Over-reliance on income tax to fund the state's budget is a decades long problem. You can thank prop 13 for that. It's why whenever there's a recession California has gigantic budget shortfalls.
Expanding industry isn't gonna fix the problem.
Currently the state has an ~80bil surplus. The state needs to keep some of that around for the inevitable recession.
I don't have strong feelings about prop 13, but what does it limit here? It's not like it's sane to arbitrarily raise property taxes during a recession (make housing even less affordable at the moment people have less money to spend). Seems like prop 13 or not, the solution is the one you identified in your last paragraph: maintain a buffer that can't be touched until a recession is declared (for some reasonable, objective definition of "recession").
Prop 13 makes it nearly impossible to raise any tax (state or local) including one to fund a buffer or rainy day fund. Prop 8 makes it possible to get a reduction in property tax as values go down. Prop 98 makes it impossible to claw back funds spent on K-12 stuff.
The comment I replied to claims Cali has an $80B surplus. Seems like there's plenty there for a rainy day fund. Anyway, whether or not you can raise taxes is pretty immaterial to a rainy day fund--it's just a matter of whether or not it's prioritized. If California can't prioritize said fund now, then it wouldn't be able to do so with prop13 (it would just find other uses for the revenue).
I think that buffer would be even less popular. I can imagine the attack ads already - "California has the highest tax rates and they're not even spending it! Your tax dollars are sitting idle in the hands of <evil bank name of the week>"
Property values are usually not affect by recessions, 2008 being the exception, and thus income from property taxes is not affected as much. Income is more affected by recession.
If prop13 is repealed California could raise larger percent of its budget from property taxes as opposed to income taxes, and it would help with variations of tax income.
So you're saying it's like medieval lords, extract the same tax regardless of economic circumstance. That can be done without the roundabout via real estate.
The state's budget grows a lot faster than inflation. Property tax revenues aren't growing anywhere near as fast as income tax revenues. The trend is clear. The state is more and more dependent on income tax.
Maybe then there'll be enough popular support for repealing Prop 13.
People mention the heavy dependence on state income tax. Well, why is that? Compare that to states like Texas that obviously has no state income tax but just has high property taxxes. I actually think this is a way healthier situation.
But in the 70s, voters voted themselves a massive permanent tax break that's even bigger for corporations. When an individual buy a property the tax basis gets reset and recalculated. Not if the property is held in an LLC. So Disney's property tax rates have essentially been frozen since the 1960s.
The standard counterargument is "what about the old people getting kicked out of their homes?" It's an appeal to emotion that doesn't make any sense. First, why are we giving Disney a amssive tax break so some old person on a fixed income doesn't have to downsize from the family home they raised their children in? Second, if we really want to protect those people (and I'm in the camp who thinks we shouldn't) we have the technology to provide needs-based property tax relief in the form of a lower rate or (my preferred option) simply deferring the taxes interest-free until the home is sold or the owner dies.
> But in the 70s, voters voted themselves a massive permanent tax break that's even bigger for corporations. When an individual buy a property the tax basis gets reset and recalculated. Not if the property is held in an LLC. So Disney's property tax rates have essentially been frozen since the 1960s.
Are people essentially selling the LLCs then, rather than the properties themselves?
Yes. The LLCs are even often simply named after the street address, so stuff like 6243 Abrego LLC. The idea is then just whether you are making enough money off the asset to justify the minimum LLC tax vs. the property tax increase on an expected sale (which might be a good trade-off for everyone, but is certainly a good trade-off for people renting their property out).
How does that work with the provision that if there is a change of control in the llc changes hands they need to reappraise? Do you just encapsulate the llc inside another one?
It would in any sane system… which is to say, not in California.
Here’s something to really blow your mind: After Prop 13 was passed, some subsequent Propositions made property tax rate inheritable. That’s right, your kids and grandkids can inherit your below-market property tax rate.
We have come full circle and returned to the system of landed nobility (with special tax privileges) that a war was fought to leave.
There's been some movement to repeal those provisions, and let me tell you, the Nextdoor Karens are very very unhappy that their kids aren't going to be able to live in their childhood home because they won't be able to afford the taxes.
It’s primary home to primary home only and only $1m worth is prevented from being reassessed. $2m homes (majority in the Bay Area) will end up with new $1m assessed and pay $12.5k / year. Median taxes across the US are more like $5k / year.
I'm not sure of the exact value of the median home in CA, but I think it may still be less than $1M (hopefully).
Whereas rent for that Bay Area home is how many thousands per year? Probably $60k-100k, and not subject to a 2% annual increase? $12.5k is an absolute steal.
Makes me think that we should have greater estate taxes. Maybe limit inheritance to 5x the median annual income in the area or something like that. Capitalism does not function well when wealth becomes a caste system.
