5 ms·

Unlike a prudent household or business, when times are good governments spend every penny, and commit themselves to future spending as if growth will continue w

by tc 17y ago

Unlike a prudent household or business, when times are good governments spend every penny, and commit themselves to future spending as if growth will continue without interruption forever. Invariably then, when the downturn hits, rather than cutting the spending and entitlements that caused the problem in the first place, the politicians ask everyone to 'share' in the sacrifice by higher and more ubiquitous taxes. Hence, the effect is like a ratchet, always turning towards bigger government.

mattmaroon 17y ago
So basically our government acts exactly the way most of us do. Democracy in action.
- kqr2 17y ago
  It's actually worse. The government gets to spend other people's money.
  - spkthed 17y ago
    Taxes deprive the private sector of money. The net effect of not cutting programs when tax revenue is down is that you have to raise taxes even further to make up the gap increasing depression on the very area you are trying to help grow. California is facing a 23 billion dollar budget deficit and their bond ratings are junk. It's going to be interesting to see what they do.
earl 17y ago
Eh, yes, but no. You seem to take the fall in revenues as prima facie evidence that CA is overspending. First, I'm not even sure there is a proper level of spending, but in any case, CA has a peculiar funding structure where we are overly reliant on highly cyclical taxes for revenue. This is by design/evolution, since we enacted Proposition 13 (http://en.wikipedia.org/wiki/California_Proposition_13_(1978) http://en.wikipedia.org/wiki/California_Proposition_13_(1978... ), severely limiting revenue from property taxes, which would be a more stable / less cyclical funding source. To be fair, however, fundamentally, CA continues to vote for a government which creates more goods and services than we want to pay for. Schwarzenegger papered this over with a bunch of loans, but eventually we will run up against a wall and be forced to align our desires with our willingness to pay. Also, worst financial crisis since the Great Depression accompanied by a drop in real industrial output that, IIRC, actually exceeds the Great Depression in speed, and so forth and so on. Plus a state that has been particularly devastated by the housing bubble.
- chancho 17y ago
  > revenue from property taxes, which would be a more stable / less cyclical funding source. Obviously not a resident of the central valley.
  - jdale27 17y ago
    Can you elaborate?
    - earl 17y ago
      I think chancho is pointing out the effects of the crash of the housing bubble. So yeah, I should have said generally far less procyclical.
    - iamelgringo 17y ago
      The Central Valley (Sacramento, Stockton, Fresno, Visalia, Bakersfield) has been one of the hardest hit areas in terms of the real estate bubble. Home prices have dropped 50% in some areas. Property taxes are based on property values, and aren't going to be that stable.
      - jdale27 17y ago
        One extreme fluctuation in property values doesn't disprove the general historical observation that property tax revenue is more stable than sales or income tax revenue. There are factors that can explain this, such as the fact that sales tax is essentially assessed in real time, income tax every year, and property tax less frequently. (My understanding is that it was every few years pre-Prop 13, and now only when a home is built, sold, or substantially rebuilt.) This lag in assessment will tend to smooth out revenues. Also due to the way assessment is triggered, a 50% drop in home prices doesn't imply a 50% drop in total property tax revenue -- only for homes that are sold. [EDIT: But apparently one can appeal to have property reassessed without selling, which presumably many people will do with prices dropping significantly.] Furthermore, if sales forced by foreclosure are bias toward the lower price range -- as is the case -- that will further limit the effect on total property tax revenue. EDIT: See also http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/01/25/MNV7155VSC.DTL http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/01/25/... -- a little short on hard data, but suggesting that the variation in property tax revenue is not going to be anywhere close to the 40-50% drop in sales and income tax reported in the OP.
tlb 17y ago
Tax revenue has fallen. How do you interpret that as evidence that the government is collecting "higher and more ubiquitous taxes?" Generally, during a downturn, governments continue spending into debt which is the right thing to do. Their usual fault is in not banking the surplus during good times.
- psranga 17y ago
  Can you elaborate why you say getting into debt "is the right thing to do"? Why do you think it's unreasonable to reduce spending when tax collection goes down? Personally, I find the parent's commonsensical prescription appealing. The parent probably meant was that if govt gets into debt, "higher and more ubiquitous taxes" will have to collected in the future to pay for the debt.
  - natrius 17y ago
    Increasing public spending when private spending goes down in a recession is kind of what Keynesian economics is all about. Higher taxes may be necessary in the future, but the idea is that private spending returns faster than it would otherwise, thereby increasing government revenue. Cutting public spending would reduce private incomes, which would exacerbate the recession and lower government revenue even further. If the idea was to start a discussion about whether the Keynesian response to recessions is a good idea, I don't think that's going to be worthwhile unless there are some economics Ph.D.s around. It's an interesting topic, but something about the internet makes people overly confident in their uninformed opinions.
  - aquateen 17y ago
    Google "paradox of thrift."
iamelgringo 17y ago
It's easy to blame this issue on California's politicians, but the problem is the way the system is set up. The way California's budget process works, we have to have a super-majority to pass a budget, tax increase or cut. So, if the minority party can get 34% of the vote, they can block a budget from being passed. Couple that with a bug in the system that allows politicians to put a budget item on a ballot initiative. If it passes, it must be funded. So, it's easier to amend our state constitution (simple majority on a ballot initiative) than it is to pass a budget (67% legislature vote). And, our revenue base is weighted heavily on sales taxes and income taxes as opposed to property taxes (because of ballot initiatives), and we have really big boom/bust cycles in our tax revenue. It's amazing that California does as well as it does with such a ham-strung system.
- spkthed 17y ago
  It's not partisan differences or the system holding things back, California has a Democrat majority with the votes (24 out of 40) to push things through. Voters there are polling at a 1/3 approval rating for raising taxes. The majority just doesn't want to be the ones responsible for cutting programs or raising taxes. http://en.wikipedia.org/wiki/California_State_Senate http://en.wikipedia.org/wiki/California_State_Senate In addition, their bond ratings are pretty low, they have the lowest rating of any state. The net result of that is that borrowing money becomes much more expensive and the cycle escalates. http://articles.latimes.com/2009/feb/04/local/me-budget4 http://articles.latimes.com/2009/feb/04/local/me-budget4 You can't run programs with deficits forever, eventually you have to raise taxes or cut funding. Neither are popular positions to have but they are necessary.

