California's high-benefit/high-tax model no longer works

[w¡n9Nµ7 §£@¥€r 123]

In America's federal system, some states, such as California, offer residents a "package deal" that bundles numerous and ambitious public benefits with the high taxes needed to pay for them. Other states, such as Texas, offer packages combining modest benefits and low taxes. These alternatives, of course, define the basic argument between liberals and conservatives over what it means to get the size and scope of government right.

It's not surprising, then, that there's an intense debate over which model is more admirable and sustainable. What is surprising is the growing evidence that the low-benefit/low-tax package not only succeeds on its own terms but also according to the criteria used to defend its opposite. In other words, the superior public goods that supposedly justify the high taxes just aren't being delivered.

California and Texas are not perfect representatives of the alternative deals, but they come close. Overall, the Census Bureau's latest data show that state and local government expenditures for all purposes in 2005-06 were 46.8% higher in California than in Texas: $10,070 per person compared with $6,858. Only three states and the District of Columbia saw higher per capita government outlays than California, while those expenditures in Texas were lower than in all but seven states. California ranked 10th in overall taxes levied by state and local governments, on a per capita basis, while Texas, one of only seven states with no individual income tax, was 38th.

One way to assess how Americans feel about the different tax and benefit packages the states offer is by examining internal U.S. migration patterns. Between April 1, 2000, and June 30, 2007, an average of 3,247 more people moved out of California than into it every week, according to the Census Bureau. Over the same period, Texas had a net weekly population increase of 1,544 as a result of people moving in from other states. During these years, more generally, 16 of the 17 states with the lowest tax levels had positive "net internal migration," in the Census Bureau's language, while 14 of the 17 states with the highest taxes had negative net internal migration.

These folks pulling up stakes and driving U-Haul trucks across state lines understand a reality the defenders of the high-benefit/high-tax model must confront: All things being equal, everyone would rather pay low taxes than high ones. The high-benefit/high-tax model can work only if things are demonstrably not equal -- if the public goods purchased by the high taxes far surpass the quality, quantity and impact of those available to people who live in states with low taxes.

Today's public benefits fail that test, as urban scholar Joel Kotkin of NewGeography.com and Chapman University told the Los Angeles Times in March: "Twenty years ago, you could go to Texas, where they had very low taxes, and you would see the difference between there and California. Today, you go to Texas, the roads are no worse, the public schools are not great but are better than or equal to ours, and their universities are good. The bargain between California's government and the middle class is constantly being renegotiated to the disadvantage of the middle class."

These judgments are not based on drive-by sociology. According to a report issued earlier this year by the consulting firm McKinsey & Co., Texas students "are, on average, one to two years of learning ahead of California students of the same age," even though per-pupil expenditures on public school students are 12% higher in California. The details of the Census Bureau data show that Texas not only spends its citizens' dollars more effectively than California but emphasizes priorities that are more broadly beneficial. Per capita spending on transportation was 5.9% lower in California, and highway expenditures in particular were 9.5% lower, a discovery both plausible and infuriating to any Los Angeles commuter losing the will to live while sitting in yet another freeway traffic jam.

In what respects, then, does California "excel"? California's state and local government employees were the best compensated in America, according to the Census Bureau data for 2006. And the latest posting on the website of the California Foundation for Fiscal Responsibility shows 9,223 former civil servants and educators receiving pensions worth more than $100,000 a year from California's public retirement funds. The "dues" paid by taxpayers in order to belong to Club California purchase benefits that, increasingly, are enjoyed by the staff instead of the members.

None of this happens by accident. California's interlocking directorate of government employee unions, issue activists, careerists and campaign contributors has become increasingly aggressive and adept at using rhetoric extolling public benefits for all to deliver targeted advantages to itself. As a result, the political reality of the high-benefit/high-tax model is that its public goods are, increasingly, neither public nor good. Instead, the beneficiaries are the providers of the public services, and certain favored or connected constituencies, rather than the general population.

