12 ms·

California’s economy may seem healthy. Just wait for the next recession

73 points by NoRagrets 4y ago

karl11 4y ago
There is an old saying about biting the hand that feeds you…
- blitzar 4y ago
  You suggesting the rest of the country stops beating up on california?
  - KerrAvon 4y ago
    That would be great, considering California subsidizes most of the rest of the country.
    - throwaway894345 4y ago
      Ah, the ole "we have more wealthy people than you" argument.
    - missedthecue 4y ago
      What do you mean by "subsidize"? Are you referring to the general progressiveness of the US Federal tax code, or are you insinuating that Oklahoma's state budget is X% funded by California in addition to Oklahoman tax receipts?
      - throwaway894345 4y ago
        Pretty sure it's the progressive tax code and the fact that California is (1) huge and (2) disproportionately wealthy. I'm sure that wealthy Americans flock to California for the moral superiority of the average Californian and not, say, the weather. /s
      - vmladenov 4y ago
        Not the person you replied to, but there’s this concept of donor states that ranks the balance of payments. https://worldpopulationreview.com/state-rankings/donor-states https://worldpopulationreview.com/state-rankings/donor-state...
        missedthecue 4y ago
        So in other words, states with lots of high earners disproportionately fund welfare and social security. I don't see what's wrong with that. Does the parent comment not like progressive taxation, or do they not like welfare?
        diffeomorphism 4y ago
        That is not even close to "in other words".
        missedthecue 4y ago
        Can you explain what "subsidize" means then? Because that's pretty clearly what it reads like to me.
    - TMWNN 4y ago
      >That would be great, considering California subsidizes most of the rest of the country. You and subiculumcode are wrong. First, the state of California does not pay a cent to another state or to the federal government. It is residents of California that pay federal taxes, which in turn provide funding and services to states and individuals. Second, the Rockefeller Institute (<https://rockinst.org/issue-areas/fiscal-analysis/balance-of-payments-portal/ https://rockinst.org/issue-areas/fiscal-analysis/balance-of-...>) shows that, as of 2018 (the last time I checked this data; I see that 2019 is now available), the 10 states at the bottom of the per capita list—that is, the states that benefit from the most federal spending per person compared to how much each person pays in federal taxes—are 2016/2020 Hillary/Biden-voting states: VA, NM, MD, HI, 1/2 of ME 2016/2020 Trump-voting states: KY, AK, AL, WV, MS, 1/2 of ME It's not so much "blue states" as frequently claimed, but taxpayers of four very wealthy Northeast states (the Tri-State area plus Massachusetts) that account for the vast bulk of citizens paying more than they receive from the federal government. After them come CO, NE, UT, and MN, of which half voted for Hillary/Biden and half for Trump. All other states, including CA, are net beneficiaries of the taxpayers in the top eight (and, again, really, it's the top four).
  - SubiculumCode 4y ago
    100% this. All across the country, California is subject to ridicule, inane accusations and misconceptions, the devil and scapegoat and example of every red-state citizen eating on food stamps from California tax dollars and on Californian grown fruits and vegetables. Yes, there are things wrong with 'ol Cali, and its not the sunshine, but if California kept to itself, it would be just fine, but what would happen to California's detractors? Starve?
    - robswc 4y ago
      About 10 years ago I would have agreed with this comment but now… not so sure. Seems everyday there’s a new law or initiative to push productive professionals/companies away, not a fan of the trajectory… but who knows, maybe I’ll be surprised in another 10 years ;)
      - thrwawy283 4y ago
        I think most of the country gets a bad rep for regulation and initiatives and laws that don't have positive effect. My parents are in the crowd that want to leave California because of supposed "over-regulation". I was telling my father this morning about the Songs-Beverly Act (California's Lemon Law) which essentially protects products you buy for 7 years, giving you the right to repair them. I just sued my employer for not allowing me 2nd meal breaks (every 5 hours), rest breaks, and for not giving me proper/reasonable notice when making schedule changes. These are all things I didn't have when I worked a federal job. Btw, it's hilarious that you're not entitled to (just 1!) meal break at the federal level. California has excess regulation, but I wish people weighed it against the positives instead of assuming it's all red tape. I think California deserves more praise for how it protects people. Net Neutrality is effectively upheld by state-by-state regulation, because the federal gov couldn't secure this for us.
        robswc 4y ago
        I honestly agree with you on all of those points. Those are very good things to have. At the end of the day though, people _are_ weighing the pros and cons and deciding to leave. Perhaps it’s not the right conclusion but it’s not like people are leaving due to mere “rumors” or “bad press” - Texas/Florida have been punching bags for the past two years and people keep moving there. My personal opinion is just to live where you want to live. If the cost of regulation is too high for you, move to a less regulated place. You’ll lose culture and entertainment but you’ll gain freedom. If you prefer the regulations, stay, at the cost of some freedom. But honestly, if everyone is happy in their own state I consider that a win… now rn I’m “stuck” in the “actual” worst state, hands down, which is Virginia ;)
  - IAmEveryone 4y ago
    This excellent comeback currently being downvoted is quite a testament to this weird turn against California in the tech community. It seems too sudden and drastic to be just the result of the general ascend of the alt-right in the sector so I am wondering if there any other reasons? Elon Musk? (No it’s not the weird crime fantasies. Also, by the way, Sweden still has excellent quality of life and phrenology is probably wrong and definitely useless) Maybe housing? But that’s almost literally the Woody Allen joke, “nobody goes there anymore, it’s too crowded”.
    - robswc 4y ago
      It’s probably lots of little reasons, the main one being though, why stay? Why start a business there vs another state? Lots of empty office space rn and I can only assume remote won’t help with that. When the value of the location goes down, could easily start an exponential exit. Cities aren’t forever, just look at Detroit. Not saying that will happen to California but I really do think it peaked for tech last decade.
