California’s economy may seem healthy. Just wait for the next recession

Expanding industry isn't gonna fix the problem.

Currently the state has an ~80bil surplus. The state needs to keep some of that around for the inevitable recession.

People mention the heavy dependence on state income tax. Well, why is that? Compare that to states like Texas that obviously has no state income tax but just has high property taxxes. I actually think this is a way healthier situation.

But in the 70s, voters voted themselves a massive permanent tax break that's even bigger for corporations. When an individual buy a property the tax basis gets reset and recalculated. Not if the property is held in an LLC. So Disney's property tax rates have essentially been frozen since the 1960s.

The standard counterargument is "what about the old people getting kicked out of their homes?" It's an appeal to emotion that doesn't make any sense. First, why are we giving Disney a amssive tax break so some old person on a fixed income doesn't have to downsize from the family home they raised their children in? Second, if we really want to protect those people (and I'm in the camp who thinks we shouldn't) we have the technology to provide needs-based property tax relief in the form of a lower rate or (my preferred option) simply deferring the taxes interest-free until the home is sold or the owner dies.

Any more stable alternatives aren't really political feasible in California. If anything, the political appetite in the state is to continue to increase taxes at the upper end of the income distribution. Income taxes at the middle and lower end are already high enough that voters probably wouldn't go for increasing their own tax rates. (Same with sales taxes.) Increasing the proportion of taxes that come from property taxes would probably provide a more stable revenue stream for the state, but would in effect require Prop 13 to be repealed, which is also a non-starter.

The state rainy day fund is meant to help counteract against this, but the fund essentially has a cap due to the Gann Limit, which limits its utility. The Gann Limit in general requires the state to return revenues in excess of a certain amount back to taxpayers. The way the political winds are shifting, the Gann Limit will probably be repealed in the next decade or so, though whether or not those extra funds will make it into the rainy day fund is unclear.

As social/govt. services dry up, professionals will leave in droves as who wants to pay 10-13% state taxes when alot of other states offer way better tax rates with better quality of life. Think the homeless situation is bad now with tent cities everywhere, wait until the yearly $15B that CA spends on homeless disappears.

I predict a hyper exodus as the state suffers an economic collapse that will take most likely a decade or two to recover from. Lets also not forget that the 20th century was the wettest in the past 2000 years in CA and the 21st century will be very dry(which is normal for this state), so CA's agro economy will rapidly shrink, and water loss will force population out.

Oh and by the way I am a 4th gen. CA resident so its tough for me to acknowledge these facts.

I thought we just spent like a decade poring over charts showing how the rich are least affected by any downturn.

Suspiciously missing the dept-to-GDP ratio. I wonder why that is?

I was telling someone today how I loved where I lived. They said, 'really? everyone says how much they hate it, how crazy it is.' Everyone hates everything, everyone expresses pessimism, applied to everything. We were in the place in the trend where we could still find ways to apply the idea, when it was still provocative to read. Now, for me, it's obvious and tired.

Recessions are, to a degree, self-fulfilling. Optimism and pessimism are intangible, but are real things that have very real consequences for anything you do - your current project (if you even start it), your job, your relationships, your economy, your society. That's obvious and well-known, and I'm tired of people screwing up my life, my relationships, my community and country with this stuff. Nothing is stopping us from living fantastical lives.

In Texas, which already has a floor property tax rate at over 2x what CAs is (~2.2% of assessed value rather than ~1%), property values get re-assessed to market every year (with a 10% cap any given year). In California, it’s basically only when you buy the home, and it doesn’t matter whether it’s your primary home or not.

California’s incentivizes are thus all misaligned — if you’re wealthy, you buy a home and watch your tax bill get smaller and smaller every year in real dollar value. So California’s solution? Raise the income tax, state capital gains tax, and a bunch of other bandaids— the problem is, a wealthy individual can more easily move and e.g. declare their homestead in Texas, which has no income or state capital gains taxes, and California’s Prop 13 will STILL benefit the non-resident, even if they’re living out of state by allowing them to hold onto a potentially multi-million dollar property for essentially nothing.

Texas does the opposite: it says, “please— wealthy people, park your money here!” knowing that those doing so will likely buy property to gain residency status. Once they do, and taxes raise each year with the market, Texas’ incentives are aligned: there is no way for someone trying to avoid property taxes to do so without selling their property to someone else who will, and because Texas’ property taxes are so high it does not make the financial equation so obvious to hoard/keep it if the math doesn’t pencil out, compared to California where you get rewarded simply for hoarding it.

California is essentially incentivizing out-of-state (or ex-residents) who do not pay taxes to the state to hold onto a limited resource (desirable land) for decades, thus contributing to the supply shortage, while states like Texas have tax systems set up to make it financially desirable for California residents to move to all while still keeping their land in CA.

If you’re wealthy enough to own in both places, from a financial angle it’s tempting. See: Trump NYC -> Florida and Musk CA -> TX

More specifically on the article’s thesis: yes, California’s tax revenue may be more sensitive to an economic downturn. But that’s due to extremely high income from startups that just doesn’t exist in other states. It’s running a budget surplus that’s something like half of all other states’ total revenue IIRC.

If that extra income disappears, people will still work, earn income, and go shopping. The state’s revenue will just revert to normal-state levels.

Hacker News has taken this weird turn to hate California to a degree usually reserved for, say, female CEOs or renewable power. This story may seem to satisfy this urge, predicting as it does a hard crash for the state. But it’s really just reporting on the altitude record the state is currently setting.

Edit, in response to the answer below: TIL, thanks! I’ll have to switch to making jokes about their Nobel being second-rate and their models being thinner and on more crack than those of the fashion world.