In the recently launched California Post, gubernatorial candidate Steve Hilton wrote that Californians suffer the worst results despite paying the highest taxes. Without disagreeing with the Republican in Hilton, this shouldn’t be news. It's government spending after all.
Say it repeatedly that central, politicized planning of precious resources always and everywhere fails. Only for it to get worse.
California’s high rates of taxation don’t come close to telling the whole, ugly story. To see why, contemplate if California workers paid a low rate of taxation. For fun, let’s say 2 percent. If so, the result would still be unfortunate, and likely corrupt too.
That’s because a 2 percent tax on California’s taxpayers is like a 95% tax in most other states in a revenue sense. The reason why has to do with all the wealth created within Golden State. Rarely does a week go by without news of yet another California company being valued at over $100 billion. This past week it was Waymo. Its latest funding round ($16 billion) valued the business at $126 billion.
It’s a long or short way of saying that California’s greatest attribute (all the remarkable entrepreneurial and commercial talent in the state) is also one of its biggest problems. All that talent creates enormous amounts of taxable income and wealth that the state and its cities help themselves to. Hilton surely writes a truth, but hardly a revelatory one. And he arguably misses the bigger, much worse California story that negatively affects every American.
While California’s unfortunate governance is a guaranteed applause line for Republicans in politics like Hilton, along with Republicans who write and speak about politics, those same Republicans shudder at the very notion of reviving the state and local tax deduction (SALT). Supposedly allowing Californians to deduct taxes paid locally amounts to a “subsidy” of those Californians, at which point allegedly limited-government Republicans demand an erasure of the deduction; that, or they very much want to limit the deduction for high earners and wealth creators in states like California. See the falsely "pro-growth" OBBBA.
The Republican stance is contradictory. Think about it. They spend endless time lamenting the failure of big government not just to California Republicans, but also to Republicans outside the state who revel in the mistakes made by the state's overfunded government. Which is the point, or should be.
As opposed to high-taxation of Californians benefiting them, it’s quite the opposite. A lot of taxable wealth enables a lot of central planning.
All of which raises a seemingly obvious question: knowing the plainly negative impact of all the taxing and spending within California, why are Republicans so adamant that those same rich Californians not deduct (or ideally credit) taxes paid in California against their federal returns? Wouldn’t they want to limit the flow to the U.S. Treasury of all that California-based wealth creation as a way of avoiding at least some of the same lousy results of central planning that plague California?
It’s a reminder that full deduction of state and local taxes paid wouldn’t “subsidize” Californians as is commonly stated, rather it would benefit non-Californians who would suffer less of the federal spending version of what plagues California. Get it? Republicans don’t seem to, and that’s too bad.