IAmEveryone 4y ago
So… A recession may turn out to be bad for an economy? I know economics is called the “dismal science” but this seems to undercut even low standards. More specifically on the article’s thesis: yes, California’s tax revenue may be more sensitive to an economic downturn. But that’s due to extremely high income from startups that just doesn’t exist in other states. It’s running a budget surplus that’s something like half of all other states’ total revenue IIRC. If that extra income disappears, people will still work, earn income, and go shopping. The state’s revenue will just revert to normal-state levels. Hacker News has taken this weird turn to hate California to a degree usually reserved for, say, female CEOs or renewable power. This story may seem to satisfy this urge, predicting as it does a hard crash for the state. But it’s really just reporting on the altitude record the state is currently setting. Edit, in response to the answer below: TIL, thanks! I’ll have to switch to making jokes about their Nobel being second-rate and their models being thinner and on more crack than those of the fashion world.
- astrange 4y ago
  > I know economics is called the “dismal science” but this seems to undercut even low standards. That was invented by a slaveowner who was mad that economists told him slavery was a bad business strategy. (his response was something like “you economists just look at the numbers of me not paying them and don’t realize I’m teaching them the Christian values of hard work”)
rco8786 4y ago
I guess the writers over there were bored. Time to roll out the “everything is gonna crumble apart if this very speculative hypothetical scenario plays out” article to fill the space and scare some people into clicking.
- guerrilla 4y ago
  People love speculative fiction :)
- FearTheTrees 4y ago
  We can reframe this article's hypothetical doomsday premise to any state: "Iowa, the undisputed king of corn, will face a recession if there is a multi-year drought."
  - ghufran_syed 4y ago
    the correct analogy would be that Iowa’s state budget would be in trouble if it were overly reliant on taxes on corn - is that the case?
- qgin 4y ago
  The grass is pretty green right now, but if the rain stops, boy it will be a problem!
clashandcarry 4y ago
https://archive.ph/fsbRI https://archive.ph/fsbRI
bcrosby95 4y ago
Over-reliance on income tax to fund the state's budget is a decades long problem. You can thank prop 13 for that. It's why whenever there's a recession California has gigantic budget shortfalls. Expanding industry isn't gonna fix the problem. Currently the state has an ~80bil surplus. The state needs to keep some of that around for the inevitable recession.
- throwaway894345 4y ago
  I don't have strong feelings about prop 13, but what does it limit here? It's not like it's sane to arbitrarily raise property taxes during a recession (make housing even less affordable at the moment people have less money to spend). Seems like prop 13 or not, the solution is the one you identified in your last paragraph: maintain a buffer that can't be touched until a recession is declared (for some reasonable, objective definition of "recession").
  - frankbreetz 4y ago
    Property values are usually not affect by recessions, 2008 being the exception, and thus income from property taxes is not affected as much. Income is more affected by recession. If prop13 is repealed California could raise larger percent of its budget from property taxes as opposed to income taxes, and it would help with variations of tax income.
    - pishpash 4y ago
      That's an illusion. It is not as liquid and there is no mark-to-market but prices absolutely do fall during a recession if real estate were to trade.
      - frankbreetz 4y ago
        The comment was about tax ebing raised by the state, illusion or not it affects taxes the same
LosWochosWeek 4y ago
>Despite strong annual budgets, California suffers the highest debt of any state — $507 billion Suspiciously missing the dept-to-GDP ratio. I wonder why that is?
- WalterGR 4y ago
  According to Wikipedia: > The economy of the State of California is the largest in the United States, with a $3.4 trillion gross state product (GSP) as of 2021. If California were a sovereign nation (2021), it would rank as the world's fifth largest economy, ahead of India and behind Germany. https://en.wikipedia.org/wiki/Economy_of_California https://en.wikipedia.org/wiki/Economy_of_California
- redisman 4y ago
  Classic “visualization is actually just showing population density”
- divyekapoor 4y ago
  Because debt-to-GDP doesn't make sense as a financial measure and most people don't understand it. CA economy is $3.4T, CA debt-to-GDP is 14.9%, the US Federal Debt to GDP is 133.9%, so the total debt to GDP on the revenue dollars in California is 148.8%. If California were a country, it would rank 5th highest in the world in debt-to-GDP ratio right behind Japan, Venezuela, Sudan, Greece and Lebanon. That said, debt-to-tax-revenue is a more useful financial measure. The total CA tax revenue (income, sales, corporate tax) is about $173B [1]. The debt-to-total-tax-revenue is 293%. Since we don't want to shut down Schools, Medicare, SNAP, Pensions & Unemployment, the debt-to-discretionary-expenses is even more dire at 704% limiting the ability of the state to make a dent in the debt payments without increasing taxes. In effect, CA is neck deep in debt no matter how you look at it. [1] https://lao.ca.gov/Publications/Report/4448 https://lao.ca.gov/Publications/Report/4448
- ajross 4y ago
  Hell, they didn't even compare debt per capita[1]. Seeing numbers like that into an opinion piece is the easiest way to know you're almost certainly being deliberately lied to. In fact the whole idea of California being somehow spending irresponsibly is simply false. State budgets are high because state revenues are high, and it's been beating US aggregate growth numbers for most of the last century. Maybe there's a good case to be made that the end of this period is approaching and that the gravy train is slowing down. But that's an argument about second derivative. California is and remains extremely wealthy and has a comparatively well-managed state budget. Period. (I don't live there, btw.) [1] Which per this link is almost dead-on average among US states at $3850: https://worldpopulationreview.com/state-rankings/debt-by-state https://worldpopulationreview.com/state-rankings/debt-by-sta...
civilized 4y ago
> California’s heavy dependency on tax payments from the rich and on the continued strength of the tech economy makes the state highly vulnerable in the event of a significant slowdown I thought we just spent like a decade poring over charts showing how the rich are least affected by any downturn.
- kwere 4y ago
