California: High Taxes, Low Services

Recently a very successful Silicon Valley executive asked why her state income tax rate is so high (13.3 percent). The answer is three-fold:

  1. Until 1978 California financed most local services with property taxes. That year, California voters enacted a referendum (Proposition 13) imposing a constitutional limit on property taxes. To make up for the shortfall, the legislature and governor at that time bailed out local authorities and shifted activities to the state, which is financed predominantly by income taxes.
  2. Since then, successive state legislatures and governors under the influence of certain financial interests — best known by acronyms such as CTA, CCPOA, CSEA, CHA, SEIU, CMA, CNA and more; see * below — have disproportionately boosted spending on employee compensation, pensions and other retirement benefits, and healthcare.
  3. To finance that spending, those financial interests — let’s call them “the Profiteers” — have financed campaigns to boost income taxes.

As a result, California’s top income tax rate is by far the highest in the country yet the share of the budget going to most services — e.g., the University of California, California State University, courts, parks and welfare— keeps declining. That’s because the Profiteers’ share keeps rising. An initiative to boost taxes is once again on the ballot this November, once again financed by the Profiteers, and once again likely to pass. Absent change, tax rates will continue to rise while services decline.

The California Legislature is the first step to that change. It is your California Legislature that has the power to rationalize employee compensation, benefits and healthcare spending. Don’t blame the Profiteers. They are businesses— Eisenhower might have nicknamed them the “government-employee-healthcare-industrial complex” — for whom California is a very big customer. Instead, blame legislators who fail to stand for the notion that taxes should go to services instead of to profiteers.

Only through the election of courageous legislators will California be able to redirect tax revenues from profiteers to citizens. The good news is that political philanthropists can have a big impact in that regard, as explained here. The 2016 and 2018 elections will determine the makeup of the California Legislature for a disproportionate period of time. The time to support courageous candidates for the California Legislature is now.

*California Teachers Association, California Correctional Peace Officers Association, California School Employees Association, California Healthcare Association, Service Employees International Union, California Medical Association, California Nurses Association.

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