Taxes

Is California's Decline Just More Right-Wing Propaganda?

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He's altogether ooky.

Any column about California that gets thumbs up from both Arnold Schwarzenegger and Jerry Brown is cause for deep suspicion, and in the case of Market MarketWatch columnist Brett Arends' sustained defense of California, the suspicion is justified.

Arends' thesis is that a cabal of rightwing pundits are manufacturing the story of the Golden State's economic troubles. He makes some points that are true: California pays out more than it receives in federal funding; the state's $2 trillion economy is the eighth largest in the world; and housing is way too expensive. (Arends conspicuously avoids looking at some of the reasons behind that last problem.)

Does this mean all the grim forecasts you hear about the Golden State (most emphatically from Gov.-elect Brown, though Arends says critics of Californianomics are motivated by animus toward the incoming third-termer) are bogus? Only if you're really willing to cherry pick your data.

Here's how Arends spreads the good news about California's investment climate (warning: heavy sarcasm ahead):

Back in the Silicon Valley glory days, in the late 1990s, California attracted an incredible 42 cents of every venture capital dollar invested in America. Ah, those were the days — when the private sector was still willing to back California with its own money. As any conservative will tell you, that's the real voting in the economy.

How far has California fallen from those giddy days?

According to the latest data from PricewaterhouseCoopers and the National Venture Capital Association, in 2010 California just got a miserable, er, 50 cents of every venture capital dollar invested in America.

So, how much, according to NCVA and PWC, does that actually come to? About one-third as much as in 1999, when VCs put up more than $51 billion in funding, and less than a fifth as much as in 2000, when they put up more than $100 billion. Nationwide, VCs spent an anemic $17 billion in 2009. It's true that California attracts a slightly larger piece of the venture capital pie than it did 11 years ago, but the pie is geometrically smaller than it was then. If you think venture capital is going to lift the Golden State out of the dumps, you're wrong.

To the fact that California's debt burden is among the highest in the nation, Arends responds with what looks like a larger perspective:

The Tax Foundation is non-partisan, but by the nature of what it does it leans politically to the right.

According to them, as of 2008 (the most recent year analyzed) state and local taxes in the average state came to about 9.7% of the annual state economy.

What was it in crazy, liberal, communistical, socialistical, un-American, soviet-style California?

Er, 10.5%.

I don't know that this makes me feel any better about losing more than a tenth of my money to pay for impassable roads and the second-worst education system in America. California does particularly poorly in tax policy compared to the state it most resembles in size, demographics and general economic mix. Texas has an overall tax burden of only 8.4 percent, and as this recent study [pdf] from the Texas Public Policy Foundation explains, the types of tax and regulatory burdens a state imposes are as important as the overall tax burden. That study was co-written by Art Laffer, who had something to do with Ronald Reagan way back when, so maybe by Arends' lights it should be dismissed as partisan bickering. But even through the scrim of Arends' ironical phrasing, you're still looking at a tax burden that is nearly a full percentage point higher than that for the rest of the country. Maybe that doesn't seem like much to Arends, but he doesn't live here.

What about the state's widely discussed problem with its public sector pension liabilities? Again, Arends advises us to look at the big picture:

The non-partisan Legislative Analysts' Office in Sacramento estimates there's a $136 billion gap in the state pension and benefits system. It may work out to more or less. But that's the actuarial figure at the moment.

Size of the state economy? Oh, $2 trillion a year. That's 14 times the size of this gigantic pension-fund gap.

California calls your money.

Of course, what matters is not how big the pension gap is relative to the state's total economy, but how big it is relative to the state government's budget. Sacramento spends a total of $86 billion a year [pdf], so the pension liability Arends describes as overstated is in fact much larger than the entire budget of the state. California already boasts the seventh-highest debt-per-capita rate in the country and the absolute lowest bond rating among the 50 states. That $2 trillion economy starts to go elsewhere (usually Texas) as you keep dipping into it to pay for reduced services.

Case in point: San Diego Tax Fighters Chairman Richard Rider (a donor to the Reason Foundation, which publishes this site) notes that the Golden State's corporate income tax receipts dropped 41.6 percent between 2009 and 2010.

I called the office of State Controller John Chiang to get an idea of what caused that shortfall. It turns out these figures are skewed by the timing of the measurement—2009 receipts were goosed by companies attempting to pay taxes early in response to a change in tax laws. The state's actual decline [pdf] in corporate tax receipts—$9.446 billion in fiscal year 2010, against $12.261 billion in 2009—is closer to 22 percent.

That's still the eighth-worst decline among the 50 states, and it can't all be explained by the recession. Twenty states posted year-to-year gains in corporate income tax receipts. It takes some pretty strenuous denial to say none of California's corporate tax revenue losses resulted from businesses leaving the state.

Fiscal conservatives aren't against California. Reality is. The state has lost a third of its manufacturing base in a decade, its budget is structurally unbalanced, and its political leaders believe you can get out of bankruptcy by fining jaywalkers.  You don't need to be a Republican or a Democrat to understand that these problems are real.

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  1. Caption Contest!

    “You know, two of my heads would make a great ass.”

    1. “C’mon, sweetie, hop in my van and I’ll show you all the documentation to prove my thesis….I have candy…”

    2. He looks like the non bear version of Andrew Sullivan.

    3. No, you need the Rodney Dangerfield version from Easy Money, to a bald guy with a bald mannequin head next to him on the counter:

      “Why don’t you put your heads together and make an ass out of yourselves.”

