California is back in the news. On Saturday, Governor Jerry Brown announced that the state’s budget deficit would exceed the original estimate he made in January of $9.2 billion. The new deficit is projected to be a remarkable $16 billion. With state spending still through the roof, unemployment at 11 percent, and poverty on the rise in the Golden State, hope is diminishing that California’s finances will ever return to normal with anything short of a declaration of bankruptcy.
So how did California get in this ugly predicament? The same way the federal government did; by interfering with free market forces by erecting a massive welfare leviathan. The only difference between the caretakers in Sacramento and the caretakers in D.C. is that the latter have the political luxury of printing money to forestall the inevitable day of reckoning. Sacramento does not have that same luxury and unless something drastic happens, it faces insolvency right now.
The five features of the welfare state that have brought the current financial calamity upon California are overregulation, bureaucracy, high taxes, social welfare programs, and unionization.
Overregulation and bureaucracy go together. It has been said that the fastest-growing entity in California is government and its biggest products are bureaucracy and regulation. California’s environmental regulations have always been legendary, but little noticed is the enormous bureaucracy built to regulate most other areas of life. Maintaining these ever growing monstrosities costs a fortune. Additionally, their onerous regulations are one reason that for the seventh year in a row Chief Executive Magazine’s survey of 500 chief executives ranked California as the nation’s worst state to do business in.
Besides regulations chasing business from the Golden State, there are also high taxes. Statists claim that California’s budget deficits have been caused by an ever-shrinking tax base. This is the old chicken before the egg argument.
The reason the tax base continues to shrink is precisely because taxes are so high. California has the 48th worst business tax climate. Workers who earn more than $48,000 a year pay a top income tax rate of 9.3 percent, which is higher than what millionaires pay in 47 states. Its sales tax is one of the highest in the nation, at 8.25 percent. Rounding out the levies that rank among the highest in the country are its capital gains taxes, gasoline tax, and vehicle license taxes. High taxes are a big reason why the state has seen a net loss of four million citizens to other states in just the last two decades. When government raises taxes, the astute find ways to avoid them. The industrious cut back their enterprises and in the case of California, many simply left for lower tax states.
Article comments
— go to most recent comments1 - Dr Dreadful
"The free market’s great revenge is that welfare states cannot last forever. Their inevitable collapse comes because they are not self-sustaining. They grow by feeding off the labor of hard working citizens either through higher taxes or inflation."
Kenn, NO system is self-sustaining. A free market still requires "the labor of hard working citizens" to produce and consume.
2 - Igor
Actually, Californias main problem is "Prop 13", the Jarvis bill, that in 1978 froze property taxes, and also required a 2/3 vote in the legislature to raise any taxes.
Property taxes can only be raised a very small percent,or when the property changes hands. So clever lawyers split the property from the business and incorporated it separately. Thus, when the owner wanted to sell the business the land continued to belong to the same holding corporation and the tax never goes up. The land title never changes even when the holding corp is sold. So most businesses in CA pay 1978 level property taxes for the land they sit on.
CA also has no oil extraction tax even though it's a large oil producing state.
In general CA has very low business taxes.
Plus, it's almost impossible to pass a tax law with the 2/3 requirement since there's a small republican minority that blocks all tax bills.
Basically, working residents are carrying the tax load for business.
3 - Kenn Jacobine
Igor, did you actually read the article?
Doc, free market systems are self-sufficient because they produce goods and services the consumer wants. Governments produce nothing on their own. They extract from workers the means to provide services that the productive citizens don't need or necessarily want. That is the difference - free markets cause prosperity, governments leetch off of them.
4 - Dr Dreadful
Kenn, the free market produces many goods and services, such as, for example, xylophones, which astonishingly enough I neither need nor want.
I can live with that, however, because I recognize that, well, it's not all about me.
5 - Frivolous D
"Governments produce nothing on their own."
