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TAX POLICY

SOME FACTS ON (PERSONAL) TAXES, SPENDING AND BUSINESS FRIENDLY POLICIES
A Useful Primer
Last updated 2/17/04

This page was created in the backdrop of the 2003 California Governor Recall. It is an attempt to provide a lot of the facts that were unfortunately not part of the debate at that time. It is also an attempt to examine the rhetoric vs. reality on tax cuts and tax increases - especially the claims emanating from the GOP. I will cover federal taxes (and jobs) of course - but also cover issues surrounding taxes, spending and the economy/business climate relating to California (as of Nov 2003).

(You may have been redirected to this page from my previous page that looked at personal taxes from the viewpoint of the Bush administration's 2001 tax cuts.)

For California residents to understand where we are today in terms of tax burdens, it is instructive to start at a higher level (Federal) and work our way down. 

1. Some politicians claim that the top 5% or 20% (or whatever) of earners pay a huge percentage (and the bottom 20% or 5% pay a very small share) of the overall taxes and that therefore the tax system is unfair. Is that a meaningful argument? 
SHORT ANSWER: NO.   

A. I have highlighted in an earlier summary, an example from WyethWire that shows the misleading nature of this argument:

B. Let me explain the numbers game a little more using a hypothetical example of 15 tax payers. As shown in this file, if these 15 taxpayers are subject to a flat tax of 10%, the top 20% will pay ~82% of the total taxes. However, this is because they also earn the same ~82% of the overall income! In a flat tax situation, each person's share of the total income is also their share of total taxes paid. This is presumably one of the reasons that there are folks in the GOP like Steve Forbes who advocate a flat tax.  The bottom line is that simply citing the share of taxes one pays does not provide sufficient information to judge whether a person is unfairly taxed or not. 

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2. What about the argument that a flat tax is the only fair form of taxation? Is that reasonable?
SHORT ANSWER: Intuitively - NO. The tax each person pays must be weighed against the services that person obtains in return - so a blanket statement to that effect is flawed.

It is indisputable that while poor people benefit from taxpayer funded Government services, the rich also benefit significantly. This conclusion may be reached in different ways, but I will start with the most obvious one. 
With some exceptions (e.g., health-related services, protection from crime) the rich often benefit much more from Government services than the poor do. As I have indicated before, Level Gaze tells us some of the reasons:

One could go on and on. It is not quantum physics to figure out the vast number of Government bureaucracies and laws that exist to protect  and provide for citizens. The richer one is, the greater the cost of losing the wealth - thus, greater the need to ensure that the laws of the land are enforced well to protect the wealth. The richer one is, greater is the expectation of being able to have a clean, healthy environment, a good school district/schools, low crime, greater prosperity to preserve and grow the wealth. 

If one desires greater assurances of all of the above (and more), compared to what a poor person may be willing to live with, there is an explicit cost associated with that. There are basically two ways to pay for those benefits - privatize everything including air, water, schools, etc. or keep some of the most fundamental services in the hands of Government to lower the overall cost of those services (especially given that the joint "customer base" is much higher). The hallmark of good Government is the balance it strikes between bureaucracy and overall efficiency and it is in the public's hands to influence that by voting people into power who realize that taxation is never always bad and that spending is never always good.

I will concede that:
(a) My evidence is more circumstantial and qualitative than quantitative 
(b) It is also possible that there are some who are not rich who do not pay their fair share of taxes compared to the benefits they get

My point, though, is that on balance, without turning this into an essay on tax policy, I don't think it is unreasonable to imagine that that the rich may indeed have to pay a higher share of overall taxes than the not-so-rich or the poor because of the greater benefits (from a total $ standpoint) they may obtain from Government. In such a situation, one can also argue that those who pay a lower share of taxes than warranted by their income, benefit unfairly. This conclusion will become clearer subsequently. 

Let's start examining the issue of taxes by first looking at our federal taxes in comparison with other countries in the world.

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3. Does the United States have unfairly high federal tax rates today?
SHORT ANSWER: As much as each person may have their own definition of "unfair", the data does not support this conclusion.

