Paul Krugman’s NY Times column hits the nail on the head

I slept in this morning as I fight off a head cold (always on a Holiday weekend) so I had a later start to my day; Paul Krugman’s column  in today’s NY Times is must reading. Krugman, a Nobel Prize winner in economics and a Princeton professor, offers a far more credible analysis of the big picture than say yesterday’s Mark Landsbaum column in the Register that seems to return to the Reagonomics practice of supply-side economics as the cure to what ills the California economy.

From the Krugman piece:

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.”

And Krugman even takes aim at Bill Gross of Pimco in Newport Beach.

“Last week Bill Gross of Pimco, the giant bond fund, warned that the U.S. government may lose its AAA debt rating in a few years, thanks to the trillions it’s spending to rescue the economy and the banks. Is that a real possibility?

Well, in a rational world Mr. Gross’s warning would make no sense. America’s projected deficits may sound large, yet it would take only a modest tax increase to cover the expected rise in interest payments — and right now American taxes are well below those in most other wealthy countries. The fiscal consequences of the current crisis, in other words, should be manageable.”

Krugman lays the blame at the feet of California’s elected Republicans, who serve “block any responsible action in the face of the fiscal crisis.”

  4 comments for “Paul Krugman’s NY Times column hits the nail on the head

  1. May 25, 2009 at 8:26 pm

    Krugman’s targeting of homeowners in regard to Prop 13’s financial straightjacket is off the mark.

    Worse, it continues and repeats the Republican propaganda that Prop 13 is necessary to protect middle class homeowners from every increasing property taxes.

    The fact is that homeowners were not the intended beneficiaries of Prop 13 — and have been benefited from it, as their other taxes and fees have risen to make up for the state’s loss of property tax revenue.

    The real beneficiaries of Prop 13 are the state’s giant commercial property owners and apartment landlords. Indeed, these groups were the financial engine behind Prop 13 and these groups are the ones still funding the Republican anti-government crusade.

    Rather than calling for a repeal of Prop 13, Progressive should call for Prop 13 to be amended to reserve its tax cap protection for actual homeowners — that is, people who live in the property that they own — while requiring giant commercial property owners and landlords to pay their fair share of the state’s expenses.

  2. May 25, 2009 at 8:37 pm

    Sorry for the many typos in the above comment. I’ll try again:

    Krugman’s targeting of homeowners in regard to Prop 13’s financial straightjacket is off the mark.

    Worse, it continues and repeats the Republican propaganda that Prop 13 is necessary to protect middle class homeowners from ever increasing property taxes.

    Homeowners were not the intended beneficiaries of Prop 13 and haven not benefited from it, as their other taxes and fees have risen to make up for the state’s loss of property taxes.

    The real beneficiaries of Prop 13 are the state’s giant commercial property owners and apartment landlords. Indeed, these groups were the financial engine behind Prop 13 and these groups are the ones still funding the Republican anti-government crusade.

    Rather than calling for a repeal of Prop 13, progressives should call for Prop 13 to be amended to reserve its tax cap protection for actual homeowners — that is, people who live in the property that they own — while requiring giant commercial property owners and landlords to pay their fare share.

  3. Carl
    May 26, 2009 at 7:31 am

    Self control is the real issue.
    If you have x to spend and you spend x+20% you end up where we are now. Any other explanation is just plain BS, period.

    There are many contributing factors to both income and expenses in the state, any excuses as to why there can’t be a balance are just plain excuses. We all know that excuse are like … and they just plain stink.

    We all have to live within our means, that includes the folks in Sac.

  4. May 27, 2009 at 8:44 am

    Carl:

    It would be easy for California to live within its means if it had not given away hundreds of billions of dollars in property taxes to giant corporations, utilities, railroads, oil companies, and landlords, and more billions in the elimination of the inheritance tax.

    And those of us in California’s shrinking middle class would be more able to live within our means if we didn’t have to make up at least part of the difference in higher income taxes and constantly rising fees for state services.

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