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It’s Not about Taxes

I live in California, and you may have heard that we’re having a bit of an argle-bargle about a budget in this state.

The history, for those who’d like it: Back in the 1970s, enough Californians felt their taxes were too high to limit property taxes by law. The limit is low, (1.5%, I thought, but wikipedia says 1%) and — this is the biggest deal — the assessed value of the property can’t increase more than 2% a year until it’s sold. The new assessed value is then based on that sale price. You’ve probably heard about property values in California. A house worth $60,000 in 1978 is worth $600,000 now, but it’s taxed at around $100,000. There’s something to be said for this in the case of retirees on fixed incomes, for instance. However, they forgot to limit it to people of limited means. It applies equally to movie stars. And to commercial real estate which can stay in the same hands forever, even when it’s sold, through the magic of shell corporations. That turns out to be a loophole big enough for the whole state to fall through. . . . Proposition 13, as it’s known, also said that any tax increase had to pass with a two-thirds supermajority. We have two, count ’em, two, Republicans more than a one third minority. So that voting bloc, in its infinite intransigence, can stop any budget from passing. The situation is not helped by a Gropinator who vetoes legislation just to show off, as far as I can tell.

(Update: I should mention that the up-to-the-minute blog for all things to do with politics in California is calitics.com.)

On to the gnarly present. As Krugman wrote, California may once again be ahead of the curve in showing what happens when a bunch of Republicans decide to play politics with the future. This is not, at this point a faults-on-both-sides situation. This is a bunch of Republicans playing politics with the future. They have made the (apparently accurate) judgment that repeating NO NEW TAXES on an infinite loop will keep getting them re-elected till hell takes over.

Because no way is this about protecting people’s wallets, as our so-called Governor bloviated the other day. Even Republican legislators couldn’t be stupid enough to think that no-new-taxes is saving anyone any money right now.

That, y’know, is what people meant when they started screaming about taxes. It’s not about the taxes. It’s about the money. People want more money. They thought that’s what they were saying when they insisted on lower taxes, but it’s turned into one of those be-careful-what-you-wish-for things. You might get it.

We have lower taxes. Let’s see what that costs us. Just a few examples, because it’s a nice day out and everyone has better things to do than think about money.

Education from K-12 has slipped from near first place in the nation down into the lower forties. Cost to those who depend on public schools: infinite. Universities have gone from being first class and free to costing between $5000 to $10,000 at four-year schools. How’s that for a tidy non-tax increase? Are your taxes $7,500 per year lower than they were in 1978? I didn’t think so.

No new taxes over the years has meant that services demanded by voters are funded with debt. Guess who pays that debt? Taxpayers. Instead of tax dollars going toward something you might want to use — state parks, say — they go to service on the debt. Meanwhile, necessary services have to be funded by piling on more debt. I don’t know what California’s state debt is, but I gather it’s well over $72 billion. There are about 15 million tax returns filed here. Getting rid of that debt would be on the order of $5000 per taxpayer. That’s a nonstarter. So we just keep forking over the minimum payment and larding on more debt. Now that our bond rating is near-junk, those interest costs will start zooming, just like they do when the credit card companies have you by the short and curlies.

And then, of course, there’s IOUs. The state has run out of actual money, so it’s writing promissory notes until the taxpayers give it some more. That, by itself, is costing us billions per month. To say nothing of what it’s costing people whose businesses go under because they can’t pay people with paper. They need actual money.

But, nobody’s worried about any of this because we’re so happy we don’t have any new taxes, right? I don’t think so, either.

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25 Responses

  1. We routinely see “special tax” ballot provisions lose with 60% – 65.999999% voter approval as well

  2. Talk about being your own worst enemy!

  3. As somebody commented on one of the threads I saw looking this stuff up: It’s interesting when the voters get to decide which benefits they’ll receive, and also get to decide not to pay for them.

  4. Taxes are going up. Car registration fees, state income tax, and sales tax have all increased. Now, whether or not, it is enough to close the deficit by any meaningful measure needs to be seen.

  5. This article simplifies the issue too much. I too reside in California. One of the problems the unions faced from the very late 70’s through a couple of years ago was trying to be able to afford a home close enough to where they worked. This turned out to be a great motivator for fighting for higher wages over the past couple of decades.

    The unions fought very well for what they now get. The problem is everybody else’s wealth has plunged in half, but the unions growl if the governor asks them to take off 2 days a month!

