Nov 11 2013

Press Release: RPCA asks for increased federal spending in California


Re: Reform Party of California seeks initiative for increased federal spending for California

CONTACT: Mark Kravis, Treasurer – Reform Party of California  kravishealth@earthlink.net  858-353-0499

The Reform Party of California (RPCA) is asking California’s members of congress to initiate a bipartisan effort to reorient federal spending toward California.[1] Information available to the RPCA suggests that California sends more than $60 billion/year to Washington than is returned to the state in federal spending.[2] Currently, there is a wide range of profiles among states with some receiving less in federal spending per dollar sent to Washington, while others receive more.

The goal of the proposed initiative, the California Parity Project (CPP), is to reorient federal spending toward California to attain parity. The reorientation would result in $1 of federal tax money spent in the state for each $1 received from the state. Reoriented spending under the CPP initiative would address, among other things, critical unmet infrastructure spending needs, thereby bolstering California’s economy and reducing its stubbornly high unemployment rate, which currently stands at 8.9%.[3]

Because increased federal spending is not needed, the CPP initiative is debt neutral. Instead, existing spending revenue streams would be shifted over time to attain parity for California. The CPP proposes the spending shift to be accomplished within 3-4 years to minimize undue disruption to existing spending programs.

According to Mark Kravis, the RPCA’s treasurer, “This initiative is sorely needed. California’s recovery from the recent recession has been very weak and that has limited the state’s capacity to deal with long-deferred infrastructure spending. California has the biggest state economy and about 1 in 8 Americans reside here, so it makes perfect economic sense to give the state the priority it deserves. When California prospers, the rest of America will too.”

The rationale supporting an initiative like the CPP is compelling for California and the U.S. economy as a whole. For 2013, California’s estimated gross state product is about $2.1 trillion or 13% of the U.S. GDP,[4] making the state the 9th largest economy in the world.[5] To maintain its edge in both innovation and economic activity, areas where California is a world leader, it is essential for the state to maintain world class infrastructure, including its educational system.

Unfortunately, the state’s infrastructure has been underfunded over the last 20-30 years. That decline impairs the state’s capacity to grow economically. In turn, that hinders overall U.S. GDP growth and contributes to California’s unacceptable 8.9% unemployment rate. Reversing the detrimental effects of neglected infrastructure investment could require up to $500 billion.[6] Given the magnitude of California’s needs, even $60 billion/year from a successful reorientation initiative will likely not be adequate in the short run. Nonetheless, the RPCA believes that the added revenue will result in tangible improvements in California and U.S. economic growth.

Another benefit from the CPP to California’s economy would be amelioration of California’s business tax environment, which ranks about 48th from the top among U.S. states.[7] The state’s huge economic output despite a hostile business tax environment only hints at the restrained dynamism of California’s economic engine. Increased infrastructure spending based on California’s tax revenues would tangibly improve the state’s business climate. Added revenue from a successful CPP initiative should allow some reduction of tax burdens on California’s businesses and potentially its citizens as well.

Any unnecessary 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. The entire U.S. has a vested interest in insuring that California’s infrastructure, education system and general operations is world-class and fully funded. The CPP presents a clear win-win opportunity for California and the U.S.


1. RPCA’s letter to California’s members of congress:

Re: Request for Support for Spending Priority Changes

Dear Senator/Representative :

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. 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 from the federal government. The 2005 data indicated that California ranked 43 in terms of getting back what it paid in federal taxes.

If 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. 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 obvious constraints.

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. 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. That disconnect, a hostile business tax environment coupled with it large economic output, can only hint at the restrained dynamism of California’s economic engine. Any unnecessary 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 America’s global competitors. Many of those competitors do not play on a level field against our companies, so anything that the federal government can reasonably and sustainably 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 years5, and one can argue that is at least part of the reason for infrastructure deterioration. California’s once world-class infrastructure has been neglected for quite some time and it continues to degrade. Under the circumstances, the RPCA believes that it is in the best interest of both 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 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 those affected states, reduced reliance on California revenues should be 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 or principled opposition from legislators from such states once these 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 stakeholders. An influx of an additional $40-$60 billion per year into California from spending reorientation would reduce the state’s persistently high unemployment rate while increasing the state’s long-term economic competitiveness.

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 is confident 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 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, if they are so inclined, to oppose this proposal on the record. Based on increasing revenue inflow, the RPCA will ask state leaders to reduce, as soon as is 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 believe that this request for your support of this effort is accompanied by information and unbiased reasoning sufficient for you to initiate your own independent inquiries. You will no doubt want to independently determine if this is a sufficiently important issue to merit your public support. The links provided below will allow your office to begin to independently assess the situation and draw independent conclusions. The RPCA is confident that an unbiased assessment will lead to conclusions that mirror our own.

The proposed reorientation effort will require a sustained bipartisan effort, but the ultimate goal is more than worthwhile. There really is, or should be, nothing partisan about this among members of California’s congressional delegation. 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) surmise that you have concluded that this effort is of insufficient importance for a sustained reorientation effort.

Thank you for your consideration. I appreciate your efforts on behalf of all Californians.

Mark Kravis
Treasurer, Reform Party of California

2. Because the federal government does not compile this information, independent estimates are required. A detailed study by the Tax Foundation, an independent, non-partisan tax policy advocacy group, reported that for 2005, California ranked 43rd in terms of federal spending in the state per dollar paid (http://taxfoundation.org/article/federal-spending-received-dollar-taxes-paid-state-2005). The analysis indicated that California received back $0.78 for each $1.00. That amounted to a shortfall of about $43 billion for 2005.

Data for 2010 suggests that the shortfall is even larger than the 2005 data revealed. IRS data for 2010 shows that gross payment to the IRS from California residents and businesses was $273.3 billion. 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-Tax-Stats-IRS-Data-Book.

California residents received from federal programs about $4,459 per person (http://nationalpriorities.org/en/interactive-data/database/mashups/ufz9e7raolmod39z/). With a 2010 population of about 37.3 million (http://usatoday30.usatoday.com/news/nation/census/profile/CA), one can estimate that California received about $166.3 billion from the federal government in 2010. To account for the incompleteness of the 2010 data set, the RPCA assumed that payments back to California in 2010 were 25% higher than the $166.3 billion estimate, in which case California received back $207.9 billion of the $273.3 billion it paid in 2010. That amounts to a $65 billion shortfall for 2010. Assuming the RPCA’s 2010 estimate is accurate, California received back from the federal government 76% of the proceeds it sent to Washington. That estimate is similar to the 78% return rate that the more complete 2005 data set showed.

3. Bureau of Labor Statistics data for California’s unemployment rate: http://www.bls.gov/web/laus/laumstrk.htm.

4. California State gross product data: http://www.usgovernmentrevenue.com/compare_state_revenue_2013dZ0g; http://en.wikipedia.org/wiki/List_of_U.S._states_by_GDP.

5. State economy size comparison: http://blogs.sacbee.com/capitolalertlatest/2012/01/california-slips-to-number-9-in-world-economic-rankings.html.

6. California’s neglected infrastructure: 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. California business tax climate: http://taxfoundation.org/article/2014-state-business-tax-climate-index.