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2010 November 07 Sunday
Higher Taxes And More Flight From California?

The passage of California Proposition 25 makes it easier for the state legislature to pass budgets.

California voters approved a ballot measure to lower the threshold for the state Legislature to pass a budget and revoking lawmakers’ pay when a budget is late. Voters also said yes to making it harder to raise fees.

The expectation is that this will make tax increases easier to pass. So state employee unions supported it and business interests opposed it.

Opponents, led by Chevron Corp., as well as beer and wine distributors and the California Chamber of Commerce, plowed $15.8 million into defeating it. They said lowering the threshold to pass budgets could make it easier for lawmakers to raise taxes because of ambiguous language in that part of the measure. They also said budgets could raise fees, such as for vehicle registration, when passed by a simple majority.

The state is highly vulnerable to a flight of higher income earners. 1% of California tax filers pay almost half the state's income tax revenue.

Already I've heard grumbling from folks who are making plans to pull up stakes because they feel squeezed by California's high taxes and declining standard of living. Sure, it's probably just talk. But California can't afford to lose a single one of the 140,000 households that earned more than $480,000 in 2008, and represent 1 percent of tax filers, yet pay almost half of the state's income taxes.

Think about it. In a population of about 38 million if the 140,000 top earning households move to other states then the state of California would go bankrupt.

In a summer 2010 City Journal article Joel Kotkin surveyed the various ways California has declined in recent years. Natives are leaving the state.

California’s supposedly progressive economics have had profound demographic consequences. After serving as a beacon for millions of Americans, California now ranks second to New York—and just ahead of New Jersey—in the number of moving vans leaving the state. Between 2004 and 2007, 500,000 more Americans left California than arrived; in 2008, the net outflow reached 135,000, much of it to the very “dust bowl” states, like Oklahoma and Texas, from which many Californians trace their origins. California now has a lower percentage of people who moved there within the last year than any state except Michigan. Even immigration from abroad seems to be waning: a recent University of Southern California study shows the percentage of Californians who are foreign-born declining for the first time in half a century. For the first time in its history as a state, as political analyst Michael Barone has noted, California is not on track to gain a new congressional district after the 2010 census.

This demographic pattern only reinforces the hegemony of environmentalists and public employees. In the past, both political parties had to answer to middle- and lower-middle-class voters sensitive to taxes and dependent on economic growth. But these days, with much of the middle class leaving, power is won largely by mobilizing activists and public employees. There is little countervailing pressure from local entrepreneurs and businesses, which tend to be poorly organized and whose employee base consists heavily of noncitizens. And the legislature’s growing Latino caucus doesn’t resist regulations that stifle jobs—perhaps because of the proliferation of the California equivalent of “rotten boroughs”: Latino districts with few voters where politicians can rely on public employees and activists to dominate elections.

Joel dreams of a Latino-Anglo coalition. It says something about how much California's intellectuals have adopted Mexican and Central American viewpoints that they refer to white people as Anglos. How many white people do you know who call themselves Anglos? Seriously. I do not know anyone who does.

A coalition of inland Latinos and Anglos, along with independent suburban middle-class voters in the coastal areas, could begin a shift in policy, reining in both public-sector costs and harsh climate-change legislation

The flight of industries from California is not just due to regulations and taxes. Demographic changes due to immigration have replaced whites with groups that have low educational attainment, fewer useful skills in work environments, and lower incomes. If the people of California are unable to produce wealth like previous generations could then no changes in state public policy can compensate for this.

Kotkin writes a lot of useful articles about bad government policies and economic and social changes. But he writes using the allowed assumptions of the ruling politically correct intellectual elite. Therefore he can't actually approach root causes or effective solutions of the biggest problems facing the state and the nation.

By Randall Parker    2010 November 07 09:49 AM Entry Permalink | Comments (10)
2010 January 30 Saturday
Schwarzenegger: Put Alien Criminals In Mexican Prisons

Arnie, still the governor of the fiscally deteriorating state of Calfornia, wants to outsource the imprisonment of illegal alien criminals to cheaper Mexican prisons.

We pay them to build a prison down in Mexico and then we have those undocumented immigrants be down there in a prison and with their prison guards and all this. It will halve the costs to build the prisons and halve the costs to run the prisons. That is money—again, a billion dollars right there—that can go into higher education.

His predecessor Gray Davis made a sweet deal with the union for California state prisons that made salaries and other labor costs for prison guards quite high. So California state prisons are expensive to operate.