A. With the 2003 tax cuts, Federal tax receipts in 2003 will fall to the lowest level as a function of GDP since 1959, as shown by CBPP (I've charted the data below). Note the sharp rise in the mid-to-late 1990s that was due to a stock-market boom that increased capital gains and overall income, especially amongst the rich. Note, as economist Paul Krugman points out that:

So, if you like the chart and would like to see it trend farther down, then vote for someone who is honest enough to argue that we should get rid of Medicare, Medicaid and Social Security for the most part - or gut discretionary programs in significant ways. As far as I am concerned, I am preparing for the eventuality that there will be NO Social Security, Medicare or Medicaid by the time I get to the age where I might qualify for it. This is a decision made out of pragmatic considerations, not necessarily for philosophical reasons. 

On the other hand, if you believe the trend does not make fiscal sense, then better perk up or else you will see the country move down the path described by Bush administration advisor Grover Norquist as follows:
Norquist in the Washington Post:  "...The Bush administration -- wisely -- has not proposed fundamental tax reform in a single piece of legislation. But the president has been taking deliberate steps toward such reform with each tax cut. There are five steps to a single-rate tax, which taxes income one time: Abolish the death tax, abolish the capital gains tax, expand IRAs so that all savings are tax-free, move to full expensing of business investment rather than long depreciation schedules and abolish the alternative minimum tax. Put a single rate on the new tax base and you have Steve Forbes and Dick Armey's flat tax. Each of the Bush tax cuts, past and proposed, moves us toward fundamental tax reform. The step-by-step annual tax cut avoids the problem that faced Bill and Hillary Clinton's too ambitious effort to nationalize health care in one gulp: It is easy to stop oversized reforms..."
OR
By former Ronald Reagan appointee and "supply-side" economist Bruce Bartlett as follows: "...When California's Proposition 13 came along in 1978, Kristol saw another way in which tax cutting was useful. By denying government its fuel, tax cuts forced politicians to cut spending. In this sense, supply-side economics echoed the thinking of conservative economist Milton Friedman, who wrote in a 1978 column that "the only effective way to restrain government spending is by limiting government's explicit tax revenue — just as a limited income is the only effective restraint on any individual's or family's spending."....Starving the beast and increasing incentives for work, saving and investment are still good reasons to cut taxes today..."

B. The CBPP has also shown that the Federal Tax Burden on most American families was at a > 2-decade low even in 2002, before the latest 2003 tax cuts. I showed a couple of charts from this study earlier.

C. Citizens for Tax Justice (CTJ) have also shown that back in 2001, the U.S. already had amongst the lowest federal taxes as a function of GDP, compared to most developed nations. Here is their chart.

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4. Do rich folks in the U.S. pay an unfair amount of Federal taxes?  
SHORT ANSWER: Again, "unfair" is a subjective word, but my fair conclusion based on available data is NO.
While some Conservatives bemoan how the rich pay too much in Federal taxes, the truth is that the rich pay higher taxes LARGELY because they have much higher incomes.  

Let's examine that statement more closely using a couple of pieces of data. 

If you want to skip the details and go straight to a summary with conclusions, you can do so by clicking here. 

I. Center for Budget and Policy Priorities: I will quote some key points from the CBPP report (which uses, among other things, recently released data by the non-partisan Congressional Budget Office (CBO)) - with bold text being my emphasis:

Some of the data from the CBPP report is shown below.

II. Institute for Taxation and Economic Policy (ITEP)/Citizens for Tax Justice (CTJ): This CTJ/ITEP report shows the evolving share of income paid in Federal taxes for the rest of the decade. One of the points the report highlights is that the federal tax share of the richest 1% (millionaires) would have been ~23%-24% for the rest of this decade without the Bush tax cuts - but that as a result of the tax cuts will drop to ~21-22%. You will also notice in this data that the share of federal taxes paid by the lowest 40% is barely changed due to the tax cuts - which means that the Bush tax cuts basically increase the share of federal taxes paid by those with average incomes ranging from say ~$50000 to ~$220000 (using the CBPP data above as a guide).

