TAX REVOLT!!!

Bear Flag Republic 

California often is a trend setter for the nation, for good and ill.  In 1978 the passage of Proposition 13 in California which capped property taxes presaged a national movement against high taxes which helped sweep Reagan and the GOP into power in 1980.  On Tuesday California voters rejected by better than 60% five ballot propositions which would have resulted in higher taxes, the raiding of special funds for general budget purposes and the selling of future lottery proceeds.  Here is a good analysis, albeit from a Libertarian perspective, of the ballot propositions that went down in flames.  The only ballot proposition to pass, politicians everywhere take note!, by a 73%  vote,  would prevent salary increases for legislators and statewide officials during deficit years.

According to the Field poll, 72% of voters viewed this as an opportunity to send a message to the state government that they are tired of ever more government spending and ever increasing taxes. 

California is an economic basket case.  As columnist George Will details here, it has a 42 billion dollar budget deficit caused by exploding government spending since 1990.  The unemployment rate is 11% and in the past eight years the California private sector has lost 600,000 jobs.  There is a silver lining–for Nevada which has been running ads to convince California businesses to relocate.

Well, what does all of this mean, if anything, for those of us who do not live in California?

First, it probably means that tax increases will be much harder to get through Congress.  If one of the most liberal states in the Union rejects tax increases and budgetary flim-flam by the margins that the voters of California just did, that means that every Democrat member of Congress in an even marginally competitive district or state will be increasingly nervous as the 2010 elections approach about voting to pass any tax increases to pay towards the massive budget deficit or to pay for a  national health care plan.

Second, in many ways California has been a laboratory for what Obama wishes to do on a national scale.  In the June 17, 2001 issue of the liberal American Prospect magazine, in an article entitled California’s Progressive Mosaic, and which can be read here, author Harold Myerson celebrated the leftward shift in California politics :  “Like New York before the New Deal–like the New York that inspired the New Deal–California has responded to the economic travails and political opportunities that have come with its immigrant workers by getting out in front of much of the nation, by creating a model of social equity, of worker and public power, at a time of capital supremacy. A full continent off-Broadway, the next New Deal is in tryouts.”  Under the R.I.N.O.  Gubernator, and a legislature firmly under Democrat control, California has attempted a New New Deal and it is ending with serious predictions that California will be the first state to go bankrupt.  This should be a cautionary tale for what is likely to happen to the US under the Obama Deal.

Third, the proposed solution to California’s woes?  Why to have the federal government bail out the state!  The federal government, engaging in creation of a debt supernova of its own, is to subsidize with borrowed or printed money the fiscal irresponsibility of Sacramento.  I imagine this proposal will be deeply unpopular in 49 states unless the Obama administration is willing to bail out all states in financial difficulty.  Of course this would merely bring closer the day when the national economy hits a wall created by a Matterhorn of public debt and tanks completely and the day when the US is simply unable to service the debt or borrow the funds.

California’s present could well be the future of the US with the difference that there will be no one we can turn to for a bailout.

Update:  Hattip to Hot Air.  California officials want the Federal government to guarantee 15-20 billion in loans.  Beautiful.  Who will guarantee the loans of the Federal government?

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17 Responses to TAX REVOLT!!!

  1. Gerard E. says:

    Cali leads the republic in so many ways- love beads; street gangs organized like corporate divisions; mass Botox use. Now the voters say No Way to this taxraising whimwham No Way to that one. So what and ho hum. There was a primary election here in Philly two days ago. Limited turnout to elect the de facto D.A.- a Demo of course. So long as many other cities and states share same Dem dominance will mean little on national scale. These messages must be sent by voters again and yet again. While Powers That Be get around these edicts in many and varied ways- slush fund here, agreeable decision by lib judge there. Battle only beginning. Congrats to Golden Staters for firing first volleys.

  2. LarryD says:

    Should make for a big turnout at the July 4 Tea Party, I bet. So will 2010 be a big broom-out of the incumbents? I’m hopeful, but not all that confident. So much of the time, constituents have the attitude of “my” guy in Congress is great, but it’s “your” guy who’s the idiot.

