DRAFT 3
October 25, 2013
The Honorable Dianne Feinstein (Barbara Boxer) Mr. Mark Kravis
United States Senate Treasurer, Reform Party of California
Washington, DC 20510 14704 Caminito Vista Estrellado
Del Mar, California 92014
Re: Request for Support for Spending Priority Changes
Dear Senator Feinstein (Boxer):
I write to you as a California small business owner and on behalf of the Reform Party of California ("RPCA") and all California citizens and businesses. This letter raises a matter that is very important for California's economy, its citizens and its businesses. Information that the RPCA has obtained indicates that, in relation to other states, California contributes more tax dollars to federal spending outside of its home state than any other state. Analysis of tax data published by the Tax Foundation, a nonpartisan tax analysis organization, show that for every federal tax dollar that California sent to Washington in 2005, the state received back about $0.78 in federal spending.[1] The RPCA estimates that if California had received $1.00 back in federal spending in the state for each $1.00 sent to Washington in 2005, the state would have received an additional $43 billion in spending back from the federal government. That data indicated that California ranked 43 in terms of getting back what it paid in federal taxes.
Unfortunately there is no way to compare, dollar for dollar, how much a state gets from the federal government and how much the state pays in federal taxes for most tax years. The 2005 analysis mentioned above appears to be based on the most recent detailed tax data that exists. This is the best data available to date. Estimating the situation for other years is the best that can be done. The RPCA has looked into the situation for 2010, the most recent year with sufficient data that we are aware of for a similar analysis and estimate.
IRS data for 2010 shows that gross payment to the IRS from California residents and businesses was $273.3 billion ($292.6 billion in 2012).[2] That was significantly more than payments from any other state. This is not surprising because California has the largest gross state product of any state, about $1.9 trillion in 2010 or about 13% of the U.S. GDP. The 2010 tax data, which is incomplete, indicates that California residents received from federal programs about $4,459 per person.[3] Based on a 2010 population of about 37.3 million[4], California received about $166.3 billion from the federal government in 2010. To account for an incomplete 2010 data set, one can assume that payments back to California in 2010 were 25% higher than $166.3 billion. In that case, California received $207.9 billion of the $273.3 billion that was paid in 2010. Obviously, if the 25% correction factor for incomplete data is in error, then the amount California received in 2010 would be adjusted up or down accordingly.
Assuming the 2010 estimate is accurate, California received from the federal government 76% of the proceeds it sent to Washington that year. That estimate is similar to the 78% return rate that the complete data set for 2005 showed. If the 2010 estimate is accurate, California subsidized spending outside the state by about $65.4 billion. The RPCA is unaware of more accurate or more recent data. As you know, many other states receive more in per capita federal spending than they contribute.[5] As far as the RPCA knows, there is no constitutional or legal requirement for California to be a perpetual donor state, so the situation is open to reassessment at any time without any constraint.
California has the largest, most dynamic and productive economy of any state. It also has the largest population. As you are no doubt aware, the state's infrastructure is in a state of serious disrepair and there are other pressing critical needs for maintaining California's dominant economic position. Urgent current spending needs to simply restore California's position could reach $1 trillion.[6] Based on assessment of our current situation, the RPCA believes that federal spending priorities need to be reoriented to attain at least a parity situation where California receives one dollar in federal spending in the state for each tax dollar it sends to Washington.
The RPCA cannot stress enough that California's contributions are critically important to the overall U.S. economy and the U.S. population as a whole. California is a major generator of new technology and innovation. That is the single most important means available to generate wealth and to defend our standard of living. California's economy is the 9th largest in the world, but its state business tax climate ranks about 48th from the top.[7] That disconnect, a hostile business tax environment coupled with staggering economic output, can only hint at the restrained dynamism of California's economic engine. Any drag on the capacity of California's economy to perform at maximal efficiency hurts overall U.S. GDP growth and that in turn, adds to federal fiscal stress. World-class infrastructure for California, including its education system, is critical to maintaining maximal economic efficiency.
Obviously, attaining tax parity would significantly improve California's business climate because revenues that businesses generate would result in tangible infrastructure improvements that should increase their competitiveness against global competitors. Many of those competitors do not play on a level field against our companies, so anything that the federal government can reasonably do to help is critical to the economic well-being of the entire U.S. Clearly, the U.S. has a vested interest in insuring that California's infrastructure, education system and general operations is world-class and fully funded. The question that must be asked is whether it makes economic or national security sense to continue to starve the single biggest economic engine in the U.S. economy in return for benefits that cannot be readily quantified.