    You live in Southern California, have a chance to get two Friday’s off every month, and you picket, huh? I don’t get that one.

    At the end of the day, the unions are fighting a battle that they have already won. They have a chance to all keep their jobs if they agree to a certain percentage pay cut. Since wealth has dropped in half, INCLUDING home properties, (not quite half, but at least 30% to 40%), then even losing 10% of ones pay still puts one ahead of most other industries.

    But the unions don’t see it that way, and that is the real shame.

    • Um, look, I don’t want to come across as rude, but this is really fight-your-way-out-of-a-paper-bag stuff.

      Reducing the vehicle tax back in 2003 (Ahnold does have six Hummers): cost to the state, around $8 billion per year.

      Cost in lost revenues because commercial real estate is paying taxes based on 1978 values: hundreds of billions.

      Cost savings from docking union workers — and everyone else — two days pay per month: some multiples of a thousand times less.

      It’s not even a fly speck on the problem. Except to the people close enough to the edge so they can’t pay their bills. Those folks really don’t care if the sun is shining in SoCal. Believe me.

      • “Those folks really don’t care if the sun is shining in SoCal.”

        Well y’all should. Up here when you wind up homeless, you likely won’t be found until the snow melts.

        • Too true. I don’t know where “here” is for you, but it could be almost anywhere and it would still be much tougher to survive with nothing but a shopping cart. Still, you know how it is. People notice the problems they have, not the ones they don’t.

  6. In my opinion, the real issue is the tanking of the economy by raising credit card interest rates, dropping home equity lines of credit to well below fair market value, and not offering loans based backed with actual collateral.

    In my opinion, these three things point to a conspiracy led by Chase bank to suffocate local economies so they can buy really big companies and profitable companies at way below market value as panic sets in, panic that is actually being caused by the same companies that are doing the buying.

    http://www.daily-protest.com
    http://www.bloggersagainstchasebank.com

  7. You mean RESCINDING the 300% INCREASE in the vehicle tax back in 2003.

    It’s also been proven that there was no lost revenue based on 1978 real estate values because keeping the property taxes from goint up encouraged more home sales and actually helped cause home values to rise. People with older homes should be paying more and more property taxes, why?

    The idea that property taxes are just supposed to keep increasing is flawed logic. California has the HIGHEST INCOME TAX RATE IN THE COUNTRY ALONG WITH THE HIGHEST STATE SALES TAX RATE IN THE COUNTRY. Factor in one of the highest costs per home, in part because the property tax remained reasonable, and there are just a lot of people that want their portion of the state income fund.

    Unfortunately, as the ports of Los Angeles and Long Beach grow, it appears that the overall wages of California workers seem to drop.

    I go back to my main point, if home values have dropped 30-35% in the past two years, then the cost of living has reduced by at least 10%, which means keeping one’s job should be what matters most.

    • CA is also bankrupt. Cry me a river about your tax rates. Until you’re willing to accept less in services, it’s tough luck.

      • When I saw the title of this article, “It’s not about Taxes”, I thought finally, finally, someone was going to echo what my research has shown me already.

        It’s about the banks suffocating local economies and drying up revenue streams that help fund state coffers so the banks can create fake profits on Wall Street by acquiring desperate businesses panicked because people who are being charged 30% interest on credit card debt and have had their home equity lines frozen at ridiculously low levels can’t afford to buy their products and services.

        http://dailypuma.blogspot.com/2009/07/are-banks-gaming-system-same-way-barack.html
        http://www.daily-protest.com
        http://www.bloggersagainstchasebank.com

        • @Alessandro: the banksters aren’t helping, that’s for sure. Take the whole thing about downgrading CA debt. The ratings agencies are supposed to do that when the risk of default increases. CA’s constitution does not allow a default. The state isn’t likely to abscond to Argentina (although we’re all waiting for my part of it to split off into the ocean). And it’s not like the sixth largest economy in the whole world is poor in any real sense of the word.

          As pointed out on calitics.com, they’re just downgrading that debt because they can. Just as they upgraded the debt containing toxic mortgage assets because that too was a nice way to maximize profits for a while.

          That said, the banksters are just vultures feeding on a carcass. What caused the death to begin with was our unsustainable tax structure. The rich are simply not paying their fair share.

          I am not saying taxes need to be higher on the middle class. CA tax rates aren’t high (or US rates, for that matter) by the standards of industrialized countries that expect a certain level of services from their governments. But they’re high enough.