I've never understood the objection to prop 13 - your property taxes can and do go up every year by a reasonable amount (2%?). The only thing they don't track is the insane bubble prices that happen every decade or so but who cares? If people sell then, they either are taxed or buy inflated property prices as replacement. When prices crash, the gov't shouldn't depend on bubble prices for revenue.
> If people sell then, they either are taxed or buy inflated property prices as replacement.
Oh, sweet summer child. In California, you can transfer your below-market rate to a new property. You can also create an LLC for each property so that it need never be sold (change of control of the LLC owning the property does not trigger reset of the tax rate). And your children can inherit your property tax rate, too.
> When prices crash, the gov't shouldn't depend on bubble prices for revenue.
Most rates are so far below the real value of a property that most people still saw (and complained about) the maximum 2% annual increase during massive housing crashes like 2008.
Correct but it's an expansion of Prop 13 protections. There are a bunch of laws around rent control in California and "Prop 13" is just shorthand for "property tax control".
the objection is that, even after looking at longer timeframes to smooth bubbles, california real estate has appreciated by much more than 2%/yr over the last several decades. this is a policy that favors people who bought houses a long time ago over people who have bought more recently or are looking to buy for the first time. why/whether that's a problem depends on your perspective on what the purpose of a property tax is.
a simple way of looking at it is that property tax is just one of many ways that a city raises funds. it seems unfair that two people/families living in similar houses, consuming similar amounts of public services, might pay wildly different amounts of tax depending on how recently they bought their houses.
a more nuanced view is that taxes are not only about revenue collection, but also incentivizing or disincentivizing certain behaviors. high property taxes discourage people from living in highly demanded areas without having a strong reason to do so. a pair of empty nesters living in a detached 3/4BR home in SF is not an efficient use of the limited housing stock. if they really want to do that, they should be allowed to, but imo they should not be insulated from the economic consequences.
of course, this is all in conflict with the american ideal that you can lock in a fixed rate mortgage, pay it off, and have your heirs monopolize a particular plot of land in perpetuity. this has always seemed to me a promise that should never have been made, but at this point it would be very painful to unwind all the policy that props this up.
2% is not a reasonable amount when housing prices are regularly going up by 3x-5x that percentage.
There has never been a bubble crash that brought housing prices anywhere down to the Prop 13 valuations, so it's pretty strong evidence that it's not a bubble.
I think that we need to start charging a huge capital gains tax on local property transaction, assessed by the local government, not the federal government. Maybe 25%-50% of the capital gains. Or maybe 2% per year if ownership, with a max of X%.
Long time property holders have been exploiting the economy of California, taking in unearned profits, and taking that money out of poorer, more productive, people.
> 2% is not a reasonable amount when housing prices are regularly going up by 3x-5x that percentage.
Let's examine these numbers. If housing prices are regularly going up by 6% to 10% it means that a property purchased for $250K in 1995 is worth 1.2M to 3.3M today. While you can probably find such an example, that's not the norm by far.
I can say that all the houses in my neighborhood (outskirts of Silicon Valley) have gone up about 4% averaged over the last 30 years. Yes that's more than the 2% valuation increase, but way below 6-10%. It's one thing to criticize prop13, but let's keep the numbers factual, no need to exagerate.
> There has never been a bubble crash that brought housing prices anywhere down to the Prop 13 valuations
That's very much not true. The dot.com crash brought many houses (mine included) below the prop 13 valuation. The 2008 crash did the same for a very large amount of home owners.
There hasn't been a crash since 2008 so it might feel like prices can only ever go up, but there will be another crash. Perhaps soon.
> I think that we need to start charging a huge capital gains tax on local property transaction, assessed by the local government, not the federal government. Maybe 25%-50% of the capital gains.
What does this accomplish exactly? It is a huge incentive to never ever sell. Is that your preferred goal?
In case you haven't been paying attention, millions have already been leaving California, due meret to being priced out. It's the lower income folks, not the rich folks.
IMHO you could say due to the transplants, or you could say due to not enough vacant homes to house them.
If you focus on "these people are the problem" then you get results like what's happening in California. If you focus on "we don't have enough vacant homes" then there's a chance of actually solving the problem.
As a Californian, I devote a huuuuge amount of unpaid time to trying to shift the conversation to housing the people that need housing, rather than shipping people to whereever it is you live. I have not been terribly successful, but if you also shape your conversation towards "we need to house people" rather than "these people are problems," then it will be faaaar easier to convince my neighbors to also accept people. Because Californians are hypocrites, but they hate being proven to be hypocrites when other states are more welcoming and accepting. But if, say, Austion or Boise folks are like "we don't want you either" then it just encourages our NIMBYs as feeling justified.
