You Have Been The Victims Of A Terrible Swindle

by Jacob Davies

This letter from Berkeley professor Michael O'Hare to his students is so good I'm just going to include it in full here:

Welcome to Berkeley, probably still the best public university in the world. Meet your classmates, the best group of partners you can find anywhere. The percentages for grades on exams, papers, etc. in my courses always add up to 110% because that’s what I’ve learned to expect from you, over twenty years in the best job in the world.

That’s the good news. The bad news is that you have been the victims of a terrible swindle, denied an inheritance you deserve by contract and by your merits. And you aren’t the only ones; victims of this ripoff include the students who were on your left and on your right in high school but didn’t get into Cal, a whole generation stiffed by mine. This letter is an apology, and more usefully, perhaps a signal to start demanding what’s been taken from you so you can pass it on with interest.

Swindle – what happened? Well, before you were born, Californians now dead or in nursing homes made a remarkable deal with the future. (Not from California? Keep reading, lots of this applies to you, with variations.) They agreed to invest money they could have spent on bigger houses, vacations, clothes, and cars into the world’s greatest educational system, and into building and operating water systems, roads, parks, and other public facilities, an infrastructure that was the envy of the world. They didn’t get everything right: too much highway and not enough public transportation. But they did a pretty good job.

Young people who enjoyed these ‘loans’ grew up smarter, healthier, and richer than they otherwise would have, and understood that they were supposed to “pay it forward” to future generations, for example by keeping the educational system staffed with lots of dedicated, well-trained teachers, in good buildings and in small classes, with college counselors and up-to-date books. California schools had physical education, art for everyone, music and theater, buildings that looked as though people cared about them, modern languages and ancient languages, advanced science courses with labs where the equipment worked, and more. They were the envy of the world, and they paid off better than Microsoft stock. Same with our parks, coastal zone protection, and social services.

This deal held until about thirty years ago, when for a variety of reasons, California voters realized that while they had done very well from the existing contract, they could do even better by walking away from their obligations and spending what they had inherited on themselves. “My kids are finished with school; why should I pay taxes for someone else’s? Posterity never did anything for me!” An army of fake ‘leaders’ sprang up to pull the moral and fiscal wool over their eyes, and again and again, your parents and their parents lashed out at government (as though there were something else that could replace it) with tax limits, term limits, safe districts, throw-away-the-key imprisonment no matter the cost, smoke-and-mirrors budgeting, and a rule never to use the words taxes and services in the same paragraph.

Now, your infrastructure is falling to pieces under your feet, and as citizens you are responsible for crudities like closing parks, and inhumanities like closing battered women’s shelters. It’s outrageous, inexcusable, that you can’t get into the courses you need, but much worse that Oakland police have stopped taking 911 calls for burglaries and runaway children. If you read what your elected officials say about the state today, you’ll see things like “California can’t afford” this or that basic government function, and that “we need to make hard choices” to shut down one or another public service, or starve it even more (like your university). Can’t afford? The budget deficit that’s paralyzing Sacramento is about $500 per person; add another $500 to get back to a public sector we don’t have to be ashamed of, and our average income is almost forty times that. Of course we can afford a government that actually works: the fact is that your parents have simply chosen not to have it.

I’m writing this to you because you are the victims of this enormous cheat (though your children will be even worse off if you don’t take charge of this ship and steer it). Your education was trashed as California fell to the bottom of US states in school spending, and the art classes, AP courses, physical education, working toilets, and teaching generally went by the board. Every year I come upon more and more of you who have obviously never had the chance to learn to write plain, clear, English. Every year, fewer and fewer of you read newspapers, speak a foreign language, understand the basics of how government and business actually work, or have the energy to push back intellectually against me or against each other. Or know enough about history, literature, and science to do it effectively! You spent your school years with teachers paid less and less, trained worse and worse, loaded up with more and more mindless administrative duties, and given less and less real support from administrators and staff.

Many of your parents took a hike as well, somehow getting the idea that the schools had taken over their duties to keep you learning, or so beat-up working two jobs each and commuting two hours a day to put food on the table that they couldn’t be there for you. A quarter of your classmates didn’t finish high school, discouraged and defeated; but they didn’t leave the planet, even if you don’t run into them in the gated community you will be tempted to hide out in. They have to eat just like you, and they aren’t equipped to do their share of the work, so you will have to support them.

You need to have a very tough talk with your parents, who are still voting; you can’t save your children by yourselves. Equally important, you need to start talking to each other. It’s not fair, and you have every reason (except a good one) to keep what you can for yourselves with another couple of decades of mean-spirited tax-cutting and public sector decline. You’re my heroes just for surviving what we put you through and making it into my classroom, but I’m asking for more: you can be better than my generation. Take back your state for your kids and start the contract again. There are lots of places you can start, for example, building a transportation system that won’t enslave you for two decades as their chauffeur, instead of raising fares and cutting routes in a deadly helix of mediocrity. Lots. Get to work. See you in class!

Comments

[Frank]

Well said.

[efgoldman]

WOW!!

Thank you, JD

[Dan]

"I don't want to speak too disparagingly of my generation (actually I do, we had a chance to change the world and opted for the Home Shopping Network instead), but..." - Stephen King

[GoodOleBoy]

I'll pass on ripping through what most of what the good professor said, but his telling young people in a learning environment that they are victims and 'it's not fair', impresses me as a major element of what has created the entitlement approach that is causing the financial destitution we a facing. I grew up dirt poor in Georgia, was never told these types of things in school, and I have never felt the need to focus the cause of any of life's personal difficulties toward others. Now, that doesn't mean that, in some other set of really bad conditions, such as those seen around the world now and in the past, I would not reflect such sentiments, but not in the US today.

The letter is not surprising coming from a California educator. I seem to remember, about a half-century ago, when California was acting as if it could be all things to all people, many voices from other parts of our great nation were raising warnings that it could not go on forever.

Here's a question. If we can conclude, I think properly, that much of our perceived economic prosperity experienced over the last few decades was illusory and that there will be much give back as the economy depresses in a correction, why would the impact on services provided through tax revenues be different from the impacts experienced by each of us in our individual private lives?

[Stacy]

That so sums up everything that is wrong in this country. Thank you. Off to steal it and post it on my blog. With credit, of course. ;)

[Eric Martin]

I seem to remember, about a half-century ago, when California was acting as if it could be all things to all people, many voices from other parts of our great nation were raising warnings that it could not go on forever.

Such as?

GOB: The problem is that California capped tax revenues. The real estate tax system is terrible, and any bill raising taxes requires a supermajority.

That is it, in a nutshell.

California can run quite well with more funding.

[Eric Martin]

I'll pass on ripping through what most of what the good professor said

I'd love you to try.

[Eric Martin]

One last point,

GOB, Americans are paying a lower percentage of income in taxes than at any point since the Truman administration.

One thing is certain, and you are correct: we cannot afford the programs and quality of life that we have grown accustomed to while our tax rates are so low, and while our federal government blows so much money on defense spending.

That is the choice, though.

[Turbulence]

Here's a question. If we can conclude, I think properly, that much of our perceived economic prosperity experienced over the last few decades was illusory and that there will be much give back as the economy depresses in a correction, why would the impact on services provided through tax revenues be different from the impacts experienced by each of us in our individual private lives?

I don't think anyone questions the notion of accepting service cuts during a recession per se; but lots of people do contest stupid service cuts. That is to say: service cuts that save money now but cost much much more in the future. Such cuts become really stupid loans with invisible terms.

To put it another way, if your spouse lost your job and you had to cut back, selling your cars and getting into a position where there was literally no way for you to get to work so you had to quit your job would be pretty stupid. And that's true despite the fact that you'll need to make sacrifices.

Education is the foundation of long term prosperity. I think. Which suggests to me that we should probably be butchering the corrections budget and the defense budget before we start butchering the education budget. CA would have a lot more money available if it didn't have to send so much of its cash to red states that lived off blue-state welfare.

[Bernard Yomtov]

GOB,

If we can conclude, I think properly, that much of our perceived economic prosperity experienced over the last few decades was illusory and that there will be much give back as the economy depresses in a correction, why would the impact on services provided through tax revenues be different from the impacts experienced by each of us in our individual private lives?

I don't think it was illusory in the aggregate. It was very unequally distributed, but that means lots of people participated only a tiny bit or not at all, while others raked it in. But suddenly, everyone has to give ground equally. Why is that?

And it's not even equal. Those for whom the prosperity was not illusory but non-existent face worse public schools, poorly funded state universities, crumbling infrastructure, etc. The winners won't be able to afford that fourth home, unless the GOP manages to protect them.

[Carleton Wu]

I'll pass on ripping through what most of what the good professor said, but his telling young people in a learning environment that they are victims and 'it's not fair', impresses me as a major element of what has created the entitlement approach that is causing the financial destitution we a facing.

First, there is a significant difference between pointing out what's wrong and what's needed to fix it and merely proclaiming victimhood.
Second, I don't know what about this statement you think has any whiff of an "entitlement mentality". He is telling kids to go to war for the country that they want to have; calling it an entitlement mentality is merely the barfing up of a conventional conservative meme without even bothering to check whether it has any relevance.

If we can conclude, I think properly, that much of our perceived economic prosperity experienced over the last few decades was illusory and that there will be much give back as the economy depresses in a correction, why would the impact on services provided through tax revenues be different from the impacts experienced by each of us in our individual private lives?

Id dispute the first part. We'll lose a few points of productivity, but compare GDP per capita from 1980 or 1990 or even 2000- there's a nice customizable GDP per cap graph here that shows we're giving back maybe a year of growth (plus the year's growth missed, so call it two years). Set the start date to 1980 or 1960 and you'll see this is nothing particularly new (altho each recession presents its own challenges). We could spend two years shrinking at several % of GDP and be where we were in 2005. We werent gnashing our teeth over our collective poverty in 2005 iirc.
Second, we need infrastructure to function well as a nation. We can forego highways and trash collection so as to keep tax rates low, but this would be incredibly foolish. Just as in your household there are presumably fixed costs: mortgage, health insurance, etc that won't change unless your life's circumstances drastically alter. And we're just not at the "drastically altered" stage here. What we need, as a household, is to bring in enough money to meet our obligations (ie raise taxes and eliminate loopholes) and a reassessment of our expenditures (ie improve infrastructure, cut defense spending, etc).
[nb not that we should raise taxes *now*, not until the economy straightens out]

[Catsy]

GOB: I don't see any sign that you actually read and processed the entirety of that letter. It looks an awful lot like you saw the words "victim" and "not fair", entirely skipped thinking about anything else in favor of making the immediate connection to the conservative shibboleth of "entitlement", and proceeded to write a response that alternates between making no sense and missing the point entirely. In particular, this:

The letter is not surprising coming from a California educator. I seem to remember, about a half-century ago, when California was acting as if it could be all things to all people, many voices from other parts of our great nation were raising warnings that it could not go on forever.

