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Paul Krugman: If Only California Could Just Raise Taxes
I wholeheartedly agree with New York Times econ columnist Paul Krugman here:
Despite the economic slump, despite irresponsible policies that have doubled the state's debt burden since Arnold Schwarzenegger became governor, California has immense human and financial resources. It should not be in fiscal crisis; it should not be on the verge of cutting essential public services and denying health coverage to almost a million children. But it is — and you have to wonder if California's political paralysis foreshadows the future of the nation as a whole.
But we part paths at Krugman's next sentence:
The seeds of California's current crisis were planted more than 30 years ago, when voters overwhelmingly passed Proposition 13, a ballot measure that placed the state's budget in a straitjacket.
This notion, as mentioned here previously, is as taken for granted among the state's political/journalistic class as water is by fish. Yes, Prop. 13 (which capped property-tax increases) created some legitimately challenging process issues, in terms of funds being transferred from the local level to the state level and back again. But the real complaint is that the famous tax revolt made it difficult to, well, hike up taxes. Krugman again:
Even more important, however, Proposition 13 made it extremely hard to raise taxes, even in emergencies: no state tax rate may be increased without a two-thirds majority in both houses of the State Legislature.
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.
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!?
Instead of any of that, Krugman goes on a name-calling binge against minority Republicans. ("Driven mad by lack of power," "the party of Rush Limbaugh," "the party's growing extremism," and so on.)
I am entirely confident in claiming that I know California better than Krugman does (evidenced if by nothing else than by his lazy, college-newspaper usage of the phrase "banana Republic" to describe my native state), and I know intimately from that experience just how many fruits and nuts are sprinkled generously within the state's GOP. And yet surveying a California political and fiscal landscape that has been utterly dominated the past decade by the Democratic Party, and concluding that the problem is the vanishing tribe of Republicans, is at best puzzling. At worst, it's something quite a bit darker than that.
Kyle Jordan|5.26.09 @ 9:39AM|#
How did this asshat get his Nobel? Seriously, this guy seem to be about as sharp as a wet sack of hair.
Kyle Jordan|5.26.09 @ 9:40AM|#
"At worst, it's something quite a bit darker than that."
Matt, would you elaborate a little more on this part? I'm one of
the denser posters here so I don't exactly follow.
|5.26.09 @ 9:48AM|#
I thought the root of California's problems was term limits, and the resulting lack of a life-tenured governing elite. I'm surprised Krugman couldn't manage to work this in, somehow.
|5.26.09 @ 9:55AM|#
My keyboard is possessed by the devil. In case anyone was
wondering.
And this:
To be blunt: recent events suggest that the Republican Party
has been driven mad by lack of power.
This reminds me of an old girlfriend, who used the term
"passive-aggressive" with great frequency; I finally determined
that what she really meant, when she used the term, was "Anybody
(including yrs trly) who doesn't do what I want them to
do."
roy|5.26.09 @ 9:56AM|#
"At worst, it's something quite a bit darker than that."
It's not dark at all... krugman shamelessly and in broad daylight
kisses DC bureaucrat ass, specially likes central banking ass...
that is how he got the Swedish Central Bank's Economic Prize in
memory of Alfred Nobel...
Not dark, just pathetic.
roy|5.26.09 @ 9:59AM|#
"At worst, it's something quite a bit darker than that."
..and his partisanship is also proverbial. Anything starting with
an R has to be to blame... always.
|5.26.09 @ 10:06AM|#
krugman shamelessly and in broad daylight kisses DC
bureaucrat ass, specially likes central banking ass
No something much darker - but does require his mounth.
|5.26.09 @ 10:07AM|#
And yet surveying a California political and fiscal
landscape that has been utterly dominated the past decade by the
Democratic Party, and concluding that the problem is the vanishing
tribe of Republicans, is at best puzzling. At worst, it's something
quite a bit darker than that.
I protest! Anything that goes wrong with the economy or
governmantal budgeting is by custom blamed on libertarians. We
libertarians should not allow either the Dems ot the GOP to take
the blame for California's fiscal woes, it's obviously our
fault.
|5.26.09 @ 10:09AM|#
"This what we have to do the greedy upper class, who have gotten rich suckling at the neck of the virtuous proletariat!" Paul dropped the cat reached into his shirt and pulled out the Nobel Prize that hung around his neck. He fumbled at the dental floss that he had threaded through the rough hole he had drilled. "I can do this because I won the NOBEL PRIZE!" He brandished the over-sized coin at the pundits and cameramen in the studio and he waddled away from the desk with his pants around his ankles. Sweat dripped from his beard as he advanced on the frightened cat.
