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Posts Tagged ‘California’

I’ve already had a couple of blog posts commenting on how Texas is kicking California’s you-know-what. Being a fiscal policy person, I always point to California’s punitive state income tax as an example of bad policy and highlight the absence of any income tax in Texas to explain the success of that state.

But sometimes it’s just culture and attitude. Here’s a joke comparing the two states, but it’s based on something that actually happened in Texas.

CALIFORNIA: The Governor of  California is jogging with his dog along a nature trail. A coyote jumps  out, bites the Governor and attacks his dog.

1. The Governor starts to intervene, but reflects  upon the movie “Bambi” and then realizes he should stop; the coyote is  only doing what is natural.

2. He calls animal control. Animal Control  captures the coyote and bills the State $200 testing it for diseases and $500  for relocating it.

3. He calls a veterinarian. The vet collects  the dead dog and bills the State $200 for testing it for diseases.

4. The Governor goes to hospital and spends  $3,500 getting checked for diseases from the coyote and on getting his  bite wound bandaged.

5. The running trail gets shut down for  6 months while Fish & Game conducts a $100,000 survey to  make sure the area is free of dangerous animals.

6. The Governor spends $50,000 in state funds to  implement a “coyote awareness” program for residents of the area.

7. The State Legislature spends $2 million  to study how to better treat rabies and how to permanently  eradicate the  disease throughout the world.

8. The Governor’s security agent is  fired for not stopping the attack somehow and for letting the  Governor attempt to intervene.

9. Additional cost to State of California:  $75,000 to hire and train a new security agent with additional special  training re: the nature of coyotes.

10. PETA protests the coyote’s  relocation and files suit against the State.

TEXAS: The Governor of Texas is  jogging with his dog along a nature trail. A Coyote jumps out, bites  the Governor’s leather boot, and attacks his dog.

1. The Governor shoots the coyote with his State-issued  pistol and keeps jogging. The Governor has spent $0.50 on a .45 ACP  hollow
point cartridge.

2. The buzzards eat the dead coyote.

And that, boys and girls, is why California is  broke………..And, more importantly, why too much government  doesn’t work.

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The mid-term elections were a rejection of President Obama’s big-government agenda, but those results don’t necessarily mean better policy. We should not forget, after all, that Democrats rammed through Obamacare even after losing the special election to replace Ted Kennedy in Massachusetts (much to my dismay, my prediction from last January was correct).

Similarly, GOP control of the House of Representatives does not automatically mean less government and more freedom. Heck, it doesn’t even guarantee that things won’t continue to move in the wrong direction. Here are five possible bad policies for 2011, most of which the Obama White House can implement by using executive power.

1. A back-door bailout of the states from the Federal Reserve – The new GOP Congress presumably wouldn’t be foolish enough to bail out profligate states such as California and Illinois, but that does not mean the battle is won. Ben Bernanke already has demonstrated that he is willing to curry favor with the White House by debasing the value of the dollar, so what’s to stop him from engineering a back-door bailout by having the Federal Reserve buy state bonds? The European Central Bank already is using this tactic to bail out Europe’s welfare states, so a precedent already exists for this type of misguided policy. To make matters worse, there’s nothing Congress can do – barring legislation that Obama presumably would veto – to stop the Fed from this awful policy.

2. A front-door bailout of Europe by the United States – Welfare states in Europe are teetering on the edge of insolvency. Decades of big government have crippled economic growth and generated mountains of debt. Ireland and Greece already have been bailed out, and Portugal and Spain are probably next on the list, to be followed by countries such as Italy and Belgium. So why should American taxpayers worry about European bailouts? The unfortunate answer is that American taxpayers will pick up a big chunk of the tab if the International Monetary Fund is involved. Indeed, this horse already has escaped the barn. The United States provides the largest amount of  subsidies to the International Monetary Fund, and the IMF took part in the bailouts of Greece and Ireland. The Senate did vote against having American taxpayers take part in the bailout of Greece, but that turned out to be a symbolic exercise. Sadly, that’s probably what we can expect if and when there are bailouts of the bigger European welfare states.