This is a completely irrational comment. The tax money gets spent and it does participate in the economy. Billions on everything from jet fighters to school books and roads. It provides national security, social safety nets and had stabilized the economy. Libertarians think that the tax money somehow just "poof" disappears when, in fact, it participates in every aspect of our economy.
Of course there is waste and fraud in the system. So what. There is waste and fraud in every aspect of life. Here's an idea, why not just try to improve the system rather than embrace a naive fantasy of scrapping it all believing that everything will be great.
Those government programs you hate so much arose because the private industry failed miserably to provide adequate solutions. What changed so much that things will be different this time?
I just don't want to live in a live-and-let-die country. Go to Haiti for a dose of laissez-faire capitalism.
BTW - CA is, in reality, about 1-2 points higher in overall taxes based on national averages. And, like the rest of the country, our state and fed taxes are at a 40 year low.
6 - Zingzing
We already give shit loads of breaks and benefits to business and rich people, and guess what? It obviously doesn't work. Where are the jobs this is supposed to create? So then we throw money at the poor, but there just isn't enough money to make a real difference in their lives... Many are still poor.
Tax the rich. Invest in the middle class. The middle class will create demand, which will help the poor by giving them jobs, and the rich will benefit as well because more people will be able to participate in the thing that makes them rich, which is a strong middle class.
7 - Kenn Jacobine
You've got it backwards. You have to produce and earn a medium of exchange before you can consume. That is how it was done in the good old days before Keynes. This is one reason why all the trillions in spending these last few years in an effort to stimulate the economy hasn't worked.
The reason people are poor has nothing to do with the meager amount of money they receive in welfare. It has more to do with their disposition to working and supporting themselves. There is practically no poverty in the U.S. compared to the rest of the world because of our economic system or what's left of it. To say Haiti is laissez-faire is ludicrous. But, I'll tell you that the U.S. is turning into a Haiti with its cronyism and attitude that we all deserve what others own.
8 - Christopher Rose
"There is practically no poverty in the U.S. compared to the rest of the world"? Say what?
Are you sure that's what you meant to say?
Although poverty is actually decreasing everywhere in the world, despite our current economic challenges, there are almost more poor people in the USA than in the whole of Europe, which has twice the population.
The fact that there are far more, although diminishing totals, seriously poor around the world shouldn't blind people to the serious problems the USA is facing.
I think Kenn's dogma is clouding his reason. How ugly would life get if those people struggling to survive weren't getting some help?
We humans don't live by the laws of the jungle in which the strong and the fit survive at the expense of the weak and the sick.
9 - Frivolous D
That is how it was done in the good old days before Keynes.
Ah yes, the good old days. I remember reading about them in "The Jungle" and "Germinal." They even wrote songs to celebrate the beauty of life in the good old days...
You load sixteen tons, what do you get
Another day older and deeper in debt
Saint Peter don't you call me 'cause I can't go
I owe my soul to the company store
I could go on but I have to drop off my kid at the coal mine.
10 - Dr Dreadful
Kenn doesn't seem to want to address Igor's and Frivolous D's factual responses to his criticism of California, which suggests to me that California is just an excuse and that this article is really just another iteration of his blinkered libertarian idealism.
Poverty is relative and although most of today's poor in the United States (at least if they are lucky enough to have a roof over their heads) have a high standard of living compared to the poor of the Victorian era, so does everyone else. A comfortably well-off middle class 19th century family would be regarded as living in squalour today.
Social programs are to be thanked for much of the improvement in living standards for the poor, so I'd say they were working. It doesn't by any means follow that a generous social welfare system inevitably leads to economic collapse, as is plain to anybody who can see past Kenn's cherry picking.
The bottom line is that Kenn sees taxation as theft. Most people who are right in the head see it as part of citizenship.
11 - Igor
Most of the USA infrastructure that provides opportunity for business has been built by the Government (both federal and municipal) and paid for by US taxpayers. Those projects were built with public money when private sources were unable or unwilling to finance them.
