State of California Cannot Support More Spending

This week, Gov. Jerry Brown unveiled his new proposal to increase taxes $7 billion to support higher state spending. The Think Long group of the rich and famous is proposing $10 billion in higher taxes to back more spending. Other tax increases are on being cooked up. Voters would have to pass one more of these tax increases in November 2012.

But a new chart I’ve devised shows the state just does not have the economic foundation to support higher spending, and the taxes to pay for it. The chart follows. It is a “combination chart” showing two different things along the same timeline.

Chart courtesy of John Seiler, CalWatchdog

Close Correlation

Note how closely the data correlate, especially in recent years. (All data are adjusted with the Consumer Price Index to reflect 2010 dollars. For 2010 expenditures, I’m using the 2010-11 budget number, $91,480 billion, from the governor’senacted Budget Summary. All other budget data are from his January 2011 Budget Proposal, Appendix Section 8.)

The left vertical axis, which tracks the red line, scores Californians’ median household income from 1995-2010. That’s how much money our people make, per capita. It’s how much can be tapped to support state spending.

Notice how it has risen and fallen depending on the booms and busts in the California economy.

Next, notice the right vertical axis, which tracks the blue line, and which scores state general-fund expenditures per capita. That’s how much, on average, the state spends of the taxpayers’ money. (Median household income data come from the U.S. Census Bureau, and are not yet available for 2011.)

The one anomaly is on the far right, in which expenditures are much higher than median income. This may indicate that the state still is spending more than Californians can support. But it might be that the data need to be revised. When Gov. Brown presents his next budget proposal in January, I’ll re-do this analysis to reflect fresher numbers.

Seiler’s Second Law

But for most years, especially recently, the ratio is that the state general fund spends approximately 1/25th of median household income.

I call this “Seiler’s Second Law of the California Budget”: The California state general fund can’t spend more than 1/25th ofmedian household income.

(Seiler’s First Law is that the state general fund can’t spend more for the general fund than 6.2 percent of personal income. I plan updating this, too, when the January budget numbers come out.)

There’s also a corollary to Seiler’s Second Law: If the state wants to increase general-fund expenditures, it must enact policies that foster increases in median income.

Increasing tax rates, which will suppress median income, thus would be counterproductive. The tax rate increases would chase away businesses that create high median-income jobs, and well could decrease tax revenues.

Already, California’s median income has been hammered by the recession. From 2006 to 2010, median incomes in California crashed by 9 percent, almost double the 5 percent national rate.

Put another way, if California’s recession had struck at the national rate, our median income would have dropped only 5 percent, instead of 9 percent. Thus, our median income would be about 4 percentage points higher, or about $2,000 more.

Not the 1970s

In his “An Open Letter to the People of California,” calling for his $7 billion tax increase, Gov. Brown wrote, “Spending is now at levels not seen since the 1970s,” during his first stint as governor. He’s living in the past.

The real numbers are shown in the chart above, indicating that median income has crashed to the levels of the mid-1990s. The numbers show that, except for population growth, the California economy hasn’t grown since about 1998, when Pete Wilson was governor. We’ve suffered a “lost decade” — and are working on a second.

In his letter, Brown lamented cuts he made to schools, public safety and aid to the poor. But you can’t spend what you don’t have, and can’t get.

In his first stint as governor in the 1970s, Gov. Jerry Brown spoke of an “era of limits.” He was wrong. The economy, especially median income, kept growing through the 1970s, 1980s and up to about 1998. On the foundation of median income growth, the state general fund could expand. But the foundation first had to be laid.

The era of limits is now.

And the only way out of this new era of limits is to increase median household income through pro-business, pro-jobs and pro-taxpayer policies.

The chart shows there’s no other way.

(John Seiler, an editorial writer with The Orange County Register for 19 years, is a reporter and analyst for CalWatchDog, where this piece first appeared.)

Comments

  1. Jerry…It’s about Spending Stupid…

  2. “…The left vertical axis, which tracks the red line…
    Next, notice the right vertical axis, which tracks the red line(sic)…”

    John, is that the “other” red line?

    Otherwise, very illuminating – except to the ususal suspects that work in Sac.

  3. Lionell Griffith says

    You say: “The chart shows there’s no other way.”

