Time Magazine Ogles California's Naked Swim

The first rule of holes: stop digging.

It's been said that you can't see who's been swimming naked until the tide goes out.  Sure enough, our economic tide is going out, and let's just say that there are more clothes to be found on a nudist beach than in our economy.  Name a major company or government, and you've identified an entity at severe risk of bankruptcy.

Even in equality of misery, though, some places stand out - namely, the state of California.  With an economy larger than all but the richest eight whole countries, everything that happens in the Golden State is outsized including the problems.

One of the more interesting aspects of California governmental financing is how it represents extreme liberalism gone mad.  Is not the constant refrain of the left, "Soak the rich"?  California has followed exactly that prescription: its strongly progressive income tax takes a larger percentage of your total income the wealthier you are.  As a result, the wealthiest Californians pay the bulk of all income tax revenues for the state.

This scheme works extremely well during boom years: the rich get richer, and they pay lots more money.  A wise government would sock away the extra in preparation for hard times; but, with an overwhelmingly liberal state house, there's no chance of that happening in Cali.  In fact, as Gov. Schwarzenegger points out in a new ad, the legislature spent $1.10 for every dollar brought in during the boom years!

Times have changed.  Where do rich people get most of their money?  Not from massive salaries, in the main, but from stock market gains - which have not been doing so well lately.

Naturally, tax receipts have crashed, and a massive hole opened in the California state budget.  USA Today reported:

The state soaked the rich with taxes on income and capital gains - a strategy that showered the state with money in good times but dried up when the stock market and real estate markets tanked.

What do you do when you aren't getting even close to enough money to cover your bills?  Most American families would reluctantly respond, "Stop spending", but that's the furthest thing from the mind of politicians who have a power you don't have: the power to force someone else to make up the difference.  Time magazine reports the supposedly Republican governor's position:

Schwarzenegger spoke to GOP intransigence, saying, "If you think you can do this budget without any increase in revenues, then you have a big math problem."

Ah yes, that famous GOP "intransigence" - unwillingness to allow the government to squeeze more blood from the taxpayers instead of cutting back on large living.  It will come as no surprise that Time magazine's diagnosis for California is... fewer Republicans, or less power for them.

For California has a strange twist in its Constitution: budgets must be passed by a two-third majority.  True to its reputation, California's legislature is overwhelmingly liberal Democratic, but not quite enough - they have to get one Republican vote in order to carry a budget.  But add new taxes to that budget, and any Republican voting for it can kiss his political career goodbye.

The state has a history of difficult and protracted budget negotiations, in large part because the state constitution requires a two-thirds majority to pass either a budget or a tax increase. Forty-seven other states get along fine without this hurdle, which gives the minority party, in this case the Republicans, an amount of power and leverage far out of proportion to its numbers in a legislature and state dominated by Democrats.

Sure enough - it's all the fault of those skinflint minority conservatives, quoth Time.  Take their power away, and the state could get on with the necessary and essential business of jacking taxes through the roof, unimpeded by other views.

The funny thing is, buried in the depths of their article, Time actually did trip over both the source of the problem and its solution.  In referencing another article elsewhere:

George Skelton of the Los Angeles Times recently pointed out that the no-tax solution offers two dire options: fire all the state workers and shut down the University of California and the state colleges, or eliminate all state money for health care and social services - all the monies that help the blind and disabled, aged, homebound, poor, mentally ill, those on welfare, those in emergency rooms, etc.

Let's put Mr. Skelton's observation a slightly different way: California could get out of its budget crisis without raising taxes by stopping doing things it has no business doing.

Why, pray tell, must California pay large sums to those who don't work?  Why is it the responsibility of the taxpayer to provide for the health care of those who cannot pay for it, or the education of illegal immigrants who have no right even to be here?

Why is firing large numbers of intrusive state bureaucrats such a bad thing?  Is there anything the state does that could not be done more effectively and efficiently by private enterprise?  Is there any sensible excuse for requiring taxpayers to cover the medical costs - and food stamps, and disability pension - of Octomom Nadya Suleman?

One of the advantages to capitalism of hard times is that it forces businesses to examine their practices and become more efficient.  When times are good, it's easy to get fat and lazy.  When times are hard, you don't have enough money to waste - so it becomes a good opportunity to slow down, think things through, and cut what doesn't make sense any more.

Governments rarely are put under this sort of pressure because it's always far easier to whip up another tax increase than to seriously examine excessive and wasteful government programs.  Try to slash a department, and you'll have state employees picketing - while on the taxpayer's clock!  Try to eliminate a welfare program, and all the welfare recipients bombard your office - after all, they're not working anyway, they have nothing better to do with their time.

This recession is, or can be, a blessing in disguise.  Insofar as it forces politicians to make serious decisions, we'll all be better off.

Or not.  Apparently things haven't gotten quite that bad yet.  As the Whittier Daily News tells us :

After months of trying and a marathon overnight push, groggy lawmakers returned to their districts Thursday with a solution to the state's $42 billion budget deficit - one that includes massive tax increases and billions in program cuts.

Most returning to the San Gabriel Valley arrived ready to explain to constituents how and why they just passed a budget that will tax Californians more while providing fewer services. It includes $12.8 billion in tax hikes, $15.1 billion in cuts, $11.4 billion in borrowing and measures intended to stimulate the state's economy during the recession.

"This is a very difficult pill to swallow, this is the worst budget," said state Sen. Gloria Romero, D-East Los Angeles.

"But the other budget we could have passed would have been worse... worse than worst. The other option was $42 billion in complete cuts." [emphasis added]

Hah!  As long as cutting the budget is the "worse than worst" option, California's budget woes will continue and middle-class Californians will continue to become Nevadans or Coloradans as they have for many years now.  California might want to take a look at Detroit, Michigan to see the utter devastation that lies at the end of that road.  Not for nothing was Arnold known as the "Terminator" - but real-world apocalyptic devastation probably wasn't what he had in mind.

Petrarch is a contributing editor for Scragged.  Read other Scragged.com articles by Petrarch or other articles on Economics.
Reader Comments
Looks like it might not take an earthquake to sink California into the sea!
February 26, 2009 10:04 PM
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