          (Eg, Meyerson: “California ranks 18th among the states in percentage of personal income paid to state government, and its presumably beleaguered wealthiest 1 percent, according to Citizens for Tax Justice, pays just 7.4 percent of their income to the state, while the poorest Californians pay 10.2 percent.”)

          The developing gap has been caused by shifting the tax burden from those able to pay — corporations and the wealthy, of whom CA has plenty — to poorer folk without the means to keep the whole state going by themselves.

          Here’s Ting, a San Francisco Tax Assessor: “30 years ago in San Francisco, commercial property owners contributed the majority of property taxes, 59%, and residential property owners contributed 41%. Today, we see the reverse: commercial property owners contributed just 43% of property taxes in 2008 while residential property owners contributed 57%.” That situation is mirrored in LA, San Diego, and other rich regions of the state.

  8. .
    Anyone who lived in California under Gov. Reagan or in his immediate aftermath saw first hand what his hare-brained “philosophy” of government amounted to: The gradual disassembly of a once-great State. Once first in education, CA is now one of the last. The Repukelickin’s and the ineffectual “moderate” Dems have reduced the Golden State to a Pacific Rim Mississippi or Alabama. The sh*t is finally just hitting the fan.

    States that truly stayed the course on fiscal responsibility and promoting the general welfare as though there might actually be a future should not have to pay any more than they already have for the ideological pie-in-the-sky of States like California, or any of the Red States, either. The Reds have always collected more in Federal dollars than they pay in, and they’re still last in every measure of well-being.

    “Conservatism” doesn’t work. Wishy-washy “moderation” is just a sop to conservatism. It’s time to look at a truly American brand of mixed-market democratic socialism. If the right-tards don’t like it, they can move out, and see if any other liberal country will pay their bills for them, like the Blue States always have. Enough, already.

    We do need to take care of the victims of all this in every State, including California. The people who benefited least by tax cuts and supply side economics, deregulation and corporatization of the whole world are now suffering most. Please support aid targeted specifically at the poor, the elderly, the disabled, children and hard-working people everywhere. The only way we’ll all survive this is by pulling together.

    And good luck to all my old friends in NoCal, SoCal, the Grapevine and the Desert.
    .

  9. You know, Alex and I went a round on this in Demember.

    http://roofingbird.wordpress.com/2008/12/29/more-about-prop-13/

    Maybe you all can add something to this .

    • I tried to leave a comment and I got a “discarded” message. I won’t take it personally but geezo wheezo.

      • Sorry, Some of your things wound up in spam yesterday because of all the links. Sometimes when spammy hits you multiple times, he develops an appetite for you. I’ve been trying to watch.

  10. Since California sends way more in taxes to the Feds than they get back and Obama told them to pound sand they should just keep that money in the state. Those red state farmers can put the bite on some one else no to grow cops.

  11. CA’s ballot initiative process has virtually ruined the once great state.

  12. It’s a funny thing about the ballot initiative process. It proves how much like each other we all are, Congresscritters, Wall Streeters, and jus’ folks. Seriously, every person on the planet — except people like the Dalai Lama or Bishop Tutu — is happy to grab something for nothing and let somebody else take the downstream cost.

    Can ballot initiatives ever work? I don’t know. I used to think that if you included the cost of the initiative as part of it, then yes. I.e. if you had to vote to raise your own taxes on the same tick box. But experience shows, as myiq pointed out earlier, that about 65% will never vote to raise their own taxes for anything, no matter what, no way, no how, over their dead bodies. In the case of some environmental measures, they literally might be dead if they don’t vote for it, and they’ll still vote against it.

    If that doesn’t work, then I’m beginning to think the whole ballot initiative idea is doomed. You can’t get people to vote sensibly if money isn’t involved, or if it is. Pretty hopeless.

    What we really need is honest, sensible legislators who take the long view and apply just solutions. I understand a couple of them landed in Roswell, NM, a few decades back . . . .