    Since when do politicians, especially California politicians, pay attention to charts much less reality? They believe they DEFINE reality and if they want it and say it, that is the way it is. If reality doesn’t agree, all they have to do is tax more and spend more and reality will be forced to agree. Then if that doesn’t work, they blame it on the citizens and prop 13 while still trying to tax more and spend more.

    The lesson here is that the politicians will never limit themselves. We the People have to apply the limitation. Voting hasn’t worked because there are too many people who think they can cash in on the process. Hence, the people who are expected to pay the bills are voting with their feet or are losing their jobs and no longer able to pay or both. The politicians will party on while California sinks into the sunset of its economy. The gold has turned into fool’s gold and low grade fool’s gold at that.

    You can’t get rich by taking what the poor don’t have and don’t produce. The poor can’t get rich by stealing the wealth of the rich no matter how “legal” it is made to seem. You must work for it, create something of value for your fellow man, and trade it for what you want for a price the other person is willing to pay. This is the reality the politicians are ignoring as well as those who are riding the government gravy train. A train is out of both fuel and gravy.

  4. Brown’s proposal is about dumb as the people for voting this bum into office,but the Hollywood elite run the state by proxy. people set too much store in the idiots in hollywood most of whom do not know realaity from fantasy. The education of a hollywood star might be the 12th grade,they attend hollywood schools whih teach liberalism,socialism,and markists agendas.

  5. Lionell Griffith you always have the perfect comment. One thing I just cannot understand is why did people vote him to be Gov. again???? He is just continuing where he left off…. Screwing California

    • Lionell Griffith says

      Both the politicians and the people who vote for them believe down deeply that reality is not real. They believe all you have to have is a large enough gang, then all your wishes and fantasies will come true no matter how contrary to reality they are. The only thing that is real in this ball of broken string is that all of them have an infinite ability to evade what is. This includes the fact that while you can ignore reality you cannot escape the consequences of ignoring reality.

      For a while, this strategy seems to work. It works because there is already produced wealth to steal and willing victims to be consumed. It comes to and end, when they run out of both. That time is coming at them as fast as a speeding freight train. When it hits, their bleat will be “We didn’t mean this to happen.” That will be the only superficially truthful bleat of their pathetic lives. They intended the party to continue without cost or consequence to them.

      If you go one level deeper, they are as they are because they despise the responsibility for being human (being rational and acting accordingly) and are deeply fearful of all who gladly accept that responsibility. The net of that is they really don’t want to live nor do they want anyone else to live – especially anyone else. Hence, they destroy the good BECAUSE it is good and embrace evil because the goal of evil is the destruction of the good.

      Do we have a choice in the matter? Yes, we can stop feeding them.

  6. Why not stop spending? Brown is going to tax us to death and spend us to death. We need a petition to go around the state for signatures to impeach Brown.Where do I sign?

    • “Why not stop spending?”
      fluter, that is exactly what many are doing now. They are not to spend HERE. With the California Capitol stubbonly refusing to collapse bureaucracy wholesale, folks will vote with thier pocketboks and buy on the Internet, DENYING SACRAMENTO SALES TAX REVENUE!! That leaves California the sole option of collecting a 1930’s ‘use tax’. The federal Constitution forbids a state taxing commerce conducted outside its borders. With out-of-state sellers and states eagerly seeking revenue for themselves, GOOD LUCK WITH THAT!

      • Lionell Griffith says

        Thanks for pointing out what many are already doing: not spending in California. THAT is one very easy way to stop feeding them. Another way is to move out of the state. Still another way is simply work just hard enough to meet your personal expenses AFTER you have reduced them to an absolute minimum. That is a tough way to go but it is very effective. After all, if you don’t have it, they can’t steal it and, if you don’t produce it, they can’t tax it.

        The interesting fact they don’t want you to discover is that they need us far more than we need them. If we don’t exist, they go out of business. If they don’t exist, we do rather well in whatever business we are involved with. At the very least, we get to keep what we earn and that is hugely better than our current situation.

        • “Still another way is simply work just hard enough to meet your personal expenses AFTER you have reduced them to an absolute minimum. ”
          Lionell, I agree that starving the unreasonable beast into reducing size has to happen. But man, living on the edge in a very expensive to live in state with a fluctuating economy is like waking up every day to a knife at your throat…..all-day-long!!

  7. Jerry Brown needs to be recalled like we did Gray Davis. He is completely destroying the state.

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