3. Republicans getting duped by Obama and supporting a VAT – The Wall Street Journal is reporting that the Obama Administration is contemplating a reduction in the corporate income tax. This sounds like a great idea, particularly since America’s punitive corporate tax rate is undermining competitiveness and hindering job creation. But what happens if Obama demands that Congress approve a value-added tax to “pay for” the lower corporate tax rate? This would be a terrible deal, sort of like a football team trading a great young quarterback for a 35-year old lineman. The VAT would give statists a money machine that they need to turn the United States into a French-style welfare state. This type of national sales tax would only be acceptable if the personal and corporate income taxes were abolished – and the Constitution was amended to make sure the federal government never again could tax what we earn and produce. But that’s not the deal Obama would offer. My fingers are crossed that Obama doesn’t offer to swap a lower corporate income tax for a VAT, particularly since we already know that some Republicans are susceptible to the VAT.

4. Regulatory imposition of global warming policy – This actually is an issue we needed to start worrying about before this year. The Obama Administration already is in the process of trying to use regulatory edicts to impose Kyoto-style restrictions on energy use, and 2011 may be a pivotal year for this issue. This issue is troubling because of the potential impact on economic growth, but it also represents an assault on the rule of law since the White House and the Environmental Protection Agency are engaging in regulatory overreach because they did not have enough support to get so-called climate change legislation through Congress. The new GOP majority presumably will try to use the “power of the purse” to limit the EPA’s power grab, and the outcome of that fight could have dramatic implications for job creation and competitiveness.

5. U.N. control of the Internet – The Federal Communications Commission just engaged in an unprecedented power grab as part of its “Net Neutrality” initiative, so we already have bad news for both Internet consumers and America’s telecommunications industry. But it may get worse. The bureaucrats at the United Nations, conspiring with autocratic governments, have created an Internet Governance Forum in hopes of grabbing power over the online world. This has caused considerable angst, leading Vint Cerf, one of inventors of the Internet (sorry, Al Gore) to warn: “We don’t believe governments should be allowed to grant themselves a monopoly on Internet governance. The current bottoms-up, open approach works — protecting users from vested interests and enabling rapid innovation. Let’s fight to keep it that way.” International bureaucracies are very skilled at incrementally increasing their authority, so this won’t be a one-year fight. Stopping this power grab will require persistent oversight and a willingness to reject compromises that inevitably give bureaucracies more power and simply set the stage for further demands.

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This blog repeatedly has chronicled the huge discrepancy between the gold-plated compensation for government employees and the meager salaries and benefits of people in the productive sector of the economy, including a video conclusively demonstrating that bureaucrats are overpaid.

This message is now resonating all across the nation. Even the New York Times, as shown by the excerpt below, now realizes that taxpayers are sick and tired of paying exorbitant taxes to finance excessive pay for the bureaucracy.

But public awareness is only a small step in the right direction. What really matters is public policy. Will the bureaucracy be downsized? Will salaries be frozen for several years? Will absurd pension plans be replaced by 401(k) systems? And what will happen to unaffordable health plans for government workers?

We’re going to see some interesting battles at the state and local level. One of the many great things about federalism is we get an opportunity to see some governments do the right thing and some do the wrong thing. And as we watch states like California descend into bankruptcy, this teaches everyone about the policies that should be avoided.

But the long-overdue day of reckoning won’t happen if Obama and the other politicians figure out how to bail out reckless state and local governments. That’s already happened once, since funneling federal money to the states was one of main goals of Obama’s failed stimulus.

But sending more money to the states would be akin to providing an alcoholic with a case of booze. If House Republicans have any brains, they will make sure taxpayers in places like Texas don’t pay more to subsidize politicians and special interests in places such as Illinois.

Cross your fingers that they hold firm. In the meantime, let’s enjoy the change in the public mood. Here are a few passages from yesterday’s story in the New York Times.

