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Interesting. Not too long ago I found out that not only does California have incredibly high state income taxes, but it also has really high state capital gain

by lbrandy 16y ago

Interesting. Not too long ago I found out that not only does California have incredibly high state income taxes, but it also has really high state capital gains taxes. It actually amazes me that silicon valley has thrived under those burdens which leads me to ask two very important questions: 1. Why hasn't the high taxes driven people out of Silicon Valley (and will it?) 2. How is California broke? I come from Florida and in Florida, there are barely no state taxes at all because it's all on tourism. Somehow California has these insanely high taxes and still can't pay any bills. Other than blaming illegal immigrants (a dubious politically motivated response), I've never really gotten a straight up answer on what makes California and Florida so different.

kevingadd 16y ago
Part of the problem is that California is basically unable to raise certain tax rates without a state ballot measure, and our voters are not big fans of raising taxes. The only way to undo this (IIRC) is to pass a constitutional amendment, since that's how it was established in the first place. Our spending and policies are definitely out of whack, as demonstrated in the article, but not being able to raise taxes to compensate isn't helping either. I'm not a fan of raising taxes, but I consider our state being broke to be a bit worse.
- anamax 16y ago
  > I'm not a fan of raising taxes, but I consider our state being broke to be a bit worse. Why is cutting spending not an option? CA's tax revenues are significantly higher than the spending just a few years ago. Would it really be unreasonable to cut back to that level of spending? (Note that unemployment is largely paid for by the federal govt, so ....)
usaar333 16y ago
I'm not sure about Florida, but some points about California: 1) Extremely generous social services 2) A bizarre (and arguably unfair) property tax regime. Property taxes on owned property only rise 2% a year. (very low, consider that my parent's Bay Area home has risen by about 5.7% yearly since the 1980s) What that leaves you with is entrenched residential and commercial property owners paying relatively very little in taxes. If you are a new resident though, you get no immediate benefit - your taxes are assessed at the purchased value. According to supporters, the law that set this up (Proposition 13) has saved taxpayers $528 billion (http://www.hjta.org/about-hjta/history-hjta http://www.hjta.org/about-hjta/history-hjta); that's $17.6 billion a year - pretty much the budget deficit of the state.
- philwelch 16y ago
  The property tax situation sounds like a recipe for rent being more cost-effective than homeownership, which is indeed what we observe in California.
  - btilly 16y ago
    Only in the short term. If you stay in the same place for 20 years, home ownership becomes much more cost effective.
    - philwelch 16y ago
      Personally, I can't imagine staying in the same place for 20 years unless I was old and retired, and if I was old and retired I would retire to someplace cheaper. Opportunities come and go, and committing to live in the same place for 20 years is a huge risk if that place dries up and someplace else starts to boom.
    - ghshephard 16y ago
      Depends on when you buy, as always. I sold my Condo in 2006 for $535K (3222 Glendora Drive, #109, San Mateo, CA). It was last listed at $386K before the listing was finally removed. All we can really say is that in the last 50 years, home ownership was a better buy than renting. I don't know anyone confident about their 20 year forecasts regarding California Real Estate right now... As for me - I'm renting a room for $750/month. I don't think that I would ever have come out even if I hadn't sold my Condo. The key thing to realize, is that sometimes the decision isn't "Buy or Rent", it sometimes (in my case) is Downsize+Rent. Gives you flexibility + reduced costs.
  - jbarham 16y ago
    That doesn't mean renting is cheap. I'm paying $2165/month for a 3-bedroom apartment in Irvine (i.e., $25980/year). I'm not complaining since I earn a good salary as a programmer and our apartment is in a well-managed complex in a nice neighborhood, but it would be easy to spend more and difficult to find something substantially less in the same general area. But it does serve to confirm the article's thesis that California is becoming increasingly bifurcated between a high-paid "knowledge class" and a de facto servant underclass, largely composed of illegal immigrants (e.g., Irvine's landscaped parks and streets are beautifully maintained by an army of gardeners, but there's no way those gardeners can afford to live in Irvine). The traditional middle class is being squeezed out, and long term I do not believe that's healthy for California as it's too reminiscent of the very wide disparity of incomes that I've seen in the third world.
jseliger 16y ago
Point two: see http://www.theatlantic.com/business/archive/2009/05/is-california-too-big-to-fail/17873/ http://www.theatlantic.com/business/archive/2009/05/is-calif... . Also http://www.theatlantic.com/business/archive/2009/05/should-we-blame-californias-government-or-its-citizens-for-the-deficit/18288/ http://www.theatlantic.com/business/archive/2009/05/should-w... . Some major problems: California's state constitution is a mess; its initiative process is out of control; conventional tax increases are impossible; Prop 13 distorts incentives. Many of these are structural issues. A bunch of articles have appeared on HN lately about how powerful, complex societies and institutions fail by being unable to flexibly adapt to change. That, in a nutshell, appears to be California's problem, which has been papered over to some extent by Silicon Valley Hollywood, agriculture, and weather. But even those rich sources of income can eventually be exhausted by the infinite demands of special interests and others.
- WiseWeasel 16y ago
  I'm quite a fan of the initiative process in California. I mean, sure, it's been abused by short-sighted people, leading to things like three-strikes legislation overcrowding our prisons, but it has also brought us important social progress such as medical marijuana, and any sufficiently unpopular law is only a petition away from redress. It's encouraging that we enjoy the power to reform law from the bottom up in such a direct manner, and I wouldn't want to give up that power quite so readily, as those who toss around that 'out of control initiative process' talking point are so eager to do.
  - adharmad 16y ago
    Continuous interference is detrimental to efficient functioning of representative democracy. It is difficult for a government to rule if it is second-guessed by the voters using the initiative system. California's initiative system creates problems wherein the populace votes emotionally (PROP 8). A lot of times, the initiative system has a weakness in the fact that the voting public is easily swayed by easy simplifications of complex issues and is unable to see the big picture.
    - 16y ago
tman 16y ago
Other than blaming illegal immigrants (a dubious politically motivated response) Reference? I'd like to see what percentage of California's population is the result of post-1960's immigration, the total tax input from this segment and their costs in government services. I only point this out because some people I've come across on HN who think a Canadian-style immigration system is racist seem to think that public display of their own good intentions is much more important that looking up the numbers.
vondur 16y ago
We have the largest amount of illegal aliens in the nation. I have seen numbers listed from 9 billion a year up to 20 billion a year spent on public services for illegals. This would include education, health care, and public assistance. (California is known for having generous benefits compared to other states) This is in addition to all of the other problems mentioned in the article. Pensions for state workers is turning out to be a huge issue and is threatening to bankrupt many municipalities. (the city of Los Angeles for example) The wages of public employees has risen much greater than private sector in many cases. I just read about some gardeners that work a LAX who make $50K a year and the City of Bell was paying its city manager $800k a year. (extreme case)

