There was an important column in the Los Angeles Times last week – not good, but important.
It’s by my old friend, the dishonest and foolish Michael Hiltzik. And it’s important not because of what he says, which is empty-headed, dogmatic, predictable, and dishonest, but because it provides a perfect window into what’s wrong with the thought leadership of the state I live in and love. And why it is that I’ll wave goodbye to the collapsing vessel of the LA Times with only a trace of sadness.
So let’s go to the column first, and make some points.
His opening is absolutely true – in part. Down around the 4th paragraph he says that:
Schwarzenegger had the kind of voter support in 2003 that would have allowed him to tell the voters the harsh but necessary truths about California governance and force real reforms down their throats.
Of course, he actually opens by blaming the bulk of the mess on Arnold, explaining that:
Instead, he uttered the same lies about state government and proposed the same nostrums as many of his predecessors: Californians are overtaxed and underserved, the budget can be balanced by cutting waste, fraud and abuse, etc. Like everyone else who has made these claims, he never delivered on his promise.
And repeating the core talking point of the mainstream California Democrats:
The most onerous lie is that Californians are burdened by the highest state taxes in the nation. The truth, according to 2006 figures derived from the U.S. Census, is that as a percentage of all personal income, California’s tax and fee schedule ranks 18th in the country.
That’s funny, because the table he links to says that we’re 14th – the ‘own-source revenue’ column he links to excludes subventions, which is covered in the ‘Tax Collections’ column to its right.
And even these numbers are often challenged – here’s crazy conservative (not really) Dan Walters, from the Bee:
Historically, at least until the tax revolt that began with Proposition 13 in 1978, California was a relatively high-tax, high-service state.
Data from the Washington-based Tax Foundation rank California as having the nation’s third-highest state-local tax burden in 1978, at 11.7 percent of personal income. The national average at the time was 10.3 percent.
Proposition 13, which slashed property taxes, and the state tax cuts quickly enacted by the Legislature to demonstrate that it had gotten the anti-tax message, dropped California to 22nd in 1979, at 9.8 percent of income.
Since then, taxation has increased to 10.5 percent, raising us to sixth-highest in the nation in 2008. And the income, sales and vehicle tax boosts enacted by the Legislature in February would presumably have pushed the percentage even higher – except that the severe recession has also cut deeply into state and local government revenues.
Now, I took 30 seconds, Googled the Tax Foundation, and went to their site to see if there was an explanation of why it is their numbers are different than the Census numbers. Here’s what I found:
People often ask how Tax Foundation rankings of state-local tax burdens compare to Census data, which include two popular state-by-state rankings. One of these popular Census tables covers only state-level taxes (click here to view tables). Local taxes are excluded, such as property taxes and local sales taxes. This exclusion allows Census to report up-to-date state-level collections, which would be impossible if Census waited for the time-consuming tally of tax collections by thousands of local governments. However, some states accomplish at the local level what other states accomplish at the state level, so a degree of comparability is lost as a result. For example, New York’s state sales tax rate is 4 percent, and its counties have local sales tax rates that range from 3 percent to 5.75 percent. Connecticut, on the other had, has a 6 percent state-level sales tax with no local add-ons. In a ranking that includes only state-level taxes, New York appears less taxed than it actually is, and Connecticut appears more taxed. Census also ranks combined state-local tax collections after it has amassed the local data (click here to view tables). This is closer to the Tax Foundation rankings, which take the additional steps of projecting collections into the current year, counting out-of-state tax payments in the state of residence instead of the state of collection, and dividing total tax payments by total income to calculate the “tax burden.”
For further explanation of the data in these charts, see this study.
Now, a good business reporter and columnist – the reporter we ought to have instead of Hiltzik – would dig into the discrepancies, review the various claims, and lay out what the real relative tax burden of California might be. But that’s not the reporter we have, I guess…on the face of it, though, I’d give this round to Walters.
Let’s go on.
Hiltzik is angry that we’re so nice to the rich:
Then there’s the canard that we unfairly soak our rich. This is supposedly a no-no, because the rich might flee, taking with them their sterling job-creating potential.
