This commentary was originally featured in Forbes on September 22, 2017.
Once again, California has the highest poverty rate in the nation, according to a new U.S. Census Bureau report.
A little more than 1 in 5 Californians—20.4 percent—live in poverty. The national average is 14.7 percent according to the Supplemental Poverty Measure which accounts for regional cost-of-living differences, out-of-pocket medical expenses and other items, unlike the older Official Poverty Measure.
How can it be that a state with abundant natural resources, beautiful coastline, and mild climate, complemented by both Silicon Valley and Hollywood can have the nation’s highest poverty rate?
Having served in the California legislature for six years representing almost a half-million people, I suggest some answers to this serious public policy question in a new report entitled: "Re-examining Poverty Rates – A First Step in Reforming Anti-Poverty Programs."
California has a generous safety net. Some 1 of 3 Americans who receive federally qualified welfare payments—Temporary Assistance for Needy Families (TANF)—live in California. California also expanded Medicaid (called Medi-Cal there) with 13.5 million Californians, about 1 in 3, enrolled in the federal health insurance program.
To pay for these generous benefits, California has the nation’s highest marginal income tax rate, 13.3 percent, and, including local taxes, has the 6th-highest overall tax burden in the nation as a share of state income, according to the Tax Foundation. Texas' tax burden ranks 46th as a share of state income. Comparatively, California taxes about 45 percent more income than Texas.
There are four states with minority-majority populations: California, Texas, New Mexico and Hawaii. Generally, more diverse populations manifest higher poverty rates.
Only 52.5 percent of California residents are white, non-Hispanic or Asian—the two large racial or ethnic groups with above average income in America—as compared to 66 percent nationwide.
However, in Texas, only 47.4 percent of the population is white, non-Hispanic or Asian. Using this metric, demographers would likely predict that Texas, not California, should have a higher poverty rate. However, Texas’ average supplemental poverty rate from 2014 to 2016 was 14.7 percent, the same as the national average.
California’s 20.4 percent poverty rate is 38.8 percent higher than both the national average and Texas rate of 14.7 percent. Clearly, poverty reduction policy in California is badly broken.
In retort, advocates for a larger welfare state are quick to point out that the percentage of Californians without health insurance is lower than in Texas.
What good is health insurance if you can’t see a doctor?
Earlier this year, a group of Medi-Cal beneficiaries sued California because their government “health insurance” didn’t deliver on its promises. California lawmakers have aggressively expanded Medi-Cal eligibility. In so doing, they stretched the program so far that something had to give and that something is reimbursements to doctors. California ranks 48th in the nation on Medicaid payments to doctors. As a result, most California doctors are reluctant to see Medi-Cal patients who must wait six to nine months for medical care. Because Californians covered under Medi-Cal can’t see a doctor, many use emergency rooms—something Medicaid expansion was supposed to prevent. Some covered by Medi-Cal “insurance” get so fed up with the long waits for “free” medical care that they pay cash to see a doctor in Mexico.
Faced with a broken health insurance system, California lawmakers are seeking to double down, calling for a single payer healthcare system. Among the plan’s challenges are its cost: $400 billion, double the current $200 billion spent by federal, state and local government on healthcare in California. California collects about $110 billion in state income and sales taxes.
As P.J. O’Rourke observed, “If you think health care is expensive now, wait until you see what it costs when it’s free.”
Jobs and Property Rights
So, why does Texas proportionately have far fewer poor than does California? Two big factors come into play: where California has welfare, Texas has work; and California’s burdensome roadblocks to development inflate housing costs, eating up a huge portion of the paycheck for all but the Golden State’s wealthiest.
California lawmakers know they have an affordable housing problem. But, their proposals to fix it have been tried and failed: bigger government, more borrowing, and higher taxes to pay for more government housing while telling home builders what to build instead of allowing the market to decide.
Rather than pass more mandates, elected officials should strengthen property rights in California. After New Jersey and Maryland, California is third least-free state when it comes to housing regulation. Development fees, global warming carbon dioxide concerns, restrictive zoning, and other barriers act to create a massive artificial scarcity in housing that pushes the cost of a home beyond reach for the middle class while making rent crushingly expensive for the poor.
Sadly, some legislators are warming up once again to rent control, in response to growing public frustration with high housing costs — ironically made worse by the same lawmakers' policies. If enacted, this will end in disaster.
On the jobs front, California’s environmental and energy policies have accelerated the shift of manufacturing and other jobs out of the state or out of the country to China. When combined with generous welfare payments this has resulted in fewer adults participating in the workforce in California than the national average. If Californians 16 and older worked at the same rate as they do in Texas, 550,000 more Californians would be earning a paycheck and many of those would be self-sufficient instead of government dependent.
The surest path out of poverty and to the middle class is a job and an affordable place to live. California fails at this basic test for its residents while Texas succeeds.