  the rich (income) can move out state if mistreated, expecially once RE & Tech & whatever "advantages" dry out.
- philipov 4y ago
  Not making a statement on what the true facts are, but I don't see an a priori contradiction between these two statements. People who are rich have wealth, and are therefore less reliant on their transient income. But income taxes target income, not wealth.
- bushbaba 4y ago
  There’s so much bloat in the California government that they’d be fine. Especially when you consider the large reserves of many governments. My municipality has 10 years of operating expenses saved up in treasury bills
- vmception 4y ago
  it depends on who "the rich" are but there is a decent sized subset of California that is insulated from the "problems" of California. they are insulated from the famous tax rates, do not rely on employment income, are not subject to the compliance burdens of being an employer, have inherited low property taxes or only rent, and can leave at a moment's notice. this part of the population of California is large enough to vastly distort the rental or property market wherever they go to.
- candiodari 4y ago
  Because the whole "the rich" are 2 different things: 1) the superrich, couple thousand in the whole of the US, who indeed essentially set their own tax rate. This is what everyone likes talking about. Needless to say, they're not the source of tax revenues, and they're NOT who government is talking about when discussing "raising taxes on the rich" 2) the "rich" as in double US average income or more. Anyone making 100k or more. Most California cops fall under this definition. These are people who will see their taxes raised, who pay for the state. This is who the government is talking about when discussing taxes. You're talking about group 1. "Tax payments from the rich" is talking about group 2.
antognini 4y ago
This is one of the downsides of having the state budget be so heavily dependent on a highly progressive income tax. Incomes at the top of the income distribution are relatively volatile, so boom-bust cycles in the broader economy have an outsized impact on state finances. (The top 1% of income earners pay about half of California's income taxes.) Unfortunately in a recession, state income falls right when services are needed the most. This hasn't led to any problems in most voters' memories since the last recession was now 14 years ago. But it has always just been a matter of time. Any more stable alternatives aren't really political feasible in California. If anything, the political appetite in the state is to continue to increase taxes at the upper end of the income distribution. Income taxes at the middle and lower end are already high enough that voters probably wouldn't go for increasing their own tax rates. (Same with sales taxes.) Increasing the proportion of taxes that come from property taxes would probably provide a more stable revenue stream for the state, but would in effect require Prop 13 to be repealed, which is also a non-starter. The state rainy day fund is meant to help counteract against this, but the fund essentially has a cap due to the Gann Limit, which limits its utility. The Gann Limit in general requires the state to return revenues in excess of a certain amount back to taxpayers. The way the political winds are shifting, the Gann Limit will probably be repealed in the next decade or so, though whether or not those extra funds will make it into the rainy day fund is unclear.
- pishpash 4y ago
  Even without a rainy day fund, which is an inefficient use of capital, the state could buy financial instruments to hedge a recession. Is it prohibited from doing that?
  - lumost 4y ago
    At a state level, hedging recession risk suffers from counterparty risk. Who knows who will need bailouts/ who will crash during the next recession. On the other hand California can borrow favorably against future revenues during most recessions.
djoldman 4y ago
Why are so many tech companies opening up an office in Texas?
- bee_rider 4y ago
  Maybe they want to test the robustness of their processes for power outages?
  - deeptote 4y ago
    Don't forget the "location adjusted salaries" that pay 40% less for the exact same work.
    - onlyrealcuzzo 4y ago
      As of a few months ago, the most Google would cut your salary if you transfered anywhere in the US was 15%. I doubt any major companies are doing 40% cuts. It wouldn't make any sense. At $500k in The Bay - you should be saving a substantial portion of your income (especially if you're counting principal). Anyone considering a 40% paycut even to go to Montgomery Alabama would need to question their financial decisions. Sure, you might save 50% on your coffees and avocado toasts that's not going to make up losing $200k in income... The biggest reason for the cut is almost anywhere else in the US you're going to save a minimum of 4% on state income tax alone. So the max realistically is closer to 11%... A $55k cut - yeah, you might save close to that on property tax, mortgage interest, federal income tax, and your avocado toasts...
- fzeroracer 4y ago
  Because they bought into the meme that Texas is cheap when in reality the high property taxes means it's increasingly becoming unlivable for your average person. It's really just a way to try and save on how much they have to pay people, but it's going to be harder and harder to entice people to move to Texas when the rent is soaring and the state government continues its culture wars at the cost of tax payer dollars.
- nunez 4y ago
jmyeet 4y ago
Maybe then there'll be enough popular support for repealing Prop 13. People mention the heavy dependence on state income tax. Well, why is that? Compare that to states like Texas that obviously has no state income tax but just has high property taxxes. I actually think this is a way healthier situation. But in the 70s, voters voted themselves a massive permanent tax break that's even bigger for corporations. When an individual buy a property the tax basis gets reset and recalculated. Not if the property is held in an LLC. So Disney's property tax rates have essentially been frozen since the 1960s. The standard counterargument is "what about the old people getting kicked out of their homes?" It's an appeal to emotion that doesn't make any sense. First, why are we giving Disney a amssive tax break so some old person on a fixed income doesn't have to downsize from the family home they raised their children in? Second, if we really want to protect those people (and I'm in the camp who thinks we shouldn't) we have the technology to provide needs-based property tax relief in the form of a lower rate or (my preferred option) simply deferring the taxes interest-free until the home is sold or the owner dies.
- onlyrealcuzzo 4y ago
  If 50% of voters are ever non-homeowners, prop 13 will probably get repealed. I'm not sure if that will ever happen.