The recession will eventually end, and California's finances will get better. Given its powerful systemic bias against efficient and effective public services, however, the question is whether the state will ever get well. California's public sector has pinned its hopes for avoiding fundamental reform on increased federal aid to replace dollars the state's fed-up taxpayers refuse to surrender. In other words, residents in the other 49 states -- the new 49ers? -- would enjoy the privilege of paying California's taxes. Their one consolation will be not having to endure its lousy public services.

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If, on the other hand, America's taxpayers (and China's bond buyers) succumb to bailout fatigue, California may reach the point at which, after every alternative has been exhausted, it is forced to try governing itself competently. You wouldn't know it from putting up with California's transportation and educational systems, but there actually is a principled, plausible argument to be made for the high-benefit/high-tax model. For the sake of both California and their own political ideals, its advocates ought to be leading the charge against every excess and inefficiency that deprives taxpayers of good value for their dollars. That won't happen until they stand up to their coalition partners by breaking their Faustian political bargain with California's self-serving governmental-industrial complex.

http://articles.latimes.com/2009/nov/01/opinion/oe-voegli1

[Pinocchio Liberal 268]

More writings from another, posted by the SPAM KING! Night all!

Keep it up harddrive your doin good!

[Ban Hammer 13,352]

don't governments always try to rationalize high taxes?

[SMR 368]

don't governments always try to rationalize high taxes?

There was a war over this question and the result was the US.

[SMR 368]

In regards to the article, I recently moved from Washington state to New York state because of work. Now I pay higher sales tax, higher registration licensing and registration fees, tolls if I want to use the highway, much higher property taxes, and a state income tax (Washington doesn't have one). In terms of services, I see absolutely nothing that is better in NY. The schools were better in Washington. The roads were better maintained. The University I attended was top rated. The mass transit system in Washington was better (I don't live in NYC).

What am I paying for in NY? That is the reality of this dichotomy. Most middle class are realizing that the high service/high tax states don't really have any more services. If the services were there, you might see people moving in the other direction.

[w¡n9Nµ7 §£@¥€r 123]

In regards to the article, I recently moved from Washington state to New York state because of work. Now I pay higher sales tax, higher registration licensing and registration fees, tolls if I want to use the highway, much higher property taxes, and a state income tax (Washington doesn't have one). In terms of services, I see absolutely nothing that is better in NY. The schools were better in Washington. The roads were better maintained. The University I attended was top rated. The mass transit system in Washington was better (I don't live in NYC).

What am I paying for in NY? That is the reality of this dichotomy. Most middle class are realizing that the high service/high tax states don't really have any more services. If the services were there, you might see people moving in the other direction.

If you live upstate, you are paying for NYC.

[one...two...tree 2,762]

Overall, the Census Bureau's latest data show that state and local government expenditures for all purposes in 2005-06 were 46.8% higher in California than in Texas: $10,070 per person compared with $6,858. Only three states and the District of Columbia saw higher per capita government outlays than California, while those expenditures in Texas were lower than in all but seven states. California ranked 10th in overall taxes levied by state and local governments, on a per capita basis, while Texas, one of only seven states with no individual income tax, was 38th.

I think the author is comparing apples to oranges. California's current budget crisis has more to do with other factors (see Prop 13, the housing market bust, the price gouging of electricity during Enron's reign of terror, a huge prison population). The author needs to look back over the last 30-40 years of California, to see all the dynamics in play as to why the state is where it is at right now.

[mawilson 2,133]

Overall, the Census Bureau's latest data show that state and local government expenditures for all purposes in 2005-06 were 46.8% higher in California than in Texas: $10,070 per person compared with $6,858. Only three states and the District of Columbia saw higher per capita government outlays than California, while those expenditures in Texas were lower than in all but seven states. California ranked 10th in overall taxes levied by state and local governments, on a per capita basis, while Texas, one of only seven states with no individual income tax, was 38th.

I think the author is comparing apples to oranges. California's current budget crisis has more to do with other factors (see Prop 13, the housing market bust, the price gouging of electricity during Enron's reign of terror, a huge prison population). The author needs to look back over the last 30-40 years of California, to see all the dynamics in play as to why the state is where it is at right now.