The dirty little secret, according to Citizens for Tax Justice, a left-leaning nonprofit group, is that California’s wealthiest residents shoulder the lightest burden of any income group in the state. The top 1% of California income-earners (average 2007 income: $2.3 million) paid 7.4% of their income in various state taxes last year, counting the federal deduction for state taxes. The highest rate was paid by the poorest residents. Those earning $20,000 or less, with average income of $12,600, forked over 10.2% of their earnings in sales, excise, property and other levies.
Now I’m not – at all – opposed to progressivity in taxes. the problem in California – as any number of experts have pointed out – is that it’s bad fiscal policy.
In the first post I ever did criticizing Hiltzik, I did so on exactly this issue:
The problem with doing this is that California is already highly dependent on high-income filers, and their income is variable.
In 2003, (the last year that the FTB has an Annual Report for -note, pdf) the top 5% of filers paid 58.8 of the personal income tax.
Since the personal income tax represented $33.7B of the $73.6B in revenues in the 03 budget, high income filers represented 58.8% of 45.8% of the budget, or 26.9% of the annual budget.
Since this represents 680,000 returns of the 13.6 million filed, it’s fair to say that half a million households provide about a quarter of the revenue to the state.
I think this is an amazingly bad idea. I don’t think that this is a bad idea because it’s unfair to the half-million rich households. I think it’s a bad idea because it builds insane levels of volatility into the state revenue stream.
Looking back on 2003 again, we note a few interesting things (go to page 14):
Exhibit Table B-1 Comparison by Taxable Years shows that, from taxable year 2000 to taxable year 2002, the total Adjusted Gross Income (AGI) declined from $829.5 billion in 2000, to $754.1 billion in 2001, to $731.2 billion in 2002, or an overall reduction of 11.9%. Consequently, the amount of personal income tax dollars deposited to the General Fund declined by 29.2%, from $40.4 billion in taxable year 2000, to $31.3 billion in 2001, to $28.6 billion in taxable year 2002.
The numbers of returns reporting incomes of $200,000 and above also declined between taxable year 2000 and 2002, as illustrated by the following table:
2000 = 414,746
2001 = 371,369
2002 = 349,845
There’s your fiscal crisis right there.
There’s an interesting research project, for someone with more time than I have, to decompose the state revenues for the past decade and really get to the bottom of this.
But by following Hiltzik’s plan, the state is in the position of a farmer with one cow. As long as the cow is healthy, all is well. But as soon as the cow gets sick…
Now taxing the hell out of the Malibu Mafia to pay for improving healthcare for the poor emotionally hits the all the right notes for me (I’m the Armed Liberal, remember). But I’m grown-up enough to notice that what feels good emotionally doesn’t necessarily make for good policy.
Note that the Legislative Analyst pretty much agrees with me…
This was in 2006, before Hiltzik demolished his reputation by getting into a sockpuppet argument with Patterico.
It’s sad to note that his policy judgment isn’t any better today. his column continues to offer three solutions for our crisis:
One: Eliminate, or at least loosen substantially, the two-thirds legislative requirement to pass a budget or raise taxes.
This rule has allowed a small Republican minority to hold up all budget progress unless its reactionary program is incorporated in the deal. If the supermajority were pared back even to 60%, the minority lawmakers would be unable to block a budget unless they could enlist at least a few moderates in their cause. The improvement in the tone of legislating would be immediate.
In other words, make those pesky Republicans stop stopping the interests that elect the Democratic majority from simply raising taxes to a level that makes them happy on demand. I’d grade this one an F.
Two: Remove legislative term limits. This ridiculous provision has reduced the Capitol to a nursery full of would-be legislators needing afternoon naps. Worse, it has sapped legislative leadership of its vigor.
Since mid-1995, there have been nine speakers of the Assembly. Over the previous 20 years, there were two, including Willie Brown, the original target of the term-limit movement. You want to tell me that government in Sacramento has improved since then? As long as term limits exist, we’ll never have a 21st-century state government.