  3. pennyyak says:

    Under Arnold Schwarzenegger, the best governor the states contiguous to California have ever had… George Will. Well, it was a interesting story while it lasted.

    California’s situation does remind me of the Feds. Once a program is in place, it appears absolutely impossible to get rid of it. No matter its inefficiency and unworthiness, the votes cannot be put together to scrap it. Somehow, once our representatives make it to the state house or Washington, things start to look different for them.

    If one of the lessons for individuals during the current recession is that excessive borrowing does not lead to prosperity but ruin, that lesson surely applies to governmental entities at every level.

    I think there are important tasks for the federal government in the years ahead (esp. some sort of health care reform). But we cannot manage those programs we have now(and who knows all of their names, numbers, scope…?), so how are we to move forward without borrowing ourselves into national bankruptcy?

    Apparently, California ranks in the top ten for gross domestic product – in the world. And they can’t make it? Something is very, very wrong.

  4. Elaine Krewer says:

    I don’t like taxes any more than anyone else. I agree that tax increases, like war, ought to be a last resort to be used only when ALL other means, such as spending/program cuts, bond issues, narrowly targeted user fees, etc., have been exhausted or clearly will not suffice.

    That being said, I think it is foolish for any politican or political party (conservative or liberal) to insist that they will NEVER raise taxes, just as it would be foolish for any candidate or party to insist that they will never, ever declare war. An absolute no-taxes pledge, like an absolute pacifist stance, fails to take into account situations where a tax increase or a military action would be a lesser evil than doing nothing.

    Obviously governments should do all they can to prevent tax increases just as they should do all they can to prevent war. That means not starting up huge social programs without the means to pay for them. Once those commitments are made, however, it’s difficult if not impossible to back out of them without doing an awful lot of harm.

    I think the current anti-tax revolt, while well intentioned, is a day late and a few billion dollars short. It should have occurred years ago while Bush was running up huge deficits. Skipping out on one’s financial obligations, even if they are the result of bad decisions that should never have been made, is certainly no “conservative” virtue. Why should it be held up as such at the national level?

    I live in Illinois, which is in nearly as bad a financial situation as California, with a $12 billion deficit largely due to the malfeasance and selfish decision making of our last two felonious governors and the Democrat-dominated legislature. We are likely to have some kind of income tax increase from the current rate of 3 percent, probably to at least 4 percent, or 4.5 percent.

    It’s understandable that most people don’t want to pay any more of their hard-earned money to a notoriously corrupt system. I wouldn’t either. It goes without saying that some cuts are necessary and those ought to have been proposed first before there was any discussion of a tax hike.

    However, when the entire state budget is less than $60 billion, there is NO WAY you can close up a $12 million hole on cuts alone, unless you want to shut down the entire state government (since I work for the state, that would mean putting me and about 40,000 other people out of a job), park all the state police cars, stop all road work and let the roads fall into ruin, turn all the prisoners loose, stop all funding for schools (including higher education), and/or toss 600,000 + people off of Medicaid.

    I suppose it could be done, but I’m not sure even the most rabid anti-tax people would like the results. My point is that an awful lot of people would suffer. Would this suffering be worth it in the long run in order to keep taxes down and possibly lessen the opportunity for corruption? At what level would a tax increase become a disproportionate evil to the evils it was intended to prevent? Frankly, I don’t have the answers to those questions, but they have to be asked.

    I suppose that to be consistent with my conservative leanings, I should prefer losing my job and my entire income to having an additional $20 a week or so taken out of my paycheck. Or, I suppose I never “should have” accepted a job with the state in the first place. It’s a non-political job which I got fair and square without paying for it, in case you were wondering. I’ve never given a single dime to ANY political candidate. Nevertheless, in the eyes of most state residents I’m just another one of “those bureaucrats in Springfield” who are “living off the taxpayer.”

    Forgive me for rambling, but in my situation I can see a lot of different sides to the whole taxation issue and I don’t think the solution is as simple as some people like to think.

