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.
Regardless of who implemented the coddling in California, it is being done more so in California than in any other state.
Arizona recognizes the drain on their economy. They are taking illegal immigration on at the state and local levels. Also being challenged by the federal government, but Arizona is fighting it.
California is offering illegal immigrant breaks on tuition. State financed tuition aid for illegals. California bans the use of E-Verify. California bans police from impounding vehicles of unlicensed drivers.
Arizona has taken actions that have made it known that illegal immigrants are not welcome in Arizona. California has taken actions that indicate that it is a sanctuary state.
And this is costing Californians a lot of money that it doesn’t have.
Just like Greece, they are getting exactly what they voted for.
"California bans police from impounding vehicles of unlicensed drivers."
The City of LA, read Mayor Tony Villar (Antonio Villaraigosa) told his PC pandering, political appointee LAPD Chief to defy state law which mandates a 30 day impound.
Yes, the turds in Sacramento are busy trying to pass legislation that protects this lawbreaking action. But again, they are breaking the law and the city attorneys have told them so.
They're getting ready for the inevitable lawsuits.
RE: I am glad Michigan is turning around.
And when is the turnaround from one of Michigan’s largest city -— Detroit, going to occur?
When it is annexed by Toronto.
You mean Windsor.
I think that may be a long ways off.
On illegal immigration, I would invite you to compare and contrast Arizona and California. Certainly the Fed can be blamed for not protecting CA from the "invasion" of illegal immigrants. On that we agree.
But much of CA in LA, San Diego, Fresno, Sacramento, San Fran, San Jose, Oakland, etc. has been enthusiastically complicit in accepting the falter of unenforced immigration laws. Bank of America started its special banking programs for illegal immigrants in CA. Elected legislators applauded the humanity, as I recall, and the state is still controlled solidly by democrats. None in CA that I am aware of have been voted out primarily because of their stance on illegal immigration.
You mean Windsor.
Windsor, Toronto, Calgary.... whatever.
(yikes!)
Leave it to the National Review to write an article on California and not once mention the millions of illegal aliens who are an immense burden on California taxpayers.
NR is a pathetic shadow of what it once was.
Did you not read what I said about California’s initial efforts to repel the invasion, with NO SUPPORT from the federal government or the rest of America?
Our President called us racists more than once. Federal judges threw out every duly enacted ballot measure.
You. All. Yawned.
Americans in California were so quickly overwhelmed by foreign nationals that there is now no longer any chance of reasserting American sovereignty through the ballot box.
Arizona still has that option, and the only reason they are acting is they see what happened to California. It lit a fire under them — and rightly so.
California has been invaded, occupied and annexed... stop blaming the victims and acknowledge that this is your fault, whatever state you live in.
-—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.——
Who’s NR talking to? Themselves? The Beltway RINOs?
There isn’t a real conservative who doesn’t want to see govt spending slashed by 50%.
“While California is a beautiful State and there are many good people living there, I can’t help but think, “good riddance”.”
It won’t be “good riddance”. The problems won’t be confined to California, the effects will affect you as well.
Actually, we castigated the court that threw our your Proposition 186, same as we do when they try to undermine Voter ID and Immigration enforcement. But the courts are beyond our reach, just as they are beyond yours.
And that doesn’t change the fact that certain urban areas in the PDRK and around the country enthusiastically supported illegal aliens and became “sanctuary cities.” However, we failed to to pressure our leaders to cut off all State and Federal monies from these lawless cities.
No kidding : )
Last month he Dems in the Maryland assembly failed to agree (with each other) on yet another wave of tax increases last month so the leaders met behind closed doors and crafted another tax-us deal under another special tax session..
They got back together in a special session for the formality of the vote : they are raising income taxes on anyone making over 100K, the new rich. Apparently the two or three millionaires tax increases resulted in little new revenue.
Hard to believe since Dem gov O Malley is an Obama troll and Obama says tax increases on ‘the rich’ is all we need to pay for everything.
Idiot voters!
” The problems won’t be confined to California, the effects will affect you as well.”
Yep
” They got back together in a special session for the formality of the vote : they are raising income taxes on anyone making over 100K, the new rich”
That is just regular middle class in Montgomery County..nothing more. We knew this was coming all along...next Obama does it on a national scale.
The Left is still stuck on the idea that since Bill Clinton raised taxes and still had a pretty good economy for a while (although there were some bubbles that eventually popped), but the spending in Clinton's days is small potatoes compared to now.
What if you owed $50K in credit card debt, and you started to pay it off by paying $500 a month, but your family kept spending 2 or 3 times that much? The wrong people are in charge, and that includes both parties.
It would take more than higher or lower taxes to make a significant difference in the long run, and printing money will not be sufficient at some point.
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