you send to DC doesn't come back.

I wonder to what extent the hideous proportional underrepresentation of California in the US Senate is a factor in this. In any case, part of the story has to be that California is an expensive state, which causes a bigger tax bite that isn't matched in the spending you receive.

It's certainly not the main factor behind California's crisis. But it's not helping. And it does put California's possible bailout in a new light: This isn't charity. It's payback.

(Photo credit: AP Photo/Marcio Jose Sanchez)

By Ezra Klein  |  June 2, 2009; 10:03 AM ET
Categories:  California  
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Comments

Ezra, it's a fundamental principle of progressive taxation that the wealthy pay more in taxes than the poor. California, for all of its governance problems, is a wealthy state and thus can be expected to shoulder a heavier tax burden. Surely you don't mean to suggest that wealthy individuals should demand to pay no more in taxes than they receive in services?

Posted by: tomtildrum | June 2, 2009 10:26 AM | Report abuse

I personally think it is a losing argument to make.

There are 7 other states are getting even less of a return on their federal taxes than California. You do not see any of them out there asking for a bailout.

On the "is it fair?" scale, it ranks up there as "pretty unfair", but it's not a winning argument, because we all have to pay, and others get even less.

Anyone who pays even an inkling of attention to the California situation understands that their problems boil down to two things: bad management in Sacramento, and Prop 13. California desperately needs reform, and yet the people in California seem unbelievably unwilling accept that fact.

If the richest person in the neighborhood (GDP of $1.8 Trillion) starts asking their other neighbors (or would the HOA be more apt?) for a handout so that they can continue with their current lifestyle, how would you react?

In this case, there are 49 poorer neighbors who are currently tightening their belts and still facing tough financial situations, who simply will not feel much pity.

Posted by: JERiv | June 2, 2009 10:51 AM | Report abuse

Part of the problem is that the nominal numbers are not adjusted for the cost of living.

If you look at the nominal numbers CA is one of the wealthier states. But once you adjust for the high cost of living CA is actually one of the poorer states.

But taxes are collected on nominal income and nominal wealth. The same is true at the opposite end of the scale as transfer payments are also based on nominal data.

The BEA recently issued a working paper on their program to develop a cost of living index to compare states. According to this index, California real per capita income before adjustment is 107% of the national average, ranking it number 12. But after adjustment for cost of living CA drops to
89% of the national average, ranking it number 42 or about the same as Arkansas.

Posted by: seerrees | June 2, 2009 11:13 AM | Report abuse

Wouldn't an easier, and more fair, solution be to send less money to the federal government in the first place?

Posted by: tito1 | June 2, 2009 11:29 AM | Report abuse

You are correct in that this issue is a minor problem in the big scheme of California's crisis.

The main problem is the role of government that California voters expect. Instead of asking the government to do only those things that are either impossible or terribly inconvenient for individuals to do for themselves, the ask the government to take care of all probelems and they wonder why there is no money to pay for it all.
If you look at the states that are in a financial crisis at this time, almost all of them have been ruled by liberal policies in the recent past.

Those policies are the problem.

Posted by: ElViajero1 | June 2, 2009 11:32 AM | Report abuse

a) "hideous underrepresentation in the Senate?" Did I miss something? Is there a state that has more than two senators? Is there not a House of Representatives that is set up with proportional representation, as a balance to the 2-per-state representation in the Senate?

b) Federal taxes go towards federal needs. The word "federal" implies that those taxes can be disbursed on a national basis. There's never been a promise made that your state will get 100% of their funds back, and for California to expect that is just greedy and un-patriotic. California needs to fix its' problems internally before it comes asking for a federal fix.

Posted by: brownjennifere | June 2, 2009 11:52 AM | Report abuse

Hideous underrepresentation in the Senate is correct. The House of Representatives does not balance this fact, it merely adds an equal number to both sides of the inequality, leaving it unbalanced. It's time to change the Senate composition.

Cost of living is a huge factor that is ignored (and thus amplified) by all progressive taxation schemes.

Posted by: staticvars | June 2, 2009 1:06 PM | Report abuse

"Instead of asking the government to do only those things that are either impossible or terribly inconvenient for individuals to do for themselves, the ask the government to take care of all probelems and they wonder why there is no money to pay for it all."

I really shouldn't take El Viajero's bait, but this seems pretty disingenuous.

Anti-tax and anti-government wingnut Republicans in California succeeded in placing the state government into a fiscal straightjacket way back in 1978 with Prop 13. Since then they've blocked every attempt to keep revenue inline with the services that Californians desired.

This tiny Republican minority has very intentionally been running the state government into fiscal ruin by preventing the state from raising the necessary revenue, all while spreading lies about California "having the highest tax burden in the country." (See Meyerson's article in today's WaPo)

Presumably, their goal all along has been to "starve the beast," as the saying goes, with the purposeful intent of bringing us to this very crisis point -- all so that the El Viajero's of the world can claim that the problem is "too much government" and call for slashing social services that the people of California desire.

I guarantee you that the Republican minority in Sacramento is privately gloating over the extremely painful cuts that the governor has proposed in the wake of the recent prop failures. They are pleased as punch that nearly all of the cuts come from services desperately needed by poor families, the sick, and the mentally ill -- all while pretending it's somebody else's fault. It's all part of a 31-year plan to make sure that government fails.

It's shameful.

Posted by: jeremyincalifornia | June 2, 2009 2:46 PM | Report abuse

The problem with jeremyincalifornia's assessment is that it wasn't the conservatives that decided to spend money they couldn't raise.

A great analogy would be someone that can't get a raise, but decides to go out and buy a large mansion anyway and then to turn around and blame his boss for not making the money available to pay for it.

Posted by: ElViajero1 | June 2, 2009 3:57 PM | Report abuse

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