  5. Elaine Krewer says:

    I meant to say “there is no way you can close up a $12 BILLION hole on cuts alone…”

  6. Donald R. McClarey says:

    The problem Elaine is that on the Federal level and in most States we have a completely unsustainable level of government spending, and annual increases in government spendng to compound the problem, and that even confiscatory taxes will not stop the entire system of government finance from crashing down which I fully expect in the coming years. The Obama deficit is merely the most extreme example of this trend which is now going to devastate our economy for several years. As Ben Franklin once wrote, “Experience is a dear teacher, but fools will have no other”.

  7. Art Deco says:

    Actually, prices have been so insensitive to increases in the monetary base that the Federal Reserve could probably eat the entire $42 bn bond issue without noticeable effects.

    During the period running from 1929 to 1934, three states defaulted on their debts. It required a 30% reduction in real gross domestic product (and a 50% decline in nominal domestic product, and please note the nominal figures are salient for gauging debt-service burdens) in this country to induce this. California is due to default in July consequent upon a 5% decline in the nation’s domestic product. Such has been the evolution in the quality of our public officials. The state needs to be put in receivership but their is no constitutional way to do this and if their were the receiver would report to the likes of the President, Timothy Geithner, and Barney Frank.

  8. Elaine Krewer says:

    I suppose that if the current level of government spending at either the state (any state) or federal level is unsustainable and a financial collapse is truly inevitable, it might be better to stop the spending, bring on the financial collapse now, get it over with, and start the recovery cycle sooner rather than later. All recession/depression cycles do eventually come to an end.

    But, in the meantime, acknowledge the very real difficulties involved and, if you happen to be financially stable and more fortunate, consider ways to help those who are most likely to suffer as a result.

    The level of cuts that would have to be undertaken to balance both federal and most state budgets at this point without considering ANY tax increases aren’t going to hurt just bureaucrats, Medicaid/welfare recipients, politicians, etc. — they’re going to affect EVERYONE. That has to be acknowledged. Yes, it may be the right thing to do, but that doesn’t mean it’s not going to have unintended consequences or that only people who “deserve” to suffer are going to.

    The financial crisis facing California is in many ways a precursor of what is likely to happen in other states such as Illinois, New York, Michigan, etc., if present trends continue. However, there are also some factors unique to CA involved, and one of them is, you guessed it, unintended consequences of Proposition 13.

    After Prop 13, communities that had less local tax money to spend on various projects didn’t necessarily cut them back — they just asked the state to foot the bill, and it did. So the voters thought they were having their cake (lower property taxes) and eating it too (no decrease in services).

    Also, CA’s income tax leans heavily on high wage earners (think Hollywood and Silicon Valley). Therefore it is much more susceptible to boom and bust cycles. When the dot-com bubble and real estate speculation were at their height, the state pulled in lots of money; now that is gone or very sharply reduced.

    Now that the state can’t pay its bills anymore, and the citizens don’t want higher state taxes, what do they do? They repeat the same mistake — this time assuming that the feds will bail them out.

    Some say this crisis will fundamentally redefine the role of government in California. I hope it does, for the better. I hope the same thing happens in Illinois and elsewhere. It won’t, however, if people focus ONLY on not having their taxes raised, and don’t care what else happens otherwise.

  9. Art Deco says:

    IIRC, Philadelphia faced a crisis consequent to the failure of one if it’s bond issues in 1991. The Mayor in his contention with the public employee unions made public selected examples of union work rules as well as the mean value of the compensation received (per capita, per annum) by municipal employees. It was $50,000, at a time when compensation per worker (wages & benefits) in the economy as a whole was about $30,000. I have suspicion that a similar scandal is to be found on the books of the state and localities of California. If my own experience of public employment is any guide, there is also considerable overstaffing in those offices. There is not time to fix this now, alas.

  10. Art Deco says:

    It is not good social policy to provide for schoolteachers and postal workers to retire at 55. It often works out that way, however.

  11. Donald R. McClarey says:

    “Some say this crisis will fundamentally redefine the role of government in California. I hope it does, for the better.”

    I truly doubt if it could get much worse Elaine. The average effective tax rate in this country is a stunning 40% including all taxes: state, local and federal. http://articles.moneycentral.msn.com/Taxes/Advice/YourRealTaxRate40.aspx

    Spending cuts are not an option, they are an absolute necessity. Government at all levels takes 40% from us and is still amassing a debt hole we will be generations climbing out from. The taxpayer has nothing more to give. This will not go on.

