Friday, February 4, 2011

California and Texas--just two sides of the same coin

California’s economy continues to be a mess, which is not unexpected since like many states it is over-dependent on construction and real estate jobs for its non-public sector employment. With the real estate market showing no sign of stabilizing—let alone growing—along with it comes no real chance that the state will see a decrease in unemployment any time soon. The “answer” to the state’s woes is, of course, cutting taxes and making the state “friendlier” for business, meaning reducing environmental standards among other things; not that any of this will be sufficient, but that’s what they say. High taxes may have been an issue in the past, but not necessarily now. Business leaders are always complaining about taxes; we frequently hear that complaint in Washington, yet just this past December, the Small Business and Entrepreneurship Council rated this state the 5th best on its small business “survival” index.

People demanding that California change its ways point to the fact that it has lost 20 percent of its manufacturing jobs in the past 10 years—except that this is in line with what the rest of the country has lost. A net of 3 million manufacturing jobs were lost during the Bush years, giving yet another lie to the myth that cutting taxes for the rich creates jobs; even in so-called “business friendly”—meaning low-wage, low-tax and low-environmental standards—states in the South lost an average of 13 percent of their manufacturing jobs. The blame for this lies elsewhere—on even cheaper costs from overseas competition, particularly China and Southeast Asia, and the unwillingness of Americans to “buy American” because of low wages. While California’s taxes may have been high in a distant past, today its combined state and local sales tax rate of 10.66 percent on the dollar is barely above the national average of 10.43 percent.

The real problem with California is that it seems that most of its “policy-making” is done by voters in seemingly endless propositions with no thought to consequences; in the past, many of these propositions and initiatives seemed to advance positive goals in education, infrastructure, transportation and the environment. California’s progressiveness was the envy of the world, but all good things must to come to end, because you have to pay for these things. By the late 1970s, people in California decided they were not going to pay for these things anymore. Since then, California has been what Kevin O’Leary suggested it was over a year ago in Time magazine: “Direct democracy run amok, timid governors, partisan gridlock and a flawed constitution that have all contributed to budget chaos and people in pain.” Sounds like the state I’m living.

And, he addd:

“And at the root of California's misery lies Proposition 13.”

Proposition 13 actually had its roots in tax payers from wealthy school districts not wanting to help pay education costs in poor school districts, which came into play after the state Supreme Court ruled that disproportionate school funding violated the equal protection clause in the state constitution (I know this about this attitude; I had a letter in the Sacramento Bee way back when commenting on a well-off white section of a local school district that wanted to separate from the low-income minority section). The housing boom in the 1960s and 70s led to higher home prices and thus higher tax assessments, and a scandal involving tax assessors led to a law raising artificially-lowered assessments. This was just too much for people to handle at one time. So in 1978, a cranky old man named Howard Jarvis pushed through Proposition 13, which would set property tax rates at one percent from the base home price date of 1975; rates could only rise a maximum of 2 percent from the base rate per year. Even if home values rose dramatically, the tax would still be based on the original assessment, and could only change if the home value decreased, or the home was sold to a new owner. The net effect was that it was cheaper for homeowners to stay in their home instead of buying a new home; as bad as California’s real estate market is now, it always was bad in a fashion after the passage of Proposition 13. Property taxes remained largely stagnant, while public services costs skyrocketed. And something else had been snuck into 13’s nefarious shenanigans: A two-thirds majority in the state legislature was required to pass any form of tax increase.

Another problem for California now is that at one point 15 percent of its workforce was in the public service sector; government was the biggest employer in the state. With revenues plunging, it was inevitable that people in this sector would be thrown out of work. If businesses didn’t want to create jobs in the state, then the state needed to raise taxes and get into the business of job creation itself—like building or repairing infrastructure, improving quality of life, and building a world-class education system. In the past, this “liberal” agenda was what made California the most important state in union for decades after World War II. This was at least part of the idea behind the Obama stimulus package: Government spending creating work, which would create consumerism, which would in turn create additional jobs. This didn’t exactly happen, because too much of the stimulus package was tax cuts to appease conservatives. But because of the strictures of Proposition 13, it is virtually impossible for the state to stimulate job growth; we have already seen from the Bush example that tax cuts do not stimulate job growth.