Californians voted themselves two massive boons in the 70s.
1. Prop 13. This was in response to rising inflation in the 70s that had a knock-on effect to property taxes. The argument of kicking old people out of their homes was used as a stalking horse for giving the likes of Disney a massive tax break.
But there have been periods of high inflation since and some massive growth in property values. So you have a house that might've sold for $60,000 in 1975 with tax set accordingly, now being worth $3,000,000 and being taxed at twice that rate (1-2% per year capped cumulatively). So someone who buys an identical house now might be paying 20x the property tax rate.
This was further expanded by allowing people to inherit their low tax rates so you really have a two-tier system where long-term residents and corporations aren't paying anywhere near their fair share of property taxes.
2. Rent Control. This turned out to be another massive boon to incumbents. Inflation created issues with rents going up too fast. The solution? Cap the increases, just like Prop 13. And give tenants the right to stay. These too can be inherited.
So you might have someone in SF living in a $3,000,000 house that's paying $400/month in rent.
This hasn't really helped anyone since.
NYC had this too but steadily moved away from it. The last rent control lease was created in the early 1970s. There's a greater (but shrinking) pool of rent stabilized units that tend to have more reasonable rents.
Anyway, as you can imagine this creates a bunch of bad incentives. Under the table payments for leases. Illegal subletting. Properties remaining vacant because rather than be rented (I saw one estimate that 1 in 8 units in SF was vacant). The only recourse for evicting a rent controlled tenant was really an Ellis Act eviction.
Price caps only work in the very short term. They are not a long term solution.
Higher property taxes would actually help with the housing crisis in California because it's too cheap to park money in Californian property plus you could do something useful with those funds, not the least of which should be reducing state income taxes at the lower brackets.
I remember there was a huge discussion on HN years ago on Prop 13, and someone mentioned that Prop 13 was proposed because the democratic party then double taxed people. Somehow I couldn't find the reference anymore. As for the Prop 13, it makes sense to me to keep it for the primary residence, as an ordinary person shouldn't be forced to give up their house just because the property appreciates. Prop 13 for non-primary and commercial property should be repealed. That said, I don't think Prop 13 will fundamentally solve California's problem before we fix our government. For instance, why would it cost more than 100K to house a homeless? How many people can earn that much, post tax, in the nation? Or why couldn't Bay Area schools afford even school bus or better school buildings or more teachers (CUSD teachers ask parents to grade students' homework)?
>Prop 13 for non-primary and commercial property should be repealed.
Agreed. The Democrat legislature could do anytime without a single Republican vote. All it takes then is a simple majority of voters in the next statewide election. Ask yourself why that has never even been attempted.
It has been attempted and failed as of 2020[0]. Voters are mostly uninformed. CA voters voted against commercial properties at market rate but further increased family home reassessments.
No, that was an Initiative, not a Legislative, measure. Again, the Legislature could do so anytime without the burden of seeking ballot signatures or encountering any other such friction.
> The standard counterargument is "what about the old people getting kicked out of their homes?" It's an appeal to emotion that doesn't make any sense.
It makes sense as it was a very real problem for lots of older people who had built the neighborhood just to be displaced by rich newcomers.
What didn't and doesn't make any sense is applying the same protection to corporate-owned properties. Prop13 protection should only apply to a property owned by a named individual who lives in the property. Not corporations, not investment properties.
are there enough of us that are not beneficiaries of Prop 13 to repeal Prop 13?
are there comprehensive stats of which properties are under that system and how many residents that applies to?
I don't care about the LLC part, its stupid for types of property (house, cars) to have separate transfer tariffs on them to begin with, so therefore it would be stupid for me to care that an LLC gets around them
I'm just wondering about the numbers of people, helps me determine if this is a useful area to spend energy at the moment
are there enough of us that are not beneficiaries of Prop 13 to repeal Prop 13?
No. Repealing Prop 13 is a third rail, ask our last republican governor. A common suggestion is to implement a so-called "split roll" system where non-residential property gets no Prop 13 protections and residential (ideally only the primary residence) maintains the limits. Unfortunately I doubt that'll ever pass within my lifetime.
2020 Proposition 15 was to require commercial and industrial properties, except those zoned as commercial agriculture, to be taxed based on their market value, rather than their purchase price. it failed 52 / 48.
It's a train metaphor. Electric trains, like any other trains, have 2 rails the wheels go on. But there's a 3rd rail from which the train draws power. Touching it is death.
It was a common metaphor to describe Social Security reform years ago as people realized the system was headed for "bankruptcy". At least that's what they called it. In reality it was just that outgoings would exceed receipts by the 2030s, which means funding it from general revenue or reducing benefits.