What you are describing is the exact same circumstances and era that the author describes. The difference is that what you erroneously describe with platitudes as California trying to "be all things to all people", the author more accurately describes in terms of the specific investments that California made in public education and services and how those investments made California a measurably better place. The "many voices" you describe were the conservatives who reflexively oppose any expansion of government regardless of merit and any taxes necessary to do so, and whose dishonest policies bear a significant part of the blame for why California is in the fiscal condition it is now.

I say dishonest, because that is an absolutely apt description of the Grover Norquist-style approach to destroying government: they know that most voters actually want and need the services that they want to cut, and that it's an argument they can never win on the merits. So rather than attacking the services themselves, they attack the ability of the government to fund them, because tax cuts and shallow anti-tax rhetoric are much easier to sell--especially when you do everything possible to obscure the actual consequences of those cuts and who will be hurt by them.

Here's a question. If we can conclude, I think properly, that much of our perceived economic prosperity experienced over the last few decades was illusory and that there will be much give back as the economy depresses in a correction, why would the impact on services provided through tax revenues be different from the impacts experienced by each of us in our individual private lives?

This borders on gibberish. It sounds like you are asserting, with a rhetorical question, that we must cut public services because tax revenues will be lower in a recession. And up to a point, this may even be true. But this does not automatically mean that all service cuts are a good idea and that all tax increases are a bad idea--at some point, it really does amount to robbing your children of opportunities and creating long-term harm in order to address a short-term deficit. And the supermajority requirement for tax increases in CA comes damn close to being criminally negligent--as with the Senate filibuster, it places the good of the many at the mercy of a vocal minority.

[wj]

Much as I despise the entitlement and victimhood approach to life, I have to say that in this case it is entirely appropriate. Having lived thru the whole mess in California, I have to say that Professor O'Hare pretty well nailed the mentality of the California electorate since the late 1970s.

The only feature that he missed was the one area where spending has skyrocketed. Ignoring a falling crime rate, California has raised sentences, especially mandatory sentences, and built dozens of new prisons. (By initiative mostly, since even our pathetic legislators wouldn't go for all the nonsense spouted on the subject.) So the only infrastructure we spend money on is one which keeps large numbers of potential taxpayers unavailable to work and pay taxes. Brilliant.

[John Thullen]

"So the only infrastructure we spend money on is one which keeps large numbers of potential taxpayers unavailable to work and pay taxes."

You could send Charles Colson into California prisons to evangelize the anti-tax gospel, release a good part of the less-dangerous prisoners into the electorate and have them vote to eliminate taxes and cut off all supplies of toilet paper to the remaining hardened criminals.

[elm]

Thanks, GOB for speaking up for the perpetrators and ostensible beneficiaries of this intergenerational theft.

You inherited a world in which your forebearers had made an enormous investment in infrastructure, education, and the public good. The ideas are simple: civilization isn't free and we owe it to our children to leave the country and world in better shape than we found it in. That's in the past now.

More recently, people have adopted the right-wing FYIGM philosophy of tax cuts, privatization, deregulation, cuts to social programs, cuts to eduction, a ballooning prison industry, neglect of infrastructure, and perpetual war. Now many retire to "adults-only" communities in order to avoid paying property tax for schools. The benefits accrue to the older population while younger generations pay the costs (including externalized costs).

They have sold our future for magic beans but they have sold their own future as well. How can you retire in a nation with crumbling infrastructure, a poorly-educated workforce, an overgrown military-industrial complex, a poorly-regulated financial industry that destroys enormous wealth, and the most-expensive health-care system in the world?

Obviously, not every member of the boomer generation held this FYIGM attitude. It's not even really an intergenerational conflict so much as another front in the ongoing war by the richest 0.1% on everyone else and a return to feudalism.

[Sebastian]

"Ignoring a falling crime rate, California has raised sentences, especially mandatory sentences, and built dozens of new prisons."

Are we certain that the falling crime rate and the rising imprisonment rate are disconnected facts?

Also the professor is correct mostly from an upper-class point of view. California dramatically *expanded* access to higher education for the lower and middle classes in the last thirty years, and dramatically expanded the amount of money spent per pupil on primary education.

In fact it is difficult to find a single area of public spending in California which has gone down on a per capita basis, and many areas where it has gone dramatically up (overall, inflation-adjusted per capita spending went up 30% in 1997-2007 alone, and even after three years of drastic cutbacks remains 15% higher).

His overall portrait of government spending cuts just isn't accurate.

Now his picture of the state of California primary schools might be accurate, but it isn't a lack of money. Spending has been up per pupil for decade on decade since the 1970s and is now well above the average spending in Europe.

[Turbulence]

Are we certain that the falling crime rate and the rising imprisonment rate are disconnected facts?

Even if they're not, I don't see anyone making an affirmative case for imprisoning a large swathe of the population based on cost-benefit analysis. A very large fraction of crime is committed by young folk, and CA's prison population is aging fast. I seriously doubt that imprisoning most 45+ year old non-violent offenders would pass any kind of cost benefit analysis.

Beyond that, I thought the usual theories in this area were that (1) they are independent and the growth in prisons is due largely to lobbying by the prison guard union (conservative view) or (2) they are independent and the decrease in crime is due largely to the banning of leaded gasoline (liberal view).

[Ryan]

So the "terrible swindle" is that kids don't think they need to carry a socialist tax burden on their shoulders? Oops. I guess that "professor" never read Locke's Second Treatise. The state exists to serve the people, not the other way around. California's terrible swindle is that they bloated themselves with a glut of unaffordable socialist infrastructure projects. Now they realize just how unaffordable they are, and the best they can hope for is to brainwash children into believing that paying taxes is a question of morality.

But the children didn't engage in deficit spending - the politicians did. Any time a government spends more than they pull in revenues, they are paying with the future generation's money. This is an indisputable fact.

So who's swindling whom?

[Nate]

The "terrible swindle" is that people believe the taxes to keep government working are "theft" or a "socialist burden", and investments in infrastructure that create future prosperity are "unaffordable" and "socialist", while things like military and prisons are magically paid by the "not really spending" fairies.

And obviously, the people who enjoyed both the benefits of the past investment in education, infrastructure, etc, AND enjoyed the benefits of artificially low taxes are the ones swindling the future generations.

Especially the ones who grew up with the benefits of good schools, new infrastructure, etc, and then decried the investments in those as "socialism!" and "unaffordable!", while also bitching that "kids these days, complaining about how tough things are, I made it on my own, without any help from anybody, they should do the same!"

Which was the entire point of the letter.

[Marty]

Basically this is all lame intergenerational whining. Not much that i didn't hear when I was 20 something from folks trying to convince me that my parents weren't as frugal and giving as their parents.

It is a problem when the state* is unable to convince the citizens that it is providing the services they want it provide for a reasonable cost. So the state blames the citizen for being selfish and stupid.

At that point the democratic state, a social contract between those people, ceases to function as a democracy and becomes an oligarchy, simply rule by the powerful elite.

California is a fine example in that they have now passed laws that almost ensure that everyone that is elected is from the same elite group, the same people in the same districts get to choose the next legislator. The status quo has been institutionalized. However, the citizen revolt, the initiative access to the ballot, continues to dog them in their attempts to consolidate power. An inconvenient oversight, but one I am sure they will fix for the masses soon enough.

Or, Californians are people, like their ancestors, who are more likely to think it's great for the state to do more than it is to give them more money.

I love this view of the "previous generations" that they "decided" to forego vacations and large houses etc. to build parks and roads. They did no such thing. They paid their taxes and the government spent it's time and money worried about building a better quality of life and infrastructure to support that. Most politics was local, pork wasn't a bad word, it was what a Congressman was elected to get. If he got highway projects and park money he got reelected because unemployment was low and he was "bringing home the bacon" for the district. The idea that the previous generations were altruistically sacrificing their comfort for future generations is a myth.

There was one big difference, they were terrified of another depression. They clung tenaciously to whatever job they had, they saved as much as they could for that rainy day and that savings turned into largesse for the next generation. The further from the depression we got the less people were inclined to worry about that rainy day or "sacrifice their whole lives the way my parents did". That includes twenty somethings today who are just another entitled generation away, just like we were.

[Eric Martin]

Marty,

Another key difference: tax rates were higher (especially for the wealthy and very wealthy) And a smaller percentage of the budget was spent on the military.

Kind of important.

[Ryan]

Not really important at all, actually. Deficit spending is deficit spending, regardless of the tax rate.

If previous generations really did "sacrifice" to provide infrastructure for their children, then there never would have been state debt in the first place. Why do you people not get that?

Sacrifice means _going_without_ so that the next generation can _have_more_. That's not what happened. The previous generations didn't want to go without, so they spent their children's money on an infrastructure that must be repaired now that their children are using it.

Basically, reality is the exact opposite of what the professor claims. Do you guys really think otherwise? And if so, why? I mean, how do you justify that to yourselves? It doesn't even make a little bit of sense.

[Eric Martin]

If previous generations really did "sacrifice" to provide infrastructure for their children, then there never would have been state debt in the first place. Why do you people not get that?

Are you really suggesting that the size of the deficit/debt don't matter? And you're asking why people don't get that?

Basically, reality is the exact opposite of what the professor claims. Do you guys really think otherwise? And if so, why? I mean, how do you justify that to yourselves? It doesn't even make a little bit of sense

Here's how: deficit spending and the debt were relatively low during the 1950s and 1960s when taxes were pretty high. Then, Vietnam and the lowering of the top rate and a subsequent explosion of spending and arms expenditures in the 1970s and 1980s.

The previous generations didn't want to go without, so they spent their children's money on an infrastructure that must be repaired now that their children are using it.

Now, they spent their money on a massive military machine that spends the same as the rest of the world combined and cannot, despite good faith efforts, be reduced. And now we're paying the lowest tax rates and percentage of income since the Truman administration.

Can't do both. Period. And yes, that is important, even if there is some deficit/debt.

[Eric Martin]

So the "terrible swindle" is that kids don't think they need to carry a socialist tax burden on their shoulders?

BTW, socialist tax burden? Really? California's tax revenues in the 1970s and 1980s were socialist level? Wow.

[hairshirthedonist]

The notion that the infrastructure spending didn't more than pay for itself is, to put it kindly, wrong-headed. That infrastructure facilitated growth in the private sector for years and continues to do so, even in its current state of disrepair. Is it really that hard to differentiate worthwhile investment from waste? Drug wars and prisons versus education/schools and roads? (We're talking state-level here.)

Any given form of spending is not equivalent to all others, and they don't all result in long-term deficits, even if they were initially paid for under deficit. I can borrow money to build a house or I can borrow money to get drunk (on really good booze, mind you!) for a year. If I sell the house for more than I borrowed, including interest, I end up better off. If I get drunk, well, it might have been fun for a while, but I'll be poorer and less healthy in the end.