- eganist 4y ago
  > But in the 70s, voters voted themselves a massive permanent tax break that's even bigger for corporations. When an individual buy a property the tax basis gets reset and recalculated. Not if the property is held in an LLC. So Disney's property tax rates have essentially been frozen since the 1960s. Are people essentially selling the LLCs then, rather than the properties themselves?
  - saurik 4y ago
    Yes. The LLCs are even often simply named after the street address, so stuff like 6243 Abrego LLC. The idea is then just whether you are making enough money off the asset to justify the minimum LLC tax vs. the property tax increase on an expected sale (which might be a good trade-off for everyone, but is certainly a good trade-off for people renting their property out).
subsubzero 4y ago
I am extremely bearish on the future of CA, so much so that this is my last week in the state(moving out for good). The state has really shot itself in the foot by driving out stable tradional businesses in the past few years with insane policies that really only favor hollywood and tech. With tech in full meltdown and as long as interest rates keep increasing(and tech stocks falling) the state will face a reckoning unlike any its ever seen. As social/govt. services dry up, professionals will leave in droves as who wants to pay 10-13% state taxes when alot of other states offer way better tax rates with better quality of life. Think the homeless situation is bad now with tent cities everywhere, wait until the yearly $15B that CA spends on homeless disappears. I predict a hyper exodus as the state suffers an economic collapse that will take most likely a decade or two to recover from. Lets also not forget that the 20th century was the wettest in the past 2000 years in CA and the 21st century will be very dry(which is normal for this state), so CA's agro economy will rapidly shrink, and water loss will force population out. Oh and by the way I am a 4th gen. CA resident so its tough for me to acknowledge these facts.
- truthwhisperer 4y ago
- HomeGear 4y ago
  >With tech in full meltdown The stock market does not reflect the reality - in fact, you might say the market is coming back to reality. There’s been small layouts but to call it a “meltdown” is a bit much.
  - subsubzero 4y ago
    Look at the prices of paypal, square, netlix, roblox, affirm, coinbase, etc they are all down at least 70% from 6 months ago with some down 90%, if that is not a full meltdown I don't know what is :)
    - AlchemistCamp 4y ago
      A full meltdown would involve actually losing money and eventually running out of it and shutting down, rather than just fluctuations in stock prices. Do you think Roblox, Affirm, Coinbase or even Netflix is in immediate danger of bankruptcy?
thebradbain 4y ago
All of this points to another reason why Prop 13 is self-defeating… In Texas, which already has a floor property tax rate at over 2x what CAs is (~2.2% of assessed value rather than ~1%), property values get re-assessed to market every year (with a 10% cap any given year). In California, it’s basically only when you buy the home, and it doesn’t matter whether it’s your primary home or not. California’s incentivizes are thus all misaligned — if you’re wealthy, you buy a home and watch your tax bill get smaller and smaller every year in real dollar value. So California’s solution? Raise the income tax, state capital gains tax, and a bunch of other bandaids— the problem is, a wealthy individual can more easily move and e.g. declare their homestead in Texas, which has no income or state capital gains taxes, and California’s Prop 13 will STILL benefit the non-resident, even if they’re living out of state by allowing them to hold onto a potentially multi-million dollar property for essentially nothing. Texas does the opposite: it says, “please— wealthy people, park your money here!” knowing that those doing so will likely buy property to gain residency status. Once they do, and taxes raise each year with the market, Texas’ incentives are aligned: there is no way for someone trying to avoid property taxes to do so without selling their property to someone else who will, and because Texas’ property taxes are so high it does not make the financial equation so obvious to hoard/keep it if the math doesn’t pencil out, compared to California where you get rewarded simply for hoarding it. California is essentially incentivizing out-of-state (or ex-residents) who do not pay taxes to the state to hold onto a limited resource (desirable land) for decades, thus contributing to the supply shortage, while states like Texas have tax systems set up to make it financially desirable for California residents to move to all while still keeping their land in CA. If you’re wealthy enough to own in both places, from a financial angle it’s tempting. See: Trump NYC -> Florida and Musk CA -> TX
- treeman79 4y ago
  Texas also gets by without an income tax.
  - thebradbain 4y ago
    Yes, because their high property taxes offset the need — and unlike income taxes, can’t be avoided if you still hold property in the state regardless of residency status
wolverine876 4y ago
Or just wait for the next economic expansion. I was telling someone today how I loved where I lived. They said, 'really? everyone says how much they hate it, how crazy it is.' Everyone hates everything, everyone expresses pessimism, applied to everything. We were in the place in the trend where we could still find ways to apply the idea, when it was still provocative to read. Now, for me, it's obvious and tired. Recessions are, to a degree, self-fulfilling. Optimism and pessimism are intangible, but are real things that have very real consequences for anything you do - your current project (if you even start it), your job, your relationships, your economy, your society. That's obvious and well-known, and I'm tired of people screwing up my life, my relationships, my community and country with this stuff. Nothing is stopping us from living fantastical lives.
- dougmsmith 4y ago
  I agree so much with this. I easily lost millions in compensation 2011-2017 by listening to the permabears and being unnecessarily risk-averse. So the theory went, surely the recovery from 2008 was incomplete/fake/etc. and we were moments from the next Great Depression. I'm going to let you (all) in on a little, poorly-kept secret, also known as "software will eat the world": The expansion of the software economy is so interminably white hot that macroeconomic downturns are as significant as a buzzing fly. Another one, "Remote work will cause everything to get outsourced". No it won't. There's so much software to be written we can't comprehend it. One could say that humanity has 1% of the programming capacity it needs, and still be wrong because the nature of software makes this without solution.

