California, Role Model for Economic Ruin ….

by Larry Oxenham, Publisher

A few days ago California passed a massive spending tax aimed at, in their words, ‘fixing the state’s infrastructure’.

Nobody blinks when California passes a new tax because this is what is expected in California.

We have ‘taxes’ disguised as recycling bills, grocery bag fees, and a host of creative taxes from a one party state government that believes any level of fiscal responsibility is for someone else.

The American Monetary Association rates California the most fiscally irresponsible state with debt totaling more than $336,000 per individual.

We write this because what California is doing is a lesson for the entire country, and perhaps a harbinger of things to come nationally.

The new tax raises gasoline tax 12 cents per gallon plus inflation indexes. But it gets better in 2021, just 4 years from now, when another 63 cents per gallon is added.

Our current gasoline taxes are already the highest in the country.

Diesel fuel will also see a significant tax increase meaning all goods shipped by truck – the main source in California – will realize substantially increased operating costs that will be reflected in retail store prices.

As we write this, gas is nearly $3.00 a gallon or more in much of the state, largely due to the highest taxes and regulations in America. (In fact, on a recent trip to Hawaii I noticed gasoline was less expensive than in California, and Hawaii has to ship all their fuel in!)

In addition, annual automobile registration fees are raised by $25 for any car worth $5,000 or more and $175 if worth more than $60,000.

California’s current budget is 100% – as the State readily admits – based on the ‘wealthy’ tax coming primarily from Silicon Valley tech billionaires. Since virtually all, including Google, Yahoo, Uber and others – are devoted Democrats, the state has managed.

In a recent survey 40% of respondents in both the Los Angeles and San Francisco areas said they either ‘hope to’ or are ‘planning’ to leave the state. Realistically, a small percentage will actually follow through, but these are the working people, an alienated and diminishing part of the state’s population, who will be most affected by the new taxes.

The problem is compounded by the fact California has 12% of country’s population and 34% of the country’s welfare recipients. In other words, a significant portion no longer gets up in the morning and goes to work to earn money.

THE SUNSHINE IS LEAVING THE GOLDEN STATE!

Over the years, as I traveled, people would always have good things to say about California, about the weather, the lifestyle and the great scenery. Today my audiences express sympathy for those who choose to continue living here, and wonder why we do.

But back to the new tax: California roads and bridges are in bad shape, as are our water storage facilities, environmental regulations are stifling, housing costs are unaffordable (fees to build a home are as high as $130,000 per home in the State)and, well, you get the idea, California is not well managed.

But much of California commutes to work and the commutes are long because, in too many cases, workers cannot afford to live close to their work. Daily commutes of 20 miles or more one way are common. Traffic is brutal in all major areas.

So the added taxes will come directly out of the pockets of those least able to afford it.

And many of them will update their resumes and send them to another state.

Some will quit working altogether and choose state benefits, including welfare. (On a national basis, one third of Americans – more than 109,000,000! – now receive welfare, an amazingly high number considering the total employment in America is approximately 105,000,000!)

The rub in California is one that should make all ‘government can do everything‘ believers blanch: California’s existing gasoline tax provides enough money to repair and maintain the roads but the State’s politicians have redirected the monies to social projects. Even worse, the State acknowledges $4,000,000,000 – that billion! – is ‘missing’ from the gasoline tax budget. No big deal ….

On a Federal level the social security fund, highway fund and other ‘specialized’ entities have had money siphoned away for other purposes.

But the bigger issue now is the ‘cultural divide’ politically in California:

There are now two Californias:

  1. The well known, infamous, coastal California, beneficiary of the tech boom and it’s relentlessly more expensive real estate market.
  2. The ‘other’ California which consists of the state’s interior, or inland areas, still populated by working class people who used to make their living in construction, manufacturing, energy and agriculture.

2. ABOVE HAS LOST ALL INFLUENCE WITH THE CALIFORNIA LEGISLATURE!

Silicon Valley and Bay area progressives dominate state politics and, as Richard Chapman, president of the Kern (Central Valley) Economic Development Corporation, said, “We don’t have seats at the table. We are a flyover state within a state.

Virtually 100% of State policies from water to energy regulations to sanctuary city status come straight from San Francisco. In fact, it was recently revealed that many recent state bills passed by the legislature were written 100% by Bay Area lobbyists.

Recent actions have pushed energy costs more than 50% above that of neighboring states; not a big deal in the cool coastal areas but a financial killer to the inland areas that often reach 100 degrees during summer months.

Poverty rates are now over 30% in the Central Valley and Inland Empire regions, and six of the 10 highest jobless rates are in those regions.

Inland Empire economist John Husing said the political elite are ‘at war with blue-collar industries … critical’ to financial survival.

The irony is flight from the more expensive, high cost (an average home in much of Orange County is now $1,000,000 and rents average $3,100 monthly) coastal enclaves to the less expensive, less dense inland areas, takes the pool of potential employees, especially those with college degrees, away from where the jobs are.

Naturally, California’s regulations have resulted in higher housings costs in the inland regions and companies considering relocation are opting for other states instead.

What does this mean long term?

Growing unemployment.

Increased number of welfare recipients.

Continued exodus of jobs to more economically feasible states.

Growing challenge – recently noted in the news – for coastal companies to get quality employees.

Even greater divide between the haves and have nots.

It should also be noted that predictions of ‘massive revenue’ gains from new taxes rarely materialize but, if they do, someone in the capitol will find a place to redirect those dollars.

Some years ago another California governor, Gray Davis, was driven from office because of his proposal to substantially increase the cost of gasoline. California is more than 700 miles top to bottom and driving distances from home to work typically average at least 20 miles each way and, depending on traffic, take several hours each day. There is a point at which drivers say, “It’s just not worth it.

Silicon Valley now laments the difficulty finding skilled employees. They are trying gimmicks like subsidies but also moving much of their operations to other states.

And California is a lesson for Washington, D.C., which is similarly driven by coastal elites not concerned about the vast geographic concerns of the ‘flyover’ states.

California is an exercise in financial incompetence, driven by politicians 100% owned by special interests, politicians on one side ideologically.

If California thrives and prospers because of the ‘wisdom’ of letting the elites and owned politicians run it we can assume this will embolden those in Washington, D.C. who believe they, too, are smarter than you and me.

If not, perhaps the voter’s revolution so many have touted will finally come to pass.

No matter what, challenges are ahead.

We often hear you cannot tax yourself into prosperity; California believes you can tax yourself into utopia.

POSTSCRIPT: We should note California’s lean all the way left came from one of the most bizarre political figures of all time, Jerry Brown, a career politician whose deity is the environment and who has total and open disdain for anyone he disagrees with. Yet he is tremendously popular in the state, largely because the press worships at his feet.

Posted in News from Our Vantage Point