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Michael Hiltzik: The "Collectinator," coming up empty

January 25, 2010 |  3:00 am

In Joseph Heller's Catch-22, there's a recurrent joke in which the protagonist Yossarian keeps being asked, "Suppose everybody thought the way you did?" To which he answers: "Then I'd be crazy to think any other way." (I am working from memory.)

As my Monday column observes, something of that nature seems to be the principle on which Gov. Arnold Schwarzenegger keeps insisting that California should get a positive return on its federal taxes. If every state felt that way, then California would be crazy to think differently. Except that then there wouldn't be a federal government. And although a few survivalists and libertarians might consider such a condition nirvana, most of the grown-ups among us would conclude that it wouldn't be so great. In any event, in the mathematical system in use here on Earth, it's not a sustainable policy.

The criticism of the Tax Foundation's federal balance of payments methodology I allude to in the column is as follows: The survey added the annual federal deficit to annual federal revenues, and treated the sum as the amount of tax paid by federal taxpayers in each state. This requires assuming that the deficit will be paid down by tax revenues in exactly the same proportion as the current spending budget.

Critics argue that this is invalid because no one knows how the federal deficit will be paid down, or when -- it might continue to be financed via borrowing, or it might be covered by tax revenues decades from now, when the proportion of taxes paid in each state could be very different from today's, or it might be covered by a tax currently unknown that's more regressive than the income tax. In any event, it tends to overestimate the proportion of taxes paid by residents of high-income states. The foundation, for its part, says it's a legitimate methodology, as it believes the assumption is valid that the deficit will be covered by a progressive income tax in the future.

The column starts below:

Our political leaders trot out new and more creative excuses for their failure to get the state’s fiscal house in order every day, but one hardy perennial was recently aired again by Gov. Arnold Schwarzenegger.

This is the notion that California is running a budget deficit because we pay more in federal taxes than we get back in federal spending.

Schwarzenegger and the legislative leaders pilgrimaged to Washington on this theme last week. The governor’s claim was that the state receives only 78 cents back for every dollar of federal tax we generate, so somehow we’re "subsidizing" the states that get more and incurring red ink in Sacramento in the process.

Whether his figure is even factually true is subject to debate. The number dates from 2005, and the formula behind it has been criticized for supposedly overestimating tax payments. (The Washington-based Tax Foundation, which produced the formula, defends its methodology.)

Last week, U.S. Sen. Barbara Boxer shot back that while California may indeed have been a “donor state” in the past, at the moment it’s a recipient state to the tune of about $1.45 in inflow for every dollar in federal taxes paid.

The real issue, however, is not the figure’s accuracy, but its relevance. Relevance to what, you ask? Well, relevance to anything.

Read the whole column.

-- Michael Hiltzik

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