On California, Don't Believe the Hype

http://online.wsj.com/article/SB10001424052748704586504574654673186751100.html?mod=WSJ_hps_sections_personalfinance

by grellas • 17 years ago

57 23 17 years ago

online.wsj.com

Alex3917• 17 years ago

It's not just the size of the debt that's worrying, it's the reasons why we have the debt.

aaronblohowiak• 17 years ago

I propose an amendment to the state constitution mandating...

eli• 17 years ago

What's with this silly idea that states "deserve" to get back whatever money they pay in federal taxes? Federal taxes aren't levied against states, they're levied against people. And even personally, there's no guarantee that you will get back in benefits every dollar you've paid in taxes. Sorry, it just doesn't always work that way.

It's like arguing that I shouldn't have to pay school tax because I'm not in school (hint: then it's not a school tax, it's tuition). Or that the people who have never had a house catch on fire got ripped off because their tax dollars funded the fire department anyway.

pkulak• 17 years ago

There's this perception that the coasts are the populations leeching off the federal government while it's really the hard-working red-staters that are propping up this country. I think he was just trying to say that California shouldn't be punished for this perception by having federal money withheld.

dschobel• 17 years ago

That author actual inverts that ridiculous argument and explicitly says that all the highest earners live on the coasts and are propping up those salt of the earth types "in the middle".

karzeem• 17 years ago

One big argument for why you should have to pay school tax even if you don't have kids is the positive externalities of public education; you benefit from other people's kids getting an education, so you should pay for that.

There's a similar externalities-based argument for why some states should be net tax donors to the federal government, but I think it's a little weaker. How much does California benefit from New Mexico or Virginia being a net tax recipient?

edj• 17 years ago

>How much does California benefit from New Mexico or Virginia being a net tax recipient?

Potentially a good bit. If Federal tax dollars help improve the overall prosperity of Virginia, then Virginians become more likely to consume California's products. I bet affluent Virginians watch more movies and buy more MacBooks than poor Virginians.

Is it an overall net gain for California, though? I have no idea. Maybe an economist can answer.

baguasquirrel• 17 years ago

http://www.taxfoundation.org/research/show/22685.html

In 2005, Californians paid out $35.9 billion and received back $31.2 billion. That's a gap of $4.7 billion. That's a lot.

Do you think the amount of money the state receives indirectly from tech companies run by Americans educated in out-of-state colleges exceeds this amount? The figures for this are much harder to come by, but I suspect that the state makes back at least a same-order-of-magnitude amount of what it pays out.

According to wikipedia, there were 386,000 tech workers in the Bay Area in '08. If we assume that half of them are Americans from out of state, then they'd have to pay about $5000 in taxes a year to make it worth it, assuming that there's also a multiplier of 4 due to workers in other industries being hired to serve them.

Of course, all this assumes we're running on a "we pay you taxes in exchange for your nerds" model, and it may be more complicated than that.

lmkg• 17 years ago

I don't think the author is ever making the claim that federal spending should be proportionate to tax levied from that state. He's just using the data point that CA is still a net source, not sink, of federal tax dollars as evidence for his thesis that CA is not on the brink of collapse. His last sentence about succession is only meant to counter hyperbole with hyperbole.

grandalf• 17 years ago

Taxes taken by the Federal government are taxes that cannot be taken by the state government. So the two compete with each other for finite amounts of money.

Thus, California's meager shortfall pales in comparison to the massive amounts taken by the Federal government.

When a startup succeeds, the Federal government gets a huge windfall, yet if a startup fails and a few people end up on unemployment, the state of California has to pay unemployment benefits.

nazgulnarsil• 17 years ago

is anyone actually under the impression that ruling people (read: the ability to tax them) isn't insanely profitable? just because the books aren't balanced? california is one of the most productive places in the world per capita wise.

j_baker• 17 years ago

Wow. The last sentence made the author sound like a liberal Rick Perry!

grellas• 17 years ago

California does have tremendous wealth and vast continuing productive capacity, given the talent, resources, and opportunities extant within the state, and the author correctly characterizes any doomsday scenario as lacking credibility.

The problem, though, as seen from the view of one who has lived here for 40+ years, is that the powers that be in Sacramento had too much of a good thing during the boom years and, having raised public spending by large amounts when the tax coffers were full and exploding, don't want to make any systemic changes to spending levels now that receipts are way down in fear that this will short-change their pet programs when good times return.

That is why spending is strained to the limit even though fundamentals are still pretty good. The assumption all along, though, is that nothing can kill the golden goose and, while I agree with the author of this piece that extreme problems aren't imminent, that doesn't mean that the state can't ultimately wear itself down through fiscal irresponsibility. Only time will tell in the long term on this point.

joshu• 17 years ago

I always wonder why state spending isn't limited to, say, the average of the last 10 years receipts.

Of course, if there was surplus, it'd go into a fund, and politicians would vote to spend the surplus.

natmaster• 17 years ago

The problem with California is not that it is taxing too much, but that' it's spending too much. The fact that it's taxing isn't much above average indicates the huge disparity between the two which caused the debt.

artsrc• 17 years ago

Is the disparity between the two really large? What percentage of prisoners would they need to release and how much would class sizes have to rise to balance the budget?

I am sure the disparity is small compared to the federal equivalent.

ytinas• 17 years ago

Care to back that statement up? Does California get more services for its money than lower tax states? Do workers get better protection?

Maybe the problem really is that the costs of these services have gone up but the taxes haven't been adjusted to deal with that.

coffeemug• 17 years ago

That's because Kazakhstan is sitting on top of a known twenty billion barrel oil field controlled by a government monopoly. At $70/barrel that gives them 1.4 trillion dollars of liquid assets (literally). Between that at 100 trillion known cubic feet of gas (at $5-$10/1000 cubic feet, do the math) I wouldn't be too worried about them defaulting on their debts. California, on the other hand...

MaysonL• 17 years ago

This article scares me.

Why?

Because looking at a few samples of Mr. Arends's work, and comments on it, he seems to be way out of touch.

see these examples: Who’s paying Brett Arends to malign Apple? July 21st, 2009 http://www.roughlydrafted.com/2009/07/21/whos-paying-brett-a...

Load Up the Pantry by Brett Arends Wednesday, April 23, 2008 http://finance.yahoo.com/banking-budgeting/article/104914/Lo...

Why Apple Shouldn't Pay a Dividend January 11, 2010 by Felix Salmon http://seekingalpha.com/article/181974-why-apple-shouldn-t-p...

I could undoubtedly find a few more, possibly even some in favor of his thinking - these are just from the first page of a Google search on brett arends.

On California, Don't Believe the Hype

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