The author never once mentioned the budget crisis - he was comparing the tax burdens and services provided.

He doesn't need to look back 30 years to find out why the state is in a crisis, because that's not what the article is about AT ALL.

Talk about apples and oranges.

Edited January 13, 2010 by mawilson

[w¡n9Nµ7 §£@¥€r 123]

For those interested, here is the full-length version of the same article with a lot more detail and some good graphics

http://www.city-journal.org/2009/19_4_california.html

[one...two...tree 2,762]

I think the author is comparing apples to oranges. California's current budget crisis has more to do with other factors (see Prop 13, the housing market bust, the price gouging of electricity during Enron's reign of terror, a huge prison population). The author needs to look back over the last 30-40 years of California, to see all the dynamics in play as to why the state is where it is at right now.

The author never once mentioned the budget crisis - he was comparing the tax burdens and services provided.

He doesn't need to look back 30 years to find out why the state is in a crisis, because that's not what the article is about AT ALL.

Talk about apples and oranges.

From the full article: (sustainability of CA's current expenditures is at the heart of the debates over the budget)

It's not surprising, then, that an intense debate rages over which model is more satisfactory and sustainable.

....

I found this interesting response from William Voegeli: (from Volokh Conspiracy)

Last week I blogged about a very interesting article in the Manhattan Institute's City Journal by Claremont Review of Books contributing editor William Voegeli titled "The Big-Spending, High-Taxing, Lousy Services Paradigm" (Autumn 2009). It compared the tax-services models of California and Texas. VC commenters were spirited as ever and raised a number of important questions.

Although I haven't had the pleasure of meeting William Voegeli, I took the liberty of contacting him through the Claremont Institute and asked if he might have any additional thoughts for us, particularly responding to VC commenters. Mr. Voegeli was kind enough to say yes, and has sent along the following response, below. Let me add, on behalf of the VC community, myself as well as readers and commenters, our great thanks for engaging with us. And let me add to the VC commenting community, that in the spirit of the original article, you might call Volokh Conspiracy a ... Low-Taxing, High-Services blog! Mr. Voegeli:

Dear Prof. Anderson:

Thank you for bringing my

City Journal

article (

http://www.city-journal.org/2009/19_4_california.html

) on California and Texas to the attention of the Volokh conspirators, and for your generous and thoughtful analysis (

http://volokh.com/2009/11/02/the-californi...-public-choice/

) of the piece. Your post elicited many . . . spirited comments. It would be cumbersome to address them individually, but I can offer a few points that speak to some of the general questions your readers brought up.

My essay argues that it's not enough to look at how much states and localities spend because how well they spend is very important. I understand several people in the comments section to be saying that this principle applies to the tax side of the equation, too.

Thus, California's problem is not so much that it is a high-tax state but, as one commenter says, that it is a "constrained-and-erratic tax" state.

That's a fair point. The combination of direct democracy and the state's belief that vast optimism could overcome mundane realities left Californians believing they could somehow be "taxed like libertarians, but subsidized like socialists," as Troy Senik recently said (

http://www.nationalaffairs.com/publication...lled-california

) in

National Affairs

. Not only did it prove impossible to achieve the best of both worlds, but the political impotence created by undertaking the effort helped bring about the worst of both: "In a grim irony, Californians are now being taxed like socialists and subsidized like libertarians."

Proposition 13 is certainly not beyond criticism.

Some things need to be said in defense of the law and its advocates, however. Lots of poorly drawn laws and state constitutional amendments have been passed at the ballot box. The ballot initiative is never going to be a precision instrument, however, and it's unfair to hand the voters an axe and then judge their work as if they possessed a scalpel.

The best way to have averted the enactment of Proposition 13 would have been if California's political establishment in 1978 had put forward a better alternative, one that addressed Californians' anxieties about tax escalation without 13's flaws. Instead, Gov. Jerry Brown and the Democratic legislature held off for as long as possible in offering any sort of response to the people angry and fearful about rapidly rising property taxes, in the hope that the political problem would blow over. When it didn't, they finally devised a tax limitation alternative to 13 whose distinguishing feature was that it didn't guarantee that anyone's taxes would be limited.