CONCLUSIONS

Let me first make some reasonable assumptions based on the above data that:
(a) The average income of the bottom 60% of income earners was less than $60,000 in 2003
(b) The average income of the next 20% (or fourth 20%) of income earners was less than $80,000 in 2003
(c) The average income of the top 20% minus top 1% of income earners was between $120,000 - $230,000 in 2003

Then:

A. As of 2003, the lower 80% of earners (with average incomes less than ~$80,000) are paying a slightly lower share in federal taxes compared to their share of pre-tax income. 
B. As of 2003, the top 20% minus the top 1% of earners (with average incomes between ~$120,000 to ~$230,000) are paying a slightly higher (~1.5%) share in federal taxes compared to their pre-tax income share. 
C. As of 2003, the top 1% of earners (with average incomes exceeding $1.3 million) are paying a moderately higher (~6.3%) share in federal taxes compared to their pre-tax income share.

Overall, the data shows that except millionaires, the vast majority of rich people in the United States are paying very little above their income share in federal taxes as of 2003. This is a very important point to note.    

Additionally:

D. The Bush 2001-2003 tax cuts decrease the share of income taxes paid by the top 1% by up to 2.5%. In doing so, it raises the share of taxes paid by the top 20% minus the top 1% by about 0.7%-1.4%. The net result is that after the Bush tax cuts the top 20% of earners will still have a federal tax share that is only slightly above their pre-tax income share.

Combined with the fact that the rich mostly pay a much lower share of their income on state and local taxes (covered below), that they are far less impacted by the effect of the huge Bush budget deficits (which acts like a massive tax of its own - as shown below), and that as I have stated earlier - they stand to benefit much more overall from Government -  it is fair to say that the rich are not at all taxed unfairly in the U.S., and that they are perhaps taxed less than fairly. This statement does not in any way mean that there are those amongst the poor that do not benefit unfairly. (My argument is a statistical one.)

Also note that, as Calpundit has pointed out, the effective tax rate for millionaires has been plummeting since the 1950s and is now just slightly higher than that for median income earners.

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5. Do rich people in the U.S. pay more than their fair share in local and state taxes? How about in California?
Short answer: NO. It's the other way around - poor people pay more.

In fact, it is sad that the question is even posed that way. A seminal study released recently by the Institute of Taxation and Economic Policy found that, based on 2002 income and state tax data, "...most state and local tax systems take a much greater share of income from middle-and low-income families than from the wealthy. That is, most state tax systems are regressive..." The study also found that, "...overall, changes in state and local taxes over the past decade have made state tax systems even more regressive..." (Note: Some Googling showed me that CalPundit covered this sometime back and also commented on the California situation here).

Here are some charts taken from the above ITEP study - they are largely self-explanatory and can be enlarged by clicking on them. In the tax charts at the top left and bottom left, focus on the shaded area behind the bars since that represents the real taxes after federal offsets. 

The overall conclusions in the context of California are:
(a) CA, while being amongst the least regressive tax states in the U.S., is still regressive
(b) The poor do pay more of their income in state and local taxes than do the rich in CA. 
(c) California's tax system is not significantly different than the national average, except that it is a bit more progressive.

ITEP charts

Notes: The authors of the above study note that the study’s scope is limited to non-elderly families (singles and couples, with and without children) because state tax systems often treat elderly families very differently from the vast majority of families. Additionally, they point out that the 2002 figures show the effects of 2002 state and local tax laws, at 2000 income levels (the latest year with complete state-by-state income information), indexed when necessary. The 1989 figures used for comparisons were computed at 1989 income levels. It is unclear to me if the 2000 income did or did not include capital gains income. Assuming that they did, the income may be slightly overweighted by using the 2002 tax rates - in general. However, with CA's overall state and local taxes having been relatively unchanged since 2000 (especially for the rich segment of the population), this should not impact the CA results significantly.

Overall Conclusion
Taken together, the federal, state and local tax data show that the taxes paid as a function of income provides no evidence that the rich are overtaxed or that the poor are undertaxed (relatively speaking). The data points, in my opinion, suggest that we need a more progressive tax system overall where the taxes on the poor are lowered at the state/local level and that on the richest 5%-10% (incomes above say ~$150,000) are raised slightly at State and Federal levels.