It's really not that complicated.

[Snarki, child of Loki]

Plenty of good points here about deficit spending and military expenses, but wasn't the subject CALIFORNIA?

So please recalibrate your fulminations about servicing the debt from a prior generation to the per-capita CA state debt.

[Ryan]

Hi Eric,

As you and I both know, socialism isn't defined by the size of the deficit, but rather by public ownership of means of production (sometimes referred to as "infrastructure"). In the case of roads and schools, most of us are quite happy with that arrangement, provided that the expenditure is actually affordable. There is no such thing as a "sustainable" CONTINUOUS deficit. Eventually the piper has to be paid. That's as true for you as it is for the State of California. Economists call this "the transversality conditions."

The rest of your comments refer to the relative size of the deficit. With regard to the topic in question - sacrificing for our children vs. not - this is a moot point. Any budget deficit of any size is by definition abstaining from sacrifice and passing the financial burden to "the future." Sometimes "the future" means "the next generation of wage-earners," and indeed in California that is very much the case.

The facts don't depend on the size of the lie. Deficits are deficits. Policies that assume constant growth rates are doomed to fail in times of slower (or heaven forbid negative) growth.

So your points, unfortunately, hold just as much ground as the professor's; namely, none.

[Eric Martin]

Hi Ryan,

As you and I both know, socialism isn't defined by the size of the deficit, but rather by public ownership of means of production (sometimes referred to as "infrastructure").

You, not me, referred to "socialist tax burdens."

And Ryan, are you suggesting that California has been running an enormous deficit and debt? Really?

The facts don't depend on the size of the lie. Deficits are deficits. Policies that assume constant growth rates are doomed to fail in times of slower (or heaven forbid negative) growth.

Um, right, but if I keep the same programs in place, and cut or freeze taxes where they are, deficits will go up.

So if I suggest that they need to raise taxes to maintain those programs, that is not a lie, nor is it a non-point.

It is a very good point, and it is the point that the Professor made. And you have not addressed it. Not once.

[wj]

Sebastian: Are we certain that the falling crime rate and the rising imprisonment rate are disconnected facts?

Well, the biggest driver, by far, is small amounts (i.e. users) of drugs. Combined with a three-strikes law which ends up sending folks to prison for decades because they got caught too many times with trivial amounts of pot. So yes, I think we can be reasonably assured that the falling crime rate (mirrored across the country) is unrelated to the vastly expanded prison population.

[jonnybutter]

wasn't the subject CALIFORNIA?

It was, but the swindle is really nationwide. Republican stock complaint about Dems is, and has been, that they tax and spend too much. But Republicans simply spend too much without taxing to pay for it. Note that spending didn't plummet under either Reagan, Bush I or Bush II. Priorities certainly changed, but spending didn't go down commensurate with the drop in revenue. To quote Ryan, 'Why do you people not get that'? It's not complicated.

This isn't whining, Marty, it's just a fact, and it certainly is a swindle: we paid less tax for similar spending, and then we passed the tab onto you, with interest.

I will stipulate that Democrats have some culpability here vis a vis tax law. But that doesn't change the fact that the GOP was the prime mover. The whole 'movement conservative' MO is: cut taxes on wealth, and then blame others for the fact that spending isn't controlled. As responsible governance, it's complete crap, as was unambiguously proven during Dubua's years.

I'd say that, if he went to college, Ryan was swindled, in that he doesn't seem to know basic historical facts, and is not very good at critical thinking. Any fool can swallow and barf up rhetoric.

[wj]

Ryan: Deficit spending is deficit spending, regardless of the tax rate.

Just one small detail, California (where the professor is writing) is required by its constitution to have a balanced budget - no deficit spending. (The only deficit involved is the unfunded pension liabilities which mushroomed since the tax restrictions were set in concrete.) That's part of why our budget is still not passed: the Democrats are unwilling to cut as deeply as required; the Republicans are unwilling to raise any taxes at all. And, thanks to a requirement of a 2/3 majority to do much of anything, both are able to veto anything the other side might want.

[JustMe]

I grew up dirt poor in Georgia, was never told these types of things in school

Isn't that just a rather damning indictment of the place you grew up in? Weren't you supposed to have a wide range of opportunities available to you in what is supposed to be the wealthiest nation in the world?

the citizen revolt, the initiative access to the ballot, continues to dog them in their attempts to consolidate power.

That is a hilarious take on the initiative process in California, which is in many ways the a cause of their problems.

[bc]

What sebastian said. And:

GOB: The problem is that California capped tax revenues. The real estate tax system is terrible, and any bill raising taxes requires a supermajority.

That is it, in a nutshell.

California can run quite well with more funding.

I agree that "an" issue is Prop 13, but it is not California's budget problem "in a nutshell."

How about a 24% increase since 2000 in funding but a 2000% increase in public pensions? Anybody remember Gray Davis and the union contracts? "Public Safety" pensions including milk testers, billboard inspectors, and some DMV employees (cause you know that's who is fighting fires), allowing retirement of 90% at 50 at rates above the private sector? Anyone?

Prison guard spending more than the entire public school system (including CSU and UC schools)? A $578 million school in LA?

Revenue today that equals the 2002 budget? That budget was not bad, was it? Couldn't we live with that budget today in this recession? Oops, pensions . . .

So the money is there. But instead of spending it on infrastructure, the "terrible swindle" IMHO was giving public employees pay increases that are unsustainable. It used to be you accepted lower pay for guaranteed employment in the public sector. Now it's guaranteed employment, higher wages, lifetime medical, early retirement . . . .

[Sebastian]

"Another key difference: tax rates were higher (especially for the wealthy and very wealthy) And a smaller percentage of the budget was spent on the military."

That isn't true in California, right? The state of California doesn't have a very big military spending component. The state of California has much higher taxes than it used to (and that *includes* property taxes). And it isn't even just the stupid 2/3 rule that is causing problems. New York state also doesn't spend much on the military, has much higher taxes than it used to, and doesn't have the 2/3 rule. Yet it is just barely a step above California in terms of financial disaster.

I don't mind talking about the federal government's raft of problems. But it can be clarifying to stick to California or New York, because some of the common problems associated with the federal government are definitely not present. Yet the states are still flirting with financial disaster. And it isn't because modern state citizens have cheated the future or whatever. They are paying more taxes than their parents.

[Eric Martin]

I don't mind talking about the federal government's raft of problems. But it can be clarifying to stick to California or New York, because some of the common problems associated with the federal government are definitely not present.

Right Seb, but Ryan brought in deficits and debt spending, so I discussed on his terms. I'm perfectly willing to limit the discussion.

The state of California has much higher taxes than it used to (and that *includes* property taxes).

Is that true? Do you have a link?

And it isn't because modern state citizens have cheated the future or whatever. They are paying more taxes than their parents.

Is that true? Do you have a link?

Incidentally: Prison costs have exploded, and I'm all for containing those. Too much money is going to them, and that is part of the problem for sure.

[Carleton Wu]

Ryan,
If you believe that deficits are immoral- well, that's a novel position. And it is certainly possible to have a sustainable permanent deficit, as long as it's smaller than the growth in the overall economy; not arguing for implementing this, just pointing out that you're factually incorrect.
But I find your overall point to be incoherent- deficits are immoral- yet paying taxes for infrastructure is also immoral. When people had high tax rates and paid for their infrastructure (and yes, California has not always had an unsustainable fiscal situation), what was wrong with that? Other than, as you put it, the politicians were somehow doing it instead of the people who voted for those politicians.

Basically, reality is the exact opposite of what the professor claims. Do you guys really think otherwise? And if so, why? I mean, how do you justify that to yourselves? It doesn't even make a little bit of sense.

The reality (according to you) is that, prior to the last generation, people skimped on infrastructure and simultaneously ran up debt. But the last generation built a lot of stuff and paid for it. And the current generation is living well because of this. Is that really your point, or do you want to take another stab at it?

[Nate]

I don't particularly recall many liberals or progressives here defending either the massive level of imprisonment, or the massive number of prisons needed for it. In fact, it's one of the liberal arguments against the drug war.

That said, the difference in Republican attitudes to the outsize pensions and benefits of CEOs (contracts! Contracts are sacrosanct! No touchie! Changing their contracts would be SOCIALISM!!!!) while public employees with expensive pension plans are criticized roundly, regardless of what contracts they may have had. It's almost as if it's not really the contracts that are the point of the Republicans' complaints, it's who's benefiting.

Also, the most benefits still have not gone to the public employees, whose current higher wages reflect the fact that we're in a recession, and private employers often fire their most expensive (experienced) employees first, while government hasn't been firing as many people. And the gripes about the public pensions I find hard to take seriously, due to the above mentioned comparison, and due to the fact that they will almost certainly get negotiated down, because if there's one constant, it's that when things go bad, it's the workers that suffer, not the owners or execs.

But saying that people have received pensions that are "too high" in some sense still doesn't mean they're the ones who benefited. The people who have benefited the most are the ones whose tax rates got lowered, but enjoyed the benefits of the robust public services that used to exist to get into good positions. Everyone who went to college and graduated without student debt when the state paid most of the costs. Everyone whose job, business, or travel depended on infrastructure such as roads, bridges, railways, water pipes, sewer pipes, electrical grid, etc, but when the bill came due for repairing or upgrading that said "Harmupf! We don't have the money to waste on things like that! Can't have my property taxes go up!" Everyone who benefited from a large pool of skilled, bright people and the inventions they created and the industries they founded in places like Silicon Valley. Everyone who felt more scared of scary criminals and druggies and wanted prisons and "three strikes" laws instead of education, prevention, midnight basketball or other such "wasteful" programs.

Large portions of the state (and country) fit into one or more of those categories, and others I'm sure I forgot. Which is why the letter says "we", and the professor doesn't excuse himself. There's a hell of a lot more to it than just Greedy Public Pensions, and plenty of blame to go around.

As an example, here's the National Bridge Inventory for California, which lists 7,116 bridges in California as deficient. I got the link from Slacktivist's continuing series on infrastructure, where he's up to bridges now.

[John Thullen]

bc: "It used to be you accepted lower pay for guaranteed employment in the public sector."

Is that the way it used to be?

Actually, what you accepted were blanket accusations of being paid too much even then, being a parasite, a socialist, laziness, stupidity, etc, etc, -- I'm sure we can all fill in the blanks.

All of that ... and the lower pay and guaranteed employment to boot, though I recall being RIFfed from the Federal Government (worked in a support position with some of the country's top weather scientists, otherwise known as elitist bureaucrats and parasites) in the country back in the Reagan days, but why quibble?

