

The Golden State’s War on Itself - JustinSeriously
http://www.city-journal.org/2010/20_3_california-economy.html

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lbrandy
Interesting.

Not too long ago I found out that not only does California have incredibly
high state income taxes, but it also has really high state capital gains
taxes. It actually amazes me that silicon valley has thrived under those
burdens which leads me to ask two very important questions:

1\. Why hasn't the high taxes driven people out of Silicon Valley (and will
it?)

2\. How is California broke?

I come from Florida and in Florida, there are barely no state taxes at all
because it's all on tourism. Somehow California has these insanely high taxes
and still can't pay any bills. Other than blaming illegal immigrants (a
dubious politically motivated response), I've never really gotten a straight
up answer on what makes California and Florida so different.

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usaar333
I'm not sure about Florida, but some points about California:

1) Extremely generous social services

2) A bizarre (and arguably unfair) property tax regime. Property taxes on
owned property only rise 2% a year. (very low, consider that my parent's Bay
Area home has risen by about 5.7% yearly since the 1980s) What that leaves you
with is entrenched residential and commercial property owners paying
relatively very little in taxes. If you are a new resident though, you get no
immediate benefit - your taxes are assessed at the purchased value.

According to supporters, the law that set this up (Proposition 13) has saved
taxpayers $528 billion (<http://www.hjta.org/about-hjta/history-hjta>); that's
$17.6 billion a year - pretty much the budget deficit of the state.

~~~
keltex
Yeah but if it hadn't been for Prop 13, many people (quite possibly your
parents) potentially could be driven out of their homes due to escalating
property taxes had taxes scaled with the "market value" of their homes.

Actually the biggest expense for the state is K-12 education (over 43% of the
budget).

~~~
usaar333
K-12 education: For any state, this is among the highest expenses.
Nonetheless, CA is actually below the US average.
(<http://www.edsource.org/iss_fin_FAQ_cacompares.html>). It certainly doesn't
explain why CA has one of the highest state deficits (even per capita) in the
country.

As for Prop 13, I fully agree that many people (perhaps even my parents) may
have had to move to smaller homes or even out of the Bay Area due to property
taxes. So yes, my family has benefited. But that doesn't make the proposition
"right". I find it much more unfair that new or non home owners are
subsidizing the older ones though a highly regressive tax system. This only
feels more absurd when you consider that part of the reason housing is so damn
pricey in the bay area is because of zoning restrictions (both green lining
and density restrictions) passed by the baby boomer generation.

~~~
anigbrowl
The equities of where the burden should fall are debatable, but the fact that
different people on the same street or city block end up paying vastly
different amounts of tax for the local same services is not.

Something else to bear in mind is that when commercial property is owned by a
corporation which is a wholly owned subsidiary of another (eg BigCorp owns Big
Property LLC, whose sole asset is the Big Tower building), the corporation can
be sold without triggering the tax reassessment (ie BiggerCorp buys Big
Property LLC, which remains the titleholder of Big Tower). This hurts new
companies just as much as new homebuyers; here's a 2003 press release from
Shoerenstein co. grumbling about how they pay $16/sqft in downtown San
Francisco while most of Disneyland is taxed at 5c/sqft although the land is
worth about 7x more than that figure suggests.

Property taxes are reassessed periodically, but prop 13 limits increases in
tax to 2%/year, so for those who hold real estate it takes 36 years for the
tax to double in value even if the price of the land goes up much faster or
inflation is high. Back in 79 stagflation was a pressing economic problem, so
the net effect of Prop 13 was to reduce property taxes for existing homeowners
- inflation was ~8% then, so a 2% tax increase cap meant your property tax was
going down by 6% in real terms.

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j_baker
My instinct is to say that this is another case of correlation not implying
causation. On the surface, we have two facts:

* California has a huge budget deficit

* California is declining economically

I don't doubt that these two facts are true. Nor do I doubt that both facts
affect each other. However, California is one of (if not _the_ ) largest
economies in the US. I seriously doubt the situation is this simple. To place
this solely at the feet of the state's progressive politics is a bit partisan.
To me, this reads like a set of conservative talking points dressed up as an
intellectual policy paper.

EDIT: Not coincidentally, City Journal is published by a conservative think-
tank: <http://en.wikipedia.org/wiki/Manhattan_Institute>

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sdurkin
"Recently, though, the dream has been evaporating. Between 2003 and 2007,
California state and local government spending grew 31 percent, even as the
state’s population grew just 5 percent."

This is the most shocking line from the article. How did they let costs
balloon so badly?

~~~
keltex
Because the state was swimming in money from tax receipts because the economy
was doing so well. It's easy for legislators to give out stuff when there's a
surplus.

~~~
artsrc
Or because they did not increase spending by this amount, 2003 might have been
artificially low for accounting reasons:

Expenditures are estimated to drop from $78.1 billion in 2002-03 to $70.8
billion in 2003-04, a 10 percent decline. Most of this decline can be
explained by four factors: the VLF rate increase (which reduces state
subventions to backfill local governments), new federal funds, borrowing to
cover the state's 2003-04 pension obligations, and the Medi-Cal accounting
shift from an accrual to cash basis. Absent these factors, underlying spending
would be roughly equal between the two years. The 2003-04 spending level is
considerably less than what would be required to maintain baseline spending
for the year.

[http://www.lao.ca.gov/2003/major_features_03-04/major_featur...](http://www.lao.ca.gov/2003/major_features_03-04/major_features_03-04.html)

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lotusleaf1987
This was submitted earlier today already wasn't it?
<http://news.ycombinator.com/item?id=1588934>

~~~
astine
I think that this is another publication of the same article.

~~~
lotusleaf1987
But still the same thing basically, isn't it?

~~~
startuprules
more informative than multiple submitted posts about techcrunch's fascination
with foursquare.

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guelo
I classify as right-wing biased propaganda any article dealing with
California's economics and politics that doesn't mention Prop 13.

~~~
guelo
To the downvoters, why is it OK to ignore the law with by far the greatest
impact on how California manages it's budget when explaining California's
budget and political problems?

~~~
herdrick
Probably they are reacting negatively because California wouldn't seem to have
a revenue problem. It's number 6 in % of income taxed.
[http://blogs.law.harvard.edu/philg/2010/01/10/visit-to-
berke...](http://blogs.law.harvard.edu/philg/2010/01/10/visit-to-berkeley-
california/)