Perhaps the sector that was hurt the most by Proposition 13 and its fallout was education; California once prided itself in providing as many people as possible the opportunity to achieve all they could be. Today, Arnold Schwarzenegger—who still doesn’t remember what he and Enron’s John Lay and stock fraudster Michael Milken discussed at that Peninsula Hotel meeting in 2001 (despite having a college “degree” through correspondence courses with the University of Wisconsin-Superior, probably because they offered lax standards for a “celebrity”)—has as his most lasting “legacy” in California the suspicion that he helped drive the state’s once proud university and community college system into permanent fiscal turmoil. Soaring tuitions—particularly for community colleges—and the cutting of state student aid turned out to have the effect not of increasing the level of non state-sourced funding (that is, out-of-pocket expenses), but reducing education revenue still further, since prospective students simply dropped-out, while higher education revenue needs continue to rise. The effect of fewer educational resources and educated people in the state has even longer-term consequences.

I read an op-ed in a local paper called The Columbian (I think it has something to do with the Columbia River) online recently. California, the writer opines, didn’t understand that tax exceptions would keep jobs in the state; the writer, Don Brunell, neglected to mention that while companies like Boeing were getting billions in tax breaks to keep a handful of 787 jobs in-state, it was laying-off tens-of-thousands workers elsewhere; the state essentially gave Boeing something for much less than nothing. Brunell went on to make some other rather bizarre claims, stating that tax exceptions on machinery beginning in 1995 added $81.5 billion to state coffers on $16.5 billion in increased income over a ten-year period. Whatever. All I know is the Washington’s fiscal position is in a shambles like everywhere else—even Texas.

Some people do like to point to Republican-run Texas as doing everything right to insure economic stability and jobs. They must be doing something “right,” because California pays far more in federal taxes than it receives in federal dollars, while the opposite is true for Texas, in large part due to an over-abundance of military installations and the fact that it has low public services spending--especially in health care, so the federal government has to step in and fill the gap; in fact, Texas receives more money from the federal government than any other state—10 percent of all federal money going to the states. The reality is that besides federal dollars for this welfare state, oil and natural gas jobs and profits are for the time being keeping the state afloat. Underneath all the happy talk is a rotting public services sector ill-equipped to deal with a real crisis. Texas already is near the bottom in many quality of life indicators; poverty is high, infant mortality rates are high, and the number of people without health insurance is infamously high. places Texas 45th out of 50 states in its “livability” index. A CNBC “study” claimed that the Texas was number one for business, but it came in at 29 on quality life—failing to live-up to CNBC’s claim that states with good business climates also have good quality of life (Interestingly, while business leaders and Republicans in Washington state constantly claim that it has a poor business atmosphere, the same study in fact ranks it the 15th best state to do business).

On top of that, the state faces a $25 billion budget deficit over the next two years—a huge chunk of the $95 billion projected budget. Of course, Republicans will not countenance tax increases, except those that harm the poor rather than their billionaire buddies.

Texas ballot initiatives also tend toward the opposite direction of California’s; this past year, the Republicans pushed referendums requiring all voter show “valid” photo ID at any and all elections; Congress should be enjoined to “stimulate” the economy by cutting more taxes; acknowledge the existence of God at public functions; and women should be required to be shown sonograms before undertaking abortion procedures. All of these constitute the Republican notion of solving the state’s massive budget problems; not surprisingly, besides being designed to suppress Democratic votes or being nonsensical, they cost nothing and accomplish nothing.

Texas is a bad example for the country, perhaps even worse than California. What about North and South Dakota, which seem to have weathered the economic storm and maintaining low unemployment? Both states have populations under a million, for one thing. North Dakota has oil and is a leading producer of many varieties of foodstuffs, while South Dakota’s economy is buoyed by federal spending which accounts for 10 percent of its GDP, tourism to its national parks and the fact that the problems of Native Americans—who constitute the large majority of the state’s non-white population—are the federal government’s problem. It is also another low tax, low service state; its teachers are among the lowest paid in the country. The only lesson here is that being small and in an out-of-the way place no one wants to go has its advantages if you run a state government on the cheap.

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