73 points by NoRagrets 4y ago

karl11 4y ago

There is an old saying about biting the hand that feeds you…

blitzar 4y ago
You suggesting the rest of the country stops beating up on california?
- KerrAvon 4y ago
  That would be great, considering California subsidizes most of the rest of the country.
  - throwaway894345 4y ago
    Ah, the ole "we have more wealthy people than you" argument.
  - missedthecue 4y ago
    What do you mean by "subsidize"? Are you referring to the general progressiveness of the US Federal tax code, or are you insinuating that Oklahoma's state budget is X% funded by California in addition to Oklahoman tax receipts?
    - throwaway894345 4y ago
      Pretty sure it's the progressive tax code and the fact that California is (1) huge and (2) disproportionately wealthy. I'm sure that wealthy Americans flock to California for the moral superiority of the average Californian and not, say, the weather. /s
    - vmladenov 4y ago
      Not the person you replied to, but there’s this concept of donor states that ranks the balance of payments. https://worldpopulationreview.com/state-rankings/donor-states https://worldpopulationreview.com/state-rankings/donor-state...
      - missedthecue 4y ago
        So in other words, states with lots of high earners disproportionately fund welfare and social security. I don't see what's wrong with that. Does the parent comment not like progressive taxation, or do they not like welfare?
        diffeomorphism 4y ago
        That is not even close to "in other words".
        missedthecue 4y ago
        Can you explain what "subsidize" means then? Because that's pretty clearly what it reads like to me.
  - TMWNN 4y ago
    >That would be great, considering California subsidizes most of the rest of the country. You and subiculumcode are wrong. First, the state of California does not pay a cent to another state or to the federal government. It is residents of California that pay federal taxes, which in turn provide funding and services to states and individuals. Second, the Rockefeller Institute (<https://rockinst.org/issue-areas/fiscal-analysis/balance-of-payments-portal/ https://rockinst.org/issue-areas/fiscal-analysis/balance-of-...>) shows that, as of 2018 (the last time I checked this data; I see that 2019 is now available), the 10 states at the bottom of the per capita list—that is, the states that benefit from the most federal spending per person compared to how much each person pays in federal taxes—are 2016/2020 Hillary/Biden-voting states: VA, NM, MD, HI, 1/2 of ME 2016/2020 Trump-voting states: KY, AK, AL, WV, MS, 1/2 of ME It's not so much "blue states" as frequently claimed, but taxpayers of four very wealthy Northeast states (the Tri-State area plus Massachusetts) that account for the vast bulk of citizens paying more than they receive from the federal government. After them come CO, NE, UT, and MN, of which half voted for Hillary/Biden and half for Trump. All other states, including CA, are net beneficiaries of the taxpayers in the top eight (and, again, really, it's the top four).
- SubiculumCode 4y ago
  100% this. All across the country, California is subject to ridicule, inane accusations and misconceptions, the devil and scapegoat and example of every red-state citizen eating on food stamps from California tax dollars and on Californian grown fruits and vegetables. Yes, there are things wrong with 'ol Cali, and its not the sunshine, but if California kept to itself, it would be just fine, but what would happen to California's detractors? Starve?
  - robswc 4y ago
    About 10 years ago I would have agreed with this comment but now… not so sure. Seems everyday there’s a new law or initiative to push productive professionals/companies away, not a fan of the trajectory… but who knows, maybe I’ll be surprised in another 10 years ;)
    - thrwawy283 4y ago
      I think most of the country gets a bad rep for regulation and initiatives and laws that don't have positive effect. My parents are in the crowd that want to leave California because of supposed "over-regulation". I was telling my father this morning about the Songs-Beverly Act (California's Lemon Law) which essentially protects products you buy for 7 years, giving you the right to repair them. I just sued my employer for not allowing me 2nd meal breaks (every 5 hours), rest breaks, and for not giving me proper/reasonable notice when making schedule changes. These are all things I didn't have when I worked a federal job. Btw, it's hilarious that you're not entitled to (just 1!) meal break at the federal level. California has excess regulation, but I wish people weighed it against the positives instead of assuming it's all red tape. I think California deserves more praise for how it protects people. Net Neutrality is effectively upheld by state-by-state regulation, because the federal gov couldn't secure this for us.
      - robswc 4y ago
        I honestly agree with you on all of those points. Those are very good things to have. At the end of the day though, people _are_ weighing the pros and cons and deciding to leave. Perhaps it’s not the right conclusion but it’s not like people are leaving due to mere “rumors” or “bad press” - Texas/Florida have been punching bags for the past two years and people keep moving there. My personal opinion is just to live where you want to live. If the cost of regulation is too high for you, move to a less regulated place. You’ll lose culture and entertainment but you’ll gain freedom. If you prefer the regulations, stay, at the cost of some freedom. But honestly, if everyone is happy in their own state I consider that a win… now rn I’m “stuck” in the “actual” worst state, hands down, which is Virginia ;)
- IAmEveryone 4y ago
  This excellent comeback currently being downvoted is quite a testament to this weird turn against California in the tech community. It seems too sudden and drastic to be just the result of the general ascend of the alt-right in the sector so I am wondering if there any other reasons? Elon Musk? (No it’s not the weird crime fantasies. Also, by the way, Sweden still has excellent quality of life and phrenology is probably wrong and definitely useless) Maybe housing? But that’s almost literally the Woody Allen joke, “nobody goes there anymore, it’s too crowded”.
  - robswc 4y ago
    It’s probably lots of little reasons, the main one being though, why stay? Why start a business there vs another state? Lots of empty office space rn and I can only assume remote won’t help with that. When the value of the location goes down, could easily start an exponential exit. Cities aren’t forever, just look at Detroit. Not saying that will happen to California but I really do think it peaked for tech last decade.