And without term limits, we can go back to a 19th-century one. Term limits exist in part to limit the professionalization of policits and policy; the idea being that the legislators are the voice of the people – as opposed to the Administration and lobbyists. Today they aren’t. Term limits were meant to make them more so, but I don’t think they really have; I knew Willie Brown (and admired him) but I’m not completely sure that what worked for a relatively powerless part-time legislature back in the 50’s and 60’s is really the best answer today. This one, I’d grade a C.
Three is the Big One: Revise Proposition 13. Prop 13 is often described as a tax-cutting measure, but that scarcely does justice to the damage it has caused.
Note that it has only done damage…
Hiltzik and I actually almost agree about something next:
By rendering the property tax useless as a revenue device, Prop 13 hit local governments especially hard. Key budgeting authority devolved from cities and counties up to Sacramento, where they have to compete with the state government for money. You want your streets paved or more teachers for your third grade? Stand in line behind the health department, or the corrections department, or Caltrans.
So city streets deteriorate and local schools get worse. Police and firefighters are laid off. All the places where the voters come into face-to-face contact with their governments crumble.
The result? Voters get more cynical, more convinced that government is expensive and useless. It’s a vicious circle — the more government is unable to do the things voters want it to do, the less faith the voters have in government and the less they’re willing to spend on it. Which leaves it with less money to do the things voters want. And on and on.
Let me flag this one and come back to it…
And then he descends into incoherence.
Reversing the worst effects of Proposition 13 doesn’t take rocket science. Commercial property should be subject to regular reassessment — the “split roll” that, inexplicably, can’t gain traction in Sacramento. Cash-strapped homeowners can be provisionally protected from the burden of higher residential assessments — say by allowing some assessments to be deferred until the home is sold.
I actually approve of a split roll – I discussed it some time ago. There’s an intermediate step, which is to tax the corporate sale of real estate (i.e. the change of control of the corporations that often own major properties) as a change in ownership. It’s supposed to work that way as I understand it, but it’s seldom enforced. Again – a good reporter would be pointing this out, doing research, running some numbers and point out the real fiscal impacts.
And what in the wide, wide world of sports does allowing homeowners to defer increased taxes until sale (i.e. borrow against their homes to pay them) have to do with a split roll? Unless he expects to both reassess commercial and residential properties…
Hiltzik isn’t that reporter.
Plainly, local government needs to recover its authority to collect revenue directly. That would help our political leadership make the case that, considering the quality of the services and institutions state and local government provide, Californians aren’t overtaxed but undertaxed — and the wealthy are the most undertaxed of all.
Look, I agree that the core issue on taxes is simple; call it the FedEx issue. When the post office charged $2.50 to send an express letter – but you got awful service – FedEx came along and charged $11. And you didn’t mind. Because you got great service from them.
Our public servants too often think we’re here to serve them, not the other way around; and as long as that’s the case, government will fail the Fedex test.
(this is the point I flagged where he and I sort of agree)
But let’s step back to the larger issue.
Hiltzik has never – once – looked in the mirror and validated his arguments and reconsidered his conceptual framework. He’s lazy when it comes to facts – even misquoting (in his argument’s favor) the very sources he quotes.
And this is the major voice of the economy and public policy in the LA Times – in the leading newspaper in the state. How can we possibly make informed, sensible decisions with people like this as our public ‘thought leadership’? It matters that you pay attention to what’s going on around you. Larry Gonzalez, who wrote the great book ‘Deep Survival’ recently was quoted as saying:
“My first rule of survival is perceive and believe…That means you accept the clear evidence of your senses and not engage in denial like ‘maybe it’ll get better’…”
Hiltzik and people like Hiltzik are destroying liberalism – my kind of liberalism that cares about improving conditions for working people and the poor more than scoring skyboxes because they refuse to accept or care about facts and reality. As long as they have power – the power of his position at the Times or the power of an elected official or senior policymaker, you can deny the evidence – for a while.
And California’s government has been taken over by these people, and that’s why were in the condition we’re in.
A long time ago, when Hiltzik got himself in trouble, I carefully said that I hoped he wasn’t fired for his transgressions. I hereby take that back; I’d like to see him fired – because he’s a lazy, lousy journalist and we need better if we’re going to save the state.
Updated to clarify point on Prop 13.