by tc 17y ago

mattmaroon 17y ago

So basically our government acts exactly the way most of us do. Democracy in action.

kqr2 17y ago
It's actually worse. The government gets to spend other people's money.
- spkthed 17y ago
  Taxes deprive the private sector of money. The net effect of not cutting programs when tax revenue is down is that you have to raise taxes even further to make up the gap increasing depression on the very area you are trying to help grow. California is facing a 23 billion dollar budget deficit and their bond ratings are junk. It's going to be interesting to see what they do.

earl 17y ago

Eh, yes, but no. You seem to take the fall in revenues as prima facie evidence that CA is overspending. First, I'm not even sure there is a proper level of spending, but in any case, CA has a peculiar funding structure where we are overly reliant on highly cyclical taxes for revenue. This is by design/evolution, since we enacted Proposition 13 (http://en.wikipedia.org/wiki/California_Proposition_13_(1978) http://en.wikipedia.org/wiki/California_Proposition_13_(1978... ), severely limiting revenue from property taxes, which would be a more stable / less cyclical funding source. To be fair, however, fundamentally, CA continues to vote for a government which creates more goods and services than we want to pay for. Schwarzenegger papered this over with a bunch of loans, but eventually we will run up against a wall and be forced to align our desires with our willingness to pay. Also, worst financial crisis since the Great Depression accompanied by a drop in real industrial output that, IIRC, actually exceeds the Great Depression in speed, and so forth and so on. Plus a state that has been particularly devastated by the housing bubble.