Colin|5.26.09 @ 10:12AM|#
If the problem is we're not taxed enough, why is it that we pay
the most taxes (by far)?
Why is it that large states like Florida and Texas have no state
income tax and have no problems of our magnitude?
Each night before I sleep I pray Prop. 13 to keep.
hmm|5.26.09 @ 10:13AM|#
How dare you berate a Nobel Prize winner! Krugman has reams of
numbers about California. Do you have reams of numbers and a Nobel
Prize? I think not!
We covered this. The guy is a shilling tard for a political party.
He's not even a convincing shill or Clinton would have given him a
position. His conveyance of shilling is a pathetic rag with a
readership heading the way of the Blue-footed Booby.
D.A. Ridgely|5.26.09 @ 10:15AM|#
If the need for additional funding as opposed to cuts in spending can't muster two-thirds majorities among the citizenry's elected officials, it can't be much of an emergency.
Franklin Harris|5.26.09 @ 10:30AM|#
Krugman, in the deep dark recesses of his mind, knows that California is exactly what you get from the policies he advocates. And that has driven him mad.
roy|5.26.09 @ 10:32AM|#
no Frank... what you get from the policies he advocates is a Nobel prize, and a cat apparently..
|5.26.09 @ 10:35AM|#
"no Frank... what you get from the policies he advocates is a
Nobel prize, and a cat apparently.."
You're both way off. The cat is the economist. He uses Krugman as a
medium. And you have to admit, the policies the cat promotes may be
bolderdash, but for a cat, they are pretty amazing.
Xeones|5.26.09 @ 10:45AM|#
but for a cat, they are pretty amazing.
Nah, i'd expect better from a cat.
|5.26.09 @ 10:49AM|#
This reminds me of an old girlfriend, who used the term "passive-aggressive" with great frequency; I finally determined that what she really meant, when she used the term, was "Anybody (including yrs trly) who doesn't do what I want them to do."
I've found that people who use the word "selfish" a lot usually
mean that too.
|5.26.09 @ 10:51AM|#
Nah, i'd expect better from a cat.
Yeah, especially since the cat won the Germán Bernácer Prize in
2006.
They just give those out to any old quadruped these days.
|5.26.09 @ 10:59AM|#
""And that cat's name? Hélène Rey. Now you know... the rest of
the story.""
;-)
|5.26.09 @ 11:00AM|#
Cats have a better comprehension of investment and saving than Krugman; mine bring mice and birds into the house, so they can play with (and eventually eat) them later.
andyriddick|5.26.09 @ 11:05AM|#
but can they borrow mice from china in infinite amounts and lead
a world empire? can they?
thought not..
Solanum|5.26.09 @ 11:14AM|#
SF, your prose has already got the cougar-bots prowling this site. Please stop before we start seeing links for alpaca-on-man vids.
Xeones|5.26.09 @ 11:23AM|#
alpaca-on-man vids
That's not what the original Krugman link goes to? Huh.
|5.26.09 @ 11:30AM|#
Methinks the Solanum doth protest too much. T'was not I who
added the "alpaca" keyword to the spambot trawls...
By the way, alpacas are not kosher.
shecky|5.26.09 @ 11:35AM|#
Krugman is somewhat right. Prop 13 is kinda fucked up all on
it's own. Throw in CA's initiative process, the mix is truly
hobbling, particularly in a downturn.
This kind of goes back to my criticism of "starve the beast" style
attempts at limiting government. It cannot be done by simply
cutting taxes. When people don't feel the pain of taxes, they ask
for more.
T|5.26.09 @ 12:00PM|#
I get to watch free alpaca porn any time I want.
Which says way too much about your leisure habits, I think.
Alpacas may not be kosher, but how about emus? I pass by a sign
advertising emu oil frequently.
|5.26.09 @ 12:07PM|#
Krugman is somewhat right. Prop 13 is kinda fucked up all on it's own.
