California's High Tax / High Benefit Model: A Constantly Renegotiated Bargain

Includes: AKP, BFZ
by: Tim Iacono

California's high benefit/high tax model of government - a subject that was once very near and dear to my heart, but one that now only generates casual interest since we left the state earlier this year - is examined by William Voegeli in this report in the Los Angeles Times.

In America's federal system, some states, such as California, offer residents a "package deal" that bundles numerous and ambitious public benefits with the high taxes needed to pay for them. Other states, such as Texas, offer packages combining modest benefits and low taxes. These alternatives, of course, define the basic argument between liberals and conservatives over what it means to get the size and scope of government right.

It's not surprising, then, that there's an intense debate over which model is more admirable and sustainable. What is surprising is the growing evidence that the low-benefit/low-tax package not only succeeds on its own terms but also according to the criteria used to defend its opposite. In other words, the superior public goods that supposedly justify the high taxes just aren't being delivered.
One way to assess how Americans feel about the different tax and benefit packages the states offer is by examining internal U.S. migration patterns. Between April 1, 2000, and June 30, 2007, an average of 3,247 more people moved out of California than into it every week, according to the Census Bureau. Over the same period, Texas had a net weekly population increase of 1,544 as a result of people moving in from other states.

In the years before we left, we heard many stories of people moving from California to Texas but none about people moving the other direction.

At one point, even your average homeowner could sell his house in the Golden State and, with the profits, buy a brand new 3,500 square foot place in Texas on an acre of land.

This doesn't happen much anymore (for obvious reasons), but people are still leaving.

These folks pulling up stakes and driving U-Haul trucks across state lines understand a reality the defenders of the high-benefit/high-tax model must confront: All things being equal, everyone would rather pay low taxes than high ones. The high-benefit/high-tax model can work only if things are demonstrably not equal -- if the public goods purchased by the high taxes far surpass the quality, quantity and impact of those available to people who live in states with low taxes.

Today's public benefits fail that test, as urban scholar Joel Kotkin of and Chapman University told the Los Angeles Times in March: "Twenty years ago, you could go to Texas, where they had very low taxes, and you would see the difference between there and California. Today, you go to Texas, the roads are no worse, the public schools are not great but are better than or equal to ours, and their universities are good. The bargain between California's government and the middle class is constantly being renegotiated to the disadvantage of the middle class."

These judgments are not based on drive-by sociology. According to a report issued earlier this year by the consulting firm McKinsey & Co., Texas students "are, on average, one to two years of learning ahead of California students of the same age," even though per-pupil expenditures on public school students are 12% higher in California. The details of the Census Bureau data show that Texas not only spends its citizens' dollars more effectively than California but emphasizes priorities that are more broadly beneficial. Per capita spending on transportation was 5.9% lower in California, and highway expenditures in particular were 9.5% lower, a discovery both plausible and infuriating to any Los Angeles commuter losing the will to live while sitting in yet another freeway traffic jam.

In what respects, then, does California "excel"? California's state and local government employees were the best compensated in America, according to the Census Bureau data for 2006.

There's a day of reckoning coming for public sector workers in California, that is, unless they get the housing bubble inflated again - that seems to solve many problems ... temporarily.

If not, things are going to be pretty grim for the state's budget for some time to come.

I don't recall where this was, but a recent news report said that the total budget deficit for all fifty states in the new fiscal year is expected to be in the hundreds of billions of dollars.

The stimulus money from Washington that helped balance many state budgets this year appears to have only pushed the problem back a year.

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