For example:
the interstate highway system
the canals
the railroads
ports and waterways
agricultural and residential water projects
This country would be poor indeed if it were not for these great public projects.
Without the huge government projects this nation would be no better than than the many South American banana republics that are constantly in turmoil and poverty, thanks to the laissez faire governments that they have.
It has been the unmatched willingness of Americans to unite together in cooperative major projects, financed by citizens and lead by government agencies, that has lifted us above other nations.
It is because of the commercial environment base established by American government and it's ordinary citizens that American businesses have been nurtured and grown.
12 - roger nowosielski
@10
If I'm not mistaken, D. H. Lawrence may as well be added to the list.
13 - Dr Dreadful
It's worth noting that every South American nation, with the arguable exceptions of Venezuela and Bolivia, now has a stable, democratic system of government, and that the prosperity of those nations has increased dramatically in recent years as other countries and corporations feel more comfortable doing business on the continent.
Weak central government in South and Central America meant constant instability and the seizure of power by the strong (almost always the military) at the expense of the weak. Charles Darwin, whose ship H.M.S. Beagle visited Argentina when it was still wild frontier country, noted in his journal that in the year 1820 there had been fifteen regime changes in less than nine months just in the single province of Buenos Aires. And this was in an era when armies could not be mobilized at a speed faster than walking pace.
I just wonder how long Kenn thinks a minimized, weakened federal government would last before being replaced by generals of the most powerful armed forces in the history of the planet.
14 - Wolfman
Mexifornia
I have lived and worked here for 32 years. I work in what is left of the California Aviation Industry. Companies like. North American, Convair, Douglas, Northrop, and Lockheed were once the worlds best aviation companies. California was an aviation powerhouse. In WW 2 no other State or Country built more airplanes then California, and the US. I started to work with McDonnell Douglas building DC-9-80's. At its best, we had over 60,000 people working at our plant, now the plant is mostly gone, and the final assembly hangers have sat empty for years. The only plant left has only a couple thousand people still working, and if no more orders come in, it will be closed in 2 years. California once had a auto plants and a steel mill, both long gone. The idiots from up in northern California have done their best to chase them all away. And talk about a Illegal Immigrant friendly state, California is the place. All the Hispanic lawmakers and many Whites pander to the Illegal Hispanic Vote. The LA mayor really sucks up to them, as does the LA Times. If you are not Hispanic, you are a minority in California. The fight is over, WE LOST THIS STATE. To many areas here look like some of the Shithole areas of Mexico. The Hispanic gangs have taken over areas that once were black. Our prisons are mostly Hispanic. And English in starting to become a second to Spanish. I am still here, same as you. So what is your Answer? We are politically outnumbered, and to much has already been lost. I am not a racist, I have many Black, Hispanic, and Asian friends. But each and everyone of my friends are American's, and proud of it. My Hispanic friends served in the military, and grew up with the AMERICAN DREAM. They love this nation, just as I do. And surprising, some are not any more happy about all the Illegal's here, either. This is not Mexico, this is the United States, paid for, and with the blood, and work of many, many, many generations of hard working American's. Look at Mexico, during this same time period, What Have They Done, or Created? A world class Third World Nation, that wouldn't be shit, if not for what the United States provides for them, and to them. For information on this issue, go to IMMIGRATION COUNTERS.COM, and check out the Numbers, Plus go to You Tube, and watch IMMIGRATION GUMBALL'S. This will really wake you up about immigration. Also look at our history, check out OPERATION WETBACK, a US Government Program in the 1950's, in which the US GOVERNMENT. Deported record number of Illegal's. They took them as far as southern Mexico, on ships, so they wouldn't be back in a week. Also check out the Mexican-American War, the US actually captured Mexico City, Mexico was ours for the taking. In the Treaty of GUADALUPE HIDALGO, we bought the Southwest areas of the United States from Mexico for $18 million dollars, that is like $400 million today. Plus we, the US forgave Mexico of $3.25 million in Debt that they owed us, that would be like $87.3 million today. So when Mexicans say, the US stole the southwest form them, tell them to learn how to read, IN Mexico, Not here. And see how close they came to being a bunch of US States. If it wasn't for the Racial Hatred of the southern states back then, "Remember, The Civil War was The Next Big US WAR", not wanting a bunch of Mexicans now as US citizens, Mexico would have been part of the US.
