TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Monday, July 28, 2014

Krugman: Left Coast Rising

New York Times:  Left Coast Rising, by Paul Krugman (Princeton):

CaliforniaIn 2012, ... Gov. Jerry Brown was able to push through a modestly liberal agenda of higher taxes, spending increases and a rise in the minimum wage. California also moved enthusiastically to implement Obamacare.  ... Needless to say, conservatives predicted doom. ...

What has actually happened? There is, I’m sorry to say, no sign of the promised catastrophe. If tax increases are causing a major flight of jobs from California, you can’t see it in the job numbers. Employment is up 3.6 percent in the past 18 months, compared with a national average of 2.8 percent. ...

For the big difference between the two states, aside from the size of the oil and gas sector, isn’t tax rates. it’s housing prices. Despite the bursting of the bubble, home values in California are still double the national average, while in Texas they’re 30 percent below that average. So a lot more people are moving to Texas even though wages and productivity are lower than they are in California. ... [T]axes aren’t important at all.

So what do we learn from the California comeback? Mainly, that you should take anti-government propaganda with large helpings of salt. Tax increases aren’t economic suicide; sometimes they’re a useful way to pay for things we need. Government programs, like Obamacare, can work if the people running them want them to work, and if they aren’t sabotaged from the right. In other words, California’s success is a demonstration that the extremist ideology still dominating much of American politics is nonsense

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California still has the 4th or 5th highest unemployment in the US. The recent increase in jobs is a factually weak reed to base a "taxes do not matter" argument.

Posted by: air65cav | Jul 28, 2014 12:09:26 PM