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6. Are California's taxes unreasonably high compared to the rest of the states?
Short answer: NO

To understand if taxes are high or not, one must compare the per capita taxes paid to per capita income earned. The rationale behind this is obvious - taxes paid are a function of the income (unless the tax codes use a flat tax rate)! Thus, if we look at California state taxes as a percentage of income, California ranked 18th in the U.S. in 2002, with a value of 6.9% - as shown by the Federation of Tax Administrators. According to the same data, this was slightly higher than the value of 6.1% for the United States as a whole (presumably total federal taxes paid per capita as a percentage of per capita income??) A review of the data also shows that the median value for all 50 states is 6.3%, and the average is 6.5%.

Additionally, Sam Zuckerman of the San Francisco Chronicle points out that CA ranked 19th on the same metric in 2000. CA's ranking gets higher if we exclude fees from what are formally known as taxes, because many states use fees to supplement their taxes - but this distinction is really a matter of convenience for State Governments unwilling to use the word "tax". Tom McClintock himself refers to the DMV fees as the "car tax". 

What is more important to note is that the CA rankings apparently do not include capital gains income from stock sales (for instance), which understates the income particularly in boom years. (ASIDE: In his article, Zuckerman also suggests that many businesses are not really concerned about the current corporate and property tax rates in California.)

A report of a recent study by Kenneth Rosen of the Haas School of Business at UC-Berkeley, had this to say (link via Calpundit):
"...Another myth concerns California's tax rate. When the burden of all state and local tax sources are pooled, says the report, California's tax rate does not particularly stand out. Among the ten largest states, California's total tax rate relative to gross state product is about in the middle, according to the authors.."

Thus, in my opinion, the value of 6.9% does not provide evidence that CA is ridiculously taxed compared to the rest of the country. And we say this without any consideration for the benefits that California residents enjoy due to the taxation, compared to states with lower tax/income ratios.

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7. Are California's state taxes high from a historical perspective? 
Short answer: NO

Peter Schrag points out the following in the Sacramento Bee (bold text is my emphasis):

Other comments (via Republicanliedetector.com):

ASIDE: Citizens for Tax Justice have shown how corporate income taxes in the U.S. are at multi-decade lows as a function of GDP. In CA too, they are also not at a rate that businesses complain about.

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8. Are California residents overall being unfairly taxed (rich and poor) because our tax dollars subsidize residents in other (often) GOP-leaning states through the federal taxes we pay? 
Short answer: YES.

Republicans in California love to bemoan the loss of income to state taxes, but it is interesting that they put up no fight against the distribution of a significant chunk of the federal tax dollars paid by Californians to other states. 

For the benefit of the reader I reproduce some information relevant to California here:
1. CA received $0.86 in federal funds for every $1 it paid in federal taxes - in the year 2000.
2. CA received $0.76 in federal funds for every $1 it paid in federal taxes - in the year 2002.

I covered this phenomenon at some length in a separate analysis earlier this year, showing clearly that:
(a) the GOP has effectively used (intentionally or unintentionally) federal taxes from economically stronger (often Democratic) states and spent that money in its own backyard (economically weaker - often Republican - states). This is a tax-and-spend approach.
(b) Based on per capita GSP as a measure, GOP states were economically weaker in 1999 than Dem states. (It would not be surprising if this trend is true today as well). High GSP/capita states are more or less subsidizing low GSP/capita states through their federal tax dollars.

A couple of charts to illustrate our points.

Analysis of the federal tax money transfer from some states to others has also been done and confirmed by others.
(A) Angry Bear: Angry Bear, an economist, finds that states that voted for Al Gore in 2000 (so-called Blue States) on average got $0.87 back in 2002 for every dollar they paid out in Federal taxes; on the other hand, states that voted for George Bush got $1.12 in 2002 for every dollar they paid in Federal taxes. Thus, Angry Bear says, "...the states that rail most against the federal government also get back more from the federal government than they pay...". 
Angry Bear's chart showing the above results is here, and here he argues briefly why liberalism is associated with better economic growth. He has also points out that even though Blue and Red states have roughly the same population, Blue states have significantly higher median income - they earn essentially $900B in extra income overall.
(B) Uggabugga has a nice graphical representation of the tax/federal funds distribution on a U.S. map.
(C) Calpundit has his own U.S. map as well - also worth a look. Also see his follow-up comments here.

The question then is - why are the CA GOP folks not berating their GOP counterparts in Washington for siphoning away CA's tax dollars to other states? For me to give them a modicum of credibility, I would like to see that happen.