Good people can argue the relative merits and advisability of public employee pension contracts in California, but maybe the "union bosses" figured since their memebers were going to be demonized anyway, why not get overpaid for it, since folks believe they were overpaid even they used to accept lower pay.

I remember having a somewhat heated (infused with a few long-island iced teas at a party) with a Rush Limbaugh, swashbuckling Reaganite back in the 1980's wherein he offered up all of usual condemnations of gummint, taxes, blah, blah, blah. The fact that he was a career federal employee didn't seem to phase him until the f-word surfaced and then the party ended.

I suspect he's nearing or has achieved full Federal retirement by now.

But, maybe he decided to join the private sector and lower pay and no guaranteed employment and possibly no medical insurance under the new lean and mean zeitgiest of the outsourced private sector employee.

Of course, he worked for MMS, so maybe the party perks coming his way in the name of the free market convinced him to stick around for the pension.

There are a surprising number of folks like that working in gummint. Their cousins the Tea Partiers, who want gummint's statist, commie hands kept off their Medicare could commiserate with their plight.

[bc]

That said, the difference in Republican attitudes to the outsize pensions and benefits of CEOs (contracts! Contracts are sacrosanct! No touchie! Changing their contracts would be SOCIALISM!!!!) while public employees with expensive pension plans are criticized roundly, regardless of what contracts they may have had.

There's truth in this. I have a problem with CEO salaries being set by a board in large corporations with no stockholder input where the salary is at a certain level. There is a lot of back scratching going on at the expense of stockholders. Unless you own only one or two stocks and are constantly monitoring your mail, it's hard if not impossible to keep up. I'd like to see a rule requiring a yes/no vote of stockholders for salaries above, say $1 M. In the past it would have been prohibitively expensive, but now with the internet, it's doable.

But it is sort of the same thing with public pensions. Crazy contracts negotiated behind closed doors then quietly passed through the legislature.

There should be a fix for both.

[Carleton Wu]

It is a problem when the state* is unable to convince the citizens that it is providing the services they want it provide for a reasonable cost. So the state blames the citizen for being selfish and stupid.

The problem come when some politicians learn that they can lie to the people, telling them that their tax burden can be cut while still providing the services they have come to enjoy. Then, to maintain the illusion, they borrow unsustainably to fund those services while keeping taxes too low to meet obligations.
While conservatives constantly put the burden on the services side of the equation, it's just as reasonable (and IMO more historically accurate) to say that 'the state' cannot convince citizens to pay for the services that those same citizens refuse to consider cutting.
And "the state" never does stuff- people do. As, in this case, a professor. Attempting to blame his position on some scary-totalitarian state is nonsense.

The idea that the previous generations were altruistically sacrificing their comfort for future generations is a myth.
There was one big difference, they were terrified of another depression. They clung tenaciously to whatever job they had, they saved as much as they could for that rainy day and that savings turned into largesse for the next generation. The further from the depression we got the less people were inclined to worry about that rainy day or "sacrifice their whole lives the way my parents did".

We have had a problem with our national savings rate- but that is unrelated to the problem of keeping tax revenues too low to meet services (or, of not cutting services to meet the new lower tax revenues). Don't confuse individuals eg leaving money to their children or paying for their education, and what we are actually taking about- the balance of revenues and spending in state (and, apparently, federal) budgets. (Ok, there are actually some linkages around private savings, government deficits, and balances of trade- but that just confuses things I think).

We've got two competing visions for America- a low-tax, low-services vision, and a medium-tax, medium-services vision. But the problem is that the low-tax vision never gets fully implemented- even when someone as obviously nuts as Sharron Angle actually gets on the ballot, they immediately disavow wanting to kill Social Security. Americans want low taxes, sure- but even more than this, they want public services. So the folks with the low-tax, low-service vision are trying to fool us into accepting their future as a fait accompli by promising low taxes but sustained services, strangling the state with debt, and then- as Ryan does here- claim that the services being offered were "unsustainable".

[GoodOleBoy]

'I grew up dirt poor in Georgia, was never told these types of
things in school'

Isn't that just a rather damning indictment of the place you grew up in? Weren't you supposed to have a wide range of opportunities available to you in what is supposed to be the wealthiest nation in the world?

I can't make sense of this. What does being told that you are a victim of a swindle and that 'it's not fair' and my saying that I was never told these types of things growing up have to do with the range of opportunities available to me? Is someone feeding me these fictions somehow supposed to help?

A market unencumbered by excessive regulation and taxation and freedom to participate was the opportunity provided to me, and that is what is disappearing. That's the swindle, but I'd rather call it a creeping version of enslavement to the state.

[Ryan]

Eric - I responded to that part of the professor's letter that resonated most strongly to me. I was in no mood to address every single one of his point, and neither am I in such a mood currently. Your claiming that I didn't respond to one particular point that resonated with you is valid while at the same time completely self-centered. In other words, I wasn't aware that I was supposed to be responding to something that resonated with YOU. Anyway, if you want to discuss the merits of a tax increase during an economic recession, we will devolve into a lengthy discussion on Depression-era policy and the Laffer Curve. Suffice it to say I side with Friedman's view of Depression-era tax increases, and Laffer's view of taxes in general. You likely disagree, so we'll have to part ways respecting each other's right to disagree. :)

wj - I am aware of the difference between a budget deficit (spending more than is acquired via capital sources) and government debt (financing public spending projects with debt). For example, issuing bonds to fund public works may be completely consistent with a balanced budget, yet still total government debt increases. The point is, notwithstanding balanced budget amendments, the California state government is in debt, and therein lies the fact (fact, I repeat fact) that the California government has spent more money than it actually possesses. That is intertemporal substitution: substituting future consumption for present consumption. This isn't "rhetoric," it's a fact of arithmetic. Debt has to come from somewhere. Money doesn't grow on trees.

Carleton Wu - I read through everything I have written here, and confirmed: I never said deficit spending was immoral. I never even said government debt was immoral. Likewise, I could claim that you said Andre Agassi is a loaf of bread. If you didn't say it, then it isn't true. I did not say that deficit spending is immoral.

I did, however, point out that California's deficit spending is unsustainable. I didn't actually think this was a controversial statement. Why even discuss a tax increase if the current spending profile is sustainable? So I think we all agree on the sustainability factor.

It is likewise a fact - an inarguable fact - that every debt is financed via future revenue, so I am taking the position that if someone is really "sacrificing for future generations" then that person is lying. It was precisely those future generations who were made to sacrifice when the debt was incurred. That is the factual nature of things. That is just pure arithmetic. Again, this shouldn't be controversial. It is a fact. All economists agree.

The only real controversy here is the question of whether or not a given level of debt is "sustainable." I would argue that debts can be rolled over for decades and generations, but that it is more economically sound to stay out of debt. This is something which many of you will disagree with, and you are free to do so. That is basically the "Keynesian debate," and lots of very smart people are on both sides of that debate.

So I hope that clears things up, folks. I'm not a "Republican" and I'm not "spouting rhetoric." Sometimes the facts are what they are. Sometimes people are liberals and/or Democrats and wish the world were X when it is actually Y. Sometimes peoplea re conservatives and/or Republicans and wish the world were A when it is actually B. Sometimes people are truth seekers and care only about conditions Y and B, because they reflect reality. Any claims pertaining to X or A are being made by partisan hacks who spout rhetoric, of which this professor is most certainly one.

Cheers. :)

[Eric Martin]

I responded to that part of the professor's letter that resonated most strongly to me. I was in no mood to address every single one of his point, and neither am I in such a mood currently. Your claiming that I didn't respond to one particular point that resonated with you is valid while at the same time completely self-centered. In other words, I wasn't aware that I was supposed to be responding to something that resonated with YOU. ...

This has absolutely nothing to do with either our discussion, your comments or mine.

You mentioned that the professor was wrong, and that the current attitude is a rejection of socialist tax burdens.

I argued the opposite. Not because it resonated with me, but in response to you.

You have not addressed that argument, and no, it is not a question of tax increases in a recession. It is a question of California's long term fiscal viability. Incidentally, while you seem to oppose tax increases in a recession, spending cuts are not as problematic.

A market unencumbered by excessive regulation and taxation and freedom to participate was the opportunity provided to me, and that is what is disappearing. That's the swindle, but I'd rather call it a creeping version of enslavement to the state.

But taxes are lower now. And what, exactly, are the excessive regulations of which you speak? Specifics.

[jonnybutter]

The state of California has much higher taxes than it used to (and that *includes* property taxes).

Is that true? Do you have a link?

Yes, I'd like to see that link too. And the data should be germane to this discussion - i.e. '50s-70s vs 80s-now. And not only do we want to look at constant dollars, obviously, but percentages; aggregate income has gone up in CA since the 50s, surely, so tax *rates* are what matter, not just raw constant dollars.

[JustMe]

GoodOleBoy, you kind of missed the point of the letter, which was not just about how a bunch of people specifically swindled the current generation (though it was), but that the entire point of society is to leverage its wealth to raised everyone's living standards and create a wealth of opportunity for all. If you grew up in dirt poor rural Georgia being told, "this is just the way it is. Poverty is just the way things are," then that is a pretty stunning indictment of the culture you grew up in. At the time you were growing up, Californians (and much of the nation) had a much different mentality than that.

[Ryan]

Forgive me, Eric, I assumed you'd be able to see the linkages without my having to point them out. But since you can't, then here ya go:

Tax increases decrease total public revenue by disincentivizing commercial activity such as employment, consumption, investment, etc. These effects are even more pronounced during recessions. For more about this info, please Cf. Arthur Laffer re: his famous "Laffer Curve" - I'm sure there's a Wikipedia article out there that can summarize it nicely for you. Cf. also Friedman & Schwartz re: public economic/fiscal policy during the Great Depression - any Google search akin to "Friedman Schwartz Depression" ought to do the trick for you.

Once you've read up on it and understood it, you will likely have many objections, many of which have already been made thoroughly by the likes of Paul Krugman and Brad DeLong - the latter of whom probably wrote that letter in the first place! haha...

As to that second quote, I'm not sure who you're quoting, but it isn't me, so I'll stay out of it.

[hairshirthedonist]

Tax increases decrease total public revenue by disincentivizing commercial activity such as employment, consumption, investment, etc.

So it doesn't matter what tax rates are, no matter how low, for increases to reduce revenues? Wouldn't that mean that a tax rate of zero would provide maximum revenue, which would, of course, be zero? Are you confusing economic growth with government revenue? Even then, you'd have to demonstrate that government cannot provide value or facilitate growth by ignoring collective-action problems and a whole bunch of other stuff. Care to give that a try?

[Eric Martin]

Ryan,

I am quite familiar with the Laffer curve. You might be interested in knowing that even Arthur Laffer himself admits that there is a tipping point, or a point of diminishing returns, whereby tax decreases (or low overall tax rates) will actually decrease tax revenue.

