Network News

X My Profile
View More Activity

Fiscal Responsibility vs. Fiscal Conservatism

Robert Samuelson's column this morning is a good reminder that there's a difference between being fiscally responsible and fiscally conservative. The subject of his argument, at least ostensibly, is California's budgetary crisis and the need for government to manage its finances more responsibly. But toward the end, Samuelson gives up the game a little bit:

On paper, the state could solve its budget problems by raising taxes further. But in practice, that might backfire by weakening the economy and tax base. California scores poorly in state ratings of business climate. In a CNBC survey, it ranked 32nd overall but last in "cost of business" and 49th in "business friendliness." [...]

So California is stretched between a precarious economy and a strong popular desire for government. The state's wrenching experience suggests that, as a nation, we should begin to pare back government's future commitments to avoid a similar fate.

Those rankings don't amount to much (hence Samuelson's huge hedge: tax hikes "might backfire," as might spending cuts, or really doing anything -- or nothing! -- at all). California is, as observers will quickly point out, home to Silicon Valley and Hollywood and was one of the epicenters of the housing boom. Whether it's friendly to business or not, businesses are certainly friendly to California, and the proof is that the most important industries of the past few years made their home in the Golden State.

But like the Golden State's Republicans, Samuelson is proposing that California close a $26 billion budget deficit through spending cuts. That means cutting education spending -- which accounts for 51 percent of the state's general fund spending -- by billions. It means radically cutting health-care spending and spending on state parks and spending on food stamps and spending on law enforcement and spending on, well, everything. Samuelson is not choosing the quickest path back to a balanced budget (a mixture of tax hikes, spending cuts, and reforms). He's using the budget crisis to argue for a different governmental norm: Not only a low-tax, low-spending state, but a low-tax, low-spending country.

But the numbers don't do a great job supporting that argument. Samuelson implies otherwise, but California isn't a particularly high-taxing state. Total state and local taxes take up 11.73 percent of the average Californian's income. The national average is 11.23 percent. And it's been like that for many years:

caltaxburden:jpg.jpg

Nor is California's spending on education somehow out of the ordinary. The state ranks 29th in the country on education spending. And recent tax cuts haven't been helping the Golden State out. This graph from the California Budget Project shows the contribution that decades of tax cuts have made to the state's current fiscal crisis. It's a pretty depressing story:

cataxes1.jpg

The budget deal that Arnold Schwarzenegger just accepted contained $15 billion in spending reductions. Absent the tax cuts of the last few decades, most of those reductions wouldn't be needed. The education system would have $9 billion more than it will next year, and local governments would have $4 billion more. But in a sense, that's a bit beside the point. Samuelson's argument is not fundamentally about matching revenues to expenditures. It's not about some uniquely large welfare state or tax department in California. It's not an argument about fiscal responsibility at all. It's an argument about the type of government we should have, not how it should manage its finances. And that's fine. It's just worth being clear about.

By Ezra Klein  |  August 3, 2009; 10:33 AM ET
Categories:  Budget , California  
Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati   Google Buzz   Previous: The State of Play
Next: Can Democrats Have a 50-Vote Senate?

Comments

State legislatures enact entitlement programs for it's citizens' benefit.

So, wouldn't it be interesting to know exactly how much money of this budget is spend on those who are *not* citizens?

Maybe the larger question should be "Does the citizenship franchise mean anything anymore?"

Posted by: WrongfulDeath | August 3, 2009 11:07 AM | Report abuse

WrongfulDeath - why don't you go look it up and let us know what you find?

Posted by: tl_houston | August 3, 2009 11:24 AM | Report abuse

Ezra writes: "but California isn't a particularly high-taxing state. Total state and local taxes take up 11.73 percent of the average Californian's income."

Ezra: with respect, this isn't a particularly meaningful statistic. Why? Because California's tax burden could well be fairly punitive on the incomes of below or above average Californians. I looked into this a few months back -- and I concluded that by the broadest metric of the cost of the public sector -- total state/local spending as a percentage of state GDP, California was second in the nation behind New York.

Now, as a liberal, I think that's just fine: California is still one of the richest and most productive places on the planet, and I happen to prefer a robust public sector and high quality public goods.

I just think progressives would be better off making the case for the advantages of a larger public sector (look at median living standards in Northern Europe, for instance) than trying to pretend that a relatively big government is actually a relatively small government.

Posted by: Jasper99 | August 3, 2009 12:19 PM | Report abuse

It's telling that Ezra provides no chart tracking the growth of state expenditures over the years.

Posted by: tomtildrum | August 3, 2009 1:02 PM | Report abuse

Because everybody knows that California can continue to spend like there is no tomorrow, and all they have to do is raise taxes on the greedy rich and everything will be just fine. Right? In fact, if we don't count the businesses that are closing down or moving out of state, California is actually growing businesses. And you can regulate them all you want. You can impose any restrictions you feel like and they will always somehow magically find a way to keep operating and keep your welfare state going. Right? They're there! So they'll always be there. What's to worry about?

Posted by: G418 | August 3, 2009 1:45 PM | Report abuse

@tomtildrum: "It's telling that Ezra provides no chart tracking the growth of state expenditures over the years."

And if he did, he would have left some other key chart out, or omitted some other bit of info that reveals to the world that trickle-down conservative economics actually created a surplus and it was Clinton who spent it all and left Bush with a deficit.

Point being, if you're going to whine about the lack of a Fairness Doctrine on Ezra's blog, the least you can do is provide a link to your invaluable information.

Posted by: BigTunaTim | August 3, 2009 2:05 PM | Report abuse

Your critique of tax distortions sounds like creationists critique of evolution. It's just a theory!!!!!

They could save a lot of money by not paying absurd above market union wages and benefits to their public sector employees. I know you don't understand business but it is possible to provide better more efficient service by cutting out wasteful spending and redundant positions from your operating structure.

Pointing out that other States and the Feds waste lots of money on Education and other public services doesn't justify continuing the practice.

Posted by: fallsmeadjc | August 3, 2009 4:20 PM | Report abuse

It's funny. There are commenters here that are so beholden to the meme, "California taxes and spends like a drunken sailor" that they keep on arguing as if Ezra hadn't provided plenty of data to show that this isn't the case. It's as though this idea is a foundation of their personalities...

Posted by: michaelterra | August 3, 2009 5:45 PM | Report abuse

The comments to this entry are closed.

 
 
RSS Feed
Subscribe to The Post

© 2010 The Washington Post Company