Note: The Tax Foundation has sometimes made misleading or false conclusions using available data. Indeed, their presentation of CA state tax data is itself misleading and agenda driven. Nevertheless, they have usually erred on the side of claiming we are too highly taxed and in the context of the federal funding vs. taxation data above, I have not seen their data challenged so far (and it appears to be the usually cited reference for this kind of data). 

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9. Do CA residents effectively get shafted in the future because of the Bush budget deficits associated with his giant tax cuts?
SHORT ANSWER: Effectively YES. By about ~$9700 per person (~$39000 per family of four) if we only consider an optimistic assessment of the 2002-2007 deficit of ~$3.8 trillion

The above statistics comes from a study by the Citizens for Tax Justice. Here is how it breaks down (snapshot from CTJ report is shown below).

In other words, 
- CA is subject to an additional debt of $342.5 billion over 2002-2007 from the Bush budget deficit
- On average, this translates to a debt of around $9700/person and around ~39000/family-of-four in California, which will have to be paid out in the future is some form - either through a cut in services or by tax hikes.

It does not take a great deal of reasoning to conclude that all except the richest CA residents will have no net benefit from the Bush tax cuts, since the imposed debt per person (which will have to be paid out in some form in the future with interest) will overwhelm any tax cuts they receive. Note that balancing the federal budget without tax increases would mean service cuts in the future. The services that are cut will determine which portion of the population gets impacted the most. Cuts to Medicare, Medicaid or Social Security would likely impact the poorest segment the most.

We now go to an obvious policy question (#10).

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10. Are tax cuts all the time the best solution for economic or job growth? Are tax increases necessarily detrimental to economic or job growth?
SHORT ANSWER: NO! 

At the Federal level, there is now enough history from the last couple of decades to show that pure tax cutting is detrimental to the economy and job growth. Ronald Reagan (GOP) cut taxes, but raised taxes shortly thereafter. George Bush Sr. (GOP) had to raise taxes despite a pledge not to do so. Clinton cut some taxes but raised taxes more on the richest. Clinton's actions were followed by the longest economic boom in U.S. history, contrary to GOP doomsayers' predictions. The overall message though is that tax cuts or tax increases should be used judiciously and based on a good understanding of economic policy - not based on partisan ideology or political agendas. As Paul Krugman summarizes aptly: "...Even in the short run, the right question to ask isn't whether the tax cuts were better than nothing; they probably were. The right question is whether some other economic-stimulus plan could have achieved better results at a lower budget cost. And it is hard to deny that, on a jobs-per-dollar basis, the Bush tax cuts have been extremely ineffective. According to the Congressional Budget Office, half of this year's $400 billion budget deficit is due to Bush tax cuts. Now $200 billion is a lot of money; it is equivalent to the salaries of four million average workers. Even the administration doesn't claim its policies have created four million jobs. Surely some other policy -- aid to state and local governments, tax breaks for the poor and middle class rather than the rich, maybe even W.P.A.-style public works -- would have been more successful at getting the country back to work. Meanwhile, the tax cuts are designed to remain in place even after the economy has recovered. Where will they leave us? Here's the basic fact: partly, though not entirely, as a result of the tax cuts of the last three years, the government of the United States faces a fundamental fiscal shortfall. That is, the revenue it collects falls well short of the sums it needs to pay for existing programs. Even the U.S. government must, eventually, pay its bills, so something will have to give..."