by lbrandy 16y ago

kevingadd 16y ago

Part of the problem is that California is basically unable to raise certain tax rates without a state ballot measure, and our voters are not big fans of raising taxes. The only way to undo this (IIRC) is to pass a constitutional amendment, since that's how it was established in the first place. Our spending and policies are definitely out of whack, as demonstrated in the article, but not being able to raise taxes to compensate isn't helping either. I'm not a fan of raising taxes, but I consider our state being broke to be a bit worse.

anamax 16y ago
> I'm not a fan of raising taxes, but I consider our state being broke to be a bit worse. Why is cutting spending not an option? CA's tax revenues are significantly higher than the spending just a few years ago. Would it really be unreasonable to cut back to that level of spending? (Note that unemployment is largely paid for by the federal govt, so ....)

usaar333 16y ago

I'm not sure about Florida, but some points about California: 1) Extremely generous social services 2) A bizarre (and arguably unfair) property tax regime. Property taxes on owned property only rise 2% a year. (very low, consider that my parent's Bay Area home has risen by about 5.7% yearly since the 1980s) What that leaves you with is entrenched residential and commercial property owners paying relatively very little in taxes. If you are a new resident though, you get no immediate benefit - your taxes are assessed at the purchased value. According to supporters, the law that set this up (Proposition 13) has saved taxpayers $528 billion (http://www.hjta.org/about-hjta/history-hjta http://www.hjta.org/about-hjta/history-hjta); that's $17.6 billion a year - pretty much the budget deficit of the state.