But anyone who suggested "reforming" Social Security, such as private retirement accounts replacing it, tended to die a horrible political death and thus the third rail.
The other third rail I can think of is eliminating free street parking in NYC.
To clarify Prop 13 is an initiative, a normal law passed by ballot box tyranny, not a constitutional amendment.
The same people who would shout down a politician for trying to reform Prop 13 would vote against any effort to reform it via initiative. Besides, as a result of Prop 13, tax "increases" require a ⅔ majority to pass. Try getting ⅔ of California to agree on anything.
Modifications to Prop 13 get to the ballot box periodically and the only ones that seem to pass expand its scope. Attempts to pare it back are met with fierce resistance from the anti-government folks. In general initiatives are a scourge and not a remedy to anything.
>California propositions are citizen initiated amendments
Propositions are anything going on the ballot for voter confirmation. They encompass Legislative statutes, Legislative Consitutional Amendments, Initiative Statutes, and Initiative Constitutional Amendments.
>propositions are citizen initiated amendments that citizens vote on
But those statutes and Constitutional elements can be changed and put back on the ballot for confirmation by the legislative process alone. Then all it takes is a simple majority on the next statewide ballot.
Yeah, that was a brain fart. Prop 13 is a constitutional amendment.
Prop 13 can be changed by the legislature but won't because change is wildly unpopular (OMG they're gunna raize our taxez) and there's zero chance you'll get the 2/3 majority required to pass it through the legislature.
Prop 13 can be modified by an initiative, but the only related initiatives that pass expand Prop 13's scope. And without legislative action the 2/3 majority stands for any sort of tax increase.
Legislating by sound bite is pretty much how things have been done in California for decades. No matter how much sense reigning in Prop 13 might make, there's always going to be some Jarvisite that is going to scream about kicking granny out of her home because of high property taxes.
Yea, let's repeal Prop 13, our state needs to collect more money. As if they high gas prices and income taxes aren't enough... let's get the taxpayers once more, through their property. Does anybody actually think raising property taxes will make homes more accessible? It will create a further divide and will get passed through to renters anyways.
Different methods of taxation create different incentives and have different side effects.
For example taxing income is basically a tax on giving people jobs or being economically productive , two things we probably don't want to discourage, so I rate income taxes pretty poorly.
Taxing gasoline discourages people from using gasoline, which might have the side effect of encouraging adoption of other methods of creating and storing energy. So that's not all bad.
Property taxes have the wonderful side effect of making it more expensive to own property, which discourages speculation and other non-productive use of land.
I'm sympathetic that the tax burden in CA is already too high, but we can repeal prop 13 and maintain (or even reduce) total tax revenue by simultaneously reducing income taxes. IMHO, replacing some or all income taxes with more property taxes would be a massive improvement.
Many proponents of repealing prop 13 openly support cutting other taxes or would be open to such a compromise.
The Democrats would have put a Prop 13 repeal -or- a split-roll property tax system on the ballot almost anytime in the past two decades without a single Republican vote. All it takes then is a simple majority of voters in the next statewide election. Ask yourself why that has never even been attempted.
This is one of the downsides of having the state budget be so heavily dependent on a highly progressive income tax. Incomes at the top of the income distribution are relatively volatile, so boom-bust cycles in the broader economy have an outsized impact on state finances. (The top 1% of income earners pay about half of California's income taxes.) Unfortunately in a recession, state income falls right when services are needed the most. This hasn't led to any problems in most voters' memories since the last recession was now 14 years ago. But it has always just been a matter of time.
Any more stable alternatives aren't really political feasible in California. If anything, the political appetite in the state is to continue to increase taxes at the upper end of the income distribution. Income taxes at the middle and lower end are already high enough that voters probably wouldn't go for increasing their own tax rates. (Same with sales taxes.) Increasing the proportion of taxes that come from property taxes would probably provide a more stable revenue stream for the state, but would in effect require Prop 13 to be repealed, which is also a non-starter.
The state rainy day fund is meant to help counteract against this, but the fund essentially has a cap due to the Gann Limit, which limits its utility. The Gann Limit in general requires the state to return revenues in excess of a certain amount back to taxpayers. The way the political winds are shifting, the Gann Limit will probably be repealed in the next decade or so, though whether or not those extra funds will make it into the rainy day fund is unclear.
Even without a rainy day fund, which is an inefficient use of capital, the state could buy financial instruments to hedge a recession. Is it prohibited from doing that?
At a state level, hedging recession risk suffers from counterparty risk.
Who knows who will need bailouts/ who will crash during the next recession. On the other hand California can borrow favorably against future revenues during most recessions.