Across the nation, a rising irritation with public employee unions is palpable, as a wounded economy has blown gaping holes in state, city and town budgets, and revealed that some public pension funds dangle perilously close to bankruptcy. In California, New York, Michigan and New Jersey, states where public unions wield much power and the culture historically tends to be pro-labor, even longtime liberal political leaders have demanded concessions — wage freezes, benefit cuts and tougher work rules. …a growing cadre of political leaders and municipal finance experts argue that much of the edifice of municipal and state finance is jury-rigged and, without new revenue, perhaps unsustainable. Too many political leaders, they argue, acted too irresponsibly, failing to either raise taxes or cut spending. A brutal reckoning awaits, they say. …Fred Siegel, a historian at the conservative-leaning Manhattan Institute, has written of the “New Tammany Hall,” which he describes as the incestuous alliance between public officials and labor. “Public unions have had no natural adversary; they give politicians political support and get good contracts back,” Mr. Siegel said. “It’s uniquely dysfunctional.” …In California, pension costs now crowd out spending for parks, public schools and state universities; in Illinois, spiraling pension costs threaten the state with insolvency. And taxpayer resentment simmers.

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Here are a few predictions for next year. It will be hot in Dallas in July, it will be cold in Stockholm in February, and Governor Jerry Brown of California will ask Uncle Sam for some sort of bailout.

I’m actually not sure about the first two predictions, but I think the last one is as close to a sure thing as you can get. Sven Larson is one of America’s top experts on state fiscal issues (his blog is an excellent resource for people who want to keep informed about the shenanigans of governors and state legislatures), and here’s his assessment of the mess in California.

California state spending has outgrown the state’s tax base by 1.3 percentage points annually for 25 years. Simple arithmetic dictates that in lieu of constant tax increases, this perpetuates a deficit. From 1985 to 2009 state GDP in California grew by 5.5 percent per year, on average (not adjusted for inflation). Annual growth in state spending was 6.8 percent, on average. Three spending categories have dominated this spending spree: public schools, cash assistance and Medicaid. Making up half of state spending, they are outlets for traditional redistributive welfare state policy. …Of the three aforementioned spending categories, two have grown faster than state GDP, i.e., the tax base, throughout the past quarter-century: • Public school spending grew at 6.5 percent per year on average, one full percent faster than state GDP • Medicaid grew at 10.7 percent per year on average, approximately twice the rate of state GDP.

In other words, California is in a fiscal mess because spending has grown too rapidly. It’s unclear why taxpayers in other states should be ripped off so that Golden State politicians can maintain an unsustainable vote-buying racket – particularly when the state goes out of its way to punish economic growth and discourage job creation.

To make matters worse, bailouts (or even the expectation of bailouts) send a terrible signal. Matt Mitchell (no relation) of the Mercatus Center looked at precisely this issue and concluded that state politicians would be even more profligate if they got any indication that they could shift the tax burden to people in other states. He even found an interesting study showing how sub-national governments in Germany responded to this kind of perverse incentive structure. Here’s an excerpt from that research.

States with a softer budget constraint [i.e., greater expectation that the German national government will bail them out], have higher deficits and debts and receive more bailout funds. …The larger the expectation of a bailout, the higher the amount spent in a number of spending categories, and special interests are most likely to benefit from this additional spending. We also find that bailout expectations lead to less efficient state government service provision.

By the way, I don’t want to imply that this is solely a California issue. There are several states that have taxed and spent themselves into fiscal ditches. Indeed, it’s quite likely that Illinois may be the first state to experience a fiscal collapse.

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There is a famous statement attributed to Pastor Martin Niemöller, who was imprisoned by Hitler’s National Socialist regime and barely survived the concentration camps.

They came first for the Communists, and I didn’t speak up because I wasn’t a Communist.

Then they came for the trade unionists, and I didn’t speak up because I wasn’t a trade unionist.

Then they came for the Jews, and I didn’t speak up because I wasn’t a Jew.

Then they came for me and by that time no one was left to speak up.

Niemöller’s statement teaches us that we should guard against government oppression, even when we are not the target, because it may be just a matter of time before the goons of the state shift their attention to us.