It is in a few ways. It distorts the housing market badly (and
screws over newcomers in addition to discouraging optimal land
use.) It also discourages one of the better ways to tax, and
encourages really disastrous high end income and capital gains
taxes that make CA flush in good times but bankrupt in poor
ones.
|5.26.09 @ 12:10PM|#
Unfortunately, the cat cannot be named "Mr. Bigglesworth." That
affectation goes to "little Paul."
Or so I've heard.
|5.26.09 @ 12:56PM|#
Leviticus 11:16
and the ostrich and the owl and the sea gull and the hawk in its kind,
The emu is considered the same as an ostrich and therefore not
kosher.
Also, ravens and owls are prohibited.
Solanum|5.26.09 @ 1:17PM|#
"It's a bird, innit. It's a bloody sea bird . .. it's not any bloody flavour. Albatross!"
|5.26.09 @ 1:23PM|#
I wish Rush Limbaugh would just come out and say we should raise taxes. We might get some reasonable tax policy without that stink whacker as the face of conservatism.
|5.26.09 @ 1:23PM|#
Is Prop. 13 perfect? Of course not. Laws rarely are. But remember why it got passed: inflation, rising property taxes, and (IIRC) increasing restrictions on home building were causing home prices to jump and forcing people to sell because they couldn't afford the property taxes. The side effects of government actions were forcing Grandma out of her house. So I don't have a lot of sympathy for the "Prop. 13=evil" types on the left. They remind me of the "Reagan destroyed the economy" complaints: yeah, if only we could have had another four years of Carter, what a economic paradise the '80s would have been!
|5.26.09 @ 1:30PM|#
It distorts the housing market badly (and screws over
newcomers in addition to discouraging optimal land use.) It also
discourages one of the better ways to tax, and encourages really
disastrous high end income and capital gains taxes that make CA
flush in good times but bankrupt in poor ones.
All symptoms, really, of an out-of-control culture of state
spending. If California spent a hell of a lot less than it does,
then any distortions introduced by the tax system would be
correspondingly smaller.
|5.26.09 @ 1:31PM|#
Krugman was a professor of mine back in College, and a few
things about him were obvious.
He is very bright, a terrific writer, highly partisan and hugely
egotistical.
Also while others often mention his Nobel prize, it is important to
note that his best work was a free market defense of international
monetary speculators. His work on domestic economics is much
weaker, and none of his best papers are about optimal government
policy or spending.
Joseph Stiglitz is somewhat similar, in that he wrote some
outstanding papers on Assymetrical information, but little on
government policy on which is frequently cited.
While these men are quite bright, you should not assume that their
views on their current fiscal mess are especially brilliant.
mark|5.26.09 @ 1:53PM|#
This kind of goes back to my criticism of "starve the beast"
style attempts at limiting government. It cannot be done by simply
cutting taxes.
I don't get it. CA has spent its way into this "crisis" and now is
finally up against the wall. Cuts will come, finally, and only
because taxes were previously limited. It sounds like this "starve
the beast" strategy is working as intended, and with the return of
paygo to Washington, I think the strategy will work on a national
level as well.
That is, if we can manage to stop the "tax on everything"
cap-and-trade bill.
Alan Vanneman|5.26.09 @ 2:39PM|#
21.9% state and local tax burden in California versus 14.5% in Texas. So where would you rather live? This suggests that taxes are like rents--the more desirable the location, the higher they are.
T|5.26.09 @ 2:59PM|#
21.9% state and local tax burden in California versus 14.5%
in Texas. So where would you rather live? This suggests that taxes
are like rents--the more desirable the location, the higher they
are.
I'd rather live in Texas, thanks, so your thesis is a little weak.
The only things California has over Texas is higher home prices and
more ridiculous government. Neither strikes me as a feature I'd
like to embrace.
Logfile|5.26.09 @ 3:26PM|#
21.9% state and local tax burden in California versus 14.5%
in Texas. So where would you rather live? This suggests that taxes
are like rents--the more desirable the location, the higher they
are.
Have you ever been to Texas? The western half sucks, but the
eastern half is as nice a place to live as any other part of the
country.
Gilbert Martin|5.26.09 @ 3:29PM|#
"I'd rather live in Texas, thanks, so your thesis is a little
weak"
Me too.