      1. Oh Pissi, you and your pop-culture references!

    4. “No, I’m not the guy that plays Runkel on Californication.”

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  2. Next up Arrends explains how Greece and Ireland really are not bankrupt. As things get worse and worse, these people’s rationalizations are going to get more and more pathetic.

  3. And the Kochtopus’ Konspiracy’s tentacles reach ever deeper into America’s synapses.

    Wait till The Nation gets hold of this….they’ll make all the links this amateur Arends missed.

    /adjusts tinfoil hat

  4. Californians are smart enough to look to the future. By investing in clean energy and green technology, California will prevail economically by using and selling technology that will leave the rest of the country behind.

    In 20 years when California is even richer than it is now and the rest of America is still using traditional, unpopular, dirty energy that pollutes the world, we will see how much smarter California is than the rest of the world.

    1. My gosh I hope your writing tongue in cheek and not drinking the kool-aid. Calif. lost 400,000 manufacturing jobs in 2009. Clean energy will only generate 3000 jobs a year for Calif., and those are often temporary installation jobs.

      1. Not to mention mean ol’ Texas leads California in clean green wind energy, last I checked.

      2. I think he is on to something – he just didn’t describe the hollywood/sacramento axis, that though a combination of self-satisfaction/hot-air will provide more energy than 100 earths could use. Of course, all of this energy will be used to provide 24 hour screening of the Ed Begley/Ed Asner nude ballet, “earth joy”

        1. Ed Asner nude ballet

          You just found a cure for me.

    2. California looks to the future, which is why they elected Jerry Brown, the liberal nightmare governor from the past to lead them to their Stalinist future. There are lots of programs for people without jobs, so don’t worry, they will soon be shooting the Kulaks, then good times will happen.

    3. Uh, here’s the thing…

      Energy is not a popularity contest.

      And just as there’s no longer any silicon coming out of Silicon Valley, all of this “green” technology can be produced in Nevada, Utah, Texas, Idaho, and overseas, as easily as chips — and iPads.

      1. Speaking of silicon, there is not enough sand in the world to cover up the head of progressive denial. it is the pervasive theme in most everything they write and advocate these days. You are lead to believe in the lede you are going to get a witty treatment on the current myths the hoi polloi are steeped in, but nope, it is always the same sad denial of reality.

    4. I’m going to assume this comment isn’t tongue-in-cheek, since it sounds like a Jerry Brown press release. The problem with the whole “greentech” nonsense is the following:

      1. Artificially high energy costs drive business out of the state by increasing their expenses.
      2. Most “greentech” businesses are still subject to at least something resembling the laws of economics (even if they’re goosed by government). So, to hold expenses down, they’ll locate in, say, Texas, if not China, where they can avoid all the other junk CA forces on employers.
      3. Illegals can install solar panels and other stuff just as easily as they can put in other parts of houses and other buildings. So, don’t expect much in the way of “good jobs” there.

      So, even if CA manages to produce some useful greentech, the state won’t get “richer” (other than possibly a few rent-seeking VC firms). The benefits will likely flow elsewhere, to places with more sane regulatory climates.

  5. So libertarians are responsible for the backlash against the TSA, and not people getting groped; and now conservatives are responsible for the perception that California is fucked, and not because…it is.

    What next? Trekkies are responsible for the unpopularity of Obamacare?

    1. “Trekkies are responsible for the unpopularity of Obamacare?”

      To a certain extent, yes. In our overly materialistic society, millions is wasted on making expensive TV shows. That money could be used to provide health care for the poor. If we weren’t wasting so much money on TV programs, movies, sports games and needless entertainment, we wouldn’t have needed Obamacare.

      1. I would say you’re creeping me out with your imitation of Max, Chad, and Tony, except that your spelling and grammar are too good to be from them. Even your logic is a little too believable to be from them.

      2. Spoken like a true socialist/marxist; let’s seize people’s money to put it to “proper” uses and not “wasted.”

        Except of course that money isn’t “wasted”. It may not be used the way YOU would like it, but that’s what makes horse races — and free economies. The “wasted” money does generated jobs and profits which generate taxes and more jobs and …

        The problem with Socialism is that sooner or later yo run out of other people’s money … Margaret Thatcher.

      3. So you want to stop “wasting so much money” on TV programs and movies. What effect do you think *that* move would have on the California economy?

    2. it was the trebbles actually

      1. The wonderful thing about tribbles
        Is tribbles are wonderful things
        Their tops are made out of rubber
        Their bottoms are made out of springs
        They’re bouncy, trouncy, flouncy, pouncy
        Fun, fun, fun, fun, FUN!
        But the most wonderful thing about tribbles
        Is I’m the only one!

  6. Some points about Arends’ article:

    You can’t really compare CA’s tax rate (10.5%) to the nation’s average tax rate (9.7%) without removing CA’s rate from the average…it’s too large. While you’re at it, remove NY, NJ, and IL from the average because those states are nearly bankrupt too. Then make your comparison.

    Arends’ argument about CA paying more into the fed tax system than it gets back has some merit, but that’s an argument for federalism (for which I’m sure he’s no advocate).

    1. It does depend on how they’re doing the average there. But the Tax Foundation site seems to imply that they’re doing it the way weighted by size of economy, so that the rate computed is the rate at which the average dollar in the US overall is taxed. (Rather than something like weighting each state equally.)

      So your point is well-taken.

