Posted on 05/15/2012 6:29:21 AM PDT by SeekAndFind
California is in desperate fiscal straits, facing a nearly unbridgeable deficit of $16 billion, the result of spending that continues to exceed estimates and tax revenue that fails to meet them. Those in better-governed states who are tempted to sniff at the Golden State’s comeuppance, however, should bear in mind that California’s position as a national trendsetter is still quite secure: What is happening in California is very likely to happen in other states — and possibly at the federal level — if action is not taken. There are lessons here for both the Left and the Right, and those who would not sink with California as it falls into a sea of red ink would do well to study them.
California’s present condition is the direct result of welfare-state governance in its full maturity. Intransigent public-employee unions use the collective-bargaining process to maintain their inflated compensation packages, while poorly administered programs for the elderly and indigent have produced a permanent dependent class with attendant expenses that are difficult or impossible to reduce: When Governor Jerry Brown attempted to impose co-pays on some recipients of medical benefits, the Obama administration blocked him. Governor Brown’s attempts to cut spending on health care by lowering some physicians’ reimbursements and subsidies for low-income Californians were blocked by the federal courts. Governor Brown has demonstrated very little that might be called fiscal responsibility, but such attempts as he has made at spending discipline have been blocked by federal authorities when they have not been blocked by Democrats in the state legislature. Those who suspect that Obamacare may turn out to be more expensive and less effective at controlling costs than its admirers have claimed should take a good long look at California to appreciate the difficulty of rationalizing out-of-control health-care spending in a single state. (And multiply by 50.)
California’s finances will not be meaningfully reformed until its public sector is reduced and disempowered, and its health-care spending is made sensible. There are significant legal roadblocks to achieving either end, which is why California’s debt-service costs are pulling away from those of the rest of the United States and heading in a distinctly Spanish direction.
Governor Brown has, in the conventional Democratic fashion, proposed raising taxes on certain high-income Californians to try to close that $16 billion deficit. California, like the nation at large, already relies disproportionately on the high-income for its tax revenue, a situation that produces inherent instability: When less than a tenth of taxpayers provide the great majority of tax income, receipts are likely to be volatile in the best of circumstances. Add to that the fact that the very wealthy — especially Silicon Valley’s cosmopolitan entrepreneurial class — have options about when, how, and where to get paid. California expects to raise $1.5 billion in taxes from a single firm, Facebook, as employees and investors realize capital gains from the company’s initial public offering of stock. But such expectations are far from assured: The Brazilian-born Eduardo Saverin, Facebook’s cofounder, has renounced his U.S. citizenship and taken up residence in Singapore, probably not for the city-state’s rich cultural milieu but because it does not tax capital gains. Others will not go so far as to cross the Pacific; for many, getting out of California will be sufficient. As California has just demonstrated, raising tax rates is not the same thing as raising tax revenue. Capital is fungible, and people are mobile.
In fact, California’s income-tax revenues are down by 21 percent, in no small part because of a decline in capital gains and other investment income. Raising tax rates and imposing new taxes, as Governor Brown proposes, would provide incentives for those gains to happen elsewhere — and, ultimately, for investment and jobs to follow them. That trend already is under way: A survey of CEOs in April ranked California dead last among the states as a place to do business.
For conservatives, the lesson to be learned from California is the danger of counting too much on economic growth. Many of California’s current fiscal problems were made worse by wishful thinking about growth and its effect on both the revenue and the expense sides of the balance sheet. During the primary campaign, the Republican presidential candidates were almost to a man heavily invested in irrationally optimistic expectations about economic growth. Mitt Romney’s tax plan, for example, in order to achieve revenue neutrality, must rely on growth assumptions that are more optimistic than current professional forecasts. Growth is of course a main goal, and its achievement is to be welcomed, but we must not use hypothetical future growth as an excuse to put off difficult taxing and spending decisions in the present.
California is one of our most beautiful states, and still one of our most enterprising and innovative. Its universities are a national treasure. That it has been reduced to this is a fearsome reminder that fiscal policy is not in the end about entries in the ledger but about the real quality of life for citizens. California has squandered its wealth, and the public-sector unions have looted the taxpayers. As goes California, so goes the nation — unless we act.
