Tuesday, May 26, 2009

Matt Welch On The California Budget Crisis

Reason's Matt Welch has some real good stuff on the California budget crisis, taking the New York Times's Paul Krugman to town here and providing some counterpoints to mainstream media spin on the Reason blog last week.

As Welch points out in his response to Krugman, it's just plain insane to refer to the California crisis as a tax and not as a spending crisis.

Here is where the traditional liberal argument loses me. The California budget "emergency" isn't a tax problem, it's a spending problem. State spending in the past two decades, as this Reason Foundation report [PDF] spells out, has increased 5.37 percent a year (and nearly 7 percent for the past decade), compared to a population-plus-inflation growth rate of 4.38 percent. If the budget growth rate had been limited to the population-inflation growth rate, the state would be sitting on a $15 billion surplus right now. Surely enough to dip into during a real emergency. What's more, despite this alleged tax straightjacket, Californians manage to still pay 21.9 percent in state and local taxes, compared to 14.5 percent for Texas.

Not just for California Republicans anymore!So to demonstrate that insufficent taxability is the root of California's problems, a persuasive anti-Prop. 13 commentator would need to at least address the fact that state residents still manage to pay a high rate of taxes, and that the government keeps on growing voraciously in both good times and bad. If you're going to tax residents still more (as Krugman desires), don't they deserve to know why the cost of government services keeps going up up up up UP!?

Both the posts are quick neat little reads, well worth your time. And as Connecticut faces a similar yet proportionally smaller budget crisis, I feel it's once again worth pointing out why these states are in such drastic straights. The states in trouble are generally the states most reliant on the personal income tax. In the wake of the financial crisis, the incomes of the rich have taken a hit and income tax revenues have fallen in turn. Now California's crisis, as Welch discusses, goes beyond this, but I feel it's important to note how dependent state government can be on rich folks making a lot of money.


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