Recently a liberal online debater jousting with me presented two factoids that he smugly assumed proved conclusively that CA should have high taxes — that my concerns over CA taxes were thus “the height of sophistry.” Both his FACTS were true — but they did nothing for making his case. Indeed, they UNDERMINED his case — a delicious example of boomerang sophistry.

Since this nonsense periodically pops up out of the liberal playbook, I thought I’d deal with each factor in some detail here.

1. “California has the biggest GDP (Gross Domestic Product) of any state in the nation.”

True, but — so? If anything — this factoid should make the case for LOWER tax rates, not higher.

First, let me point out that, while California has the states’ highest GDP, we also are by FAR the most populous state in the nation. California has over 37 million people, while second place Texas has a bit over 25 million. New York state is third with over 19 million. In other words, our large GDP is no big deal.
http://www.infoplease.com/ipa/A0004986.html

But more important, liberals deny the concept of “economy of scale” — the ability to efficiently produce more goods per investment dollar with increased size. In the mind of progressives, the exact OPPOSITE is true — the larger a state’s size, population, wealth, etc., the MORE costly government should be, and the higher the tax RATES should be. Doubtless honest liberal economists (yes, there are a few) probably have a tough time rationalizing this overturning of basic economic theory.

Here’s a simple example of economy of scale in government services: For 10 people to build a road themselves would be prohibitively expensive. For 1,000 people, less so. For 1,000,000 people, the cost would be FAR less per person — even though a wider road with additional lanes likely would be needed.

It IS true that this inverted size-vs-cost real world result is common in most large population centers — be they states or cities. But such correlation does NOT prove causation. What these concentrations of people have in common is control by Democrats and a few key RINO allies. Texas, warts and all, shines compared to New York or California. Republicans hold sway in the Long Horn State. We know who runs the other two states.

But let’s get back to this odd reverse economy of scale Democrats use as an implied excuse for their own rapacious greed and lust for power. IF this is true, then theoretically we should be able to split up California into 3, 5, 100 or 1,000 states — and the aggregate cost of government would come down. MAYBE it would — but not because this parallel universe “noneconomy of size” touted by Democrats.

AN ASIDE: Don’t get me wrong. I’d LOVE to see this state split up. Let the Democrats steal from each other on their own deteriorating turf, and let us more limited government types thrive with lower taxes and better run government in ours. But this “gain” (for us libertarians and conservatives) from splitting the state has nothing to do with economy of scale. If Democrats had to pay for most of their OWN government, they might be less magnanimous with their disbursal of funds (note that I said “might”).

I must add that, sadly, this split-up will never happen, as no one wants to include in their new state the great city of Los Angeles — a cesspool of economic drain on any hapless economy. If only L.A. had a pro football team . . . .

BOTTOM LINE on the liberals’ GDP argument? It makes OUR case for lower taxes, not theirs for higher taxes. Thanks for playing.

2. “California has one of the highest per capita incomes.”

Again, true.  And again, so?

This fact WOULD perhaps make the case that Californians should pay more DOLLARS in taxes than other states, but it does NOT explain why we need to have higher tax RATES than other states — that our income, sales and other taxes have to be confiscated at a higher percentage rate than states with lower per capita income. Liberals have NO coherent rebuttal to this point.

But there’s more to this matter. For one thing, when liberals present this factoid, it never is accompanied by numbers — no QUANTIFICATION of the per capita income difference between CA and the other states. Allow me to provide what progressives conveniently fail to provide.

Yes, we are one of the higher per capita income states, but we aren’t even in the top ten. We’re the 12th highest — 13th if you count DC Land as a jurisdiction. (Oddly enough, even with all the Washington, DC slums, the per capita income of the district is by far the highest in the nation, and 75% higher than the national average. Go figure.)
http://www.infoplease.com/ipa/A0104652.html

More important is the fact that our California per capita income is only 6.2% higher than the national average — hardly a major difference. Are our tax payments only 6.2% higher than the national average? We wish!

California’s 2011 “Tax Freedom Day” (the day the average taxpayer stops working for government and starts working for himself) is the 6th worst date in the nation – up from 28th worst in 1994, but down from 4th worst in 2009. CA “improved” only because of our state’s soaring unemployment rate – the new tax dodge!
http://www.taxfoundation.org/research/show/387.html

Moreover, the real problem with California taxes is the EXTREMELY progressive nature of the income tax. Like the federal income tax, up to half the state’s population pays little or no state income tax. It’s always been a “soak the rich” tax. Since the rich have better mobility options than most, it’s not good tax policy to give them economic incentives to leave. Because too often, they do.

Hence looking at our average tax burden ignores the disproportionate burden on the wealthy (a murky category that probably starts around $80K or so in CA) — the people who actually pay most of the bills.

For instance, our nasty California state capital gains tax of 9.3% hits the “wealthy” with what amounts to a 60% surcharge on the 15% federal capital gains tax. Several other states charge zero tax on capital gains. Most states charge far less than Califorina. Only three charge more.

The hated investor class is particularly sensitive to this tax, and the truly wealthy often have more than one house anyway. Changing one’s legal state residence requires jumping through some hoops, but with the proposed 20% boost in our already sky high “millionaires’ tax,” we are making such jumps sound more and more sensible.

Tags: California, taxes

This entry was posted on Tuesday, December 20th, 2011 at 11:16 pm and is filed under Blog Posts.