IAmEveryone 4y ago

So… A recession may turn out to be bad for an economy? I know economics is called the “dismal science” but this seems to undercut even low standards. More specifically on the article’s thesis: yes, California’s tax revenue may be more sensitive to an economic downturn. But that’s due to extremely high income from startups that just doesn’t exist in other states. It’s running a budget surplus that’s something like half of all other states’ total revenue IIRC. If that extra income disappears, people will still work, earn income, and go shopping. The state’s revenue will just revert to normal-state levels. Hacker News has taken this weird turn to hate California to a degree usually reserved for, say, female CEOs or renewable power. This story may seem to satisfy this urge, predicting as it does a hard crash for the state. But it’s really just reporting on the altitude record the state is currently setting. Edit, in response to the answer below: TIL, thanks! I’ll have to switch to making jokes about their Nobel being second-rate and their models being thinner and on more crack than those of the fashion world.

astrange 4y ago
> I know economics is called the “dismal science” but this seems to undercut even low standards. That was invented by a slaveowner who was mad that economists told him slavery was a bad business strategy. (his response was something like “you economists just look at the numbers of me not paying them and don’t realize I’m teaching them the Christian values of hard work”)

rco8786 4y ago

I guess the writers over there were bored. Time to roll out the “everything is gonna crumble apart if this very speculative hypothetical scenario plays out” article to fill the space and scare some people into clicking.

guerrilla 4y ago
People love speculative fiction :)
FearTheTrees 4y ago
We can reframe this article's hypothetical doomsday premise to any state: "Iowa, the undisputed king of corn, will face a recession if there is a multi-year drought."
- ghufran_syed 4y ago
  the correct analogy would be that Iowa’s state budget would be in trouble if it were overly reliant on taxes on corn - is that the case?
qgin 4y ago
The grass is pretty green right now, but if the rain stops, boy it will be a problem!

clashandcarry 4y ago

https://archive.ph/fsbRI https://archive.ph/fsbRI

bcrosby95 4y ago

Over-reliance on income tax to fund the state's budget is a decades long problem. You can thank prop 13 for that. It's why whenever there's a recession California has gigantic budget shortfalls. Expanding industry isn't gonna fix the problem. Currently the state has an ~80bil surplus. The state needs to keep some of that around for the inevitable recession.

throwaway894345 4y ago
I don't have strong feelings about prop 13, but what does it limit here? It's not like it's sane to arbitrarily raise property taxes during a recession (make housing even less affordable at the moment people have less money to spend). Seems like prop 13 or not, the solution is the one you identified in your last paragraph: maintain a buffer that can't be touched until a recession is declared (for some reasonable, objective definition of "recession").
- frankbreetz 4y ago
  Property values are usually not affect by recessions, 2008 being the exception, and thus income from property taxes is not affected as much. Income is more affected by recession. If prop13 is repealed California could raise larger percent of its budget from property taxes as opposed to income taxes, and it would help with variations of tax income.
  - pishpash 4y ago
    That's an illusion. It is not as liquid and there is no mark-to-market but prices absolutely do fall during a recession if real estate were to trade.
    - frankbreetz 4y ago
      The comment was about tax ebing raised by the state, illusion or not it affects taxes the same

LosWochosWeek 4y ago

>Despite strong annual budgets, California suffers the highest debt of any state — $507 billion Suspiciously missing the dept-to-GDP ratio. I wonder why that is?

WalterGR 4y ago
According to Wikipedia: > The economy of the State of California is the largest in the United States, with a $3.4 trillion gross state product (GSP) as of 2021. If California were a sovereign nation (2021), it would rank as the world's fifth largest economy, ahead of India and behind Germany. https://en.wikipedia.org/wiki/Economy_of_California https://en.wikipedia.org/wiki/Economy_of_California
redisman 4y ago
Classic “visualization is actually just showing population density”
divyekapoor 4y ago
Because debt-to-GDP doesn't make sense as a financial measure and most people don't understand it. CA economy is $3.4T, CA debt-to-GDP is 14.9%, the US Federal Debt to GDP is 133.9%, so the total debt to GDP on the revenue dollars in California is 148.8%. If California were a country, it would rank 5th highest in the world in debt-to-GDP ratio right behind Japan, Venezuela, Sudan, Greece and Lebanon. That said, debt-to-tax-revenue is a more useful financial measure. The total CA tax revenue (income, sales, corporate tax) is about $173B [1]. The debt-to-total-tax-revenue is 293%. Since we don't want to shut down Schools, Medicare, SNAP, Pensions & Unemployment, the debt-to-discretionary-expenses is even more dire at 704% limiting the ability of the state to make a dent in the debt payments without increasing taxes. In effect, CA is neck deep in debt no matter how you look at it. [1] https://lao.ca.gov/Publications/Report/4448 https://lao.ca.gov/Publications/Report/4448
ajross 4y ago
Hell, they didn't even compare debt per capita[1]. Seeing numbers like that into an opinion piece is the easiest way to know you're almost certainly being deliberately lied to. In fact the whole idea of California being somehow spending irresponsibly is simply false. State budgets are high because state revenues are high, and it's been beating US aggregate growth numbers for most of the last century. Maybe there's a good case to be made that the end of this period is approaching and that the gravy train is slowing down. But that's an argument about second derivative. California is and remains extremely wealthy and has a comparatively well-managed state budget. Period. (I don't live there, btw.) [1] Which per this link is almost dead-on average among US states at $3850: https://worldpopulationreview.com/state-rankings/debt-by-state https://worldpopulationreview.com/state-rankings/debt-by-sta...

