Tuesday, May 26, 2009

Anti-Tax Extremism Sinking California

Nobel laureate Paul Krugman reflects on how extreme anti-tax measures enacted 30 years ago in California have created its budget crisis of today:

The seeds of California’s current crisis were planted more than 30 years ago, when voters overwhelmingly passed Proposition 13, a ballot measure that placed the state’s budget in a straitjacket. Property tax rates were capped, and homeowners were shielded from increases in their tax assessments even as the value of their homes rose.

The result was a tax system that is both inequitable and unstable. It’s inequitable because older homeowners often pay far less property tax than their younger neighbors. It’s unstable because limits on property taxation have forced California to rely more heavily than other states on income taxes, which fall steeply during recessions.

Even more important, however, Proposition 13 made it extremely hard to raise taxes, even in emergencies: no state tax rate may be increased without a two-thirds majority in both houses of the State Legislature. And this provision has interacted disastrously with state political trends.

That's really the root of the problem here. California has tons of resources -- it's one of the largest economies in the world just by itself. But if it's that hard to pass a tax increase, what ends up happening is that essential services are forced into closing down. And with a right-wing Milton Friedman disciple like Arnold Schwarzenegger at the helm, sensible tax increases that could stop all that probably will not go through.

On the bright side, this is probably the death knell for the Republican Party in California.