Nothing can compare to the horrors of Hitler’s National Socialists or the brutality of various communist regimes, so I certainly do not want to imply any moral equivalence, but I can’t help but thinking about what Niemöller said as I contemplate the various hare-brained proposals being imposed on people by San Francisco’s nanny-state buffoons.

Last week, I put up a post about the city banning Happy Meals toys. That certainly seemed absurd, but the craziness is reaching new levels with a possible referendum on banning circumcisions.

One city resident is proposing a ballot measure that would ban circumcision in the City, according to the San Francisco Examiner. If passed in November 2011, the measure would change San Francisco’s police code “to make it a misdemeanor to circumcise, excise, cut or mutilate the foreskin, testicle or penis of another person who has not attained the age of 18.” The punishment for those who choose to cut away anyway would be up to a $1,000 fine and up to one year in prison.

What’s next, mandatory sensitivity classes? Morning calisthenics with the exercise police? Banning leather belts? Is there any limit once we acquiesce to the notion that other people have the right to tell us how to live our lives?

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I’ve avoided this topic in recent weeks because it’s too depressing, but this story is too outrageous to ignore. The County of Los Angeles has 199 bureaucrats who “earned” more than $250,000 last year. According to Census Bureau data for 2008, the median household income in the county was 55,000, Here’s a blurb from the L.A.Times about incomes of the bureaucratic gilded class.

Nearly 200 Los Angeles County employees earned more than a quarter of a million dollars in 2009, according to a list of the county’s top earners released late Monday in response to a Public Records Act request from The Times.

The highest earners list was dominated by physicians and other medical personnel, but also included county firefighters and a handful of top sheriff’s employees. Some of the best-known names on the list belong to elected officials — although none of the five county supervisors, who make $178,789 a year, qualified.

…The Times requested the base salary, overtime and “other earnings” for county employees whose total annual pay exceeded $250,000. “Other earnings” can include bonuses for special skills or responsibilities or unused benefits cashed out as taxable income, among other things.

…Overtime played a big role, with only 65 people making the list on base salary alone. Thirty workers made more than $80,000 in overtime. Twenty-two of them work for the county Fire Department, four work for public hospitals, two were psychiatrists for the Mental Health Department, and two were physician specialists for the Sheriff’s Department.

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I ran across two interesting lists showing how politicians at the state and local level are often just as bad as the ones in Washington, DC. First, Forbes has an article identifying the 10 states with the highest income tax rates. The top rate is a big deterrent to entrepreneurs and investors, but it’s also important to look at the income level where the top tax rate takes effect. Yes, Hawaii, Oregon, and California have terrible tax policy, but Iowa, Maine, and Washington, DC, deserve special scorn for raping the middle class.

Hawaii:                       11% (income over $400,000 (couple), $200,000 (single))
Oregon:                      11% (income over $500,000 (couple), $250,000 (single))
California:                   10.55% (income over $1 million)
Rhode Island:             9.9% (income over $373,650)
Iowa:                          8.98% (income over $64,261)
New Jersey                 8.97% (income over $500,000)
New York:                   8.97% (income over $500,000)
Vermont:                     8.95% (income over $373,650)
Maine:                        8.5% (income over $39,549 (couple), $19,749 (single))
Washington, D.C.:      8.5% (income over $40,000)

Looking at the other major source of revenue for state and local governments, the Tax Foundation identifies the cities with the highest total sales tax rate – a number that often includes three separate levies by state, county, and city governments. Here are the top 10. Or should I say worst 10?

Birmingham AL              10.000%
Montgomery AL             10.000%
Long Beach CA                9.750%
Los Angeles CA               9.750%
Oakland CA                    9.750%
Fremont CA                     9.750%
Chicago IL                     9.750%
Glendale AZ                    9.600%
Seattle WA                     9.500%
San Francisco CA           9.500%

One thing that stands out is that California is on both lists, which helps explain why the state is such a basket case. Seattle deserves a special mention because at least there is no state income tax in Washington.

Last but not least, it’s worth mentioning that there’s no sales tax or income tax in New Hampshire. Live Free or Die!

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