I am extremely bearish on the future of CA, so much so that this is my last week in the state(moving out for good). The state has really shot itself in the foot by driving out stable tradional businesses in the past few years with insane policies that really only favor hollywood and tech. With tech in full meltdown and as long as interest rates keep increasing(and tech stocks falling) the state will face a reckoning unlike any its ever seen.
As social/govt. services dry up, professionals will leave in droves as who wants to pay 10-13% state taxes when alot of other states offer way better tax rates with better quality of life. Think the homeless situation is bad now with tent cities everywhere, wait until the yearly $15B that CA spends on homeless disappears.
I predict a hyper exodus as the state suffers an economic collapse that will take most likely a decade or two to recover from. Lets also not forget that the 20th century was the wettest in the past 2000 years in CA and the 21st century will be very dry(which is normal for this state), so CA's agro economy will rapidly shrink, and water loss will force population out.
Oh and by the way I am a 4th gen. CA resident so its tough for me to acknowledge these facts.
The stock market does not reflect the reality - in fact, you might say the market is coming back to reality. There’s been small layouts but to call it a “meltdown” is a bit much.
I really think a lot of businesses have been propped up by the bull market the last 12-14 years. We are at a point where we are scraping the bottom of the barrel of ideas because all the fertile ideas for "how to use the internet" have been consumed. The internet is interesting in that it democratized creating businesses in probably a way never seen before, a kid with no life experience could teach themselves programming and invent a billion dollar company, how wild is that.
The problem is the timing. While workers are resisting return-to-office and startups offer equal comp for remote within the US, tech is taking a big enough downturn that if you started your job exactly a year ago you'll be making less this year than last in real dollars before taking into account inflation. A great time to be a startup that just closed Series A with remote positions though, which is why being bearish on California is not the same as being bearish on tech.
Look at the prices of paypal, square, netlix, roblox, affirm, coinbase, etc they are all down at least 70% from 6 months ago with some down 90%, if that is not a full meltdown I don't know what is :)
per the nasdaq's site my statement is verbatim what they also say:
> Refers to events like steep fall in stock markets, decline in asset values, corporate losses etc. that hurt the economy and lead to losses for investors.
Had you said the Nasdaq was entering a meltdown, I'd have thought it a bit hyperbolic but wouldn't have disagreed.
Your claim was that tech is in "full meltdown" and you were talking about falling state revenues for California would drop so dramatically that "the state will face a reckoning unlike any its ever seen".
In my opinion, large tech company stock declines won't have much impact on California revenues. Only their relocations would. There's no "full meltdown" or anything like it happening to "tech". On the contrary, I'd bet that each of the MANGA companies with the possible exception of Netflix grow their revenue in the coming year and that their employees will pay more in taxes to California in 2022 than they did in 2021.
Let's check back in a year and see how our predictions fared :)
I'm also incredibly bearish on CA and left for good last year. The quality of life per dollar is just so incredibly skewed, and the monoparty culture perpetuates terrible policies that will continue to strangle the state.
I left the city for the mountains (tahoe) in 2020, and it felt much more reasonable, but with the forest fires getting worse every year living in nature there feels even more hopeless.
I'm back in the midwest, and my plan is to buy a huge plot of land and build a house that is off grid w/ it's own water supply. The system is in a slow state of collapse, and every year people just paper over what's right in front of us. I think CA right now is a leading indicator.
Even though the one-party (it does not matter which party, by the way. The key is one party) California wreak havoc in the state, the Bay Area is still the best place for meaningful tech jobs. The Bay Area still has the highest concentration of the companies who are willing to invest in solving hard problems that in turn demand solid tech solutions. For me, that's distributed systems (especially distributed stateful systems), machine learning, and statistics. Throw in handsome pay and the Mediterranean climate, there's really not much incentive to leave, despite the disgusting lies in politics and wokeisms in every level.
The ones i saw when i visited SF clearly didn’t come there to benefit from anything. They were zombies walking the street with saliva dripping from their mouth.
I can’t imagine that this is with 15B spendings. It also makes me wonder what it’s going to be without..
Most of the money for homeless outreach is pork. We refuse to force people into mental care facilities and drug rehab when they are in desperate need. Instead its just a stack of bandaids one on top of the next. It’s just a million here, a million there, and nobody has the political capital to kill projects that yield no results.
Refusing to build the past 50 years and coast on the work past generations did is what got California into this mess.
As a Texan (who now primarily lives in California) I go back home and see they’re making the same mistakes CA made decades ago. Regions can embrace change or fight change, but things will ultimately change— cities can change with the times or die in the past.
Please go live somewhere else if you want fewer people around you, and stop preventing others from gathering to become more productive, happy, and more evinronmentally sustainable.