This idea can be extended: Deport all the illegal aliens from California to Mexico so their kids can go to cheaper Mexican schools, they can use cheaper Mexican dentists, cheaper doctors, and cheaper police. Time to save money. California is a high cost state and no place for high school drop-outs from groups that continue to perform poorly in later generations.

Arnie is also making greater use of private prisons. He is trying to undo the damage caused by Gray Davis's big raises for the state prison union members.

Without a doubt, the state saves money by using private prisons. A recent state audit estimated that the cost of housing an inmate in private lock-up is between $3,200 and $7,800 less per year than in a state prison.

One reason is that private companies pay guards far less than the state pays prison officers, many of whom earn in excess of $100,000 with overtime and other bonuses. Therein lies perhaps the largest obstacle to any expansion of private prisons.

The California Correctional Peace Officers Association fiercely opposes private prisons, and regularly spends millions on state campaigns.

The union was particularly close to Schwarzenegger's predecessor, Gray Davis. Indeed, the union donated $251,000 to Davis on a single day in 2002, shortly after the Democratic governor signed a labor contract intended to give prison officers pay raises of 37 percent over five years.

Political systems accumulate parasites until crisis forces a cutting back. In California's case it is amazing just how bad the crisis has to get before various forms of parasitism get trimmed back. It isn't even clear that a reduction in parasitism will continue to happen. In the 2010 election the Democrats could win the governorship and gain seats in the legislature. If that happens the parasites will raise taxes.

By Randall Parker    2010 January 30 01:25 PM Entry Permalink | Comments (6)
2009 December 29 Tuesday
California Budget Crisis Heating Up Again

The LA Times ran a story last week about how California's budget deficit is opening back up again and the Governator wants to make more big cuts in spending.

Reporting from Sacramento - Facing a budget deficit of more than $20 billion, Gov. Arnold Schwarzenegger is expected to call for deep reductions in already suffering local mass transit programs, renew his push to expand oil drilling off the Santa Barbara coast and appeal to Washington for billions of dollars in federal help, according to state officials and lobbyists familiar with the plan.

If Washington does not provide roughly $8 billion in new aid for the state, the governor threatens to severely cut back -- if not eliminate -- CalWORKS, the state's main welfare program; the In-Home Health Care Services program for the disabled and elderly poor, and two tax breaks for large corporations recently approved by the Legislature, the officials said.

The state is in a seemingly permanent financial crisis. The deficit is 20% of the general fund. Click thru and read all the details.

Since I expect Peak Oil to cause an extended period of economic contraction in the 2010s and 2020s I expect huge cuts in what governments do. As tax revenue declines the percentage of tax revenue spent on debt service will rise and spending will get cut more than tax revenue declines.

You might expect governments to raise taxes under conditions of extended declining revenue. But the voters will feel poor as their living standards decline and they won't want to give up a larger percentage of declining incomes to government.

By Randall Parker    2009 December 29 09:51 PM Entry Permalink | Comments (21)
2009 August 30 Sunday
Higher Taxes In California

As if they weren't high enough already.

Under the latest changes, for a married couple filing jointly, the top tax rate of 9.55% now begins at $92,698, down from $94,110. Combined with the earlier increases, such a couple with two children, earning $100,000, will see their California income tax bill rise by 22.3%, or $716, according to the state Franchise Tax Board. Their tax would go from $3,208 to $3,924, factoring in a $110 drop in the standard deduction for joint returns.

For singles, the top tax threshold has dropped from $47,055 to $46,349. This year, a single filer without children who earned $30,000 in 2008 and 2009 would pay 13.8% more: $617 instead of $542. The standard deduction for sole filers will fall by $55.

The state's ongoing financial crisis needs to be seen in perspective. Some states have no income tax at all (e.g. New Hampshire, Florida, Texas, South Dakota, Wyoming). Some states have no sales tax. California has high levels of both. There are restrictions on the property tax due to Proposition 13. But given our higher housing prices the governments still get a lot of money from property taxes. In spite of all this we still have a state government funding crisis.

I think I'm going to have to leave California eventually. Given our demographic trends this story is going to get much worse. Any suggestions on where a software developer (Linux drivers, C/C++ both embedded and Win32, Javascript/CSS/HTML, even some .NET experience) ought to live? Alternatively, got experience in places where you think one shouldn't want to live?

By Randall Parker    2009 August 30 10:12 PM Entry Permalink | Comments (17)
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