As I'm sure you are aware, while economists debate the exact sweetspot (the point at which higher taxes result in lower revenue) although a recent survey of economists and economics talking heads resulted in most pegging the rate in the realm of 40%-60%.

Which is lower than current rates.

Link here
Once you have read and understand it, we can continue our discussion.

I await your edification, and then return.

[Ryan]

Ha ha, that's rich. Are you actually suggesting that it's possible to know for sure "where we are" on the Laffer Curve?

It's a theoretical model with theoretical implications. It's not a true snapshot of actual reality.

I was trying to suggest that our difference of opinion can be summarized in our different takes on (1) the implications of the Laffer Curve, and (2) the impact of a tax increase during recession.

Now you're just trying to bait me into the argument I already told you I don't want to have. It's been so much more eloquently stated by others.

Cheers. :)

[Eric Martin]

I was trying to suggest that our difference of opinion can be summarized in our different takes on (1) the implications of the Laffer Curve, and (2) the impact of a tax increase during recession.

Odd.

Yes, we probably differ on where we think the Laffer Curve sweet spot is - meaning, at which point we believe that tax rates will be so high as to actually stunt tax revenue.

Since we disagree on that, I asked what you thought the rate should be, and whether you think California currently exceeds that rate.

Not sure why you think that's funny, haha.

As for tax increases during a recession, again, my point is not that we should raise taxes now, but that, in the long run, California will have to raise taxes as it is not currently generating enough tax revenue.

I would advise waiting until we are on more solid economic ground, or, in the alternative, targeting tax increases to the wealthiest among us that can afford the hit at this time.

Again, not sure which part of that go the LULZ!, but to each his own.

[elm]

Ryan, you pretty plainly claimed that we're at or past the point of negative returns with your "Tax increases decrease total public revenue".

Defend that assertion or retract it.

Also, too, the cool kids use the neo-Laffer curve these days.

[hairshirthedonist]

Ryan, do you have any opinion on the effects of spending reductions during recessions? Or the effects of distributional aspects of tax increases/decreases and spending? Do you agree that there is a max point on the Laffer Curve and that it is not at zero? What do you think is a good limit for total public debt as a percentage of GDP? Your answers to these questions should inform your policy preferences. I'm very curious. Please don't hold back.

[Eric Martin]

Elm: I think I get Ryan's racket by now.

He makes a series of claims, and then when called on them, he changes his arguments to try to wriggle out of a debate, or look as if his points haven't been refuted (ie, his odd discussion of socialism above, when he himself was the first to use the term, and incorrectly by his own subsequent tutorial, haha!).

Hence, he makes a claim about the Laffer curve, and then when asked if he thinks we're above or below the curve, he dodges by saying it's a theoretical model about which we can never know on which side we're at.

To which one might ask: well, then, what good is it in terms of informing current debate about actual, real world tax rates?

[elm]

A market unencumbered by excessive regulation and taxation and freedom to participate was the opportunity provided to me

That and roads, standards for medical treatment, safe drugs, health standards for food, sewage treatment, potable water, national defense, bridges, the electricity grid, impartial civil courts, severe weather warnings, public schools, unemployment insurance, workplace safety standards, etc.

Freedom to participate in the market and a ton of infrastructure and standards.

[Eric Martin]

A market unencumbered by excessive regulation and taxation and freedom to participate was the opportunity provided to me

The place you desire is referred to, commonly, as Somalia.

[John Thullen]

The Thullen curve stipulates that the more the Laffer Curve is discussed on the innertoupees, the tipping point for understanding what it says moves away from any opinion to a position of maximum argument and minimum agreement.

My understanding about what the Laffer Curve teaches is that the lower tax rates go, the more tax rates must be lowered each election cycle until they reach approximately one percent, at which time we will have reached maximum anger among the electorate regarding taxes and government.

If you overlay the Thullen curve on the Laffer Curve it looks ever so much like the sillouette of Sharron Angle flying a plane into IRS headquarters.

But carry on.

[elm]

Galt's Gulch is going to be awesome as soon as I work out the kinks in my neo-Aristotelian, non-Relativistic, non-Uncertainty Principal perpetual motion machine.

[hairshirthedonist]

Hence, he makes a claim about the Laffer curve, and then when asked if he thinks we're above or below the curve, he dodges by saying it's a theoretical model about which we can never know on which side we're at.

Which contradicts is earlier assertion that would logically require that we would always be above the high point unless tax rates were at zero (or negative infinity?), you know, since rate increases reduce revenues.

[Carleton Wu]

I did, however, point out that California's deficit spending is unsustainable. I didn't actually think this was a controversial statement. Why even discuss a tax increase if the current spending profile is sustainable?

It's not- what's controversial is your unsupported claim that California's infrastructure was built on such unsustainable spending. But California did not run a huge deficit during the period the professor discussed- it educated its young without borrowing a lot of money.
Today, it is crippled by its deficit- a deficit that came from cutting taxes without cutting spending. Now, they have succeeded at Grover Norquist's dream- strangle the beast.
The solution is to either cut services or raise taxes. But no matter how many times you say it, it is not the case that the current debt was created during the period the professor is discussing, when today's college students' parents were being educated.

It is likewise a fact - an inarguable fact - that every debt is financed via future revenue, so I am taking the position that if someone is really "sacrificing for future generations" then that person is lying. It was precisely those future generations who were made to sacrifice when the debt was incurred. That is the factual nature of things

It is also a fact, an inarguable fact, that California's infrastructure was for the most part not purchased with such debt. They paid out of their own pockets, until swindlers came along and promised them that they could keep their services and cut their taxes at the same time.

That is basically the "Keynesian debate," and lots of very smart people are on both sides of that debate.

Respectfully, I do not think you know what the Keynesian debate is, if you think it is 'whether it is a good idea to roll over debt for decades or not'.

Tax increases decrease total public revenue by disincentivizing commercial activity such as employment, consumption, investment, etc. These effects are even more pronounced during recessions.

First, you apparently do not understand that your first statement is only true on part of the Laffer Curve. Tax increases do not always decrease revenue.
Second, while we are in a recession, neither the professor nor Eric argued for raising taxes *now*, just that taxes need to be raised in the medium term in order to meet obligations (or, those societal obligations need to be abandoned). I believe this has been said already, yet you continue to attack the straw man rather than rebut the actual argument being made.

Ha ha, that's rich. Are you actually suggesting that it's possible to know for sure "where we are" on the Laffer Curve?
It's a theoretical model with theoretical implications. It's not a true snapshot of actual reality.

Ha ha, yes, it is possible to have an informed opinion about where we are on the Laffer Curve.
And this word "theoretical" maybe doesnt mean what you think it means. The Laffer Curve is a theory that (if true) has *practical* implications. Like any theory or symbol system, it is an attempt to simplify and understand aspects of the underlying reality. It's effectiveness at doing so indicates its practical value.
[And are their other realities than the "actual" one? Or are you just throwing words around to appear erudite?]

[John Thullen]

First "silhouette" is the correct spelling above.

goodoleboy:

I know that you're good, but if the "ole" is in any way accurate, your top federal marginal tax rate, if you so qualify, has been dropping steadily in not quite a straight line for the past 45 years.

So the opportunity provided, as I believe you define it, has been increasing, no?

I'm curious about which markets you are not free to participate in? I mean, did you always want to be a brain surgeon, but were put off by the licensing requirements?

As to excessive regulation, I could "egg" you on but I have a "thin shell" and probably wouldn't agree on the meaning of excessive and you would think me "cracked".

Then the belly-aching would start.

[jonnybutter]

even Arthur Laffer himself admits that there is a tipping point, or a point of diminishing returns, whereby tax decreases (or low overall tax rates) will actually decrease tax revenue.

Let's just state the obvious for Ryan: that is the entire *point* of the Curve; that's why it *is* a curve.

This survey give me a good laugh. Most of the economists either won't answer or do indeed think the sweet spot is quite a bit higher than tax rates are now. Even Larry Kudlow says: 'Maybe it's a range of 35-40%'. Of course earlier in the answer he baldly states that personal income taxes should be 15-20%. Wha? Maybe he's thinking what Martin Feldstein (and probably Ryan) is thinking:

"Why look for the rate that maximizes revenue? As the tax rate rises, the "deadweight loss" (real loss to the economy rises) so as the rate gets close to maximizing revenue the loss to the economy exceeds the gain in revenue.... I dislike budget deficits as much as anyone else. [Oh really? ed.] But would I really want to give up say $1 billion of GDP in order to reduce the deficit by $100 million? No. National income is a goal in itself. That is what drives consumption and our standard of living."

You don't have to be an economist to see what a load of crap that is. How does an extreme wealth-concentration version of a high GDP number 'drive consumption'? He doesn't say, because it doesn't. '...national income is a goal in itself'. There's a devastating piece of reasoning right there. It's a goal in itself!

The above is not science nor any other kind of logic. This is faith and its resultant rhetoric. BTW, it's patently dishonest to support your argument by pulling numbers out of your butt ('$1 billion/100 million') which, anyway, aren't appropriate to the situation at hand; surely a trained economist knows the relationship between quality and quantity...

[Nate]

I'm also going to point out, like last time we discussed the Laffer Curve and "disincentivising work", there may be kinds of income we really DO want to have incentives against. Like, say, destroying profitable companies to squeeze out short-term gains. Or betting other people's money on "innovations" made up to let other people bet money on. Or managing your company so badly they let you go but are contractually required to give you a whole pile of gold to get you out of there.

[John Thullen]

Nate, I believe there is a Smirking Curve for such eventualities.

[wj]

I was going to try, yet again, to explain in very simple words just where Ryan's take on history was unrelated to reality. But Carleton beat me to it. And likely said it better, too.

In sum: anyone who a) has actually studied the history of California in the second half of the 20th century, or b) lived thru that half century while not sound asleep, knows what happened. Even if Ryan obviously doesn't. (OK, maybe he does know, and is simple playing stupid to enjoy an argument -- but I don't think he is.)

First, we issued bonds (borrowed money, if you will) to build infrastructure. You know, capital improvements, just like a sensible business might do. By law, bonds could not be issued for operating costs.

Second, that infrastructure allowed California to become the technological powerhouse that it is.

Third, from the late 1970s, Californians decided that they didn't want to pay for as much government as they had. And they didn't want to stop getting what they were accustomed to getting from government either.

Fourth, the only way to square that circle, even temporarily was
a) "deferred maintenance" -- i.e. letting all that infrastructure deteriorate. Which, as anyone who has looked at the state of the road, or the school buildings, is what happened.
b) disguise the cost of running the government by making a big chunk of government employee compensation into deferred compensation, i.e. pension promises -- and then not putting any money aside to pay for those obligations. Which also happened.

