Thursday, May 06, 2010

Proposition 13

Does Prop 13 bear the lion's share of the fault for California's fiscal/budget mess? No.

9 comments:

mazenko said...

Of course it is Prop 13 (and the 2/3 requirement on revenue) - it is a combination of voters desires for low taxes and extensive services. If the voting for the services could be supported by the revenue, there would be no deficit. Obviously, the 2/3 majority required for revenue that is not required for spending is the problem.

If the spending is going to happen - and it obviously is - then cutting the revenue will create deficits. That is the budget mess. And it is absolutely related to Prop 13. There's no other way to argue it.

Darren said...

"There's no other way to argue it"--except that the author was quite successful in arguing it another way. Even provided facts and figures, not hyperbole.

mazenko said...

Except, of course, he is wrong.

MikeAT said...

mazenko

There is a flaw in your logic. Your belief that tax rate increases automatically increase revenue. They do not. If a government puts such a high level on an activity, that will cause less of the activity or end the activity.

A classic example of that was the ten percent surtax on luxury items that Clinton put on in 93. The revenue from sales of luxury items such as yachts declines because rich people simply bought their boats overseas and register them there. Not only did we lose revenue from the decrease in yacht sales, employees at our firms were laid off, reducing revenue. One of the things the Republicans did after they took the Congress was repeal that and the revenue went up again from increased sales. On lower tax rates.

How many businesses incorporate in the Dominican Republic to avoid taxes in this country? Or for that matter, what happened when the Republican Congress stuck a deal with Clinton to cut the capital gains tax. The result was more revenue on a lower tax rate because people were no longer holding their investments.

And in reading that excellent article it makes the point even after adjusting for inflation spending was higher after Prop 1. The problem is again a legislature and governor who spend money to keep them in power as opposed to serving for a limited time and then returning to civilian life.

Anonymous said...

"If the spending is going to happen - and it obviously is - then cutting the revenue will create deficits. That is the budget mess."

I think one can just as validly say, "If the taxes aren't going to be there -- and they obviously aren't -- then increasing spending will create deficits. That is the budget mess."

One obvious problem with the Prop 13 story is that other states (Florida, Illinois, ...) are also having budget problems. Those states do not have Prop 13. One can, of course, construct one story per state to explain the budget messes. I'd prefer, however, to look for a single, common, explanation first.

-Mark Roulo

Anonymous said...

Continuing ... my single, common explanation would probably start with the claim/belief that politicians don't get re-elected for showing fiscal responsibility ... in any state. Given that voters will choose free goodies as long as they can, without some sort of mechanical brake, this is what happens.

In California we had the opportunity to vote on a proposition for fiscal sanity a few years ago. The voters turned this proposition down solidly (62% against, 38% for). We also don't want our taxes raised (pretty much *every* proposition to do this on the last ballot failed, along with a few "gimick" budget suggestions [like selling the lottery proceeds for the next 20 years and spending it *today*]). Recent polls suggest that the voters are in favor of budget cuts instead of tax increases ... except for cuts to any current programs.

I suspect that Illinois has a similar story.

It will, of course, get worse as the unbudgeted-for expenses of state employee pensions begin to come due ... which is another manifestation of the same thing: collectively we wanted the services, but didn't want to pay for them. Pushing some of the compensation off into pension obligations 20-30 years hence allowed for this tradeoff. At least for a while.

-Mark Roulo

mazenko said...

Mark, I agree with you.

Mike, you're somewhat right, but there are as many times that politicians have argued that any tax increases are going to "destroy the economy" (GOP in 1986 and 1991 and 1993) and it didn't happen.

So, much of that is hypothetical and can not be proved. It just matters what ideology you believe and which years and facts you choose to focus on.

I agree CA overspends - but they do their spending at the same time that they cut their taxes. Illinois has done that, too. So has Colorado. And the combination has caused the problems.

maxutils said...

Except that Prop 13 didn't cut taxes - it put a stop to windfalls created by rapidly rising property values that homeowners had no control over. California had been doing just fine before the housing boom of the seventies, so reeling in assessments to what essentially amounted to increases for inflation, as well as reassessments due to resales, should not have caused any problems. And, even if Prop 13 were the problem (and earmarked taxes and voters who don't read ballot initiatives are much more of a problem) I wouldn't care, because it corrected a grossly unfair way to tax people.

MikeAT said...

Mike, you're somewhat right,

OK mazenko , what are we agreeing on…there may be hope for this Arab-Israeli thing

but there are as many times that politicians have argued that any tax increases are going to "destroy the economy" (GOP in 1986 and 1991 and 1993) and it didn't happen.

Again, I was pointing out the fact if you increase tax rates that will not necessary increase revenue. People will react to decrease their tax burden and people suffering from Washingtonian Syndrome cannot get that through their head. Beautiful example of the disease was in 1992 when a Republican congressman asked CBO to estimate the money taken in if there was a 100% tax on all income above 200K. CBO estimated in the first year it would take in (as I recall) 280 billion and in the next year it would bring in 295 billion. Anyone with half a lick of common sense knows there would be no money in the second year because no one would pay a salary of over 200L….what’s the point if DC will take it at a 100% rate.

So, much of that is hypothetical and can not be proved. It just matters what ideology you believe and which years and facts you choose to focus on.

Again, I pointed out how people react to taxes (using examples) and there that static estimation is worthless.

I agree CA overspends - but they do their spending at the same time that they cut their taxes. Illinois has done that, too. So has Colorado. And the combination has caused the problems.

No, the problem is the state bureaucracy continues to spend and spend regardless if it has the money or not. And what is the first priority of any bureaucracy….to insure its own existence. The people of the states must stop the state governments from spending money like there is no tomorrow and limit the ability of state legislature to spend without some type of restraint. If you don’t the state will find ways to justify spending.