Let's examine the most famous of the tax cutters a little more - President Ronald Reagan. The CBPP issued a report in early 2001 on the 2001 Bush tax cuts saying how they were only slightly smaller than the effective tax cuts under Reagan (as we know, Bush Jr. cut taxes further in 2002 and 2003). CBPP pointed out that back in Reagan's time, "...Before 1985, frequent tax cuts were necessary just to prevent large tax increases over time because the tax code was not indexed to inflation...The lack of indexing in the tax code before 1985 produced an automatic upward creep in tax collections over time. Policymakers cut taxes every few years to offset much or all of the tax increases that otherwise would occur, but the Congressional Budget Office was forced in constructing its revenue baseline to assume that taxes would rise over time relative to the size of the economy, because the baseline reflected current law...The size of the Reagan tax cut was measured by using this inflated baseline, which increased the apparent size of the tax cut. As the Congressional Budget Office noted when the Reagan tax cut was first proposed, "a large share of the Administration’s proposed tax cut would simply offset these tax increases."...Since 1985, the tax code has been indexed to inflation, and the baseline consequently no longer includes large, automatic tax increases over time...The 1981 tax cut was excessive, a conclusion to which David Stockman and others in the Reagan administration came not long after its enactment. As a result, the Reagan administration worked to scale back the tax cut one year later, in the Tax Equity and Fiscal Responsibility Act of 1982..." CBPP also points out that "...The Reagan tax cut occurred when marginal tax rates were higher than today. A reduction in marginal tax rates is therefore less critical today than in 1981. The Reagan tax cut was a major factor in generating large budget deficits, from which the nation took more than decade and a half to recover."

Some good words need to be said about George H. W. Bush (Sr.). He put the interest of the country before politics (by willing to break ranks with his conservative base) and institute a tax increase in 1990 to offset massive budget deficits.  

Another comment. My own position on taxes is that tax policy should be part of an overall sound fiscal policy. Tax cuts or tax increases should be used judiciously depending on the situation and the state of the economy. I don't believe tax cuts are bad per se or that tax increases are bad per se.

Back to the present. George Bush Jr. kept cutting taxes and what do we have so far? I quote EPINET here:

• Since the recovery officially began in November 2001, payrolls have fallen by 1.1 million, making this the worst recovery in terms of employment growth since the BLS began tracking monthly data in 1939.  Current labor market conditions have been compared to the last jobless recovery in the early 1990s, but by this point—21 months into the new expansion—payrolls in that recovery were up by 876,000.
• Over the past year, payrolls have decreased by 463,000, with August marking the 25th consecutive month of year-over-year declines.  This is the longest stretch of 12-month declines since the mid-1940s.  The figure below illustrates just how anomalous the lack of job growth in this recovery has been. Compared to the 1.1 million jobs lost over this recovery, the average of all past recoveries lasting at least 21 months was a net job gain of 3.8 million.

A more systematic review of job creation by the Bush II administration in comparison to its own projections, as well as past recessions, is available at this other webpage. That review also highlights what the main reason for the poor job creation is - weaker demand than in past recoveries. 

Do I even need to mention how the budget deficits are shaping up? Well yes! They are shaping up rather poorly - and in large part because of the tax cuts.

An excellent bipartisan CED/Concord Coalition/CBPP report tells us what the real story is here. The charts below are from this report, and the story they tell is obvious.

The burgeoning deficits significantly limit the choices future Governments have to manage the economic realities in the U.S. 

As you will see later in this page, Republican Governors of California raised taxes at one time (especially Ronald Reagan).

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In the previous section, I've examined taxation and shown that the rich are not overtaxed in the U.S., that rich Californians are under-taxed at the state and local level, and that tax cuts alone as a panacea to fix problems has had an unpleasant history in the past 2 decades, and that higher taxes on the rich has a fairly good history of producing economic growth and higher income for all - especially the rich and super-rich. Let's look at the spending angle now and point out some facts that seem inconvenient to conservatives. 

11. Is California in the mess that it is in because of runaway spending in the 1990s/early 2000s?
SHORT ANSWER: NOT REALLY. While it is true that spending shot up in 2000 and is part of the problem we see today, it has not been ridiculous overall during this period.

It is worth clarifying that my intent in this section is to rebut notions that CA has been overspending like crazy. The data I show here do not argue in any way that there are no spending excesses in CA. Obviously, no one can make such a statement. All I am pointing out is that the spending is not as terrible as it is made out to be. I will also add that I will be happy to see efforts to review spending levels and see if they can be made more reasonable by cutting waste where it exists. 

I. The nonpartisan California Budget Project reports that in fact California's overall spending growth in the 1990s was about the lowest in decades!