Fifth, just to gild the lily, lots more programs (not just mandatory minimum criminal sentences and 3 strikes laws, but lots of other stuff, too) was passed via the Initiative process (so it can't be undone by the legislature) with funding mandated -- but no new sources of funds provided.

At this point, the state is essentially ungovernable. Even in the (massively unlikely) event that the legislators decided to atually work together to address the state's real problems, 500+ pages of state constitution, and hundreds of Initiative-based laws which can only be chaqnge by another popular vote, mean that not too much could be done.

In fact, I can see only two viable options:
1) have the state declare bankrupcy. At which point, everybody the state owes money to gets pennies on the dollar, and all contracts are voided.
2) hold a fast constitutional convention and write a state constitution which is no longer than the Federal one. Then repeal about 90% of the laws on the books, specifically including the ones created by Initiative.

Actually, the second one sounds extremely unrealistic. So anyone holding California bonds might be well advised to consider moving their money into something else.

I grew up in California, and I love this state. But it's like loving someone with a fatal addiction, and with no inclination to reform. I just don't see any hope ont he horizon.

[Ryan]

Man you guys are so busy imputing beliefs to me that it's hard to get a word in edge-wise.

My point was a simple one: If governments go in debt, then the sacrifice is being made by the future generation, not by the current one. All this Laffer Curve stuff I brought up to suggest that we DON'T need to debate it here because it doesn't really speak to the dear professor's point of the younger generation being allegedly swindled.

If we want to talk about what to do next, we have to basically choose the Keynesian path, the New Keynesian path, the New Classical path (which no one believes anymore, or - if we're really lucky - the Austrian path.

These are the choices laid out for us. Now, I've tried to remain basically objective about this, in good faith, so that I could make my simpler point, which is that government debt is a burden on FUTURE generations, not CURRENT generations. This is a fact, let's please not argue about it.

The rest of it is politics, and yes I have my political views, but I was trying to keep them out of it in the interest of making a more productive (and less political point). But you guys aren't having any of that. You'll have a political debate, by damn, and there's nothing this kooky Ryan guy can do about it.

So just assume I'm an Austrian-schooled libertarian and have the debate among yourselves.

Cheers.

[GoodOleBoy]

JustMe, did you arrive just to misquote me repeatedly so that I will be kept busy reviewing my comments to insure that I said nothing that could remotely be construed even to resemble what you put inside quotations and attribute to me?

' If you grew up in dirt poor rural Georgia being told, "this is just the way it is. Poverty is just the way things are," then that is a pretty stunning indictment of the culture you grew up in'

I didn't say anything that looks or sounds like this.

Nobody told me that I was stuck with what I was born into. Nobody told me I was a victim of someone else's misbehavior and nobody described my circumstances as being not fair. On the contrary, I was told that my genius was intact and it was simply up to me how well I did with my life. And, contrary to your inclination to indict the culture in which I was reared, I honor it for the freedom of choice it offered.

Thullen, one of the things I recall from the early years that some thought might cause future financial problems for California was it's extensive statewide higher education program offered at very low direct costs to students. This may be a proximate connection to the professor's letter. Of course, the overly generous and underfunded California state employee retirement systems were mostly not even in place at that time. Isn't this actually what causes the state's financial picture to reflect a deficit (the unfunded pension liability)? (Somewhat similar to what just happened to New Jersey on their fraudulent bond issue). I can also recall much discontent expressed by California authorities regarding the lack of services provided by other states to their citizens, which is, of course, a reflection of the federalist approach recognizing a state's right to provide the government service levels demanded by its citizens. Not all states are broke now, but they will be if they follow the California model.

[JustMe]

GoodOleBoy, you sound awfully resentful at the idea that there is an obligation not to accept poverty as a norm and instead to invest in the country, and you seem awfully angry that the professor had the temerity to point this out and saying that this state of affairs is unacceptable, whereas you seem to have preferred the opposite thing being preached to you. That's a rather damning thing to admit about the culture in which you were raised, and does not speak well of it, compared to this professor's letter, who has higher hopes for what our culture should advocate. Not sure that's really something you want to be proud of: a society that simply doesn't care about poverty and does not want to invest in an extensive physical and educational infrastructure for its citizens. Guess you think that encouraging that sort of mindset -- that the wealthiest nation in the world should be "entitled" to modernity -- makes them all uppity.

[wonkie]

"Third, from the late 1970s, Californians decided that they didn't want to pay for as much government as they had. And they didn't want to stop getting what they were accustomed to getting from government either."

Substitute "Americans" for "Californians" and you have the philosophy of the Republican party.

[Carleton Wu]

my simpler point, which is that government debt is a burden on FUTURE generations, not CURRENT generations. This is a fact, let's please not argue about it.

Has anyone said otherwise? That is, in fact, the professor's original point- rather than paying for services, the decade or two the California body politic has decided to borrow, and now that the bill has come due the people must either pay both that debt and the cost of their current services & infrastructure, or accept a lower level of services and infrastructure.

But was that really your original point?
California's terrible swindle is that they bloated themselves with a glut of unaffordable socialist infrastructure projects. Now they realize just how unaffordable they are, and the best they can hope for is to brainwash children into believing that paying taxes is a question of morality.
This isn't a statement about the undesirability of debt- it's a statement that California's level of infrastructure spending was unsustainable, and that making a reasoned argument for moderate taxes and moderate spending is 'brainwashing into socialism'.

And now you want to claim that you've made no political arguments? Bah.

[Jacob Davies]

I'd say it was a pretty solid indicator of a lack of interest in good faith argument when someone shows up and calls California's infrastructure and educational investments as "socialism". The repeated faux offense at having the actual opinions he expressed minutes earlier ascribed to him would be another. I'd say DNFTT but I guess it's recreational.

Sebastian, I don't actually think the problem with California's K-12 education system is mainly a lack of money. (In fact I read some interesting stuff in a study about it - that there is basically no correlation between spending and performance - that I want to put into a post.) The problem for K-12 is the economic insecurity of the parents, primarily of black & Hispanic kids but also poor whites in places, which pretty much dashes any real chance of most kids going very far, and the chaotic and random nature of school funding in the state.

I think the root cause of most of what O'Hare is talking about is the perpetual budget crisis induced by the 2/3 requirement for taxes combined with the initiative system and term limits that mean a lot of the laws on the books were written by people with no experience in public policy and no particular stake in their long-term performance. I mean, for god's sake, we just had a major regulated utility try to pass their own law making it impossible for cities to set up competitors.

However, in the end, it comes down to the citizens. They could vote for higher taxes. They could end some of the stupid stuff that was passed by initiative. They don't. O'Hare is right to criticize them for it.

Marty, it's hard for me to see this as intergenerational whining. O'Hare is an old dude. His students are not activist on this subject (that's why he's telling them this). I'm 33, I went to a (free) university in the UK, and I won't be sending my kid(s) to college for another 17 years or so. The main argument in my own interest is against Prop 13, but I think that state income taxes should be significantly higher too, which is definitely an argument against interest for me. (Especially as I think federal income taxes should be higher on me too!)

I have a pretty straightforward view of things as they relate to the computer industry: major Bay Area corporations benefit very very heavily from the flow of elite CS & EE students from UC Berkeley and other UC schools. That (and Stanford) drives the industry around here. Those people who have made various levels of personal wealth ranging from "that's nice" to "you can buy a small country" owe an obligation to the state to keep that machine working. In a perfectly literal and very traceable sense, the wealth generated by those companies is a consequence of the investment in education in the state. (One example: OS X being based on BSD, which was developed at Cal.) I'm all for that continuing to happen, but I'm not so pleased by the idea that the working-class residents of the state should pay a fairly heavy tax burden and suffer mediocre services so that Cal can keep its doors open, while older middle-class people and wealthy Californians enjoy the low tax rates they voted themselves.

[GoodOleBoy]

'I have a pretty straightforward view of things as they relate to the computer industry: major Bay Area corporations benefit very very heavily from the flow of elite CS & EE students from UC Berkeley and other UC schools. That (and Stanford) drives the industry around here. Those people who have made various levels of personal wealth ranging from "that's nice" to "you can buy a small country" owe an obligation to the state to keep that machine working. In a perfectly literal and very traceable sense, the wealth generated by those companies is a consequence of the investment in education in the state. (One example: OS X being based on BSD, which was developed at Cal.) I'm all for that continuing to happen, but I'm not so pleased by the idea that the working-class residents of the state should pay a fairly heavy tax burden and suffer mediocre services so that Cal can keep its doors open, while older middle-class people and wealthy Californians enjoy the low tax rates they voted themselves.'

Jacob, I take from this that you see enough California based resources to deal with this issue, given the will, and would not countenance a rescue by Washington

[liberal japonicus]

GOB, you mentioned you were from Georgia. Do you think that the HOPE program is an appropriate way to fund education? And what do you think of the current problems the Georgia university system is facing?

[Tyro]

Jacob, I take from this that you see enough California based resources to deal with this issue, given the will, and would not countenance a rescue by Washington

California should basically be forced to scrap its Constitution and re-write it. The political problems of California are structural: it's not just a straightforward fiscal crisis that goes on during a recession. If they really want a federal bailout, this should be the federal condition of receiving any help. That said, I don't understand why you are talking about a federal rescue at all: this is not the topic of the blog post, which is about how Californians themselves betrayed their own legacy.

[Jacob Davies]

GOB, California is the 8th largest economy in the world. It certainly doesn't need a "bailout" to take care of these things. It needs to grow up.

That said, across-the-board support to state budgets from the federal budget is a good idea right now. And there's a fair amount of federal involvement in funding for education, healthcare, and infrastructure that is unavoidable and anyway desirable; I think that funding has been short-changed in recent decades too. (Largely by the out-of-control defense budget ballooned by the cost of these wars.)

But no, for the most part I think California's problems are within the power of Californians to solve. (And similarly for many states that have gone down similar paths.) Just as America's problems are within its power to solve, if the political dialog in this country rose above the level of a five year old. (Actually, the five year old probably has a better grasp of the idea that it costs money to do things, so never mind that.)

[Nate]

The problems the university system in Georgia is facing is that the state's cut the budget by about 25% over the past three years. With many threats by the state congresstypes to cut even more each time than the governor suggested. Stimulus money has made up for some of it, new fees ranging from $50-$200 a semester have made up for some of it, and the rest has been made up in dropped classes, cut entire programs, classes taught by TAs instead of professors, and possible cut lists that included things like UGA cutting 4H and its extension offices, closing campuses for some schools, combining some universities together, and more.

Oh, and after this, there's still congresscritters claiming that the University System is full of waste.

(No, I'm not mad because these budget cuts threatened repeatedly to screw up me getting my degree, no, not at all.)

[GoodOleBoy]

'GOB, you mentioned you were from Georgia. Do you think that the HOPE program is an appropriate way to fund education? And what do you think of the current problems the Georgia university system is facing?'