      The 10.5% is sixth-highest. People who act as though nearly 1% of the economy is tiny are ridiculous, whether they’re talking about Social Security, Medicare, military spending, or how much it would cost to avert a tiny amount of CO2 production.

      1. Yes, I realized after I wrote the above that I made the assumption of weighting by size of economy without writing it.

  7. I’ve lived in California for over 50 years. When I first arrived, water was not metered and gas was cheap, even adjusted for inflation. There were fewer than half as many people, and the educational system was one of the best in the country. Oh yeah, I almost forgot: Most all Californians loved the U.S., too.

  8. Here’s a cite for California.

    California has a very complicated tax code, with really high rates but not all that much higher collections. In particular, corporate taxes are high. California specializes in economically inefficient taxation, bringing in relatively little income for the economic pain.

    California is a donor state, largely an effect of the expensive housing (which is largely the fault of local and state regulation) and the in general high cost of living and high incomes. However, any Californian complaining about that should support federal tax cuts on high earners; federal spending is inevitably tied to income and need.

    California is a rich state with a terrible budget and tax system. Being rich now is not a great excuse for aiming for failure and for not getting your money’s worth, but it does explain why federal redistribution doesn’t favor CA. Want to keep more money in CA? Stop voting for politicians who want to spread the wealth around.

    1. California is a rich state

      Getting poorer everyday thanx to cocksucking state worshipers like this douche – Brett Arends.

      Fuck Him.

    2. California is a rich state

      Getting poorer everyday thanx to cocksucking state worshipers like this douche – Brett Arends.

      Fuck Him.

      1. Yeah, it’s all his fault! That, that…cocksucking, state-worshiping douche!

        [stamps foot, pouts]

        1. The media here are dominated with lying douche bags like him, who’s only job is to sell every big dollar peice of shit that douche bag pols push. For the children of course. That sales pitch is usually successful because progressives have brought a hs education to a level formerly held by grammar school dropouts.

          1. Grammar School Dropout,
            No graduation day for you.
            Grammar School Dropout,
            Can’t read or write, and still flings poo

  9. Who are you going to believe? Me, or your lying eyes?

  10. “Size of the state economy? Oh, $2 trillion a year. That’s 14 times the size of this gigantic pension-fund gap.”

    Spoken like a true statist. I hope everyone realizes that this stems from the attitude that ALL income earned in this state really belongs to and is for the benefit of the Socialists who run it. California is not very different than the PIIGS.

    1. what’s the matter, comrade?

  11. Let me know when the U-Haul rates reverse, and a Texas-to-Cali rental is cheaper than Cali-to-Texas.

  12. I have a question about the tax rate in California relative to my state of Tennessee.

    California City- County Sales Tax Rates, it averages about 8.75% as per that unmathematical review of the aforementioned graph.

    Tennessee is about 9.75%.

    Tennessee has no -0- (Zero) income tax.

    California has a 0-11% pending income, but $26K in income starts at 6.25%. In what planet is this not another 5% of your income MORE taken away than in Tennessee?

    1. Since I can’t put more that TWO links in a comment, here is State Individual Income Tax Rates, 2000-2010.

      Again, 9.75% against 16%. That seems like a bigger gap. Are the beaches really THAT good in Malibu?

      1. Malibu? No.
        Newport? Maybe.
        San Diego? fuck yes.

        1. Yeah, beaches are tough to beat, especially some of the ones in California.

          But I will say I lived on Martha’s Vineyard for three years and I hardly ever went to the beach.

          What else am I “missing” in Cali?

          1. The best weather in North America.

            1. As well as the worst. Ever been to El Centro?

              If you’re not within 2 miles of the beach, and south of Santa Barbara, the weather is not as advertised.

              1. +1 Most of California is inhospitable hell hole. Shitty weather starts not that far from the beach. What people call “coast” here is actually a series of god awfully hot valleys where most of the people live. You gotta be west of the 1/PCH, but even then, beach people live through the summer enveloped in coastal fog.

              2. It is more like 10-30 miles from the coast, depending on if you have a mountain range between you and the central valley. Weather in South San Jose is great but you are at least 15-20 miles from the Bay and 40 miles from a real coastline. No fog either. The weather profile in the Central Valley is probably similar to South Carolina, but without much of the humidity.

                1. South Carolina has 100-car pileups on the highway in tule fog? Who knew?

                  And San Jose is an armpit.

        2. Yeah. So are the earthquakes.

          Think about it Sy. Odds are that you live in a part of TN that has you missing out on earthquakes. And I’m sure TN produces far superior tornadoes on a regular basis, compared to anything like it you’ll find in CA.

          You should suck up those higher taxes and move to CA right away.

          If you can find a job there, that is. I know a surprising number of reasonably qualified engineers in SoCal who were (over the past several years) unable to find work, finally gave up and became computer network admins or similar.

          Of course, even with the recession, the cost of housing in SoCal may force you to live like Oscar in a garbage can. But hey man, those beaches are worth it.

          1. That was supposed to be “Tman” no “Sy”.

            1. Yeah, fuck the beaches. I can visit. You should see the backyard of the house my friend bought in Nashville for $120K.

              You can have Newport and the earthquakes, I’ll take the smoky mountains and occasional tornado’s.

              1. The Smoky s are awesome, I have to admit. And I always liked Chattanooga scenery. I could live there, if only there were any jobs for me and the wife….alas there’s not.

              2. tman, companies looking where to locate care about _total_ taxation, not just income taxation. What about all theother taxes and fees, etc. in Calif. vs. Tennessee? I know the (thanks to prop 13) property tax in Calif. is 1%. What is it in Tennessee?

