Monday, August 3, 2009

California's struggles don't implicate the "blue state" model

Ross Douthat and David Leonhardt pile on poor, sickly California today in the NYT. Douthat uses California as his chief example of the "blue state basket case[s]" while Leonhardt argues that "liberals have yet to really grapple with" the implications of California's failure. This follows Joel Kotkin's piece, "The Blue-State Meltdown," last month, and the Economist's cover contrasting California's struggles with Texas' successes.

The Kotkin piece is relatively impressively-argued, though it goes dramatically off the rails by the end. The "Chicago model" of patronage/machine politics has been gutted in the last few decades, as anyone who knows anything about the city will tell you, and that's been accomplished largely by a liberal consensus that's moved past the stale and increasingly-irrelevant ethnic politics that characterized the city for most of the 20th century. People like Obama and Axelrod actually represent the newest iteration of the movement that has seen Chicago go from the capital of the Rust Belt in the 70s - a bigger Cleveland, in many ways - to one of the most vibrant, entrepreneurial and green big cities in the country. Kotkin writes this off to gentrification alone, which has certainly taken its toll - whole neighborhoods have entirely changed character, and the city has become much less affordable - but while the Chicago story is complicated, it would be impossible to live there and think the city even remotely a "failure".

I'd also like to point out that, while blue states certainly have their troubles, the economies of the red states don't exactly represent a way forward - heavily tilted towards agriculture which basically exists entirely due to federal subsidies, they comprise about 94 million people in a country of over 300 million. Using outdated 2004 figures (no time to do the current math), 79% of the states that receive more than they give the federal government in taxes voted for Bush in 2000. 69% of those that give more than they receive voted for Gore.

But this post wasn't supposed to be about Kotkin, it was supposed to be about Douthat and Leonhardt and the general tendency to assume that California's problems represent a failure of blue-state economics. In reality, the opposite is true: the chief cause of California's problems represents one of the conservative anti-tax movement's holiest of holies, Proposition 13. Prop 13 severely restricted property tax receipts for California, to the extent that the income tax in California provides nearly half of state revenue. As a result, the California budget gets hit hard in even the mildest economic downturn, let alone in one of the worst economic catastrophes to hit the country in generations.

But that's not all Prop 13 does. It also requires legislators to pass tax increases by a 2/3 supermajority (in addition to a previous requirement that budgets be passed by a 2/3 vote), which makes it practically impossible to raise taxes by even a penny. Conservative Republicans are therefore given a stranglehold over the state budget, California's "blue" reputation notwithstanding. Their intransigence and irresponsibility is what has brought California to this precipice, and the opportunism of a Republican governor intent on using this crisis to do even more damage to California's social contract threatens to push us over the brink.

In short, to blame California's problems on its "blue" economic model is to willfully ignore every salient fact of California's present condition. Republicans hold the purse strings hostage, and now Republicans and their friends in the conservative media gloat that California can't pay for its liberal policies. That makes about as much sense as blaming Obama for George Bush's economic collapse. Oh, wait...


Chris Ryland said...

Oh, and you think raising taxes will solve California's problems?

Rather, it'll just exacerbate high-tech and high-net-worth individual flight from high taxes.

Jeff Epton said...

Yes, raising taxes would probably help. California certainly needs to do something dramatic and soon. The state's public education system was once the best in the country by far, so were its public universities. California's transportation and energy infrastructure are badly deteriorated, too. Those things won't get fixed without revenue increases.

And the truth is that California's state and local tax burden is not dramatically different than the tax burden around the country. What is dramatically different are California laws that restrict property tax increases and permit small legislative minorities to block even reasonable compromises on budgets and taxes.

jimmy_d said...

I think your characterization of the 'blue state economics' observation is missing a critical element. Politics has an effect, no doubt, but the essential element of California's economy that makes it so 'blue' is the progressivity of it's tax system. To achieve such high levels of progressivity within a politically mainstream tax system you have to base taxes in large part on income. The disparity in taxable property between the top 1% and the median is not nearly as large as is the income tax disparity. This makes proportional property taxation comparatively regressive. Moving to a system with a greater property tax component is thus a regressive adjustment. California's recent revenue shortfall is due in large part to the volatility mismatch between incomes in the upper brackets and the state's need for a stable tax base to support services. Moving to a higher ratio of property to income tax revenue would certainly reduce this mismatch, but it would also make the state less 'blue'.

Jeff Epton said...

Valid points, James, property taxes are certainly more regressive than reasonably progressive income taxes, but it's California's requirements for super-majority approval of budgets and tax increases that are causing the most damage. Such requirements have undermined basic democratic principles, like majority rule. Though there are ways around them, similar rules in the U.S. Senate are allowing small anti-government minorities to block universal health care.

Meanwhile, though I'm not currently a property owner (and not low-income), I would support property and income tax increases that addressed fundamental social needs like strong public schools, good public transportation and community services targeted at low-income seniors and generally excluded communities. There are always ways to blunt the effect of property tax increases on low-income property owners.