philwelch 16y ago
The property tax situation sounds like a recipe for rent being more cost-effective than homeownership, which is indeed what we observe in California.
- btilly 16y ago
  Only in the short term. If you stay in the same place for 20 years, home ownership becomes much more cost effective.
  - philwelch 16y ago
    Personally, I can't imagine staying in the same place for 20 years unless I was old and retired, and if I was old and retired I would retire to someplace cheaper. Opportunities come and go, and committing to live in the same place for 20 years is a huge risk if that place dries up and someplace else starts to boom.
  - ghshephard 16y ago
    Depends on when you buy, as always. I sold my Condo in 2006 for $535K (3222 Glendora Drive, #109, San Mateo, CA). It was last listed at $386K before the listing was finally removed. All we can really say is that in the last 50 years, home ownership was a better buy than renting. I don't know anyone confident about their 20 year forecasts regarding California Real Estate right now... As for me - I'm renting a room for $750/month. I don't think that I would ever have come out even if I hadn't sold my Condo. The key thing to realize, is that sometimes the decision isn't "Buy or Rent", it sometimes (in my case) is Downsize+Rent. Gives you flexibility + reduced costs.
- jbarham 16y ago
  That doesn't mean renting is cheap. I'm paying $2165/month for a 3-bedroom apartment in Irvine (i.e., $25980/year). I'm not complaining since I earn a good salary as a programmer and our apartment is in a well-managed complex in a nice neighborhood, but it would be easy to spend more and difficult to find something substantially less in the same general area. But it does serve to confirm the article's thesis that California is becoming increasingly bifurcated between a high-paid "knowledge class" and a de facto servant underclass, largely composed of illegal immigrants (e.g., Irvine's landscaped parks and streets are beautifully maintained by an army of gardeners, but there's no way those gardeners can afford to live in Irvine). The traditional middle class is being squeezed out, and long term I do not believe that's healthy for California as it's too reminiscent of the very wide disparity of incomes that I've seen in the third world.

jseliger 16y ago

Point two: see http://www.theatlantic.com/business/archive/2009/05/is-california-too-big-to-fail/17873/ http://www.theatlantic.com/business/archive/2009/05/is-calif... . Also http://www.theatlantic.com/business/archive/2009/05/should-we-blame-californias-government-or-its-citizens-for-the-deficit/18288/ http://www.theatlantic.com/business/archive/2009/05/should-w... . Some major problems: California's state constitution is a mess; its initiative process is out of control; conventional tax increases are impossible; Prop 13 distorts incentives. Many of these are structural issues. A bunch of articles have appeared on HN lately about how powerful, complex societies and institutions fail by being unable to flexibly adapt to change. That, in a nutshell, appears to be California's problem, which has been papered over to some extent by Silicon Valley Hollywood, agriculture, and weather. But even those rich sources of income can eventually be exhausted by the infinite demands of special interests and others.

WiseWeasel 16y ago
I'm quite a fan of the initiative process in California. I mean, sure, it's been abused by short-sighted people, leading to things like three-strikes legislation overcrowding our prisons, but it has also brought us important social progress such as medical marijuana, and any sufficiently unpopular law is only a petition away from redress. It's encouraging that we enjoy the power to reform law from the bottom up in such a direct manner, and I wouldn't want to give up that power quite so readily, as those who toss around that 'out of control initiative process' talking point are so eager to do.
- adharmad 16y ago
  Continuous interference is detrimental to efficient functioning of representative democracy. It is difficult for a government to rule if it is second-guessed by the voters using the initiative system. California's initiative system creates problems wherein the populace votes emotionally (PROP 8). A lot of times, the initiative system has a weakness in the fact that the voting public is easily swayed by easy simplifications of complex issues and is unable to see the big picture.
  - 16y ago

tman 16y ago

Other than blaming illegal immigrants (a dubious politically motivated response) Reference? I'd like to see what percentage of California's population is the result of post-1960's immigration, the total tax input from this segment and their costs in government services. I only point this out because some people I've come across on HN who think a Canadian-style immigration system is racist seem to think that public display of their own good intentions is much more important that looking up the numbers.

vondur 16y ago

We have the largest amount of illegal aliens in the nation. I have seen numbers listed from 9 billion a year up to 20 billion a year spent on public services for illegals. This would include education, health care, and public assistance. (California is known for having generous benefits compared to other states) This is in addition to all of the other problems mentioned in the article. Pensions for state workers is turning out to be a huge issue and is threatening to bankrupt many municipalities. (the city of Los Angeles for example) The wages of public employees has risen much greater than private sector in many cases. I just read about some gardeners that work a LAX who make $50K a year and the City of Bell was paying its city manager $800k a year. (extreme case)