In the 31 years since Proposition 13 was enacted that bait-and-switch problem crops up over and over. When people here complain that taxes are too high, especially given the doubtful quality of the public services they purchase, the enlightened response is always that taxes aren't high so much as they're arbitrary and complicated. The correctives proposed to enhance the quality of the citizen's tax-paying experience all purport to make taxes fairer and simpler, but their one clear outcome is that taxes would be higher. Thus, the reforms that would streamline how California's governments collect money would have the consequence of relieving those governments of any obligation to devise better, smarter and fairer ways to spend it. It takes a trusting spirit to believe that this outcome would be an accidental byproduct of tax reform.

A final note. One commenter argued that government is expensive in California largely because housing is expensive, thus disproving the idea that California governments spend their money in undisciplined, ineffective ways. Two points:

• 1) California's state and local employees are the best compensated in the country (
  http://www.census.gov/compendia/statab/tables/09s0448.pdf
  ) and the differences between them and their counterparts in states that are also expensive are not trivial. Local government employees make 11.5% more in California than Connecticut, and 21.4% more than those in Massachusetts. State workers in California make 13.1% more than New York's and 19.9% more than those in Massachusetts.
  
  
• 2) The high cost of living in California, especially the high cost of housing, is a problem for government, in that it puts pressure on it to increase the pay scale for public employees. That fact does not preclude the possibility that the high cost of housing is, in significant measure, a problem caused by California's governments.
  
  

Let me close on this point by bringing in an expert witness, Edward Glaeser of Harvard's economics department and Taubman Center for State and Local Government. In a

Los Angeles Times

article (

http://www.latimes.com/news/opinion/commen...382,print.story

) earlier this year he said:

Although California is a populous state, it still has plenty of land. Santa Clara County, the home of Silicon Valley, only has about 2.2 people per acre. Even in denser places, such as Los Angeles, there is plenty of room to build.

California's growth has slowed because the state has made it increasingly difficult to build new homes. There is an almost perfect correlation between the growth of an area and the amount of housing that is permitted in that area. California has some of the toughest land-use regulations in the country, which are often justified as environmental measures. When high housing demand is met with restrictions — not construction — California homes become unaffordable and new construction goes somewhere else.

Best regards,

Bill Voegeli

http://volokh.com/2009/11/09/more-on-calif...ds-to-comments/

Edited January 13, 2010 by Galt's gallstones

[w¡n9Nµ7 §£@¥€r 123]

Good post, Steven.

[one...two...tree 2,762]

Here's an interesting response from the blog ,:

Mark N. says:

Having lived for several years in Texas, I like plenty about it, but it's a fairly tricky comparison. For example, due to no zoning, homeowners' associations are much more widespread in Texas, covering entire subdivisions of many square miles. They provide something like a de facto additional layer of municipal government, complete with what is, in effect, an additional layer of property taxes, which are used to pay for some things that, in California, a municipality's or city's taxes would pay for (maintaining parks, mowing medians, etc.). Presumably these expenditures aren't counted as "government", even though they function quite similarly to those of a local government (and are similarly coercive— you have a choice of paying their taxes, or moving out of their territorial jurisdiction).

The University of Texas system is also considerably less of a burden on state finances than the University of California system, in large part because of the Permanent University Fund collected from taxes/fees/royalties on oil revenues. The mere existence of this fund may point to better planning in the past, of course. But it also points to Texas historically actually having higher taxes than California: Texas levied significant extraction taxes and fees on oil, and charged considerable royalties on oil drilling on state-owned land (which was much of the land), whereas California has never had an oil-extraction tax (an attempt to introduce one a few years ago failed).

[Hilarious Clinton 452]

I'm glad I live in a state with no income tax. My property taxes are reasonable too.

[Ban Hammer 13,352]

whereas California has never had an oil-extraction tax (an attempt to introduce one a few years ago failed).

and who's fault is that?

[one...two...tree 2,762]

I'm glad I live in a state with no income tax. My property taxes are reasonable too.

Washington?

and who's fault is that?

Yours?