                1. In Davidson County, where I live, property taxes are .92% as percentage of home value, which works out to around 2.5% of a median income of $61K.

                  Perhaps this is why companies like Dell and Nissan relocated to Nashville and Davidson county.

                  But again, no beaches. Or earthquakes.

          2. Ever hear of the New Madrid fault? Trust me, when that lets go again you won’t miss the quake.

            1. It is over 400 miles from Tman though. Yes, he would probably feel it but it won’t be catastrophic. No volcanoes either.

              1. East Coast earthquakes propagate 10x as far as West Coast earthquakes.

                The 1886 Charleston earthquake was felt in Boston, Bermuda, Havana, and St Louis.

                The 1812 New Madrid earthquakes (estimated to be between 7.0-8.1 on the Richter scale) were felt over 1 million square miles while the 1906 San Francisco earthquakes (estimated to be between 7.7 and 8.25 on the Richter scale) was felt over 60,000 square miles.

                An earthquake in New Madrid is likely to do a lot of damage to Tennessee

          3. I thought about moving, but I saw so many regulations regarding my desired housing and taxes that when I asked the Count to sort them all out, he said “Fuck it, this shit’s too hard.”

    2. “Tennessee has no -0- (Zero) income tax.”

      That’s not entirely correct.

      TN has no income tax on wage income.

      It has a 6% tax on income from dividends and interest.

      1. This is true, but considering the amount of dividends and interest I and others in my income range have received in the last few years, it is essentially meaningless for this argument, and I have no idea what the tax on income from dividends and interest is in California, but I doubt it is that competetive with Tennessee.

  13. Speaking of VC, and tech companies in general, Arends seems to have forgotten about companies like Apple and Google. They may not be leaving California (yet), but they’re spending hundreds of millions of dollars on facilities outside of California. Arends should ponder why that is so.

    1. Good point. Their headquarters may be in California but what jobs they are creating are being created elsewhere. And moving the HQ is not that big a deal at the end of the day.

  14. I haven’t read his article, but I think there might be some validity to the point that the California is used by conservatives w/out much in-depth analysis as an example of the “failure of liberalism,” and that the troubles of the Californian economy/budget are not necessarily directly related to policy decisions traditionally known as liberal.

    1. What kind of dumb fuck are you?

    2. While I’ll grant that one blind spot of conservatives can be ignoring the true cost of regulations that don’t have dollar figures on them (McCain is a great example of one with this blindness), I’m not sure that’s what you mean.

  15. I think there’s something to the suggestion that we’re still waiting for the second shoe to drop…

    Drop it will.

    Yeah, the patient’s been shot in the chest several times–but, no, we haven’t pulled the bullets out yet…

    …and there’s the rub. The patient isn’t dead yet, and some people will continue to doubt that the patient’s really bad off–until it codes.

    …so there is another boot to drop. I think we’re past the point where anything can be done to make things better before they get worse.

    …especially now that the government employee unions have their man as governor.

    Nobody wants to take the responsibility for goin’ in and doing what’s necessary to save the patient–and until the patient codes, nobody will be willing to do what’s necessary…

    You still hear people saying that California would spend less money if only it had more of our money to spend! …if only we just got rid of Prop 13!

    That necessarily means that those people won’t make the necessary cuts until things get even worse than they are. Reality really is gonna have to work them over a lot more before they start to recognize reality…

    Otherwise they wouldn’t have voted for Jerry Brown.

  16. A chunk of that 2 trillion dollar economy probably comes from Hollywood and some of the tech industry, which is far, far away from the CA democrat voting base.

    The “pension gap isn’t so bad” crowd leaves out the high salaries and other assorted benefits, as well as the ultra expensive prison system.

    In LA, I wouldn’t be surprised if 50% of all businesses save money by paying workers cash under the table or hiring them as contractors. This is place is getting bad.

  17. He speaks about tax rates as though that’s the whole story. In addition to it being one of the highest rates in the nation (and he should be comparing it to the national average ex-California) and Californians paying higher taxes (which they’ve supported at the ballot box), the real issue is that spending is far beyond that tax rate. And given the high taxes, high cost of living, and intensity of regulation in California, I doubt they could just hike taxes on everyone.

    Also, for everyone using some “non-partisan” budget office’s figures, that’s by definition buying into government accounting standards. If you discount obligations the way the private sector does such that you can actually tell what it really costs to hedge all risks, you wind up with a shortfall of over $500 billion.

    But hey, that’s only about a quarter of California’s GSP. Our work here is done.

  18. California will not be bailed out by the Republican congress WHEN they go bankrupt. This is a good thing as it will force the ignorant masses in California to finally grow up. Catfood commission for liberals, that’s the change we need.

    1. Please keep in mind, the only ignorant masses (asses?) in California are on the coast. If you study a county-by-county vote, you find only 4-5 counties voting lefitst. LA, SF, Sac, and a few coastals. Other than that, California is basically a red state. This situation is not unique to California, either. Study every state across the nation and you’ll find the leftists primarily reside in cities. Outside the sities, leftists are hard to find. This lends credence to Jefferson’s warning of big cities and their negative effects on freedom and prosperity.

  19. Perhaps I am succumbing to paranoia myself, but is this the latest tactic from Team Obama and its supporters: to assert that things really aren’t bad at all, but that right wing-libertarian-big business-Fox News funded pundits are merely drumming up discontent for partisan purposes? First the TSA, now California…seems to much of a coincidence to me.