15 - Igor
Wolfman
Your instructions to 'go look up' something or another will not take hold here.
Your comment is too effusive. You need to concentrate on one or two ideas and present compelling arguments and supporting data to prevail here.
16 - Igor
@3-Kenn: Yes, I read the article. Every word of it. Did you actually write it?
17 - George
California deserves to be renamed mexifornia. White politicians sold out the white man who built this paradise. Thx to scum like Sacto Politicians and pandering filth like certain politicos, Calif. is now the shithole of the western world. Too bad we can't make an example of the poliiticians responsible for destroying California by puttint them in front of a firing squad for committing the crime of treason. That would be an example to all other pandering politicins to back off or they will face the same fate. Of course, we would be merciful with this scum begore pulling the trigger. Due process demands we blindfold the dirtbags first, but let them peak out the corner just a leeeeeedle bit.
18 - Igor
It seems to me that every business in America is indebted to the great public projects that government and the citizens paid for and built.
Where would we be without the Boulder Dam and Grand Coullee? How about TVA, the Panama Canal?
Without the big wonderful government projects that the US citizen and taxpayer took on voluntarily and enthusiastically, this would be a pitiful and dreary nation!
Almost all the benefits that go to American business are rooted in US Government projects.
19 - roger nowosielski
Are you certain you're not from Orange County or Simi Valley, George? Sure sounds like it.
Since the Mexicans and the Niggers are all to blame, I have a suggestion for you. Why don't you move to Arizona where the climate will be much more congenial to your liking?
And keep us posted by all means.
20 - Dr Dreadful
Before he moves, though, I must send him a link to my lucrative, California-based knuckle bandage business. Sounds like he needs to place an order.
21 - Kenn Jacobine
Christopher,
There is practically no poverty in the U.S. compared to the rest of the world - Africa, Asia, and Latin America. In most of the countries on those continents 70-80 percent of people live in poverty. The poorest of the poor outpoor the poorest in the U.S. hugely.
22 - Glenn Contrarian
Doc -
The bottom line is that Kenn sees taxation as theft. Most people who are right in the head see it as part of citizenship.
AMEN! Taxes are the price of admission to live in a nation. If you don't want to pay those taxes, then give up your citizenship and all the rights and privileges that go with it.
23 - Glenn Contrarian
Kenn -
There is practically no poverty in the U.S. compared to the rest of the world
You're comparing apples and oranges, because there's a LOT of poverty in America compared to the rest of the FIRST world nations. Or haven't you been to Canada or Australia lately?
24 - Kenn Jacobine
Glenn,
Who has a choice about living in a nation or not? Is there a place I can go and not be subject to taxation?
Glenn,
What percentage of the world's population does Canada and Austalia possess? The fact is that more humans than not live in poverty worldwide. The poorest of the poor in America are still much better off than the poor of those countries in Africa, Asia, and L.A.
25 - Christopher Rose
Yet more dogma from Kenn. Although I love libertarianism in principle, taking it too literally makes people sound just as stupid as other belief systems, secular or spiritual.
Kenn, there are quite a few places you can go and not be subject to taxation and it is even possible not to live in a nation if you really want that.
It is also not true that "more humans than not live in poverty worldwide". Around 1.7 billion people are living in absolute poverty.
Bad as that figure is (and despite the economic and political challenges facing us), the number of people living in poverty is falling steadily and has been for over 20 years...