The Pyrite State is about to increase taxes . . .

. . . but things will still be worse for the state budget. From The New York Times:


Shortfall in California’s Budget Swells to $16 Billion


By Adam Nagourney | Published: May 12, 2012

LOS ANGELES — The state budget shortfall in California has increased dramatically in the last six months, forcing state officials to assemble a series of new spending cuts that are likely to mean further reductions to schools, health care and other social programs already battered by nearly five years of budget retrenchment, state officials announced on Saturday.

Gov. Jerry Brown, disclosing the development in a video posted on YouTube, said that California’s shortfall was now projected to be $16 billion, up from $9.2 billion in January. Mr. Brown said that he would propose a revised budget on Monday to deal with it.

“We are now facing a $16 billion hole, not the $9 billion we thought in January,” Mr. Brown said. “This means we will have to go much further and make cuts far greater than I asked for at the beginning of the year.”

Mr. Brown disclosed the news in a video that had all the trappings of a campaign announcement. In it, he aggressively accounted for the steps he said he had taken to try to scale back a $26 billion deficit he found upon taking office. And he urged viewers to back an initiative he is putting on the November ballot that would increase sales taxes by 0.25 percent and impose an income tax surcharge on wealthy Californians to try to stave off more cuts.

Governor Brown’s video message calls for, as you’d guess coming from a Democrat, increased taxes. Fortunately for the citizens of California, they approved a measure years ago which requires the consent of the voters for tax increases, which has prevented them from being raped even further.

Revenues, the public are told, didn’t come in as high as expected, and the state’s economy didn’t grow as fast as anticipated. California’s official unemployment rate was 11.0% for March, third highest in the nation.1

It ought to be obvious why revenues aren’t increasing as much as expected and the state’s economy isn’t expanding as fast as projected: the weight of California’s already high taxes is holding it back. The state sales tax rate is already 7.25%, and many localities and other taxing districts have add-ons to that. If the initiative passes, all items subject to the sales tax will see a 0.25% increase. That might not sound like much — Democrats would pooh-pooh it — but that means that another $2.50 out of every $1000 spent will go to the government, and that means that that $2.50 won’t be available to be spent on other consumer goods, which depresses total sales. Taxable sales for the final quarter of 2010 totaled $128.9 billion; the additional sales tax would have been $322.25 million that quarter, or over a billion dollars a year, which means over a billion dollars not available for use by the public to buy other things.

The tax increase proposals do have effects. John Hitchcock noted that young families are leaving California, just the people that the state needs to rescue its economy. Donald Douglas noted that even some profitable corporations are leaving California for places where taxes are not as high. THE WALL STREET JOURNAL noted that many jobs which can be relocated have been relocated to places like Texas. Phineas was writing about the exodus of California businesses two years ago. All of this explains why Governor Brown’s estimate of the revenue increase anticipated from the tax increase proposal is $9 billion, but a review by the nonpartisan analyst’s office estimates revenue of $6.8 billion in fiscal year 2012-13. Given that the Governor is stating that his own estimates for revenue previously have been wrong, your Editor would suggest that perhaps the nonpartisan budget analyst’s office estimates might be be more credible. And if they are accurate, it would mean that the tax increase going before the voters is less than the additional revenue shortfall projected. California seems poised to raise taxes again, and be worse off than they thought they’d be without the tax increase just a few months ago.

Naturally, many of the state’s high income earners are not in a position to pick up and move to Texas; they have to be in California, doing business in California, to maintain that high income. And the dramatic drop in housing values means that many others who might be able to pick up and move will not do so, because they would suffer a substantial loss in selling their homes . . . assuming they could sell at all.

But some high producers have been able to flee the Pyrite State, and some have already done so. Some business that might be done in California is not getting done there, because the entrepreneurs who would have done so have left, while others, seeing the incredible regime of onerous business regulations2 and steadily increasing taxes have figured that no, they really couldn’t make enough of a profit to outweigh the risk of starting a new business.

Since most of the proposed tax increases fall on someone else — the evil rich — the polls indicate that the tax increase proposal will pass. Hey, that’s fine: California is a democracy, and the will of the people is paramount. But when you keep taxing and keep taxing and keep taxing the other guy, eventually the other guy gets disgusted and leaves.
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  1. The link provided is to the Bureau of Labor Statistics, and as of May 13, 2012, the March statistics are the latest published. This source will be updated by the BLS, and may not reference the March, 2012, statistic given in the future.
  2. For example, California requires that companies pay overtime after eight hours a day rather than forty hours a week.

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