    1. Things *aren’t* that bad. California’s problems are easy to fix – massive sustained increases in spending swamp every other consideration (including taxes). Stop that, and things will fix themselves rather quickly.

      Ditto with the TSA. We have clearly superior options that are easier, cheaper, and more effective in balancing security vs. traveler inconvenience, that’s not the problem.

      1. No, California’s problems aren’t easy to fix, they’re simple to fix. There’s no political will to change, in fact California’s electorate put its foot down on the accelerator to oblivion. I doubt they’ll do anything unless the apocalypse is nigh, and probably not even then.

        1. California’s electorate: Thelma and Louise.

  20. and housing is way too expensive. (Arends conspicuously avoids looking at some of the reasons behind that last problem.)

    There’s only one reason: The rent’s too damn high!

  21. You can argue political ideologies all you want, but the reality is that California sucks.

    I live in SoCal and in the last three years:

    1. My salary has been cut 75% due to the poor economy
    2. I can’t find a second job to make up the difference because unemployment rate in my region is over 14%
    3. My state income tax increased 10% last year
    4. State sales tax increased 10% last year

    I simply can’t afford to live in this state any more. So, I’m moving to a more business-friendly and taxpayer-friendly state.

    Stick that in your pie chart and smoke it.

  22. I agree with this article, but it’s interesting that Tim Cavanaugh says nothing at all about illegal immigration. If more and more immigrants are always better for the economy (as all the editors on Reason claim), then shouldn’t California still be the best economy in the country?

  23. I agree with this article, but it’s interesting that Tim Cavanaugh says nothing at all about illegal immigration. If more and more immigrants are always better for the economy (as all the editors on Reason claim), then shouldn’t California still be the best economy in the country?

    1. Cause Texas doesn’t have wave after wave of illegal immigrants…. RIght?

      1. this is what makes CA and Texas such a great comparrison. Both large, warm states with very large immigrant populations and yet one thrives and one is in the crapper.

        1. I think you get different results when settlers come gradually with an expectation of freedom and hard work in Texas vs. people coming to get rich quick in a gold rush or its modern equivalents in California. Also helps that the Anglo Texans and the Tejanos both wanted independence from Mexico back when Texas split off.

        2. The standard response is that California gets the lower IQ Mexicans – predominantly of Native American ancestry. Texas traditionally has attracted more mestizos and Mexicans of Spanish ancestry. If Texas continues to let Mexicans in with no controls it will eventually slip to the level of California, or worse – New Mexico.

      2. Illegal immigrants generally pay sales and property taxes (the latter through rent and landlords paying it), but are much less likely to pay income taxes.

        TX’s taxes are both efficient and structured in a way that gets illegals to pay in.

      3. Hasn’t become as permanent a fixture in Texas politics – yet.

    2. Uh, quite a few people snuck back the other direction after the housing bust. I suspect there are fewer illegal immigrants in California now than there were a few years back.

      1. You suspect wrong.

        1. Did you count them?

    3. Bob: Hey, you said apples would be good for me.
      Charlie: Why, yes. They are nutritious, low in calories.
      Bob: (Repeatedly jams knife into his own abdomen.) Well, I gotta tell ya, I feel lousy.

      fin

  24. The city of Maywood has fired all their city workers, and is either paying cash under the table, or brought them back as contractors.

  25. So you pay 10.5% of your income in California and 8.4% in Texas. Is it worth 2.1% of your income to live in San Diego versus Houston, or San Francisco versus El Paso? I wonder.

    Still, California state government is a total mess, while Texas state government is in pretty good shape.

    1. The actual decision for most people is not between San Diego and Houston. It’s Colton or Montrose, Compton or Fort Worth, Fair Oaks or Austin, Richmond or New Braunfels, El Centro or San Antonio, Hanford or Midlands, Sugarland or Oakland. Californians pay a lot to get very very very little. Everything except the top 5 UCs are substandard. That’s the travesty. We pay so much…..

      1. I am originally from Fresno, CA and will soon be retiring. I very much want to go back to Fresno, but when I look at the acrage and house I can get in Cleburne or Athens, and compare it to what I can get in Fresno (fRESNO!!! we’re not talking San Francisco or San Diego!) – well, its just not rationale to spend so much to live in CA.

    2. Alan, the basics of your argument seems to be the old “are you a snob or a slob” argument. But don’t worry, eventually if California keeps going the answer will be “Yes, they would rather live in Houston or El Paso.”

    3. Cherry pick much? How about Austin v. San Diego? San Diego’s probably my favorite city in America, but I’d much rather live in Austin, where the cost of living is lower and the government isn’t bound and determined to bankrupt the state.

    4. Remember, that 2.1% difference in income lost to taxes between CA and TX is an AVERAGE. Our CA problem is that our high marginal income tax rate is FAR more important to the well-to-do. That’s why Tiger Woods and the Williams sisters (tennis) moved from CA to hot, humid, buggy income-tax free Florida.

      In addition to the taxes, the overall cost of living n CA is far higher than most of the nation. Our major electrical and water costs are among the highest in the nation. Housing prices you know about. Litigation is running amok. Workers comp is outrageous. And our governments are teetering on bankruptcy.

      We hate businesses, resulting in the third highest unemployment rate. It all adds up.

