California has many attractions. There is unique balmy weather, a long ocean seashore, abundant areas for outdoor recreation, and a rich artistic, political and academic culture. These attractions were an incentive to attract the best and brightest in fields from biotechnology, astronomy to computer technology. It was also enough to attract my wife and me upon our retirement.
The pathological flaw that just may overwhelm all of these assets is a deep seated antipathy to government and its human manifestation, a creature almost universally reviled, given the epithet, "politician"
The hatred of these creatures is so intense that the public doesn't trust it's ability to overcome their wiles, their tricks to retain power for their cult, for their powerful evil empire, something known as "Government."
That's the mythological drama played out in California in editorials, viral emails and on election day. Government is an evil that thrives on sucking the vital energy of those around them, the forces of good, otherwise known as "The people." The tool they have to do this is something called "taxes."
Paul Krugman wrote about this today in his article State of Paralysis He focuses on one law, passed by referendum....only he understates its breadth:
The seeds of California’s current crisis were planted more than 30 years ago, when voters overwhelmingly passed Proposition 13, a ballot measure that placed the state’s budget in a straitjacket. Property tax rates were capped, and homeowners were shielded from increases in their tax assessments even as the value of their homes rose.
The result was a tax system that is both inequitable and unstable. It’s inequitable because older homeowners often pay far less property tax than their younger neighbors. It’s unstable because limits on property taxation have forced California to rely more heavily than other states on income taxes, which fall steeply during recessions.
Even more important, however, Proposition 13 made it extremely hard to raise taxes, even in emergencies: no state tax rate may be increased without a two-thirds majority in both houses of the State Legislature. And this provision has interacted disastrously with state political trends.
Actually, Prop 13 has a similar effect as N.Y. City Rent control, but on steroids
The irony is that those who voted for it, the anti tax zealots would be the most opposed to any type of rent control as rampant socialism. Rent control allows occupancy by a renter to trump ownership rights, but in effect it also provides a public subsidy to the occupant. By their rents being restricted, the value of the property is lowered, and the potential free market full rent value tax is subsidized by others. In this way, N.Y. rent control is similar to California's Prop. 13
There is a difference. In the N.Y. version, while the owner pays directly by diminished rents recieved, the taxpayer must make up the lower property taxes for the building. The California version directly subsidizes only the owner, with the renter required to pay maximum market value.
N.Y.C. Rent Control, has a social justification of maintaining diversity of neighborhoods to balance any economic cost. California's law is not only for owner occupants, rather an individual or corporation can own numerous properties, and charge full rental, yet pay a limited property tax, one that could be as low as a quarter of that based on the appraisal of the property.
Unlike New York Rent Control, it even applies to commercial buildings, office complexes, shopping malls, whether owned by individuals or corporations, where the longer owned properties get the benefit of sharply reduced property taxes.
A basic rule of any inequity in public life is the longer it goes on, the more people benefiting from it, the harder it is to ever eliminate. This is illustrated by Arnold Schwarzenegger who was elected on his heroic persona. He won a recall election on the illusion that he could redress the endemic deficit problems of the state. Yet, he never had anything realistic to say about how this was to be done.
When his campaign economic adviser, Warren Buffet, suggested modifying Prop 13, Arnold fired him. He won his election by dramatizing the very myths that I described in the beginning of this essay.
Schwarzenegger's administration has turned out to combine foolishness with naivete. It was a waste of not only time, but of hope that anyone could actually redress the pathologies of the state. He perpetuated the illusion that solutions could be without pain, and without taxes. He turned out to be a super hero with only one super power....the ability to sway the masses and win election to govern a great state.