civilized 4y ago

> California’s heavy dependency on tax payments from the rich and on the continued strength of the tech economy makes the state highly vulnerable in the event of a significant slowdown I thought we just spent like a decade poring over charts showing how the rich are least affected by any downturn.

kwere 4y ago
the rich (income) can move out state if mistreated, expecially once RE & Tech & whatever "advantages" dry out.
philipov 4y ago
Not making a statement on what the true facts are, but I don't see an a priori contradiction between these two statements. People who are rich have wealth, and are therefore less reliant on their transient income. But income taxes target income, not wealth.
bushbaba 4y ago
There’s so much bloat in the California government that they’d be fine. Especially when you consider the large reserves of many governments. My municipality has 10 years of operating expenses saved up in treasury bills
vmception 4y ago
it depends on who "the rich" are but there is a decent sized subset of California that is insulated from the "problems" of California. they are insulated from the famous tax rates, do not rely on employment income, are not subject to the compliance burdens of being an employer, have inherited low property taxes or only rent, and can leave at a moment's notice. this part of the population of California is large enough to vastly distort the rental or property market wherever they go to.
candiodari 4y ago
Because the whole "the rich" are 2 different things: 1) the superrich, couple thousand in the whole of the US, who indeed essentially set their own tax rate. This is what everyone likes talking about. Needless to say, they're not the source of tax revenues, and they're NOT who government is talking about when discussing "raising taxes on the rich" 2) the "rich" as in double US average income or more. Anyone making 100k or more. Most California cops fall under this definition. These are people who will see their taxes raised, who pay for the state. This is who the government is talking about when discussing taxes. You're talking about group 1. "Tax payments from the rich" is talking about group 2.

antognini 4y ago

This is one of the downsides of having the state budget be so heavily dependent on a highly progressive income tax. Incomes at the top of the income distribution are relatively volatile, so boom-bust cycles in the broader economy have an outsized impact on state finances. (The top 1% of income earners pay about half of California's income taxes.) Unfortunately in a recession, state income falls right when services are needed the most. This hasn't led to any problems in most voters' memories since the last recession was now 14 years ago. But it has always just been a matter of time. Any more stable alternatives aren't really political feasible in California. If anything, the political appetite in the state is to continue to increase taxes at the upper end of the income distribution. Income taxes at the middle and lower end are already high enough that voters probably wouldn't go for increasing their own tax rates. (Same with sales taxes.) Increasing the proportion of taxes that come from property taxes would probably provide a more stable revenue stream for the state, but would in effect require Prop 13 to be repealed, which is also a non-starter. The state rainy day fund is meant to help counteract against this, but the fund essentially has a cap due to the Gann Limit, which limits its utility. The Gann Limit in general requires the state to return revenues in excess of a certain amount back to taxpayers. The way the political winds are shifting, the Gann Limit will probably be repealed in the next decade or so, though whether or not those extra funds will make it into the rainy day fund is unclear.

pishpash 4y ago
Even without a rainy day fund, which is an inefficient use of capital, the state could buy financial instruments to hedge a recession. Is it prohibited from doing that?
- lumost 4y ago
  At a state level, hedging recession risk suffers from counterparty risk. Who knows who will need bailouts/ who will crash during the next recession. On the other hand California can borrow favorably against future revenues during most recessions.

djoldman 4y ago

Why are so many tech companies opening up an office in Texas?

bee_rider 4y ago
Maybe they want to test the robustness of their processes for power outages?
- deeptote 4y ago
  Don't forget the "location adjusted salaries" that pay 40% less for the exact same work.
  - onlyrealcuzzo 4y ago
    As of a few months ago, the most Google would cut your salary if you transfered anywhere in the US was 15%. I doubt any major companies are doing 40% cuts. It wouldn't make any sense. At $500k in The Bay - you should be saving a substantial portion of your income (especially if you're counting principal). Anyone considering a 40% paycut even to go to Montgomery Alabama would need to question their financial decisions. Sure, you might save 50% on your coffees and avocado toasts that's not going to make up losing $200k in income... The biggest reason for the cut is almost anywhere else in the US you're going to save a minimum of 4% on state income tax alone. So the max realistically is closer to 11%... A $55k cut - yeah, you might save close to that on property tax, mortgage interest, federal income tax, and your avocado toasts...
fzeroracer 4y ago
Because they bought into the meme that Texas is cheap when in reality the high property taxes means it's increasingly becoming unlivable for your average person. It's really just a way to try and save on how much they have to pay people, but it's going to be harder and harder to entice people to move to Texas when the rent is soaring and the state government continues its culture wars at the cost of tax payer dollars.
nunez 4y ago

jmyeet 4y ago

Maybe then there'll be enough popular support for repealing Prop 13. People mention the heavy dependence on state income tax. Well, why is that? Compare that to states like Texas that obviously has no state income tax but just has high property taxxes. I actually think this is a way healthier situation. But in the 70s, voters voted themselves a massive permanent tax break that's even bigger for corporations. When an individual buy a property the tax basis gets reset and recalculated. Not if the property is held in an LLC. So Disney's property tax rates have essentially been frozen since the 1960s. The standard counterargument is "what about the old people getting kicked out of their homes?" It's an appeal to emotion that doesn't make any sense. First, why are we giving Disney a amssive tax break so some old person on a fixed income doesn't have to downsize from the family home they raised their children in? Second, if we really want to protect those people (and I'm in the camp who thinks we shouldn't) we have the technology to provide needs-based property tax relief in the form of a lower rate or (my preferred option) simply deferring the taxes interest-free until the home is sold or the owner dies.

