Should California Be Declared Bankrupt? Steven Malanga correctly notes that California's budget problems are quite different than those faced by other states, and suggests that bankruptcy might not be a horrible solution:
While many states are grappling with budget problems, none are nearly as large as California’s relative to its size--$41 billion in a state of 37 million, or $1,108 per resident. Even New York, the next most fiscally pressed state, clocks in with a mere $13 billion for 19 million residents, or $685 per capita.[...]
There are a host of reasons why California has become toxic to business, ranging from the highest personal income tax rate in the country (small business owners are especially hard hit by PITs), to an environmental regulatory regime that has made electricity so expensive businesses simply can’t compete in California. That is one reason why even California-based businesses are expanding elsewhere, from Google, which built a server farm in Oregon, to Intel, which opened a $3 billion factory for producing microprocessors outside of Phoenix.
In the race for the exits, residents are accompanying businesses. In just one decade California made a remarkable turnabout, going from a state with one of the highest levels of net in-migration to the state with the second highest level of domestic net out-migration. Typically people either head for the exits because they are seeking more economic opportunity or because they are being driven out by high housing costs. You get a little bit of both in California because the state’s zoning regulatory schemes keep housing production artificially low and housing prices high even in a mediocre economy.[...]
Back in the 1970s, New York City was on the verge of bankruptcy and despite a famous headline (Ford to City: Drop Dead), both the feds and New York State eventually bailed out Gotham, but under strict conditions. They imposed a financial control board which required demanding cuts to services, a new, more transparent budget process and several years of budgetary oversight. Maybe what Washington should impose on California will be a national version of a financial control board to shake some sense into state legislators.
Read the full column here.
Read more on state budgets here. Read more on California here.
Tax Foundation State Tax Policy Expert on CNN This Evening Tonight, Tax Foundation Director of State Projects Joseph Henchman will be appearing on a segment about state tax increases on CNN's Lou Dobbs Tonight. The show airs at 7PM Eastern/4PM Pacific, and repeats several times in the evening and next day.
Here are Tax Foundation reports relating to the subject:
E.J. Dionne Defends Obama “The Re-Distributor” In this morning's Washington Post column "The Re-Distributor," E.J. Dionne declares that "The central issue in American politics now is whether the country should reverse a three-decade-long trend of rising inequality in incomes and wealth."
As justification for Obama's redistributionalist policies, Dionne cites OMB Director Peter Orszag as saying it is time for the rich "to pitch in a bit more" because "over the past two or three decades, the top 1 percent of Americans have experienced a dramatic increase from 10 percent to more than 20 percent in the share of national income that's accruing to them."
E.J. Dionne and Peter Orszag both seem to be unaware that a recent OECD study found that the U.S. already has the most progressive income tax system among industrialized nations. Our top 10% of taxpayers pay a heavier burden than that group in any other country and our poor have the lowest income tax burden of any country. Indeed, our top 1 percent pay a greater share of the income tax burden than the bottom 90 percent combined.
Ironically, the OECD also reports that the U.S. has one of the highest levels of inequality in the OECD -- only Portugal, Turkey and Mexico have greater inequality. This means that either we have inequality despite a progressive income tax system or that progressive income tax systems are a poor way of countering inequality.
Mr. Dionne is also unaware that the number of tax filers who have no income tax liability after taking their credits and deductions has grown from 29 million in 1999 to 47 million today -- a 50% increase while George Bush was supposedly "giving tax breaks to the rich." Half of those non-payers get refundable tax credits back from the IRS, which means they see April 15th as payday not tax day.
Obama's tax plan could push another 15 million off the rolls altogether, increasing the number of non-payers to more than 60 million.
According to a Tax Policy Center analysis of Obama's tax plan, the share of the total federal tax burden on taxpayers earning over $200,000 would rise from 45.5 percent to more than 51 percent. In other words, the top 2 percent of taxpayers would shoulder more than half of the nation's entire tax burden, not just income taxes but all federal taxes.
A question for Mr. Dionne is whether it is healthy for our democracy to have a growing class of Americans who are consumers of government but pay none of the costs and a shrinking class of Americans who consume little but pay all of the costs?
| Cash Income Level (thousands of 2008 dollars) | Current Share of Total Federal Taxes (%) | Share of Total Federal Taxes Under Obama Plan (%) | Change (%) |
| Less than 10 | 0.2 | -0.1 | -0.3 |
| 10-20 | 0.7 | 0.0 | -0.7 |
| 20-30 | 1.9 | 1.2 | -0.7 |
| 30-40 | 2.8 | 2.2 | -0.6 |
| 40-50 | 3.5 | 3.0 | -0.5 |
| 50-75 | 10.0 | 9.1 | -0.9 |
| 75-100 | 10.1 | 9.4 | -0.7 |
| 100-200 | 25.3 | 23.7 | -1.6 |
| 200-500 | 17.5 | 17.3 | -0.2 |
| 500-1,000 | 7.5 | 8.6 | 1.1 |
| More than 1,000 | 20.5 | 25.5 | 4.9 |
| All | 100.0 | 100.0 | 0.0 |
| | | | |
| $0 to $100 | 29.2 | 24.8 | -4.3 |
| $100 to $200 | 25.3 | 23.7 | -1.6 |
| Above $200 | 45.5 | 51.3 | 5.9 |
| Source: Tax Policy Center | | | |