Go with Nate's response since I left Georgia over 50 years ago. I went through the public elementary and secondary school system there in the 1940's and 1950's and it was certainly adequate from my perspective. I later earned a bachelor's from George Washington (Applied Statistics) and a master's from Georgetown (Accounting) and never felt ill-prepared. But I have always thought that the student's individual motivation and effort is the key to learning and that successful educational systems work that part of the equation. I am not well versed in the specifics thought to be detriments in various systems (including university systems) but the one thought I have is that most try to do too much for too many people without enough regard for the need for selectivity.

Certainly, with success in our society largely defined by celebrity or riches, our educational systems, public and private, do not work to produce critical thinkers or awaken exciting and adventurous talent. They work to produce successful students, defined by grades. I suspect there are those with expertise in these matters, who can say what is needed, but I also suspect they are inhibited by the power in the system.

[sekaijin]

Let's knock this lingering 'socialist program' crap once and for all. Americans (you should know, Jacob) are among the lightest-taxed people on earth. No-one, except Tea Partiers, truly thinks they are groaning under a Marxist yoke.

Where did this notion come from to have a government that doesn't govern? We seem to go along, for the most part, with war-making, which requires funding, which in turn has to come from taxation, which... well, you get the picture. But we seem to think that anything bringing about an enhancement of the commonweal, like health care, like, gulp, Cali's once-magnificent K-university system, results in sloth and indolence. My, my. Who on earth thinks the functions of government cost money?

Are low tax rates truly indispensible for business to invest and create jobs? That might have been an easy correlation to make at a time when business saw itself as a steward of society. Theoretically, it may be plausible to show this, but as business began to see itself more as an indulger of economic gain decoupled from a larger social obligation, the notion of lowered taxes = job growth comes across more rooted in ideology than bona fides.

I'm no economist - obviously. But from the ground level of what workers actually see, it seems to me that the relatively-easier contraction of job creation came about when tax rates were lowered. Increasingly, it also seems that the more business was given what it wanted, it did what it wanted, which was to enrich itself.

Has there ever been a study on a correlation between the black ink of major corporations and job losses?

We keep pretending that there's no such thing as society even though we're in over our heads with it. But with a political discourse defined by know-nothings (thanks, Jacob, couldn't agree more - a 5 year old would have a better grip on reality) still living in the second Bush administration, well, we're going to continue to be confronted by the reality that in order to have civilization as we know it, we have to have taxation - and be paralyzed at the very thought that those who actually indulge the most in it should pay their part of the bill for it.

[Sebastian]

"I think the root cause of most of what O'Hare is talking about is the perpetual budget crisis induced by the 2/3 requirement for taxes combined with the initiative system and term limits that mean a lot of the laws on the books were written by people with no experience in public policy and no particular stake in their long-term performance."

I don't really see it that way, but if it is, he is taking a really roundabout way of saying it. He is setting up a sketch where citizens in the 1960s were willing to pay lots of taxes, and citizens around the time of proposition 13 decided that they weren't willing to continue to pay so they lowered all their taxes. In this story the California tax receipts have gotten starved because the post prop-13 people weren't willing to pay the fair amounts that the pre-prop 13 people were.

And if it isn't explicitly laid out by him in his relatively general but allusive letter, it is certainly picked up by people like you here.

That story is false as to property taxes in particular, and as to taxation in general in California.

Prop 13 was a response to skyrocketing property taxes fueled by the fact that your neighbors were selling their houses at much higher prices than they bought them. As to property taxes, it limited the assessed value to a 2% increase per year and did a one time 3-year rollback of the assessed price to 1975.

The rhetoric around Prop 13 is that it starved the state, but that is ridiculous. Even for property that never sold, it has provided a 2% increase almost every single year. And considering the fairly high turnover of property, it has in fact provided an annual increase of about 10% per year See here for the immediate decade after Prop 13, I can't find the exact figures for the next years, though everyone seems to use 10% as the basic figure for all years since cite. Meanwhile, income tax rates have gone up substantially and sales taxes have gone up by an additional 30% (both sales taxes and income taxes are automatically self inflation adjusting because they always use that-year dollars).

Tax receipts per person in California have been a steady upbeat even since Prop 13.

Now the part of O'Hare's article where he suggests that California been deferring payment is certainly true, but the inference taken here that Californians unfairly started paying less than their good-investment predecessors is crazy. So far as I can tell, Californians since Prop 13 have never paid LESS than their counterparts from the halcyon days that O'Hare harkens to.

So California has always has the money to pay for the things it was paying for then. The tax revolt has never been so serious as to cause an overall real (inflation adjusted) decline in per capita state receipts. California could have continued funding all of the types of infrastructure that it did before and the other services. O'Hare's suggestions to the contrary aren't accurate. The issue is that Californians wanted to add all sorts of things EVEN ON TOP OF THAT.

Prop 13 was about stopping runaway INCREASES in taxation. Its effects have not included the completely mythical decrease in taxation that its opponents suggest. Year after year, it has provided a nice, steady, predictable 10% increase in tax receipts from property taxes. That has well outpaced the inflation rate during the time in question (which averaged about 2-3%).

It is not the case that Californians retreated from some level of spending and taxing, and that such a retreat in taxing has caused the problems.

What has caused the problems is that Californians have only been increasing their taxation by small amounts while simultaneously increasing their spending by wild amounts.

The swindle didn't happen. Californians kept paying plenty of taxes for: "invest[ing] money they could have spent on bigger houses, vacations, clothes, and cars into the world’s greatest educational system, and into building and operating water systems, roads, parks, and other public facilities, an infrastructure that was the envy of the world."

California never stopped collecting the taxes which supported the time he is describing here. They have collected more and more since then.

The story as presented is false.

I'm perfectly willing to talk about the fact that California has not raised taxes enough to cover its wildly growing spending.

I'm not willing to engage in myths about how Californians suddenly stopped putting in enough money to fund the wonderful infrastructure development and services common in the 1960s and 1970s. That isn't true. They have never put in less than that and for decades have put in MUCH more.

[Eric Martin]

Seb,

Do you have links indicating that tax rates have gone up, and that tax receipts have gone up? And for property taxes beyond that limited scope?

I know you are asserting it, but some links would help me out. Thanks.

[Eric Martin]

Adding, because this seems to suggest otherwise Seb:

http://www.ccsce.com/PDF/Numbers-Jun2010-Budget-Myth3.pdf

[jonnybutter]

As to property taxes, [prop 13] limited the assessed value to a 2% increase per year and did a one time 3-year rollback of the assessed price to 1975.

Did you mean to leave out the rate, Seb? It's 1%. So, assessed values were reset to three years earlier, the rate can be no higher than 1%, and the allowable increase per year is less (usually) than the rate of inflation, i.e. 2%.

You can argue that states and localities depend much too much on property tax, but they do that because that's where the money is. I don't see the evidence that CA made up the difference via other taxes. And of course population size isn't static (it's been going up and up in CA), so the amount of revenue needed isn't either. Not convinced.

[wj]

Just informationally, that 2% rate increase is a fair bit under what inflation has run since then.

Also the jump in the late 1970s was due, more than anything else, the the massive inflation of the time (sparked, but not only due to, by OPEC running up its rate). It was a rough time for anyone on fixed income, as I remember quite clearly. But taht 3 year rollback, at the time, amounted to a pretty massive reduction. In fact, between say 1975 and 1982, the total inflation was so huge that the result was at least a 50% cut (my guess is closer to a 90% cut), in inflation-adjusted dollars, in what California was taking in from property taxes.

[nous]

GOB - Certainly, with success in our society largely defined by celebrity or riches, our educational systems, public and private, do not work to produce critical thinkers or awaken exciting and adventurous talent. They work to produce successful students, defined by grades.

All the teachers I know want to help their students become better critical thinkers and work to implement this in their syllabuses. And we are all pretty much overjoyed to find a student with talent who is willing to engage with the class material even if the fit is not the best.

Grade pressure comes from parents who want their kids to get their money's worth and measure that in GPA or from students who are worried that low marks will doom their efforts to get into the best professional school or from administrators who worry about the effects of these other two upon enrollment and alumni contributions.

Besides, when we try to teach critical thinking and nurture talent we are accused of being subversive and not valuing our ordinary students who just want job skills.

[/default_teacher_rant]

[GoodOleBoy]

'And of course population size isn't static (it's been going up and up in CA), so the amount of revenue needed isn't either. Not convinced.'

I'm inclined to accept Seb's analysis (I'm biased) but I'm also interested in the sources Eric requested.

Does anyone here know if there are sources that will shed light on the overall impact of illegal immigration on California's finances?

[Phil]

Hahaha! <3 u so much, GOB, never change! "Is there any way someone can help me blame Mexicans and Guatemalans for this?"

[DecidedFenceSitter]

GOB,

Typing in "Impact of Illegal Immigration on California's finances" got me this report from the CBO, The Impact of Unauthorized
Immigrants on the Budgets of
State and Local Governments. It doesn't provide you with solid numbers unfortunately, but was a good shortish overview of the subject.

Here's a '94 GAO report to Boxer, which basically states while we can figure out costs fairly closely, figuring out revenue from illegal immigration is really, really difficult. Though even at the largest revenue stream, illegal immigration was a net negative.

From the CA Labor Department comes this report in 2005, which notes that most quantitative analysis happened in the 90s. This report is probably the most interesting. It found that studies found 4 main facts:

• The current fiscal impact (that is, the fiscal balance) of immigration was negative. Immigrants used more in public services than they contributed in taxes.
• Fiscal effects were most negative for state and local governments. Fiscal impact on the federal budget was more neutral.
• Fiscal effects were most negative in states that had a high concentration of recent immigrants.
• Fiscal effects were more negative for unauthorized immigrants than for any other group of residents

This financial drain was due to two items:

Immigrants as a group (especially unauthorized immigrants) have below-average incomes, particularly in their first years of residence in the United States.
• Immigrants as a group have an above-average number of children.

The fiscal balance of immigrants is much the same as that of native-born residents with below-average incomes and above-average numbers of children.

Note it then goes into the inadequacies of those studies.

[Sebastian]

I've already linked to both property taxes going up at a constant clip and I linked the expenditures per capita the last three times we had this discussion(it seems I'm forced to link that one every single time, I should just bookmark it). Your linked cite appears to be wrong on per capita spending adjusted for inflation. See for example here drawn directly from the Department of Finance.

I strongly suspect he is doing funky things by choosing the 1994 date. The 16 year period is rather ideosyncratic. Furthermore he is tracking it to the post budget seize-up disaster 2011 proposed cuts, which doesn't show the history very well at all. Kevin Drum's chart begins in the middle of a long uptick (he could have easily shown the same by starting in 1993, 1992, 1991, or 1990 but he stuck to a standard decade analysis), which then dramatically increases for 8 years of wild spending per capita which doesn't stop until AFTER the country-wide housing market crash forces cutbacks in 2008. But if you want to see the history of the run-up 1997-2007 shows it pretty well.