There's an entire country to experience if you don't want to experience the benefits of California, which come mostly from the people.
Amen. I am so sick of this attitude which amounts to cutting off the ladder behind you. If people with that attitude could step outside themselves, they'd realize every single group wants to lock in their own gains at the expense of the next generation, and they're just being brazenly selfish.
> California’s heavy dependency on tax payments from the rich and on the continued strength of the tech economy makes the state highly vulnerable in the event of a significant slowdown
I thought we just spent like a decade poring over charts showing how the rich are least affected by any downturn.
Because the whole "the rich" are 2 different things:
1) the superrich, couple thousand in the whole of the US, who indeed essentially set their own tax rate. This is what everyone likes talking about. Needless to say, they're not the source of tax revenues, and they're NOT who government is talking about when discussing "raising taxes on the rich"
2) the "rich" as in double US average income or more. Anyone making 100k or more. Most California cops fall under this definition. These are people who will see their taxes raised, who pay for the state. This is who the government is talking about when discussing taxes.
You're talking about group 1. "Tax payments from the rich" is talking about group 2.
If you work in The Bay, Los Angeles, or San Diego - $100k is not far from the median.
One of the strangest things about CA is that people aren't aware that incomes are actually quite high. Everyone thinks they're crushing it and wonders why they aren't. It's because $100k is far from rich - it's close to the median.
$200k for a HH won't even put you in the top 10% in some pretty large areas of the state.
Not making a statement on what the true facts are, but I don't see an a priori contradiction between these two statements. People who are rich have wealth, and are therefore less reliant on their transient income. But income taxes target income, not wealth.
but there is a decent sized subset of California that is insulated from the "problems" of California. they are insulated from the famous tax rates, do not rely on employment income, are not subject to the compliance burdens of being an employer, have inherited low property taxes or only rent, and can leave at a moment's notice.
this part of the population of California is large enough to vastly distort the rental or property market wherever they go to.
There’s so much bloat in the California government that they’d be fine. Especially when you consider the large reserves of many governments. My municipality has 10 years of operating expenses saved up in treasury bills
Hell, they didn't even compare debt per capita[1]. Seeing numbers like that into an opinion piece is the easiest way to know you're almost certainly being deliberately lied to.
In fact the whole idea of California being somehow spending irresponsibly is simply false. State budgets are high because state revenues are high, and it's been beating US aggregate growth numbers for most of the last century. Maybe there's a good case to be made that the end of this period is approaching and that the gravy train is slowing down. But that's an argument about second derivative. California is and remains extremely wealthy and has a comparatively well-managed state budget. Period.
> States with the Least Debt
> 1. Texas
>
> Texas has the lowest debt of any state in the U.S. Alaska's total liabilities add up to $222.64 billion, and its total assets add up to $356.01 billion, giving Texas the highest net position in the country of $115.08 billion. Texas's debt ratio is 62.5%
> ...
> 3. Alaska
> ...
> 5. Tennessee
> The economy of the State of California is the largest in the United States, with a $3.4 trillion gross state product (GSP) as of 2021. If California were a sovereign nation (2021), it would rank as the world's fifth largest economy, ahead of India and behind Germany.
Because debt-to-GDP doesn't make sense as a financial measure and most people don't understand it. CA economy is $3.4T, CA debt-to-GDP is 14.9%, the US Federal Debt to GDP is 133.9%, so the total debt to GDP on the revenue dollars in California is 148.8%.
If California were a country, it would rank 5th highest in the world in debt-to-GDP ratio right behind Japan, Venezuela, Sudan, Greece and Lebanon.
That said, debt-to-tax-revenue is a more useful financial measure. The total CA tax revenue (income, sales, corporate tax) is about $173B [1]. The debt-to-total-tax-revenue is 293%. Since we don't want to shut down Schools, Medicare, SNAP, Pensions & Unemployment, the debt-to-discretionary-expenses is even more dire at 704% limiting the ability of the state to make a dent in the debt payments without increasing taxes.
In effect, CA is neck deep in debt no matter how you look at it.
I was telling someone today how I loved where I lived. They said, 'really? everyone says how much they hate it, how crazy it is.' Everyone hates everything, everyone expresses pessimism, applied to everything. We were in the place in the trend where we could still find ways to apply the idea, when it was still provocative to read. Now, for me, it's obvious and tired.
Recessions are, to a degree, self-fulfilling. Optimism and pessimism are intangible, but are real things that have very real consequences for anything you do - your current project (if you even start it), your job, your relationships, your economy, your society. That's obvious and well-known, and I'm tired of people screwing up my life, my relationships, my community and country with this stuff. Nothing is stopping us from living fantastical lives.