It is very important to note what CBP points out (bold text is my emphasis):

Here are some charts from the CBP study (click to enlarge)

II. Calpundit argues that the ratio of spending to GSP (Gross State Product) increased upwards in 2000 and that this is part of the reason we face a problem today in CA. Earlier I had written here that I was unsure if his data had been adequately normalized and based on email exchanges Kevin has clarified that it indeed is. I also took a second look at the California Budget Project data and it is true that spending peaked in 2000-2001 before falling subsequently. Thus, it is undeniable that part of the problem CA faces is due to that over-spending in 2000 which was partly based on the assumption of higher tax revenue collections which did not materialize due to the stock market meltdown. At the same time, taken as a whole - spending during Gray Davis' watch was not as bad as it is made out to be - in the sense that cuts were subsequently enforced which the public has found so unpalatable that they decided to elect a Governor who promises to cut spending some more.

Additionally, the inflation-adjusted historical data is interesting to review (via Republicanliedetector.com):
"Every Governor since 1959 – and that includes Pete Wilson and Ronald Reagan – had at least one term with spending growth greater than the growth under Governor Davis. As the California Budget Project has noted, “Spending grew much faster in prior decades” (“Did California Spend its Way into the Current Fiscal Crisis?”, May 2003). 
Spending growth adjusted for inflation:
Jerry Brown 1st term: 95% (because of Prop. 13)
Reagan 2nd term: 72%
Reagan 1st term: 61%
Pat Brown 2nd term: 60%
Pat Brown 1st term: 51%
Deukmejian 1st term: 45%
Deukmejian 2nd term: 28%
Wilson 2nd term: 38%
Jerry Brown 2nd term: 34%
Davis 1st term: 35%
Davis 2nd term: -9%
Governor Davis and the Legislature spent what was needed to fix the indifference that grew during the 16 years of Republican Governors. According to the California Budget Project, “Much of the spending growth that occurred in the late 1990s represented a restoration of cuts made during the budget crises of the early 1990s.”..."

III. CBPP has also reported that the bulk of the fiscal problems in the states today arose not from runaway spending in the 90s but rather revenue losses due to lower tax collections.  I pointed this out earlier in a separate section. Indeed their conclusions are very similar to CBPs - and they extend their conclusions to cover most states:

Here is a chart from the CBPP study (decades/years in the X-axis)

III. Peter Schrag comments in the Sacramento Bee on education spending (with bold text being my emphasis):

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12. Are Republican-controlled legislatures better than Democrat-controlled legislatures in curbing spending?
SHORT ANSWER: NO

This USA Today report found the following (bold text is my emphasis):

Let's look at what has been happening at the National level since the GOP largely took control of Congress during Clinton's Presidency. 

Calpundit has just published a note referring to the House Appropriations Committee Minority Democrats chart and a related Washington Post chart. He summarizes the trend as follows:

Here is an accompanying chart from the Washington Post:

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I'll now cover the other key aspect that conservatives attack - California's business climate. 

13. Is California's business climate so terrible that it has resulted in massive job losses? Has it led to massive net jobs lost to other states?
SHORT ANSWER: NOT REALLY.

At the outset, I would like to point out that this section is not a defense of the current state of California's economy. Clearly, the economy is not good and clearly, jobs are being lost. There are no ways about it. What I am trying to rebut is arguments that CA is somehow a pariah when it comes to business-friendliness. I point out that CA is not as bad as it is made out to be, not that things cannot be improved from where they are.

I. California Budget Project has some useful facts (bold text is my emphasis):

II. California Budget Project also mentions how California has been better to low-income workers than most states in terms of the minimum wage

III. Margaret Steen in the San Jose Mercury News has this to say (bold text is my emphasis) about the number of business leaving California or NOT:

IV. Marla Dickerson in the Los Angeles Times (via SMC!) writes (bold text is my emphasis) the following about income and jobs

V. MaxSpeak has a chart on the jobs figure as well, via Calpundit.

VI. Here's another dimension to the debate - WORKER PRODUCTIVITY - that is largely missing in action, from David A. Sylvester in the San Jose Mercury News (bold text is my emphasis):

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14. Does California have a "big government" problem? 
SHORT ANSWER: NO.

A study by the Kenneth Rosen at the Haas School of Business at UC-Berkeley has this to say [bold text is my emphasis and link via Calpundit]:

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15. Is California's growth rate suffering compared to the rest of the country?
SHORT ANSWER: NO.