  26. It was nice of Arends to refer to the Tax Foundation as “venerable,” but in making his things-aren’t-so-bad-in-California argument, he neglects to mention one of our most recent measures of state-by-state taxation. In the FY 2011 State Business Tax Climate Index, California ranks 49th – in other words, the second worst state in the nation (after NY) in which to do business. California still has its strengths, of course, but when it comes to state tax policy, they’ve got a lot of room for improvement.

    1. Correct. The Tax Foundation is in D.C. – it harbors no pro-CA bias.

  27. The reason corporations paid more in 2009 was to avoid a penalty for underestimating taxable income a priori, which was an intentional trick by CA to “borrow” money from corporations. My company and ALL its employees moved out of CA to avoid these tricks in 2009.

  28. According to them, as of 2008 (the most recent year analyzed) state and local taxes in the average state came to about 9.7% of the annual state economy.

    What was it in crazy, liberal, communistical, socialistical, un-American, soviet-style California?

    Er, 10.5%.”

    Isn’t a big part of the problem that California is spending more than it is taking in and their recent attempt to raise taxes has been turned down by the public.

    1. As P.J. O’Rourke aptly pointed, “Giving more money to politicians is like giving whiskey and car keys to teenage boys.”

      In this case, higher taxes would simply be spent without reforms — as happened a couple years ago when our legislators raised our CA sales, car and income taxes a total of $13 billion.

  29. I own two homes in California and the actual amount of yearly property taxes are much higher than 1%. Communities all put Mello-Roos taxes (non-deductable) on top of the 1% state property taxes. So for example, my $280k home in the Sacramento area has a $2800 based on the 1% state property tax, then $6000 in Mello-Roos taxes, and $1200 in other “fees”. I am paying $10k a year in property taxes. All the new home developments built after 1990 get a $50-60k assessment that has to be paid off, and they have to belong to HOAs which act as semi-governmental entities and charge $100-$400/month as well.

    My house loan is the lowest cost item of my monthly housing cost.

    Also, in my home in the bay area, the sales tax is 10.25%, due to local add ons.

    In my city, the public employees are making $300k a year, and getting $200k retirements. Yet unemployment is over 22%, and that’s not even counting the long-term discouraged or underemployed.

    For me, if I add up the amount I pay to the state (including “fees”, “mello-roos”, “property taxes”, etc), it came out to about 22% in 2009.

    1. Your total property tax bill is equivalent to what a homeowner in northern New Jersey typically pays — and NJ sales and income taxes are a little bit lower.

  30. My airplana crashed while landing for refueling in the summer of ’09. I survived and was forced to spend two months in Vacaville (20 miles West of Sacromento) repairing it! The guy helping me also taught airplane repair at the local community college. Of course the aviation industry sucks like everything else so the job prospects for his students are poor to say the least. I was struck by the poor quality of his students and while older Cali’s are pretty cool they are pretty much clueless about why their state is falling apart. Sad. It is a much prettier State than Texas.

  31. Housing is still way, way too high. Despite having a relatively high paying job as a Ph.D. in electrical engineering, I, as a 50 year old, cannot qualify for the house that my father bought in the valley when he was in his late 20s as a young engineer at GE.

    That shows how much California has changed.

    My wife and I are already making contingency plans to move out of the state.

  32. Just a footnote re California’s educational system. It does as badly as it does on statistical measures in large part because there are significant subsets of the population (principally recent immigrants) who are minimally interested in acquiring an education.

    1. A recent study identifies the demographic mix of public school students as 50 percent Latino.

      It wouldn’t surprise me if within 20 years we’d see a California independence movement – first with the aim of seceding from the union and with the ultimate goal of reunification with Mexico.

  33. Breaking Bad: California vs. the Other States
    by Richard Rider, Chairman, San Diego Tax Fighters
    Version 1.744
    Revised 18 November, 2010
    Updated version online at: http://www.RiderBlog.NotLong.com Phone: 858-530-3027 Email: Rider@san.rr.com

    Here’s a depressing but documented comparison of California taxes and economic climate with the rest of the states. The news is breaking bad, and getting worse (I keep updating this fact sheet– complete with URL links for each fact — on my blog):

    California has the 3rd worst state income tax in the nation. 9.55% tax bracket starts at $46,349 for people filing as individuals. 10.55% tax starts at $1,000,000

    By far the highest state sales tax rate in the nation. 8.25%. 7% is next highest (does not include local sales taxes)

    California corporate income tax rate (8.84%) is the highest west of the Mississippi (our economic competitors) except for Alaska. We are 9th highest nationwide.

    California’s 2011 Business Tax Climate ranks 2nd worst in the nation.

    Fourth highest capital gains tax 9.55%

    Highest gasoline tax (averaging 67.4 cents/gallon) in the nation, 4 cents above second place Hawaii (July, 2010). Also highest diesel tax.

    California is ranked 14th highest in per capita property taxes (including commercial) ? the only major tax where we are not in the worst ten states. But CA property taxes per home were the 10th highest in the nation in 2008.

    One of the highest state vehicle license car taxes. 1.15% per year on value of vehicle, up from 0.65% in 2008.

    California’s 2010 “Tax Freedom Day” (the day the average taxpayer stops working for government and starts working for themself) is the 7th worst date in the nation ? up from 28th worst in 1994, but down from 4th worst last year CA “improved” only because of our state’s soaring unemployment rate ? the new tax dodge!

    In 2009, 24 states raised their taxes at least 1% to collect $28.6 billion. California’s taxes went up about $11 billion ? thus we were responsible for about 38.5% of all the state tax increases in the nation.