Under current circumstances, California's generosity simply does not make economic sense. It is arguably unsustainable and damaging to the U.S. economy as a whole. Some information suggests that California has been a major subsidy donor for many years[5], and one can argue that is at least part of the reason for its infrastructure deterioration. California's once world-class infrastructure has been neglected for quite some time and it continues to degrade.[6] Under the circumstances, the RPCA believes that it is in the best interest of California and the U.S. to bring federal spending in California in line with what California sends to Washington. In short, the RPCA is asking for your support on the public record for spending priorities that return to California every tax dollar it sends to Washington. Reorientation of spending existing revenue streams will not increase the federal debt. Implementing this proposal therefore cannot be significantly objectionable on debt-related grounds.
Because of the complexity of budgeting and ongoing programs, the RPCA understands and is sensitive to the fact that attaining revenue and spending parity cannot be accomplished overnight. Federal budgets are complicated and shifting spending priorities need to be made with care. Nonetheless, current spending priorities endanger America's economic growth and its competitiveness. In turn, that endangers America's national security. Given the urgency and seriousness of California's deteriorating status, the RPCA believes that a shift to parity within 3-4 years is fair and reasonable. That is sufficient time to minimize undue disruption to current spending programs, while providing a real prospect of meaningful relief to California in a reasonable period of time.
Although recipient states initially may resist this change in spending priorities, the RPCA is confident that on reflection, all members of congress will agree that it is in the public's interest to support this reorientation effort. The general attitude in many states is fully in accord with the concept of self-reliance and limited government. For affected states, reduced reliance on California revenues would obviously be more than welcome because reorientation will clearly reduce their dependence on federal spending while increasing self-reliance. Those are the main political goals for a number states that now receive more in federal spending than they contribute. It is hard to imagine any degree of reasoned opposition from such states once these fundamental bedrock principles are made clear.
When California does well, the rest of America will also prosper. Moving toward tax and spending parity for California is clearly a win-win opportunity for all American stakeholders and the world at large. In turn, that efficiently serves the public interest.
The RPCA is asking for support for this critically important effort from all of California's senators and representatives, President Obama and key leaders in both houses of congress. The RPCA is formally asking all members of California's congressional delegation to initiate a cooperative bipartisan effort to begin the complex process of bringing California into a parity profile as soon as that can reasonably be done. The RPCA has every confidence that once this matter is brought to the attention of our members of congress, there will be unanimous agreement that this must be a high priority for California's elected representatives going forward. The RPCA is contacting Governor Brown, key congressional and state legislative leaders and businesses, key California politicians and other groups to ask them to go on the record to either express their support or to oppose this proposal. Based on increasing revenue inflow from reorientation, the RPCA will ask state leaders to reduce, when prudent, tax rates on California citizens and businesses.
You are of course very busy and the situation in congress is complicated and difficult. Despite the difficulties, I sincerely hope that this request for your support of this effort is accompanied by information and unbiased reasoning sufficient to convince you that this is a an important issue for California's citizens and its powerful economic engine. The links provided below should allow your office to begin to independently assess the situation and draw its own conclusions, which the RPCA is confident will mirror our own.
The proposed reorientation effort will require a sustained bipartisan effort, but the ultimate goal is more than worthwhile. I would very much appreciate hearing from you or your office in due course regarding your response to this request for your support and participation. Absent a response from you or your office, the RPCA can only (reluctantly) conclude that you feel that this effort is of insufficient importance for a sustained reorientation effort.
Thank you for your consideration. I appreciate your hard work on behalf of all Californians.
Sincerely,
Mark Kravis
Treasurer, Reform Party of California
Footnotes:
1. Tax Foundation 2005 analysis: http://taxfoundation.org/article/federal-spending-received-dollar-taxes-paid-state-2005.
2. Internal Revenue Service gross collections (before refunds) by type of tax and state are reported in the fiscal year IRS Data Book, Table 5 (http://www.irs.gov/uac/SOI-Tax-Stats-Gross-Collections,-by-Type-of-Tax-and-State,-Fiscal-Year-IRS-Data-Book-Table-5; http://nationalpriorities.org/en/interactive-data/database/mashups/bod5cq0ad4ntvrkr/). Gross and net collections at the national level are reported in the IRS Data Book, Table 1. All IRS data tables are at: http://www.irs.gov/uac/SOI-
3. http://nationalpriorities.org/en/interactive-data/database/mashups/ufz9e7raolmod39z/.
4. http://usatoday30.usatoday.com/news/nation/census/profile/CA.
5. http://en.wikipedia.org/wiki/Federal_taxation_and_spending_by_state.
6. http://www.ocregister.com/articles/infrastructure-380794-california-public.html; http://www.caeconomy.org/reporting/entry/california-infrastructure-grades-are-in-needs-improvement; http://www.allgov.com/usa/ca/news/where-is-the-money-going/local-road-infrastructure-crumbling-in-the-age-of-austerity-130306?news=847273.
7. http://taxfoundation.org/article/2014-state-business-tax-climate-index.
Representatives:
Letter Address
The Honorable Full Name
United States House of Representatives
Washington, DC 20515
or district office address
Salutation
Dear Mr. / Mrs. / Ms. Last Name:
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