Sunday, February 12, 2017

Defund California? Defund Alabama instead.

The Tweet: Trump wants defund California? Better he should defund Alabama and all those red states that have failed their citizens for so many years.

Donald Trump thinks California is out of control. He has suggested that withholding federal funds from the University of California at Berkeley and from the State overall might be his "weapon" of choice for dealing with the left coasters.

California's crimes? Protests at Cal against alt-right provocateur Milo Yiannopoulis speaking on campus, and Governor Jerry Brown's push to make California a sanctuary state in the face of Trump anti-immigrant rhetoric and I.C.E. enforcement raids in southern California.

This is just California being California. Donald Trump may not like it, but Californians take it all in stride. For well over a century, in the face of earthquakes, social upheaval and high taxes, people have voted with their feet and moved to the Golden State seeking economic and educational opportunities. Since 1968, the state population has doubled to 38.8 million, and the share of the nation's population that live there has grown from 9.7% to 12.2%.

Trump's threats to "defund" California, which, he suggested, depends on the feds for a "ton of money," has raised the hackles of Californians who view the situation in quite different terms. Supporters of "Calexit" – a proposed constitutional exit from the United States supported by nearly one-third of respondents in a recent Reuters poll taken prior to Trump's inauguration – are quick to point out that it is not the federal government that provides a ton of money to California, rather it is California that provides a ton of money to the federal government.

The claims of Californians who are disgusted with being hectored by Donald Trump are not without merit. California is one of many states that routinely pay more to the federal government than they get back. As the conservative Tax Foundation has observed, the federal government has for years operated a massive system of income redistribution, draining money from more economically successful states, which, it points out – and is illustrated in the graph below – tend to be blue states, and transferring those funds to less economically successful states, which tend to be red states. In particular, California has seen the return on its tax dollars decline steadily over a quarter century, and according to Tax Foundation data has been among the states that receive the lowest amount of federal funds relative to taxes paid for several decades.


For example, according to the National Priorities Project analysis of federal taxes and spending in 2014, Californians sent the federal government approximately $6,671 in personal income taxes per capita, while receiving back $4,855 in federal direct aid per capita, resulting in a net payment with respect to individual taxes paid and direct benefits received of $1,816 per person. These data, along with the Tax Foundation study, suggest that Californians pay into the federal kitty as much as $50 to $70 billion more than they received back – though it is important to point out that the Federal Financial Statistics program that the Tax Foundation and others relied on in their analysis was terminated, making good data less reliable. To put that number into perspective, $50 billion in tax revenues that was otherwise shipped out of state would have been enough to pay for a 50% increase in State funding of K-12 schools and colleges and a one-third cut in the State personal income tax.

By way of comparison, the State of Alabama – the deep red home of Attorney General Jeff Sessions and a state that the Tax Foundation data suggests has been consistently among the states with the best "deal" – got back $2,836 per person more in direct aid than its residents paid in personal income taxes, resulting in almost $14 billion being pumped into Alabama by Californians, New Yorkers and other blue state taxpayers.

The Tax Foundation data suggests that Alabama – along with many of its sister red states – is essentially a welfare state. Decade after decade, the federal government has taken money from more economically productive states and poured it into Alabama to try to boost the state's economy and socio-economic outcomes. Military bases. Water projects. Rural electrification. Hospitals. And the massive flow of federal support and entitlement payments to individuals, as described above.

As if to prove the oft-stated conservative belief that throwing money at problems doesn't work, the expenditure of federal funds has been to little avail, as the socio-economic indicators of the State of Alabama remain near the bottom of all of the states.

But that is not the whole story. Alabama's politicians are no fools. As illustrated here, one reason that all that federal funding might appear to be for naught is that Alabama –like many of the states that are subsidized under this massive federal income redistribution scheme – uses the opportunity created by all that money flowing in to keep its state tax rates much lower than the blue states that those politicians ridicule for their high tax rates, but which nonetheless continue to send them money, year in and year out.

Donald Trump won thirty of fifty states this past November. Those thirty states represent thirty of the thirty-four states with the lowest per capita incomes in the country. According to Tax Foundation data, twenty-five of those states were net recipients of federal funds, and only two of them – in comparison to twelve of the twenty states he lost – got back less than $0.90 for every dollar they paid in Federal taxes.

The economic productivity of states – or lack of economic productivity in the case of Trump states – directly mirrors the levels of educational attainment of their populations. Twenty-eight of the states that voted for Donald Trump were among the thirty-one states that had the lowest percentage of their population over the age of twenty-five with a bachelor's degree. And, as illustrated here, all thirty of those states were among the thirty-three states that had the lowest percentage of the population over the age of twenty-five with an advanced degree.

This is not about elitism or snobbery, but about the direct correlation between educational attainment and personal incomes in the United States. Educational attainment and personal incomes in states are as much a function of state policy over time as federal policy, as education funding and policy remain primarily state and local responsibilities. Therefore it is not unreasonable to suggest that levels of individual and family incomes, educational attainment, and economic performance of states over time reflect state policy and investment decisions.

This is as true in California as it has been anywhere in the country. For a half-century, dating back to the Kerr Commission in the early 1960s, the State of California has focused on the development of an integrated system of higher education including everything from its expansive network of community colleges to the funding of its world-class research universities. That higher education system has in turn supported the development of world class industries across the state from aerospace to toys to Hollywood to the Silicon Valley.

In a world where educational attainment is closely linked to economic outcomes – as illustrated in this graph, which plots unemployment rates against educational attainment over time – red states that have boasted about low taxes for decades, but underinvested in education, turn out to have undermined the economic prospects for their residents and communities. Those states are like the less productive countries of Europe, known as the PIGS – Portugal, Italy, Greece and Spain – that have dragged down the economic performance of the European Union as a whole.

But unlike in the EU, where the large, successful economies are in control, we have put the PIGS in charge. Every one of the elected officials appointed to Trump's cabinet come from red states whose incomes and educational attainment lag the nation as a whole. The Trump administration's economic development policies focus heavily on corporate tax cuts and deregulation, as well as Trump's belief in his own personal powers of persuasion. Yet tax cuts, deregulation, and jawboning companies into shifting manufacturing back to the United States do little to address the issues that less educated workers face in their own lives. Trump's oft-stated belief that he alone can fix things is a poor long-term substitute for assuring that those workers understand the factors that are critical to their and their families' economic success over time, and that they have the tools available to control their own destiny.

Donald Trump knew he could score cheap political points with his base by lashing out at California. But as always seems to be the case with Trump, talk is cheap. It should come as no surprise that millions of Californians take to the idea of Calexit. They know it will never happen, but it has to get tough, year after year, to pay taxes to support your own state, knowing that on top of everything, you have to pay extra to support someone else's state. And now they get mocking tweets and I.C.E. raids. Instead of giving California a hard time, perhaps Trump should point out to his supporters that those reviled blue states and their educated elites are the ones who are ponying up the money to pay for those checks they get in the mail every month.

Artwork by Jay Duret. Follow him on Twitter @jayduret or Instagram at @joefaces.

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