I. Maxspeak (an economist) has some useful facts (bold text is my emphasis) - link via Calpundit:

Before all the stupidity about the travails of the California economy reach too high a level, we might consider some actual facts. Below are plotted annual growth rates of the U.S. and California economies in terms of Gross State Product. To keep things as simple as possible, I've not deflated the numbers. For my point it is not necessary. The red line is the U.S. growth rate, the blue for California. You can see that California grew faster than the U.S. until 1991. Then it grew somewhat slower for about four years, then notably faster for another four, then it joined the U.S. in taking a dive. The national economic slowdown is not a creature of California's state budget... At any rate, the California economy usually does better than the U.S. as a whole. There is no negative, long-term secular trend of business decay. You can count business firms all you like. GSP reflects total earnings and output. The number of firms don't mean squat...

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16. Is California a pariah because tax or fee increases are being considered? Is California alone in dealing with tough budget deficits?
SHORT ANSWER: NO.

I. Let's see what CBPP has to say )bold text is my emphasis):

States have already begun raising taxes in 2003, and more are likely to follow suit.  Governors in Connecticut, Massachusetts, and Wyoming have signed tax increases into law that will contribute to balancing those states’ budgets for the 2003 and 2004 fiscal years.  Another 22 governors — out of the 48 governors who have submitted budget proposals for the upcoming fiscal year — have proposed tax increases in their budget proposals that are being considered this spring. The enacted increases and proposals in those 25 states include increases in income taxes, sales taxes, corporate taxes, and/or excise taxes, and they include both raising rates and broadening tax bases.  The 25 governors proposing or enacting tax increases include Republicans and Democrats in all regions of the country.  In addition to Massachusetts, Connecticut, and Wyoming, the states include Alaska, Arkansas, California, Delaware, Georgia, Idaho, Iowa, Kentucky, Maine, Maryland, Michigan, Missouri, Nebraska, New Jersey, Nevada, New York, North Dakota, Ohio, Pennsylvania, Rhode Island, South Dakota, and West Virginia. The enacted and proposed tax increases in those states would raise close to $18 billion in the next fiscal year.  That amount exceeds the revenue currently being raised by the total tax increases enacted in 2001 and 2002 combined. If other types of revenue-increasing measures — such as fee increases, postponements of previously enacted tax increases, expansions of gambling, and others — are included, then at least 38 of the 48 governors’ budgets submitted so far rely on some revenue actions to help achieve balance in state budgets.  States whose governors have proposed revenue-raising measures other than tax increases to help balance their budgets include Arizona, Florida, Hawaii, Indiana, Kansas, Minnesota, New Mexico, North Carolina, Oklahoma, Oregon, Utah, Virginia, and Wisconsin. Why Are Governors Proposing Tax Increases? In 2001 and 2002, state revenue collections declined sharply as a result of the recession and the sharply lower stock market.  Although the revenue decline is expected to level off in most states this year, revenues remain below the level necessary to support state services.  Total state and local tax collections have fallen to 10.6 percent of personal income, the lowest level in nearly 20 years.  (See Figure 1.)  Meanwhile, the costs of providing public services have remained constant and in many areas have risen due to inflation, rising health care costs, increasing numbers of people seeking public services, and other factors. As a result, states face budget shortfalls totaling $70 billion to $85 billion for the coming fiscal year, an average of 14.5 percent to 18 percent of general fund spending... The proposals of governors to date suggest that state tax increases in 2003 could be the largest since the early 1990s...Despite their magnitude, the tax increases enacted for FY 2003, even when combined with the tax increases for FY 2004 proposed by governors, still fall short of the tax cuts that states enacted in the mid- and late 1990s.  Those tax cuts are costing states more than $40 billion per year.  The governors’ tax increase proposals to date, combined with the tax increases enacted last year, total only about $23 billion...

Also see this collection of articles at CBPP.

II. Let's see what the facts are on the "car tax" approach to managing the deficit - something that California Republicans loves to hate (via Republicanliedetector.com)

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17. An ASIDE: Is it true that Republican Presidents are better for the U.S. economy than Democratic Presidents?
SHORT ANSWER: NO! Broadly speaking, the opposite is true.

I've shown this earlier by looking at a large number of metrics - take a look. 

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EPILOGUE