I agree so much with this. I easily lost millions in compensation 2011-2017 by listening to the permabears and being unnecessarily risk-averse. So the theory went, surely the recovery from 2008 was incomplete/fake/etc. and we were moments from the next Great Depression.
I'm going to let you (all) in on a little, poorly-kept secret, also known as "software will eat the world": The expansion of the software economy is so interminably white hot that macroeconomic downturns are as significant as a buzzing fly. Another one, "Remote work will cause everything to get outsourced". No it won't. There's so much software to be written we can't comprehend it. One could say that humanity has 1% of the programming capacity it needs, and still be wrong because the nature of software makes this without solution.
As of a few months ago, the most Google would cut your salary if you transfered anywhere in the US was 15%.
I doubt any major companies are doing 40% cuts. It wouldn't make any sense.
At $500k in The Bay - you should be saving a substantial portion of your income (especially if you're counting principal).
Anyone considering a 40% paycut even to go to Montgomery Alabama would need to question their financial decisions.
Sure, you might save 50% on your coffees and avocado toasts that's not going to make up losing $200k in income...
The biggest reason for the cut is almost anywhere else in the US you're going to save a minimum of 4% on state income tax alone. So the max realistically is closer to 11%...
A $55k cut - yeah, you might save close to that on property tax, mortgage interest, federal income tax, and your avocado toasts...
Because they bought into the meme that Texas is cheap when in reality the high property taxes means it's increasingly becoming unlivable for your average person. It's really just a way to try and save on how much they have to pay people, but it's going to be harder and harder to entice people to move to Texas when the rent is soaring and the state government continues its culture wars at the cost of tax payer dollars.
These jobs are going to Austin, where a modest (for most of US) 4/2 Single family home within 20 min drive is now $23k/yr in property taxes, 4x national average. Essentially permanent $2k/mth rent even after paying off the $1m home.
All of this points to another reason why Prop 13 is self-defeating…
In Texas, which already has a floor property tax rate at over 2x what CAs is (~2.2% of assessed value rather than ~1%), property values get re-assessed to market every year (with a 10% cap any given year). In California, it’s basically only when you buy the home, and it doesn’t matter whether it’s your primary home or not.
California’s incentivizes are thus all misaligned — if you’re wealthy, you buy a home and watch your tax bill get smaller and smaller every year in real dollar value. So California’s solution? Raise the income tax, state capital gains tax, and a bunch of other bandaids— the problem is, a wealthy individual can more easily move and e.g. declare their homestead in Texas, which has no income or state capital gains taxes, and California’s Prop 13 will STILL benefit the non-resident, even if they’re living out of state by allowing them to hold onto a potentially multi-million dollar property for essentially nothing.
Texas does the opposite: it says, “please— wealthy people, park your money here!” knowing that those doing so will likely buy property to gain residency status. Once they do, and taxes raise each year with the market, Texas’ incentives are aligned: there is no way for someone trying to avoid property taxes to do so without selling their property to someone else who will, and because Texas’ property taxes are so high it does not make the financial equation so obvious to hoard/keep it if the math doesn’t pencil out, compared to California where you get rewarded simply for hoarding it.
California is essentially incentivizing out-of-state (or ex-residents) who do not pay taxes to the state to hold onto a limited resource (desirable land) for decades, thus contributing to the supply shortage, while states like Texas have tax systems set up to make it financially desirable for California residents to move to all while still keeping their land in CA.
If you’re wealthy enough to own in both places, from a financial angle it’s tempting. See: Trump NYC -> Florida and Musk CA -> TX
Yes, because their high property taxes offset the need — and unlike income taxes, can’t be avoided if you still hold property in the state regardless of residency status
I guess the writers over there were bored. Time to roll out the “everything is gonna crumble apart if this very speculative hypothetical scenario plays out” article to fill the space and scare some people into clicking.
We can reframe this article's hypothetical doomsday premise to any state:
"Iowa, the undisputed king of corn, will face a recession if there is a multi-year drought."
So… A recession may turn out to be bad for an economy? I know economics is called the “dismal science” but this seems to undercut even low standards.
More specifically on the article’s thesis: yes, California’s tax revenue may be more sensitive to an economic downturn. But that’s due to extremely high income from startups that just doesn’t exist in other states. It’s running a budget surplus that’s something like half of all other states’ total revenue IIRC.
If that extra income disappears, people will still work, earn income, and go shopping. The state’s revenue will just revert to normal-state levels.
Hacker News has taken this weird turn to hate California to a degree usually reserved for, say, female CEOs or renewable power. This story may seem to satisfy this urge, predicting as it does a hard crash for the state. But it’s really just reporting on the altitude record the state is currently setting.
Edit, in response to the answer below: TIL, thanks! I’ll have to switch to making jokes about their Nobel being second-rate and their models being thinner and on more crack than those of the fashion world.