    California has the nation’s 3rd highest unemployment rate. (October, 2010) 12.4%. National unemployment rate 9.6%.

    California needlessly licenses more occupations than any state ? 177. Second worst state is Connecticut at 155. The average for the states is 92.

    For the 2007-08 school year, the Los Angeles Unified School District spent $29,780 per student. The district also has the country’s second lowest graduation rate of 40.6%.

    CA public school teachers the 2nd highest paid in the nation after NY. The average 2008-09 CA educator salary was $69,093 ? 7.25% higher than the previous year’s $64,424 average.

    1 in 5 in Los Angeles County receiving public aid.

    California has 12% of the nation’s population, but 36% of the country’s TANF (“Temporary” Assistance for Needy Families) welfare recipients ? more than the next 7 states combined. Unlike other states, this “temporary” assistance becomes much more permanent in CA.

    California prison guards highest paid in the nation.
    California is the worst ranked state for tax administration ? another anti-business factor.

    California now has the lowest bond ratings of any state, edging out Louisiana.

    As of 2008, California ranks 5th worst in “lawsuit climate.”

    America’s top 600 CEO’s rank California “the worst place in which to do business” for the fifth straight year (3/2010). But here’s the interesting part ? they think California is a great state to live (primarily for the great climate) ? they just won’t bring their businesses here because of the oppressive tax and regulatory climate.
    Consider this quote from the survey (a conclusion reflected in the rankings of the characteristics of the state): “California has huge advantages with its size, quality of work force, particularly in high tech, as well as the quality of life and climate advantages of the state. However, it is an absolute regulatory and tax disaster.”

    California, a destitute state, still gives away college education at fire sale prices. Our community college tuition is by far the lowest in the nation. How low? Nationwide, the average community college tuition is almost four times higher than California CC’s. This ridiculously low tuition devalues education to students ? resulting in a 30+% drop rate for class completion. In addition, 2/3 of California CC students pay no tuition at all ? filling out a simple unverified “hardship” form that exempts them from any tuition payment, or receiving grants and tax credits for their full tuition.

    On top of that, California offers thousands of absolutely free adult continuing education classes ? a sop to the upper middle class. In San Diego, over 1,000 classes for everything from baking pastries to ballroom dancing are offered totally at taxpayer expense.

    Protests about increased UC student fees ignore one crucial point — all poor and most middle class students don’t pay the “fees” (our state’s euphemism for tuition). There are no fees for California families with under $70K income. Moreover, Pell Grants and federal tuition tax credits cover the total 2009-10 fee increases for nearly 3/4 of all undergraduates with household incomes below $180K.

    California residential electricity costs an average of 30.1% more than the national average (far higher in San Diego County). For industrial use, CA electricity is 60.8% higher than the national average (June, 2010).

    It costs 38% more to build solar panels in California than in Tennessee ? which is why European corporations have invested $2.3 billion in two Tennessee manufacturing plants to build solar panels for our state.

    Consider California’s net domestic migration (migration between states). From April, 2000 through June, 2008 (8 years, 2 months) California has lost a NET 1.4 million people. The departures slowed in 2008 only because people couldn’t sell their homes.
    These are not welfare kings and queens departing. They are the young, the educated, the productive, the ambitious, the wealthy (such as Tiger Woods), and retirees seeking to make their pensions provide more bang for the buck. The irony is that a disproportionate number of these seniors are retired state and local government employees fleeing the state that provides them with their opulent pensions ? in order to avoid the high taxes that these same employees pushed so hard through their unions. And once they move out of California, our state can no longer tax their California-paid pensions.

    As taxes rise and jobs disappear, we lose our tax base, continuing California’s state and local fiscal death spiral. This downward spiral must stop NOW.

    NOTE: To see the latest version of this “Breaking Bad” column, plus other taxpayer items of interest, go to my blog at http://www.RiderBlog.NotLong.com. There is an “RSS Feed” button to have notices of blog updates sent to you automatically. This fact sheet also is available upon request as a 2 page Word file for printing.

  34. Who’s cherry picking their data? By selecting what I’m pretty sure are the two top years in the dot.com and telecom bubble to compare to today’s venture capital … well, I stopped reading your article after that. I strongly suspect your thesis is correct, but I can’t trust you to present it.

    1. As the quoted text indicates, Arends based his comparison on the peak of the dotcom boom in the late 1990s. So i did the same. Should I have made a comparison that wasn’t in the original article?

  35. Note that I had to remove the URL’s for this “CA vs. other states” fact sheet to be posted here. Go online if you want source material for each factoid.

    1. Damn Richard, I really did want you to be the Mayor of San Diego. That’s the only time I’ve ever stood in an intersection with a campaign sign, in my 44 years.

      I might even move back to CA if you became Governor, but as it stands, we took your advice and moved out of state. Hope things are going well for you down there.

      1. We were sorry to see you go, Barry As an old guy, I’m planning to stay in CA and fight it out. But there will likely come a time when one must reassess.

  36. Timothy Egan wrote a similar apologia in the NY Times as well. He asked (rhetorically?) why, if CA was doing as poorly as attributed, the state gained population in the past year equal to the size of Pittsburgh.

    Why, indeed. It was all natural increase–births over deaths. He was being disingenuous in implying that Americans were still flocking to CA in huge numbers, when there has been such a great outflow that for the first time ever, CA risks losing a House seat and absolutely will not gain any in the upcoming reapportionment.

  37. One might also add that a lot of those births are children that will be a huge net drain on the state for a very long time.