Even if you disregard the high taxation and regulation, I don't see
any particular advantatge to living in California.
|5.26.09 @ 4:20PM|#
But remember why it got passed: inflation, rising property taxes, and (IIRC) increasing restrictions on home building were causing home prices to jump and forcing people to sell because they couldn't afford the property taxes. The side effects of government actions were forcing Grandma out of her house.
Yeah, though the problem is that by taking away the one possible
downside of increasing restrictions on home building and making
home prices jump-- the higher property taxes-- Prop 13 definitely
made the problem of housing restrictions even worse.
It's hardly the sole cause of the problem, and of course it would
have less of an effect if other issues were addressed, but it
didn't really solve the root of the problem either, and in some
ways exacerbated the problem.
The result has been more housing restrictions in built up areas,
leading to higher housing prices, leading to booms in still rural
areas and exurbs, leading to the eventual crash.
There are reasons that California had already experienced at least
two separate periods of boom and then declining prices before the
current one, whereas most of the rest of the country had not.
|5.26.09 @ 4:21PM|#
"Texas? Ha! They think barbecue involves cows. Ingrates! Heretics!"
I agree with this poster.
|5.26.09 @ 4:22PM|#
A "solution" to bad land use and planning laws forcing people out of their homes because property taxes go up is not to take all the downside and force it on people who don't yet own homes in the area, but that's largely what Prop. 13 did.
T|5.26.09 @ 4:25PM|#
Texas? Ha! They think barbecue involves cows. Ingrates!
Heretics!
Yeah, my wife has a particularly virulent case of that disease. I'm
more accepting of all god's creatures on the fire since I grew up
in the pig portions of the South. Strangely, that makes me the
heretic around here. Fire + dead animal = good.
|5.26.09 @ 4:33PM|#
The western half sucks,
Unless you like a high desert climate, wide open spaces, and
perhaps the most instinctively libertarian neighbors you will find
anywhere.
with the return of paygo to Washington,
mark, unless "paygo" is some kind of jargon for "massive deficit
spending and hyperinflation", I have no idea what you are talking
about.
JB|5.26.09 @ 5:09PM|#
Krugman is a retarded fuck-brain.
For someone who is supposedly an 'economist' he sure loves his
communism.
mark|5.26.09 @ 7:03PM|#
RC,
I thought I had read somewhere that Congress agreed to
pay-as-you-go when they passed the 2010 budget. I was wrong, it was
merely a
suggestion by POTUS.
|5.26.09 @ 7:25PM|#
Matt,
Did you really compare California's tax rate to that of Texas? This
seems silly, since Texas is pretty much last in every measureable
attribute of quality of education/life/etc. except for Miss. and
Ala. Talk about a strawman...
Love,
Christopher
wayne|5.26.09 @ 8:17PM|#
21.9% state and local tax burden in California versus 14.5% in Texas. So where would you rather live?
Texas, and oh, by the way, I currently live in CA. Actually, where
I want to live is Nevada, but Texas would do.
J|5.27.09 @ 3:08AM|#
Prop 13 had a good intention, but unintended consequences, since
the authors of the bill never foresaw the various housing bubbles
coming - they saw the rapid price swings in housing as being an
anomalous condition for which Prop 13 would be curative.
What IS true is that government policies have exacerbated the
inequities that have arisen from Prop 13. It surely is
fundamentally wrong that old people who have owned their homes
since 1978 don't pay anything approaching an amount that would
defray the services and benefits they receive, while new buyers,
who have far less financial health (since they haven't been saving
their whole lives and don't have a house that they own free and
clear, for example), might pay 10x the tax for a similar
property.
And of course, commercial property owners and landlords who don't
occupy their property are skating by on this system as well,
abusing the privilege, so to speak. Renters of multi-family
dwellings get a free pass by extension. If you had a $2M SFR you'd
pay about 30K a year property tax on it, and lets say your family
is a typical family of four, with two kids in school. Yet somebody
can own a 10 unit apartment building worth exactly the same amount,
$2M, that houses 40 people, and pay exactly what you pay in tax.
How is that fair?
A fair tax structure would apportion actual and reasonable costs
equally amongst all similarly situated parcels, so that the tax
approximates an estimated cost of service for that parcel. And to
be even fairer, government services like education should use the
same kinds of consumption baselines that are used by public
utilities. Ie, to encourage responsible procreation, and to
incentivize people for globally and socially considerate family
planning, you'd want a policy that rewards, or does not penalize
people for having a replacement value of children, ie, 2 children.
