Feds’ Benevolence Doesn’t Add Up for California Taxpayers

Sacramento--Californians do pay a bundle in taxes. They pay too much for what they get back. Problem is, it’s the federal government that’s shortchanging them.

State Finance Director Steve Peace is on a soapbox about it. After a series of subdued finance directors, this one is used to freely speaking his mind. Peace, 50, spent two decades as a tenacious legislator from San Diego -- a savvy, workaholic wild man -- before being appointed by Gov. Gray Davis in December as his chief fiscal advisor.

Last week, Peace repeatedly protested California’s treatment by Washington --”like a colony” -- while briefing reporters on Davis’ revised budget proposal.

“It’s nothing short of a confiscatory federal tax policy,” he declared. “It’s no mystery why Californians feel overtaxed. They are.”

Overtaxed. Rare word for a Democrat.

Don’t get him wrong. Peace still is pushing Davis’ $8.3-billion tax-hike package to balance the state budget. He has no position on President Bush’s proposed federal tax slash. He’s just complaining that Californians are not getting their money’s worth from Washington -- and haven’t in several years, under Republican or Democratic rule.

This also agitates former Democratic Assembly Speaker Bob Hertzberg, now an L.A. lawyer: “Do the taxpayers of California pay enough money to finance all the services they want? That’s the question. And the answer is yes.”

But the money flows into many competing pots -- city, county, school, state, federal, water district.... Taxpayers don’t really track it, Hertzberg notes. They just dig deep, pay out and want their problems solved.

And while they may be coaxed into forking over even more of their earnings, it usually takes a hard sell.

All this is reflected in the staunch resistance to tax hikes by Republican lawmakers. “Government already has enough money,” they insist. Maybe, but make that governments.

California is a “donor” state. That is, it contributes more in federal taxes than it gets back in benefits. Call this a “trade deficit” -- a “negative balance of payments.”

“We send $47 billion more to Washington than we get back,” says Tim Ransdell, executive director of the nonpartisan California Institute for Federal Policy Research. “Another way to put it is, we get back 82 cents on the dollar.”

That’s based on Census Bureau and IRS data from the federal fiscal year ending Sept. 30, 2001, the most recent figures available, Ransdell says.

It compares federal taxes paid against payments received -- a wide mix of Social Security and Medicare benefits, procurement contracts, government salaries, grants for highway construction, Medi-Cal ....

There’s not universal agreement on exactly how much California is shortchanged -- only that it is.

Peace, also citing census and IRS data, says there was a $76-billion rooking during ’01. Californians paid $265 billion and got back $189 billion, he reports.

It hasn’t always been this way. During Ronald Reagan’s defense buildup, the president’s home state enjoyed a positive balance of payments -- getting back $15 billion more than it paid, for example, in fiscal years 1983 and ‘84, according to Peace. “Reagan stemmed the flow.”

For a while. Then 1986 tax changes that especially hurt Californians, Peace says, plus the end of the Cold War and subsequent defense cutbacks made this usually a donor state.

“It’s a total bipartisan screw job,” Peace complains. “By Southern politicians.”

“Southerners -- Democrats and Republicans -- have moved up in seniority in Congress. They’ve picked our pockets....

“There has been a succession of Southern presidents. Both parties have adopted a Southern strategy to win the Southern vote. And that has resulted in a dramatic flow of capital out of New York and California....

“California politicians can’t get past their partisanship to protect California interests.”

It’s not all that simple, researcher Ransdell says. It starts with the Founding Fathers, who created a U.S. Senate that favors small states. Also, California’s population is younger than the national average, so it gets proportionately fewer Social Security and Medicare benefits. And this remains a relatively prosperous state, he notes, so people pay more federal income taxes.

A couple of things pop to mind:

* Bush and Congress seem bent on giving us a federal income tax cut. That seems goofy while we’re fighting wars, rebuilding countries and already running up big debt. But it does offer opportunity in Sacramento.

As the feds lower taxes, the state could raise them an equal amount. The tax revenue would stay in California to help balance the state budget. And Californians could deduct the higher state levy on their federal return.

* We need to elect another Californian president. But that’s unlikely until at least 2016.

Meanwhile, be resigned to life as a colonist.