Why Schwarzenegger is right

A couple of weeks ago, I jumped into the fray of an online debate (on the PHO list/) about how California should deal with its looming bankruptcy. The debate essentially broke into two camps a) tax and spend and b) no new taxes, less spending. It would likely be too “taxing” to have the dissertation on the merits of the two camps, but I figured I would take a look at the hard numbers to determine which side has the better argument.

The numbers weren’t pretty. CA has some of the highest tax rates in the country. With those high tax rates you’d think there would be fairly high quality services provided by the state. Unfortunately, those huge taxes provide services that have the lowest levels of quality in the country. To make matters worse, it turns out that of the 30mm CA citizens, the state depends on 140k affluent people to pay 50% of the tax burden.

The bottom line is that the state is so inefficient at spending its tax dollars, and its politicians and bureaucrats so unaccountable for their corrupt spending practices that I believe spending cuts are the only way to restructure our insolvent state. Below is all the juicy data in the email I sent to the email list (7/12/09):

[snip]….
CA taxes its citizens more than virtually all other states, and then provides services at quality levels ranked at or near the bottom compared to all other states. The facts show that CA citizens are getting a *very* bad deal economically speaking. None of the stats I provide below are surprising to most folks except as to how they illustrate how extraordinarily bad the state is run compared to other states in the U.S.

Tax stats on a per capita basis (unless otherwise noted):
– CA’s state/local tax burden ranks 6th highest in the nation
– CA business tax environment ranks 48th lowest nationally
– CA top individual tax rate ranks #1
– CA corporate income tax highest in west, #9 in the U.S.
– CA property tax collections are in the middle of the pack, 19th highest nationally (avg. $$ per household, 28th on per capita basis)
– CA sales tax rate of 8.25% (2006) is highest in the country

Source: http://www.taxfoundation.org/research/topic/15.html

Summary: CA citizens carry some of the highest tax burdens in the U.S. on almost every tax category you can come up with. Even on the property tax issue, CA ranks middle of the pack at #19.

Now let’s look at the quality of services:
– Quality of Healthcare: CA ranks 50th in quality of healthcare provided (and 39th overall if you include factors other than quality)
– Quality of Education: CA ranks 42nd in reading and math scores by 4th and 8th grade students
– Violent Crime per capita: CA ranks 14th highest in violent crime rates

Healthcare stats from:
http://www.commonwealthfund.org/Content/State-Scorecards/California.aspx
Education stats from:
http://www.edweek.org/media/ew/qc/2006/17shr.ca.h25.pdf
Crime stats from:
http://www.cta.org/NR/rdonlyres/D4ECC8BC-8EC2-443B-96EE-B70C3CC4028B/0/EdWeekQC2009CaliforniaHighlightsReport.pdf

3 responses to “Why Schwarzenegger is right

  1. The one nuance you didn’t address is what cuts are we talking about? I hear your argument that our tax dollars are not being used efficiently so it feels like money going down the drain (great segment on NPR this morning, lots of angry callers spouting similar facts on our high tax rates). Before we just cut here and there, wouldn’t you like to know what the cuts are and the potential implications before you make a quick decision that cuts are the way to go? I’d like to understand the implications as it may be weighing the better of two evils or forcing a more creative way to raise money (and spend it efficiently) e.g. legalize marijuana and tax the hell out of it, release prisoners who were arrested for non-violent drug offenses, create a system to make the money-flow more transparent so there’s better accountability on our taxpayor dollars. Also, WHY are we so inefficient? Are there dis-economies of scale being a large start — is there data showing that the largest populated states are less efficient in general? Are there fundamental barriers that make it difficult to be efficient?

  2. Want to make sure that more people start to should the tax burden? Then get rid of Prop 13. It’s ridiculous that people who bought a property 25 years ago would only pay 1.5 times the original propery tax rate while their house value has increased tenfold …

    • Janko,

      You’re right that all CA has to do is tax more people more money and at least in the short term, the shortfall will go away.

      But property taxes in CA, are already higher than 32 other states (measured on a per-household basis). It’s just that CA’s prop. taxes are setup such that you pay most of your property taxes at the beginning of your household ownership and those decrease in real terms over time.

      So while it sounds like an interesting place to start, you are simply “screwing over” long-term property owners who paid their own unfair share 15 or 20 years ago. There’s no reason why CA needs to be in the top 10 in every tax category… especially while providing services ranking in the bottom 10 in every category. Cutting spending right now is the healthy thing for CA to do.

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