chancho 17y ago
> revenue from property taxes, which would be a more stable / less cyclical funding source. Obviously not a resident of the central valley.
- jdale27 17y ago
  Can you elaborate?
  - earl 17y ago
    I think chancho is pointing out the effects of the crash of the housing bubble. So yeah, I should have said generally far less procyclical.
  - iamelgringo 17y ago
    The Central Valley (Sacramento, Stockton, Fresno, Visalia, Bakersfield) has been one of the hardest hit areas in terms of the real estate bubble. Home prices have dropped 50% in some areas. Property taxes are based on property values, and aren't going to be that stable.
    - jdale27 17y ago
      One extreme fluctuation in property values doesn't disprove the general historical observation that property tax revenue is more stable than sales or income tax revenue. There are factors that can explain this, such as the fact that sales tax is essentially assessed in real time, income tax every year, and property tax less frequently. (My understanding is that it was every few years pre-Prop 13, and now only when a home is built, sold, or substantially rebuilt.) This lag in assessment will tend to smooth out revenues. Also due to the way assessment is triggered, a 50% drop in home prices doesn't imply a 50% drop in total property tax revenue -- only for homes that are sold. [EDIT: But apparently one can appeal to have property reassessed without selling, which presumably many people will do with prices dropping significantly.] Furthermore, if sales forced by foreclosure are bias toward the lower price range -- as is the case -- that will further limit the effect on total property tax revenue. EDIT: See also http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/01/25/MNV7155VSC.DTL http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/01/25/... -- a little short on hard data, but suggesting that the variation in property tax revenue is not going to be anywhere close to the 40-50% drop in sales and income tax reported in the OP.

tlb 17y ago

Tax revenue has fallen. How do you interpret that as evidence that the government is collecting "higher and more ubiquitous taxes?" Generally, during a downturn, governments continue spending into debt which is the right thing to do. Their usual fault is in not banking the surplus during good times.

psranga 17y ago
Can you elaborate why you say getting into debt "is the right thing to do"? Why do you think it's unreasonable to reduce spending when tax collection goes down? Personally, I find the parent's commonsensical prescription appealing. The parent probably meant was that if govt gets into debt, "higher and more ubiquitous taxes" will have to collected in the future to pay for the debt.
- natrius 17y ago
  Increasing public spending when private spending goes down in a recession is kind of what Keynesian economics is all about. Higher taxes may be necessary in the future, but the idea is that private spending returns faster than it would otherwise, thereby increasing government revenue. Cutting public spending would reduce private incomes, which would exacerbate the recession and lower government revenue even further. If the idea was to start a discussion about whether the Keynesian response to recessions is a good idea, I don't think that's going to be worthwhile unless there are some economics Ph.D.s around. It's an interesting topic, but something about the internet makes people overly confident in their uninformed opinions.
- aquateen 17y ago
  Google "paradox of thrift."

iamelgringo 17y ago

It's easy to blame this issue on California's politicians, but the problem is the way the system is set up. The way California's budget process works, we have to have a super-majority to pass a budget, tax increase or cut. So, if the minority party can get 34% of the vote, they can block a budget from being passed. Couple that with a bug in the system that allows politicians to put a budget item on a ballot initiative. If it passes, it must be funded. So, it's easier to amend our state constitution (simple majority on a ballot initiative) than it is to pass a budget (67% legislature vote). And, our revenue base is weighted heavily on sales taxes and income taxes as opposed to property taxes (because of ballot initiatives), and we have really big boom/bust cycles in our tax revenue. It's amazing that California does as well as it does with such a ham-strung system.

spkthed 17y ago
It's not partisan differences or the system holding things back, California has a Democrat majority with the votes (24 out of 40) to push things through. Voters there are polling at a 1/3 approval rating for raising taxes. The majority just doesn't want to be the ones responsible for cutting programs or raising taxes. http://en.wikipedia.org/wiki/California_State_Senate http://en.wikipedia.org/wiki/California_State_Senate In addition, their bond ratings are pretty low, they have the lowest rating of any state. The net result of that is that borrowing money becomes much more expensive and the cycle escalates. http://articles.latimes.com/2009/feb/04/local/me-budget4 http://articles.latimes.com/2009/feb/04/local/me-budget4 You can't run programs with deficits forever, eventually you have to raise taxes or cut funding. Neither are popular positions to have but they are necessary.