  12. Art Deco says:

    The ratio of public expenditure to domestic product has historically (since 1929) been a good deal lower in the United States than in most other occidental countries. I do not think there has been much of an upward trend in this ratio over the last sixty years (until the day before yesterday). The ‘New Deal’ and the large standing military constructed in the decade after the war constituted a whole different ecosystem of political economy than that which prevailed prior to 1930.

    Interestingly enough, Casey Mulligan recently called attention to the reduction in this ratio implemented by a succession of Canadian governments over the last 17 years. It once stood at about 0.55 and is now about 0.4, so the augmentation of the state is not irreversable.

  13. Elaine Krewer says:

    Art Deco, sometimes the issue is not so much overstaffing or excessive pay as it is the skewed distribution of pay and jobs among agencies due to their being in favor or disfavor with the powers that be.

    In Illinois, for example, some agencies such as the Department of Corrections and the Department of Natural Resources are severely understaffed. Many front-line prison guards work mandatory overtime to the point of exhaustion because the state finds it cheaper to pay oodles of overtime rather than hire new people. State parks and other facilities have fallen into disrepair because DNR was not a favored agency of our not so esteemed former governor, who admitted never having visited an Illinois state park even once.

    At the same time, other agencies experienced a surge in the number of mid- and high-level managers with six-figure salaries hired under Blago. Some agencies suffer from a “too many chiefs and not enough Indians” syndrome because Blago packed them with his cronies. Certain agencies have long been known for being patronage hotbeds. Patronage in the City of Chicago (and, I believe, in many other large cities) is even more blatant.

    At the state level, though, for every $100,000 + Public Service Administrator, Deputy Director, etc., however, there are probably five or more mere administrative assistants (like me) making less than $40,000 a year. Not all employees are union (I’m not, and probably never will be) and those who aren’t often go several years or more without even a cost of living raise.

    Public employee benefits are something of a hot-button issue because they do tend to be better than what a lot of people enjoy in the private sector nowadays. Pension benefits are a ticking fiscal time bomb for many states and localities; Illinois currently has the largest unfunded pension liability in the country. However, this is not because pension benefits in general are all that extravagant (outside of certain highly publicized cases), but because past administrations have repeatedly chosen to skip payments to the pension fund in order to divert the money to other, short-term purposes.

    All that being said, while it may not be “fair” for Illinois state employees to have to pay more for their health insurance, pay more into their pension system, wait longer to receive benefits, or even lose their jobs completely because of the negligence and malfeasance of elected officials (NOT, for the most part, the employees themselves), well, life ain’t always fair.

    It wouldn’t bother me if the pension system were changed to defined contribution rather than defined benefit, because I’m not counting on it anyway; I’ll probably keep working until I’m too old or too dead to continue. If I don’t get a raise for a few years, fine, we can survive on what I’m getting now. If the health insurance goes up a little bit every year, ok, I can live with that. I realize that it is a privilege, not a right, to work for the taxpayers.

    Nevertheless, I do sometimes get a little weary of public employee bashing, although I am sure that was not what you, Art Deco, or any other commenters here intended.

  14. Art Deco says:

    I would like our politicians to nurture able public bureaucracies, and am pained when they fail to do so. (The chicanery with civil service examinations hereabouts being one thing I have in mind). I merely gave examples of what the situation has been in certain locales, among them Philadelphia, ca. 1990, New York for decades, and the U.S. Postal Service.

    The State of California is an enterprise that is doing badly. I have never understood the social rule that nominal wages must never decrease, and most particularly that the nominal wages of public employees must never decrease.

  15. Elaine Krewer says:

    I agree, Art Deco. My beef is not with people like yourself, but with certain self-styled taxpayer advocates like the guy here in Illinois who goes around claiming that the state’s fiscal problems are all the fault of “greedy” employees and their “bloated” pensions. Just fire enough of them, scrap their pensions, abolish all pork projects, and voila, you’ll never need to raise taxes, he claims. Sorry folks, it ain’t that simple.

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