But even your linked site shows dramatic spending, only FINALLY cut as the crisis hits.

Also, your linked cite doesn't seem to suggest otherwise on tax rates, or tax receipts. Again he chooses percentage of income to percentage of general fund spending, which is frankly wacky in light of how much the earmarked budget is NOT in the general fund (about 1/4 is not, I'm counting the special funds and the bond funds). You can eyeball it eg here.

That same link also shows the dramatic increase in spending in most of the major areas of spending over the decade.

They aren't per capita, but since we know that 1997 population was about 33 million and in 2007 it was about 37 million we know that the population grew about 12%.

In the period where the population went up 12%, inflation adjusted K-12 spending went up 151%.

In the period where the population went up 12%, inflation adjusted Higher Education spending went up 90%.

In the period where the population went up 12%, inflation adjusted Business, Transportation and Housing spending went up 200%.

In the period where the population went up 12%, inflation adjusted Youth and Adult Corrections went up 187%.

In the period where the population went up 12%, inflation adjusted General Government spending went up 44%.

In the period where the population went up 12%, inflation adjusted Legislative, Judicial and Executive spending went up 331%.

This is not a portrait of a state that is failing to live up to its old-style commitments. And I certainly haven't seen any evidence that 1987-1997 was some super low spending period in California's history which required enormous spending growth to catch up.

Your link basically suggests that we finally get back down to the historical norms of spending AFTER the enormous budget cuts of the last two years. But these are the very budget cuts that are decried here as part of the signs that California has abdicated its 1960s level of civic responsibility. (And allegedly has been doing so since Prop13).

You can't really decry the enormous budget cuts AND use the post cut levels as proof that California has had normal levels of spending.

On property tax receipts: The amount collected from 1980 to 2007 went up 84% more than inflation + population growth. cite (Originally quoted at 133% but corrected in original)

So property taxes going down clearly isn't an issue.

Sales taxes have gone up about 30% from around 6% to about 8% cite. And they automatically adjust for inflation (paid for out of sales) and for the most part go up as a function of population as well.

So sales taxes going down clearly isn't an issue.

[Eric Martin]

Seb,

Spending did go up, no doubt, and in boom years, it went up more. But your first link doesn't say anything about taxes.

It does, however, say this:

Prop 13 reduced our tax base permanently and made it all but impossible to adjust other taxes to make up for it.

And your Prop 13 link says nothing about the increase in property value during the same period.

Meaning, basically, it ignores what property tax revenue would be if there was no Prop 13.

Which is, really, the only important question.

[wj]

While the GAO report (which I read) and the various CA reports (which I skimmed) do factor in property tax revenues from illegal immigrants who own homes, they do not appear to factor in property taxes paid by the much larger number who rent. The owners of those properties also pay property taxes, which would not be available if they rental properties were not created to meet the demand from the illegal immigrants.

As with the rest of the numbers, it would be hard to accurately assess those numbers. But they are definitely bigger than the prperty taxes from illegal immigrant home owners.

[Sebastian]

"Did you mean to leave out the rate, Seb? It's 1%. So, assessed values were reset to three years earlier, the rate can be no higher than 1%, and the allowable increase per year is less (usually) than the rate of inflation, i.e. 2%."

No higher than 1% of the market value of the real property. The assessed value is 1% at time of sale, to increase by no more than 2% (of the total tax) per year.

"You can argue that states and localities depend much too much on property tax, but they do that because that's where the money is. I don't see the evidence that CA made up the difference via other taxes. And of course population size isn't static (it's been going up and up in CA), so the amount of revenue needed isn't either. Not convinced."

There is no difference to be made up via other taxes. The tax amount actually collected went up 84% above inflation+population adjustments 1980 to 2007. And during the time period immediately after Prop 13 the property tax collected was going up at about 10% per year.

Prop 13 caused a one time decrease in property tax collections (and even that was only resetting it to 3 years earlier). Property tax receipts since then have continually gone up faster than inflation+population for almost every single year since, with the major exceptions being the last two years since the crash.

California didn't need to "make up the difference" somewhere if it wanted to maintain the days of spending that O'Hara is referring to.

The idea that Prop 13 was a huge retrenchment in payments received by the state is a myth. And the taxes have gone up in other areas as well.

They haven't gone up *as much as spending*, but they have still gone up a huge amount more than inflation and a huge amount more than population.

[Eric Martin]

Seb,

But isn't the question re: Prop 13 what the tax revenue would be if not for Prop 13?

Saying revenue has gone up is interesting, but not as interesting as saying what revenue would have been without it.

[Carleton Wu]

The tax amount actually collected went up 84% above inflation+population adjustments 1980 to 2007.

That sounds impressive, but iirc US GDP per cap went up between 300% and 400% in constant dollars during this (long) period. So that would indicate a drastic shortfall, not the overabundance that you apparently picture.
Bear in mind as well that not only does this mean that salaries for public workers (and private workers contracted by the state eg road construction and maintenance) must rise to be competitive with private sector salaries, but the Baumol effect tends to find industries with low productivity gains (eg teaching, policing) in the public sector. Some of the costs (eg raw materials, office supplies) will have dropped during this period as well, but there is no reason to do what you have done here, and assume that eg the education system can provide the same services for the same cost in constant dollars while US GDP is rising.

Like you, I believe I've said this before to you on previous posts on this or a similar topic.

[Sebastian]

"But isn't the question re: Prop 13 what the tax revenue would be if not for Prop 13?"

I don't see why that would be the question. The frame of the O'Hara article and Jacob's discussion of it is that there was a time when the good citizens of California used to live up to their civic responsibilities and investments, and then they started spending less money, paying fewer taxes, and not making those investments.

But in fact, Prop 13 did NOT reduce even property taxes. And I've now tracked down the various other places where taxes most certainly did not go down.

And I feel a little rolled about you requesting the cites. If you had just said "even if true, I wouldn't care because I don't think the fact that property taxes receipts per capita after inflation are up dramatically impacts the argument" I could have saved a lot of time. If you believe that the frame is correct, I think at this point, I'd like to see your cite for the places where California taxes or expenditures are historically low. Preferably from sometime before the budget completely seized up.

The storyline above isn't true. California has not had decades of living up to lower civic standards of spending than it previously did. It also has not had decades of lower taxation than it previously did. Prop 13's property tax measure did not starve California for funds, and in fact has provided an ever increasing source of funds on a per capita basis post-inflation basis for decades.

[Eric Martin]

But in fact, Prop 13 did NOT reduce even property taxes.

But how do we know this if we don't know what the property tax revenues would have been without Prop 13?

That's like saying a tax cut didn't reduce tax revenues because we still raised more money each year as a result of GDP going up every year. While true, it ignores the fact that the tax cuts still reduced revenue from what they would have been without the cut.

Is that such a controversial notion?

[Sebastian]

"Bear in mind as well that not only does this mean that salaries for public workers (and private workers contracted by the state eg road construction and maintenance) must rise to be competitive with private sector salaries"

Did general domestic salaries increase at 84% above inflation?

We both know they didn't so I won't ask for a cite. So keeping up with private salary competition pretty much can't be the answer. And the more you believe that middle class wages have stagnated, the less of an answer that could possibly be.

"but the Baumol effect tends to find industries with low productivity gains (eg teaching, policing) in the public sector."

There may be somewhat of a chicken-egg feature to this--i.e. that one of the reasons there are low productivity gains is because they are in the public sector (see for example the lack of productivity gains in US Mail until *after* they were demonstrated in the private system.)

But even discounting that possibility, almost all of the Baumol effect job in the public sector that I can think of scale on population (policing, teaching, public health services like STD clinics) not GDP. So this is mostly corrected for when I cite population corrected numbers, which I already have.

Now it is possible that there are some items that don't scale well with population and which also have to scale with GDP, but you'd have to give me some examples (that are a significant part of the budget). I can't think of any off the top of my head.

So unless you have any other objections, I don't see anything particularly wrong about pointing out how California taxation and spending have both drastically outmatched inflation and population.

[Sebastian]

"That's like saying a tax cut didn't reduce tax revenues because we still raised more money each year as a result of GDP going up every year. While true, it ignores the fact that the tax cuts still reduced revenue from what they would have been without the cut."

I'm clearly not following you at all. Of course if the tax had been allowed to float with property values it would have produced *even more* revenue than it did when it when the tax was limited to rising only 2% per year. So what? If we passed a law raising everyone's taxes by $10,000 we could get more money. That doesn't mean that failing to do so is some departure from civic virtue.

The argument is that the property tax limitation has some crippled California's tax base and caused all these negative effects. It clearly has not. The property tax base alone has gone up dramatically even after adjusting for population and inflation.

The storyline is that in the pre-Prop 13 years, California citizens were willing to invest in education, infrastructure, etc, etc. Later they allegedly became unwilling to maintain that level of taxation and look at the horrible world of hurt California is in now.

That story is not true.

Even immediately after Prop 13, the citizens of California were willing to pay taxes at a level to support all of the good things O'Hara is talking about.

In the time since then, property taxes (the one limited by Prop 13) have continued to support THAT level and hugely more.

In the time since then, sales taxes have gone up by almost a third.

I haven't seen any evidence that the income tax dropped significantly (or at all) either.

So Californians are not in fact betraying some older sense of civic virtue by shirking on their taxes or skimping on infrastructure, etc, etc.

[Jacob Davies]

Generally revenues need to rise faster than inflation and population growth to maintain services, because salaries increase with economic growth even if productivity in public services does not rise.

You can imagine why if you think of an economy with no population growth and no inflation, but a steady rate of economic growth. If revenues rise at the rate of inflation & population growth (i.e. zero in this case) they will be an ever-diminishing share of GDP, which in real terms means that teachers and cops and other public employees will be increasingly poorly-paid compared to employees in the private economy. Eventually of course nobody would want to be a teacher because they would be making a poverty wage compared to private-sector employees.

You can't have public sector salaries that remain constant in real terms if you have economic growth.

And it's not just salaries, but also raw materials and products used in public services whose prices may not remain constant in real terms. The human labor involved in their production increases in cost along with economic growth so if productivity doesn't increase their cost will increase faster than inflation.

[Eric Martin]

That doesn't mean that failing to do so is some departure from civic virtue.

It means that failing to do so will limit tax revenue going forward from what it would have been absent Prop 13. Prior generations had access to a level of property tax revenue that future generations do not.

[Jacob Davies]

(Note that that does not mean that revenues need to increase as a percentage of GDP. They could even decrease as a percentage of GDP given enough economic growth - but they need to increase in real terms faster than inflation and population growth.)

[Jacob Davies]

(Sorry, Carleton Wu said some similar things while I was composing that.)