  13. Got to say you are a wrong on this one. I live in California and was born and raised. I have 8 siblings all who own a small business. My father has a men’s clothing store that has been in business almost 50 years. My parents were Jerry Browns campaign manager in the 70s. I’ve been a Democrat all my life until now. The problem with California is TAXES and PENSIONS. We have the highest tax rates in the nation for businesses. That is why thousands of small and large businesses have left the state for Nevada, Arizona and Colorado. The movie business, which I work in is down 80%. Why? Because of taxes. They are now moving production to Connecticut, New Mexico, Colorado, Vancouver, and Prauge because of the tax incentives. Before you go bloviating that taxes are not the problem when we pay over 50% taxes, maybe you should come to California and try to run small business and employ 30 – 40 people. Pensions are the other problem. In Fresno alone, they have five sheriffs retired who make $250,000 a year from their pension. That costs the city $1,250,000 a year just for five people. Most of these sheriffs only worked for two years as sheriff before they retired. Multiply this throughout the state, and pensions are a major problem here. I can’t stand Arnold, and I agree he has been a horrible governor, but the number one group to blame is the California Congress. They are useless, and the Democrats have been in control forever and they are the ones to blame. When we had the dot.com boom our revenue increased dramatically and Congress went beserk creating so many new dream programs that now we can’t afford. If they were fiscally responsible with that rare revenue we would be much better off. Any state or country that pays over 50% in taxes is going to decline. It’s a proven fact over and over again. My family knew Pat Brown. He was the best governor we ever had, and he kept our taxes low to bring business to the golden state. I heard him say this more than once. Krugman is not always right you know. Apply your theory to Texas. They are one of five states who have a surplus. They have over 1000 businesses moving there a month. Why because they have low business taxes.

    • Your 50% tax figure does not agree with the numbers at the CA Tax Franchise Board, or any other resource I can find. If your taxes are that high, maybe you should consider hiring a different accountant.

    • If you’d like to take a look, I have some links to numbers in one of my earlier responses above.

    • California Taxes are a big canard. yelling about them is a lot of hooey.

      Pensions, especially in union supported and public entities, are a reflection of minimum cost of living raises poorly tied to inflation, reflecting, closer than anything what we all ought to be receiving. The fact that they stick out lick a sore thumb right now, like your example of the five sheriffs, only shows what has happened to the rest of us in our slide out of middle class to the bottom 95% of the income earners in the last ten years. In addition, you fail to mention what these sheriffs did before they became stress Fresno sheriffs. This is a specious argument not including their full career’s life. And why the heck did Fresno have such a turnover anyway?

      Moving away? Malarky! I won’t say incentives are not a factor, but they are just cream on a deal that includes things like land costs and non-union help, relaxed EPA, relaxed building requirements and lower water costs. Even Vancouver, 2 years ago, when all those movie people bought property, was cheaper then SoCal. Plus, there were already Canadian studios there.

      Pat Brown was a good governor, in the old time twist your arm way, but what governor since then has run on a platform to raise taxes? When Pat was in, you could still drive from Whittier to Long Beach and see open fields, with orange, avocado, mustard or oil derricks most of the way. Nobody lived in Upland. SoCal looked just like Leander, Texas and most of Phoenix does today. Raw land is always cheaper to build on. You know it and I know it. Otherwise you all would be moving to Detroit, where you can buy a factory cheap, if you are willing to clean it up. I’ll bet the tax incentives would be great about now as well.

      Democrats haven’t really been in power here since Reaganomics. If it’s anybody’s fault it’s ours. Get over it.

      http://en.wikipedia.org/wiki/List_of_Governors_of_California

      Maybe you have some in perceived idea that taxes are high because of what Eisner did. He had his reasons.

      http://www.accessmylibrary.com/coms2/summary_0286-25242082_ITM

      Democrats haven’t really been in power here since Reaganomics. If it’s anybody’s fault it’s ours. Get over it.

      We passed Prop 13, if we hadn’t, we would have a more stable income, and property values right now. We chose the restrictions on budget votes and we are the ones who don’t want to produce growth and reconstruction bonds. We would rather let schools rot and decay, kick them out of the facilities into the streets, Like Reagan did, have them sicken starve, and die and blame it all on the immigrants and same sex marriages.

      We NEED higher taxes, obliteration of Prop 13, removal of the 2/3ds budget requirement, reconstruction bonds, comprehensive planning and more real Democrats in office, as well as Greens and a few Socialists. Plus, we need to get rid of the bifurcated voting process that only allows is to vote for our party and disallows write-ins. We haven’t properly paid our share into infrastructure for 30 years- especially in existing communities.

  14. We need higher taxes???

    You WANT higher taxes, there is a big difference.

    As for construction bonds, it seems as if they never get done on time or on budget. When voters started to see the same projects come up on the ballot without the prior ones being finished, that is when they put their foot down.

    You may better brace yourself, California may have an initiative coming up that will limit our congress people to PART TIME status, the way they used to do it in the 60’s.

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