    In my 42 years in California, I saw births to the upper 50% of the economic scale plummet, with the upper middle class now having one or two kids, and waiting until their late 30s, whereas it seemed like the poorest people were the ones with 5+ kids by the time they hit 25.

    There are many reasons for this, including culture (rural vs. suburban vs. urban, Mexican immigrants vs. white college-educated NPR listeners, etc.), housing prices, poor schools that led some people to factor the tuition of private schools into their decisions, and the general cost of living. But whatever the reasons, this population increase is not, on the whole, one that will lead to a solution to the budget problem. Social welfare programs in the state, combined with the demographics likely to have the most children soonest, will make the problem worse with more births.

  38. Re voting with their feet: According to census.gov, here’s what happened in LA County between 2000 and 2009:

    Total population increase was 328,680.

    The “natural increase” was 849,082 – 1,402,112 births less 553,030 deaths.

    Net migration was (negative) 474,695. Net foreign migration was (positive) 651,154, but net domestic migration was (negative) 1,125,849.

    Let that sink in: in the last 10 years the number of US residents who decided to leave LA county outnumbered the number who decided to move there by more than 1 million.

    Between 2000 and 2009, California as a whole lost over 1.5 million people due to net migration to other states. This was offset by a net gain of 1.8 million from foreign migration. Not implying a cause-effect, but basically for every person who moves to California from another country, a Californian moves to another state.

    1. I think it’s more like this…

      Foreigners have heard of California. It’s probably better on the whole, in terms of opportunities, cost of living, taxes, etc., than wherever they came from. They’ve never heard of Austin or Charlotte. But those with tech jobs probably end up moving there eventually.

      1. I doubt that Juan Garcia from Chiapas is eventually going off to Austin to work in a tech job.

  39. That $136b pension plan gap is using a 7.75% assumed discount rate on its pension benefit obligations and a 7.75% assumption on its future investment returns. The current AA corporate bond yield is 5.0%, which is the rate that corporations tend to use for their plans discount rate and is where many companies have moved to in their 2010 financials. The 7.75% investment rate would be described as aggressive by Bill Gross, Jeremy Grantham, Jack Bogle and Warren Buffett. Try using a lower figure here. Insert these numbers and you are likely to get a pension plan deficit well over $500 billion because the PBO is so sensitive to the discount rate.

    Only way out for the plan (and many other underfunded pension plans) is:
    1) to hope for significant inflation (and thus a higher discount rate) but this will whack asset values,
    2) raise tax rates significantly
    3) cut benefits significantly
    4) hope for a Federal bailout.

    Or another way would be to Eliminate the US corporate income tax which would create millions of jobs in the US, and make US stock prices jump higher by 20%+ which would increase the funding of the California pension plan. http://www.eliminatecorporateincometax.com

  40. The cost of tickets in Los Angeles has become an issue as officials increasingly turn to parking and traffic violations as a way to boost their depleted coffers.

    What a bunch of losers.

  41. the absolute lowest bond rating among the 50 states.

    The bond raters must be right-wingers.

  42. He sounds like the woman who declared “How can I be overdrawn when I still have checks left?”

  43. yeah but you assholes in tennessee dont have Innout.

  44. Comprehensive Annual Financial Report (CAFR) as of June 30, 2009

    Our cities and states only emphasize the Budget Shortfalls, they do not account for all of the cash and other investments they have stashed away. Only the CAFR tells the whole story and California’s CAFR is pretty bad, but not in the red just yet.

    Reporting Entity
    The financial reporting entity of the State includes all of the funds of the primary government and of its component units. Component units are legally separate entities for which the primary government is financially accountable. Blended component units, although legally separate entities, are, in substance, part of the primary government’s operations and are included as part of the primary government. Accordingly, the building authorities are reported in the capital projects funds of the primary government. The lease agreements between the building authorities and the primary government, amounting to $480 million, have been eliminated from the balance sheet. Instead, only the underlying capital assets and the debt used to acquire them are reported in the government-wide statements. The Golden State Tobacco Securitization Corporation is reported as a special revenue fund of the primary government.

    Discretely presented component units are reported separately in the government-wide financial statements to emphasize that they are legally separate from the primary government and to differentiate their financial position and results of operations from those of the primary government. Additional information on the reporting entity is included in Note 1, Summary of Significant Accounting Policies.

    Total Net Assets after subtracting all liabilities is $9,817,000,000 for the primary government and $33,365,629,000 for the component units as of June 30, 2009. (See page 47 of the CAFR)

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  46. As a recently “retired” member of the military, I can say so happily that as soon as I was on my final leave, I got the heck out of California. I lived there in Northern California during two assignments that spanned 1997 to 2010, with a two year break in the middle of it. Now, I personally had a good rent level provided to me by another military member who purchased the house several years before…but, I was renting instead of buying BECAUSE I HAD TO…I couldn’t afford to make a mortgage on anything large enough for my family the way military folks previously did in towns near installations. A lot of GIs used to buy houses near their duty station and simply sell for profit if they got military orders to move. Not anymore…they only buy IF they really want to stay there and gamble that they will be able to do so. If anyone is curious, I moved to TEXAS! No income tax, so my “retirement check”, such as it is after 20 years, goes farther…but, I promised, I will NOT be asking for a bunch of social services…I don’t want to see the stuff happen to Texas like it did to California. I like the non-nanny state atmosphere of Texas…you leave folks alone, they leave you alone. And that is the way it should be…

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