The Taxes That Didn't Bark

Was it a good thing for California that legislative Republicans stymied Gov. Jerry Brown on taxes in 2011? Robert Kleinhenz, the chief economist for the Los Angeles County Economic Development Corp., thinks so. According to the Los Angeles Times, Kleinhenz told the Sacramento Press Club that, “We were still reeling from the recession. [A tax increase] could have taken an already dire situation and made it worse.”

If Kleinhenz offered any evidence or argument to back up his opinion, the Times didn’t say. In fact, the Times didn’t even bother, for the benefit of readers, to clear up Kleinhenz’s apparent case of amnesia. The issue facing California when Jerry Brown became governor in January 2011 wasn’t whether to raise taxes. Higher taxes had already been in place in California for nearly two years: the temporary tax increases approved by the Legislature and Gov. Arnold Schwarzenegger in February 2009, at the very depth of the Great Recession. In his first budget Brown sought only to maintain the status quo by extending the level of taxes already in place.

We don’t have to speculate, then, about whether higher taxes “could have taken an already dire situation and made it worse.” California took the leap in 2009. If higher taxes were destructive, Kleinhenz might be expected to offer evidence of it in the economic performance of the state while they were in effect. That’s the kind of thing a skeptical journalist (as opposed to a stenographer) might want to check, either by looking directly at the data or interviewing an expert. The Times failed to do so.

So let’s try it here:

Job Growth, California and nation

The graph compares the year-over-year percentage change in private nonfarm employment in California (blue line) against the nation as a whole (red line) for 2010 through 2012. California’s rate of recovery almost exactly tracks the national economy both on the left half of the graph, the period when the temporary taxes were in place, and on the right half, after they disappeared in July 2011. Raising taxes “in an already dire situation” apparently didn’t makes things worse, nor did lowering them two years into the recovery make things better. 

This is not surprising. Readers would understand this if the Times and other media would occasionally provide some numbers to give context to our political arguments. One of the great failings of public policy reporting is that journalists so rarely show readers what they mean by phrases like “higher taxes.” Brown’s initial budget proposal to extend the temporary taxes would have raised revenues by a combined $15.5 billion over the 2010-11 and 2011-12 fiscal years. What does $15.5 billion mean? Well, total personal income in the state for those two years was $3.4 trillion. The argument was about less than one-half of 1 percent of personal income. 

And the alternative to that small drag on the economy, Kleinhenz and the Times neglect to tell us, was not to avoid all drag. Unable to extend the Schwarzenegger temporary taxes, Brown and the Legislature were forced cut spending. Firing teachers and state workers created its own small drag. Some of the private-sector job gain of 632,000 in the graph above was offset by the loss of 83,000 public sector jobs. 

So was it a good thing that Jerry Brown didn’t get his way on taxes in 2011? Measured by the short-term movement of the economy, it didn’t matter much one way or the other to most Californians. But to all those young Californians who found themselves shut out of college or trying to learn math and science and English in schools with shortened years and overcrowded classrooms, it may matter a lot for the rest of their lives.