Yes on 30 – the analysis

This is the first in a series of blog posts analyzing the major propositions on the November 2012 California ballot.

Proposition 30 doesn’t require a lot of analysis to get to the main points. It does three basic things:

1. Raise sales taxes by 1/4 of a cent for four years.
2. Raise income taxes on the top 3% of the population, more for higher-income within that range, for 7 years.
3. Use that money to prevent massive spending cuts next year that would otherwise be necessary.

There’s debate over whether it truly dedicates those funds to education, which is an irrelevance (more on that later). The question is, are we in such a budget hole that we truly need to raise this money, or is Sacramento making it up to get more tax money out of us? In fact, the situation is just about as dire as they make it out to be.

The Californian voter is of two minds: she wants common, key social programs funded; but at the same time, she is unwilling to trust that the state government can do this properly and efficiently. Unfortunately, since Prop 13 was passed in 1978, the political structure has tended to exacerbate these contradictions rather than move toward any kind of middle ground. This is not so much 13’s property tax limitations – although those were excessive – but mostly the requirement of a two-thirds legislative vote (or majority public vote) for taxes to be increased. If the average voter is asked if he favors a rise in taxes, he will of course say no. If asked if he favors more spending on education, health, social services, infrastructure, law enforcement, he will usually say yes. So the Legislature properly represents the average voter when it increases spending on vital public goods, but lacks the power to balance that out by correspondingly increase taxes. And so our budget is in a perpetual state of crisis – real, not manufactured, because the services Prop 13 defunds are important services that the average voter in fact wants to keep (with some exceptions), but this preference is structurally blocked from being implemented.

Let’s look at some figures to show what position this state is in. 

State General Fund usage, 2009-10 (2011 CalFacts, Legislative Analyst’s Office)

We spend a majority of the money we have on education, another quarter on health and social services, and another eighth on public safety (especially prisons) and the courts. “Everything else” – a relatively small chunk – includes debt interest, highways, and the environment.

“Ah,” people say, “but everyone doing this work is overpaid because of the unions.” No, not really. Public salaries seem higher than private on average, but a lot of that reflects (a) that public jobs are higher-skill on average than private (when you match up skill-to-skill, public positions often pay less) and (b) that private employers have been concertedly and unjustifiably pushing their workers’ salaries down for decades to enhance profits at the top, so it’s a bad comparison anyway. Also, public employees have not grown in step with the level of services they’re supposed to provide, so their salary doesn’t reflect that they’re being overworked. According to the LAO, in 2008-09 there were 20.8 students per teacher in California, compared to 15.3 nationwide. And that was before some of the recent cuts.

Are there inefficiencies through excessive administration? Certainly there’s room for improvement there. But the vast majority of spending is direct provision of services – teachers in classrooms, healthcare and childcare for those who need it, police on the street. There is simply no getting away from that.

The tax structure we have, and which we haven’t been able to rejigger thanks to Prop 13, also makes us very sensitive to economic booms and busts:

The above chart is mine, from state data, and accounts for both inflation and population change: there are huge swings as the economy grows and shrinks, much greater than the economic shifts themselves. This is due to a lot of things, but the point is that we have been having to cut and cut for decades, and the insufficiency of funds is especially acute now. Here’s how it’s impacted K-12 funding, for example:

Funding per K-12 pupil, inflation-adjusted dollars (LAO)

Another situation hurting the budget is three-strikes and the reigning “tough-on-crime” fallacy it’s a part of. In 1981, corrections made up 2.9% of the state budget; today, it’s 10.5%, or $9.6 billion. Even if this at all improves public safety (crime might be down, but I doubt it was the only reason or the only way), it’s at too high a price – both by crowding out more useful social investments, and by keeping the low-income and people of color in a development trap.

Here are some of the sacrifices we’ve made over the years to keep up with the anti-tax constitution:

1. UC, once a rare example of a world-class university system accessible to anyone no matter their income, has gotten more funding cuts than any other part of the education system, and is close to being indistinguishable from an Ivy League school that middle-class families struggle to afford. Berkeley’s Boalt law school now costs more, without aid, than Harvard Law. Fees at CSU and the community colleges have risen less, but they are more acutely felt and similarly unjustifiable.
2. Medi-Cal, meant to provide healthcare to those who can’t afford it, pays such low rates to doctors and other health providers that one-third of enrollees have trouble finding appropriate specialists who will even treat them. It also doesn’t cover routine dentistry for most adults – a great example of penny-wise pound-foolish policy, as it means cavities turn into dangerous abscesses.
3. Our crucial infrastructure is slowly falling apart, with few prospects for the money needed to properly maintain it. Most of our highways are coming to the end of their useful life, and over a billion in needed maintenance for state parks is backlogged.
4. CalWORKS, temporary assistance for the unemployed, pays families in need significantly less than the poverty level.

We are not in a situation of government pretending it can’t cut the fat. There is a collective understanding by about 75% of us that we, as a society, need to at the very least help people and families on their way up the ladder with services like education and childcare, while also maintaining a social safety net so that not having a good job doesn’t lead to misery, starvation, and death as it once did. We are at the knife-edge: any more cuts, and we will complete our transition to being a banana republic, where the rich get richer, the middle are squeezed, and the poor have no hope.

From time to time, there are propositions attempting to square the circle by forcing the Legislature to guarantee funding to given priorities, or raise taxes to go into a special fund for designated (popular) services. These have not worked: they only make it harder to create a balanced budget. Some existing propositions are so complicated in what they allow the Legislature to do that only a few consultants fully understand them! Propositions to guarantee funds — ballot-box budgeting — are like tying a hand behind the Legislature’s back and then being disappointed it can’t juggle. (That’s why I also recommend no on Prop  38: it’s more of the same.)

Californians don’t like taxes; fine. Perhaps Prop 13 helped Sacramento understand that. But we need a new way forward, in which we consider taxes not as an abstract bogeyman in isolation but as a means of paying for the services we all support. In that sense, Prop 30 isn’t that bad as a stopgap, because it at least puts the true choices in front of us. Do we want lower taxes, or do we want to preserve public education? Because we can’t have both at once.

One objection to Prop 30 is that it raises the sales tax, which is a regressive tax hurting the low-income (as they spend the most on necessities). This is not untrue, but it’s not a dealbreaker for me either. First, the taxes it raises are a lot more progressive than California’s existing tax system: right now, the bottom 20% actually pays more in state taxes as a percentage of income than the top 20% (see this analysis – the rate-gap is wider in most other states), but 90% of Prop 30 revenue will be from the high-income. Second, it makes sense to have some kind of shared sacrifice – the top 5% has a lot of money, but everyone needs to pitch in to some degree. Third, the income tax increase lasts 7 years, the sales tax increase only 4. Last, the current proposition represents a laudable compromise between center and left: Jerry Brown’s original plan had a half-cent increase, a rival proposition had none, and they split the difference and merged their proposals. I would prefer a more progressive tax structure, but the increase is something I can live with for now.

In the long run, we have a lot of things to do to restore California to its former glory: work out a sane method for consistently selecting taxation and spending levels; end the war on some types of people who use some types of drugs; fix the pension problem; continue to reduce administrative spending; stop spending away the surplus during booms (like Schwarzenegger did). This will take a long time. In the meantime, unless we want to become Texas-on-the-Pacific, we must approve Prop 30.

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