2013 is going to be all about bankrupt states panhandling for a bailout, regardless of what happens in the election.
I chuckle at the thought of it happening under the very guy who started us on this fiscal path 35 years ago.
Detroitification...the practical application of Democrat political philosophy.
This is another good reason to get Obama out of office. Obama will start getting his czars to pump money into failing states (CA, NY, MI) to keep them afloat as the chickens go home to roost. We can’t afford it.
when CA can no longer make payroll for the government workers, we’ll have to cut bait as a nation.
Wishing for economic growth and creating economic growth are two entirely different things, something democRats just cannot mentally grasp.
How can all Americans be expected to bail out states whose governments have no interest in trying to get their financial houses in order. It’s throwing good money after bad, and only encourages the freeloading states to spend more.
This is Reagan’s, then Bush’s and finally Bush’s fault that CA is running out of money and spending more than it takes in and driving all the productive tax payers out of it’s bastion of glory.
California is going to need a scapegoat when it fails. The bus is running just waiting for a driver, passengers and a target.
I wonder if there is a line in Vegas on when CA will officially be bankrupt. There has to be some rich odds there.
Yes.
Karl Marx foresaw this loophole. That's why it is crucial to the establishment of his "workers' paradise" that a world-wide totalitarian government (i.e. police state) be established--and by violent means.
Coercion, enforced by violence, and an iron-fisted dictatorship (or oligarchy) are fundamental to Marxism. Karl Marx acknowledged this.
But he didn't have to. Anyone with a brain the size (and function) of a pea can recognize this at the first glance at his hare-brained theories. (Yes, this is an indictment of the Leftists.)
I heard on NPR this morning just how much worse they are than they thought they would be just a few months ago, by many BILLIONS of dollars. It very much reminds me of this analogy, which I think we are all living right now.
The first drop from the magic pipette is dropped right in the middle of the field, at 12pm. Here’s the question: Remembering that this drop grows exponentially by doubling in size every minute, how much time do you have to free yourself from the seat and leave the stadium before the water reaches your seat at the very top? Think about it for a moment. Is it hours, days, weeks, months?
The answer: You have exactly until 12:49pm. It takes this tiny magic drop less than 50 minutes to fill a whole football stadium with water. This is impressive! But it gets better: At what time do you think the football stadium is still 93% empty? Take a guess.
The answer: At 12:45pm. So, you sit and watch the drop growing, and after 45 minutes all you see is the playing field covered with water. And then, within four more minutes, the water fills the whole stadium. This means that you think you are safe because it seems that you have plenty of time left, whereas due to the exponential growth you really have to take immediate action if you want to have any chance of getting out of this situation.
My personal opinion: 2008 was 12:45 and most people responded as in the analogy above. We are now at 12:47 and I think we will be to 12:50 by next year AT THE LATEST.
You can read about it almost daily.
The article doesn’t mention how much California has coddled illegal immigrants.
No other state in the union has surrendered as much in the hopes of manufacturing new Democrat voters.
If California has to cut off the supply of free government money, the zombies will move to more charitable states where they can vote themselves some money.
Tax those rich rock, TV and movie stars
Michigan now has a Republican Governor, Senate, House, Supreme Court, Attorney General and Secretary of State.
CA was one of the states that got part of the billions in rail money that FL turned down........how is that working for them?....cost over run anybody.............
You are right and I did know that. But it is new and I forgot. I am glad Michigan is turning around. But I fear the lessons were not yet fully learned by the voters. We'll see how Michigan does in November. It will be telling of what the future holds for republican politicians there.
I humbly thank you for the correction.
Moonbeam’s answer...”Raise taxes on the rich.”
“The article doesn’t mention how much California has coddled illegal immigrants.”
That’s because every one of the charges in the article is true. Yours is not.
Every state in the union yawned while California’s border with Mexico was erased.
California voters did their best not to coddle the invaders by overwhelmingly passing Prop. 186; it was thrown out by a Federal judge.
So voting failed us. What would you have had us do? Field our own army?
I think Americans who don’t live in California rewrite history to deflect responsibility for the unopposed invasion and annexation of the greatest state in the union by a foreign power.
I predict Illinois will actually beat California to the punch as the first state to submit an official bailout request to 1600 Pennsylvania Avenue.
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