onlyrealcuzzo 4y ago
If 50% of voters are ever non-homeowners, prop 13 will probably get repealed. I'm not sure if that will ever happen.
eganist 4y ago
> But in the 70s, voters voted themselves a massive permanent tax break that's even bigger for corporations. When an individual buy a property the tax basis gets reset and recalculated. Not if the property is held in an LLC. So Disney's property tax rates have essentially been frozen since the 1960s. Are people essentially selling the LLCs then, rather than the properties themselves?
- saurik 4y ago
  Yes. The LLCs are even often simply named after the street address, so stuff like 6243 Abrego LLC. The idea is then just whether you are making enough money off the asset to justify the minimum LLC tax vs. the property tax increase on an expected sale (which might be a good trade-off for everyone, but is certainly a good trade-off for people renting their property out).

subsubzero 4y ago

I am extremely bearish on the future of CA, so much so that this is my last week in the state(moving out for good). The state has really shot itself in the foot by driving out stable tradional businesses in the past few years with insane policies that really only favor hollywood and tech. With tech in full meltdown and as long as interest rates keep increasing(and tech stocks falling) the state will face a reckoning unlike any its ever seen. As social/govt. services dry up, professionals will leave in droves as who wants to pay 10-13% state taxes when alot of other states offer way better tax rates with better quality of life. Think the homeless situation is bad now with tent cities everywhere, wait until the yearly $15B that CA spends on homeless disappears. I predict a hyper exodus as the state suffers an economic collapse that will take most likely a decade or two to recover from. Lets also not forget that the 20th century was the wettest in the past 2000 years in CA and the 21st century will be very dry(which is normal for this state), so CA's agro economy will rapidly shrink, and water loss will force population out. Oh and by the way I am a 4th gen. CA resident so its tough for me to acknowledge these facts.

truthwhisperer 4y ago
HomeGear 4y ago
>With tech in full meltdown The stock market does not reflect the reality - in fact, you might say the market is coming back to reality. There’s been small layouts but to call it a “meltdown” is a bit much.
- subsubzero 4y ago
  Look at the prices of paypal, square, netlix, roblox, affirm, coinbase, etc they are all down at least 70% from 6 months ago with some down 90%, if that is not a full meltdown I don't know what is :)
  - AlchemistCamp 4y ago
    A full meltdown would involve actually losing money and eventually running out of it and shutting down, rather than just fluctuations in stock prices. Do you think Roblox, Affirm, Coinbase or even Netflix is in immediate danger of bankruptcy?

thebradbain 4y ago

All of this points to another reason why Prop 13 is self-defeating… In Texas, which already has a floor property tax rate at over 2x what CAs is (~2.2% of assessed value rather than ~1%), property values get re-assessed to market every year (with a 10% cap any given year). In California, it’s basically only when you buy the home, and it doesn’t matter whether it’s your primary home or not. California’s incentivizes are thus all misaligned — if you’re wealthy, you buy a home and watch your tax bill get smaller and smaller every year in real dollar value. So California’s solution? Raise the income tax, state capital gains tax, and a bunch of other bandaids— the problem is, a wealthy individual can more easily move and e.g. declare their homestead in Texas, which has no income or state capital gains taxes, and California’s Prop 13 will STILL benefit the non-resident, even if they’re living out of state by allowing them to hold onto a potentially multi-million dollar property for essentially nothing. Texas does the opposite: it says, “please— wealthy people, park your money here!” knowing that those doing so will likely buy property to gain residency status. Once they do, and taxes raise each year with the market, Texas’ incentives are aligned: there is no way for someone trying to avoid property taxes to do so without selling their property to someone else who will, and because Texas’ property taxes are so high it does not make the financial equation so obvious to hoard/keep it if the math doesn’t pencil out, compared to California where you get rewarded simply for hoarding it. California is essentially incentivizing out-of-state (or ex-residents) who do not pay taxes to the state to hold onto a limited resource (desirable land) for decades, thus contributing to the supply shortage, while states like Texas have tax systems set up to make it financially desirable for California residents to move to all while still keeping their land in CA. If you’re wealthy enough to own in both places, from a financial angle it’s tempting. See: Trump NYC -> Florida and Musk CA -> TX

treeman79 4y ago
Texas also gets by without an income tax.
- thebradbain 4y ago
  Yes, because their high property taxes offset the need — and unlike income taxes, can’t be avoided if you still hold property in the state regardless of residency status

wolverine876 4y ago

Or just wait for the next economic expansion. I was telling someone today how I loved where I lived. They said, 'really? everyone says how much they hate it, how crazy it is.' Everyone hates everything, everyone expresses pessimism, applied to everything. We were in the place in the trend where we could still find ways to apply the idea, when it was still provocative to read. Now, for me, it's obvious and tired. Recessions are, to a degree, self-fulfilling. Optimism and pessimism are intangible, but are real things that have very real consequences for anything you do - your current project (if you even start it), your job, your relationships, your economy, your society. That's obvious and well-known, and I'm tired of people screwing up my life, my relationships, my community and country with this stuff. Nothing is stopping us from living fantastical lives.

dougmsmith 4y ago
I agree so much with this. I easily lost millions in compensation 2011-2017 by listening to the permabears and being unnecessarily risk-averse. So the theory went, surely the recovery from 2008 was incomplete/fake/etc. and we were moments from the next Great Depression. I'm going to let you (all) in on a little, poorly-kept secret, also known as "software will eat the world": The expansion of the software economy is so interminably white hot that macroeconomic downturns are as significant as a buzzing fly. Another one, "Remote work will cause everything to get outsourced". No it won't. There's so much software to be written we can't comprehend it. One could say that humanity has 1% of the programming capacity it needs, and still be wrong because the nature of software makes this without solution.