California can fund California

Most arguments about California and federal money are arguments about fairness. This one is not. It is about capacity, which is a narrower question and an answerable one.

1. The right question

Not: does California get a good deal from Washington? That is a question about fairness and it has no fixed answer.

Instead: could Californians, at today’s tax levels, fund a California government at today’s service levels? That is arithmetic. It has an answer, and the answer can be established by people with subpoena power rather than asserted by either side.

2. What the balance of payments shows

In eight of the nine years from 2015 to 2023, federal taxes paid by Californians and California businesses exceeded everything Washington spent in California.

In 2022 the gap was $101 billion in a single year. No other state contributes on that scale, and the pattern is consistent rather than a one-year artifact.

The relevance is not that California is owed something. It is that the revenue base required to run California already exists and is already being collected from Californians. That is the capacity question, and on the revenue side it is answered.

California Budget & Policy Center, analyzing Rockefeller Institute of Government balance of payments data, federal fiscal years 2015 to 2023, excluding temporary COVID spending.

3. The accounting illusion

The standard counter-argument cites a figure for what California “gets back” per dollar sent. Those figures are real, and they are measuring something other than what they appear to measure.

Every one of them counts two things that are not a subsidy from other states:

• Federal money that was borrowed rather than collected. Washington spends more than it takes in, every year. The borrowed portion shows up as spending in every state and was contributed by none of them.
• Californians’ own Social Security and Medicare benefits. These are earned entitlements cycling home to the people who paid for them across a working life. Counting a retiree’s own pension as federal largesse to California is an accounting choice, not an economic fact.

4. Borrowed money is not a transfer

This deserves its own line because it is the part most often missed.

If the federal government runs a deficit, then in aggregate it spends more in the states than it collects from them. Deficit spending makes the average state look like a net recipient. That tells you the government borrows; it does not tell you which states subsidize which.

Strip out the borrowing and the returning earned benefits, and the direction of dependency in California’s case is not the one the argument assumes.

5. Why the contribution is so large

The gap is not an accident of one year’s accounting, and understanding why it persists matters more than the headline figure.

Federal income tax is steeply progressive, and California holds a disproportionate share of the country’s highest earners, its technology and entertainment sectors, and the capital gains those produce. A progressive national tax applied to a state with that income distribution generates a contribution well above the state’s population share, structurally and every year.

Two consequences follow, and the second cuts against us.

The first is that the contribution is durable rather than cyclical. It does not depend on which party holds Washington or on any single year’s budget.

The second is that revenue built on high incomes and capital gains is volatile. California’s own state budget swings hard with capital gains receipts, and an independent California would inherit that volatility without the federal government’s capacity to run deficits in its own currency. That is a genuine fiscal design problem, and it is one of the specific things a commission would have to model rather than assert.

6. What California would have to fund itself

An independent California would also carry costs this argument does not settle.

An independent California would have to fund functions Washington currently performs: defense, border administration, a diplomatic service, currency and central banking arrangements, federal courts, and some share of benefits administration. Several of those it has never had to price. There would also be transition costs, a negotiation over the national debt, and a period of uncertainty with real economic consequences.

No official body has ever established those figures, because none has been asked to. That is precisely why the Resolution puts economic implications, currency, debt and taxation to a commission rather than to a press release. What the commission would examine.

7. What the figures settle

The revenue exists, it is already collected from Californians, and the claim that California could not afford itself has the economics backward.

What California would spend is the other half of that ledger, and nobody has costed it yet. The commission is charged with doing so. What the commission would examine.