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.
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That’s a nice analysis of the REVENUE part of the equation, but it doesn’t explain why California’s SPENDING has increased at TWICE the rate it should have over the last 10 years based on inflation and population growth. Why Dr. Krugman tries to perform an analysis of CA’s income statement without a discussion of costs (re: spending) – that is, reducing them – speaks volumes regarding his own agenda.