> I know economics is called the “dismal science” but this seems to undercut even low standards.
That was invented by a slaveowner who was mad that economists told him slavery was a bad business strategy. (his response was something like “you economists just look at the numbers of me not paying them and don’t realize I’m teaching them the Christian values of hard work”)
What do you mean by "subsidize"? Are you referring to the general progressiveness of the US Federal tax code, or are you insinuating that Oklahoma's state budget is X% funded by California in addition to Oklahoman tax receipts?
>That would be great, considering California subsidizes most of the rest of the country.
You and subiculumcode are wrong.
First, the state of California does not pay a cent to another state or to the federal government. It is residents of California that pay federal taxes, which in turn provide funding and services to states and individuals.
Second, the Rockefeller Institute (<https://rockinst.org/issue-areas/fiscal-analysis/balance-of-...>) shows that, as of 2018 (the last time I checked this data; I see that 2019 is now available), the 10 states at the bottom of the per capita list—that is, the states that benefit from the most federal spending per person compared to how much each person pays in federal taxes—are
2016/2020 Hillary/Biden-voting states: VA, NM, MD, HI, 1/2 of ME
2016/2020 Trump-voting states: KY, AK, AL, WV, MS, 1/2 of ME
It's not so much "blue states" as frequently claimed, but taxpayers of four very wealthy Northeast states (the Tri-State area plus Massachusetts) that account for the vast bulk of citizens paying more than they receive from the federal government. After them come CO, NE, UT, and MN, of which half voted for Hillary/Biden and half for Trump. All other states, including CA, are net beneficiaries of the taxpayers in the top eight (and, again, really, it's the top four).
100% this. All across the country, California is subject to ridicule, inane accusations and misconceptions, the devil and scapegoat and example of every red-state citizen eating on food stamps from California tax dollars and on Californian grown fruits and vegetables. Yes, there are things wrong with 'ol Cali, and its not the sunshine, but if California kept to itself, it would be just fine, but what would happen to California's detractors? Starve?
About 10 years ago I would have agreed with this comment but now… not so sure. Seems everyday there’s a new law or initiative to push productive professionals/companies away, not a fan of the trajectory… but who knows, maybe I’ll be surprised in another 10 years ;)
I think most of the country gets a bad rep for regulation and initiatives and laws that don't have positive effect. My parents are in the crowd that want to leave California because of supposed "over-regulation". I was telling my father this morning about the Songs-Beverly Act (California's Lemon Law) which essentially protects products you buy for 7 years, giving you the right to repair them. I just sued my employer for not allowing me 2nd meal breaks (every 5 hours), rest breaks, and for not giving me proper/reasonable notice when making schedule changes. These are all things I didn't have when I worked a federal job. Btw, it's hilarious that you're not entitled to (just 1!) meal break at the federal level. California has excess regulation, but I wish people weighed it against the positives instead of assuming it's all red tape.
I think California deserves more praise for how it protects people. Net Neutrality is effectively upheld by state-by-state regulation, because the federal gov couldn't secure this for us.
I honestly agree with you on all of those points. Those are very good things to have.
At the end of the day though, people _are_ weighing the pros and cons and deciding to leave. Perhaps it’s not the right conclusion but it’s not like people are leaving due to mere “rumors” or “bad press” - Texas/Florida have been punching bags for the past two years and people keep moving there.
My personal opinion is just to live where you want to live. If the cost of regulation is too high for you, move to a less regulated place. You’ll lose culture and entertainment but you’ll gain freedom.
If you prefer the regulations, stay, at the cost of some freedom.
But honestly, if everyone is happy in their own state I consider that a win… now rn I’m “stuck” in the “actual” worst state, hands down, which is Virginia ;)
This excellent comeback currently being downvoted is quite a testament to this weird turn against California in the tech community. It seems too sudden and drastic to be just the result of the general ascend of the alt-right in the sector so I am wondering if there any other reasons? Elon Musk? (No it’s not the weird crime fantasies. Also, by the way, Sweden still has excellent quality of life and phrenology is probably wrong and definitely useless)
Maybe housing? But that’s almost literally the Woody Allen joke, “nobody goes there anymore, it’s too crowded”.
It’s probably lots of little reasons, the main one being though, why stay?
Why start a business there vs another state? Lots of empty office space rn and I can only assume remote won’t help with that.
When the value of the location goes down, could easily start an exponential exit. Cities aren’t forever, just look at Detroit. Not saying that will happen to California but I really do think it peaked for tech last decade.
Expanding industry isn't gonna fix the problem.
Currently the state has an ~80bil surplus. The state needs to keep some of that around for the inevitable recession.