From the Los Angeles Times:
By MELANIE MASON
While Democrat Gavin Newsom and Republican John Cox campaign on their visions for the state’s next chapter, it’s the financial success of residents in Palo Alto’s 94301 and a handful of other affluent ZIP Codes that will determine whether promises to build more houses, overhaul healthcare or invest in schools can actually be kept.
We are very dependent on millionaires. If the millionaires get a cold, we all die of the flu.
— Mike Genest, former budget director for Gov. Arnold Schwarzenegger.
The state scooped up just under $1 billion from nearly 9,000 tax returns filed in 94301 in 2016 — more revenue than from any other ZIP Code in California.
Much is made of the widening gap between California’s very rich and very poor. But just as significant is how the fate of the latter depends heavily on the former.
For example, while the 94301 zip code (population 17,000) in Silicon Valley’s Palo Alto paid $934 million in California state income taxes, the 93215 zip code in rural Delano County (population 56,000), where Cesar Chavez launched his grape boycott in the 1960s, paid $12 million.
Various booms and busts in Silicon Valley (and to a lesser extent in Hollywood) have driven California income tax revenue up and down. Lately it’s been up, up, up.
Supply side economics isn’t that appealing in Silicon Valley or Hollywood, since the payoff from hitting it big is so huge that marginal tax rates are a minor question. It’s a little noticed paradox that Winner Take All capitalism, which is currently centered in Palo Alto, undermines the logic of supply side economics, which appeals more when and where the opportunities for getting rich are more limited and thus entrepreneurs are more concerned about their costs (such as taxes) more carefully.
It’s not a coincidence that the intellectual foundations of supply side economics were laid during the low profit 1970s.
So this is a major issue for those thinking about splitting up California. The rich liberal parts of the state subsidize a big chunk of government expenditures in the poor parts of the state. On the other hand, they also impose high cost policies on less desirable parts of the state that, leaving aside the tax subsidy question, would do better under a Texas-style low cost system. (A similar argument has been made about the state of New York: the vast tax revenues generated by Wall Street pays for a lot of stuff in Upstate New York, but policies that make sense for NYC keep Upstate too expensive relative to the limited returns that can be generated there.)