So the education that comes with property ownership or occupancy
should be limited to two kids. any more, and you pay the full costs
of that service, if you choose to avail yourself of it. This would
be stimulating to the economy, since it would shift costs from the
public to private sector where there is more efficiency.
In any case, taxpayers DO need protection against arbitrary
taxation, which is what Prop 13 provides. Let's be clear though,
the growth limits in Prop13 are arbitrary, but at least they
provide clarity to the future burden a taxpayer expects.
We have got to figure out a way to humanely provide basic essential
services in a fashion that makes all who receive the services a
stakeholder with hopefully the same interest in supporting the
system as their richer or poorer neighbor. A flat fee for service
is the only fair and equitable schema for achieving this kind of
balance between citizenship patronage and simple theft and
exploitation. If you pay what I pay, I can't very well resent you
for getting the same services, can I? I won't refuse to support a
service just because I think you'll benefit more from it that me.
If people are treated equitably under the law then people will
treat each other more equitably since there is no incentive to do
anything else. If I can't profit at your expense, what reason do I
have to withhold from you some service that I enjoy? Or covet one
that you do?
I believe Prop 13 needs an overhaul, but the protections against
capricious and arbitrary taxation should stay. And the tax
assessment method should be discarded completely - ad valorem taxes
don't provide equitable treatment under the law, and it penalizes
people for success, and discourages achievement, the very opposite
of the behavior we want more of!
j|5.27.09 @ 3:26AM|#
One note about Krugman, like most academics he often appears to
suffer from the curse of the ivory tower. For example, he thinks
tax hikes in the midst of recession are a "reasonable" response to
a budget crisis. It really does boggle the mind to attempt to
conceive of just how much Kool-Aid one must drink to maintain such
a determinedly obstinate delusion. In which economic theory is it
taught that high taxation is stimulative? Or that deficit spending
is sustainable in perpetuity?
California does indeed have a massive spending disorder, so taxes
are not the sole answer to the problem. Government HAS distorted
many markets; we can take it as a maxim that government can not
provide productive or allocative efficiency! And we see this in
housing, it is obvious that government meddled to the point where
the prices departed from any kind of rational model. And the most
common remedies that government tries to administer tend to
generally make the problem even more severe, like in the example of
"affordable housing", which really is an oxymoron.
j|5.27.09 @ 3:37AM|#
Christopher, where are these rankings you refer to that show
Texas being last or bottom three in "measureable attribute of
quality of education/life/etc."
I am not aware of any such data, in fact, a quick Google search
reveals evidence to the contrary: measureable attribute of quality
of education/life/etc.
Texas is certainly not without its problems, some of which, such as
illegal immigration, manifest themselves in ways familiar to us
Californians, but to suggest its at the opposite of some kind of
spectrum in which we dominate seems foolish.
Sean W. Malone|5.28.09 @ 8:34PM|#
I too have noted the Ellsworth Toohey/Krugman doppleganger, but I still can't understand how someone who is purported to be so damned smart is such a fucking idiot. If he's not a complete retard who managed to trick everyone in academia (which definitely happens on a regular basis... ugh...), then he's positively evil as a human being. Neither case is a glowing recommendation.
The Wine Commonsewer (TWC)|5.29.09 @ 3:48PM|#
It should also be pointed out that prop 13 is not truly a cap.
It only caps the rate of annual increase.
It should also be pointed out that all those houses that sold for
three times what they were worth were assessed property taxes at
three times what they were actually worth.
And, anything built in Ca during the last thirty years is subject
to assessment districts to pay for roads, infrastructure like
water, gas, and sewer, landscaping, & street lights. That
effectively skirts prop 13 and adds two to three fold costs to the
"property tax" picture.
Krugman doesn't know shit from breakfast and he should STFU.
|5.29.09 @ 5:01PM|#
Pension costs are the 600 pound gorilla! -- and no one is speaking about them. There is a well thought out proposal from the California Foundation for Fiscal Responsibility that can save the state $500 billion: $300 billion at the state level and another $200 billion at the local level. It is fair and reasonable and affordable, so I have to wonder why no one is even talking about it. I fear that it is a sign of just how much our leaders are under control of the Public employee unions.
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