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  • California: The National Petri Dish

    Supposedly, trends start in California and then spread to the rest of the country, a notion that seems to be confirmed by the latest economic news. In May, California’s unemployment rate hit 11.5 percent—the highest it has been since 1941. This morning, we learn that unemployment for the entire country hit 9.5 percent in June—the highest rate in 26 years.

    Will the country close the economic-death-spiral gap with California? Very possibly it will, if the federal government continues to follow California’s example of crushing its economy with ever-increasing government spending, taxing, and regulating.

    The latest from California is that state lawmakers cannot reach agreement on a new budget for the fiscal year, which began on July 1. That failure prompted Governor Arnold Schwarzenegger to declare a state of fiscal emergency and to order a third furlough day for state employees. The state’s comptroller is now preparing to send IOUs to 28,000 California taxpayers who are owed refunds. Central to the budget impasse is the problem of closing a budget deficit that by latest estimates has grown to $26.3 billion. Some experts think California’s deficit will top $40 billion next year. Because of these budget maladies, Standard & Poors has put the state on notice for a lowering of its credit rating, which is already the worst in the nation (tied with Louisiana). California has the fourth highest foreclosure rate in the country. Of the cities with unemployment rates exceeding 15 percent, nearly half are in California.

    California’s economy is imploding, and the causes are no mystery. While a national economic recession can be blamed for lower-than expected tax revenues, California has made things worse with policy choices that include spending every dime (and then some) as if there would never be a rainy day, and creating a poor business environment. As the Reason Foundation’s Adam Summers has pointed out, over the past decade, the state has nearly doubled its spending. Over the last 18 years, state spending has grown an average of 5.91 percent per year, compared to yearly inflation plus population growth of just 4.38 percent. In other words, California’s government has gotten bigger against any metric, and that has fed the demand for taxes. According to the Tax Foundation, California’s corporate tax rate is the eighth highest in the country; overall, Californians face the sixth highest state-local tax burden in the United States.

    According to the Pacific Research Institute’s U.S. Economic Freedom Index Report, only three states have lower economic freedom scores than does California. The PRI index is a broad measure of how state governments impact their economies through tax, spending, and regulatory policies.

    The lesson from California should be that high taxes, high spending, and lots of regulations are not a model for economic growth, yet those are precisely the policies that President Obama and Congress are pursuing. Federal spending this year will be about 26 percent of gross domestic product, the highest level since World War II. And the long-term outlook is even worse if nothing is done to reform entitlements.

    Meanwhile, the House of Representatives has passed a global warming bill that will do nothing to stop global warming, but will cost the economy an average of $393 billion per year. Even here, California appears ahead of the curve, as the EPA has just approved a waiver that will allow California to impose its own tougher limits on carbon emissions from cars. It seems even Congress recognizes the danger that increasing energy prices will drive businesses to other shores. That’s why the bill creates the possibility of new carbon tariffs on goods from countries that don’t regulate carbon as strictly. (New trade restrictions on top of regulations—what could possibly gone wrong?!)

    If you want a preview of where such policies are taking the country, look at California today.

    Posted in Economics [slideshow_deploy]

    24 Responses to California: The National Petri Dish

    1. Claire, Sacramento says:

      Things here in California are a mess, but just one note of correction- the Legislature did already pass a budget in February and the state actually met the Constitutional deadline to pass a budget by June 15th for the first time in many years. The current discussion is over revisions to that budget and how to account for the growing deficit since then. Hence, part of why there is a huge stalemate…many in the Capitol are looking for reforms and fixes that will bring more long term solutions, so this discussion will not be taking place again in the near future. Unfortunately the majority party here is convinced that increasing numerous taxes and fees are the only way to fix the problem and this was part of their solution in the original budget passed in February. However, this does not account for the fact that unemployment is so high, and people don't actually have any money to pay these…so any projected revenues will ultimately fall short and we will be in the same position as we are now…revising the budget to account for revenues not meeting expectations.

    2. Spiritof76 says:

      Mr. Obama and the US Congress are bent on destroying the middle class of this country to create a large percentage of Americans as dependents on the government. It is the socialist/communist state model. If people are free and can become indpendently wealthy, that system will not allow concntration of power in Washington. Look at any example-Soviet Union, Chavez's Venezuela, Cuba, etc. The US is adopting that model. So, yes, Obama wants to follow the California model and bankrupt the nation to enable a Washington plantation.

    3. Cheryll Lawand F says:

      I'm so outraged with the constant fabrication and lack of transparency with this administration. I'm also shocked by the lack of leadership with-

      in the Conservative party for not taking the upper hand by taking advantage and using the abuse of power as leverage to enlarge the voter base.

      This administration has created with great speed and design, intentional chaos, to off set and create such disorder in order to proceed with their ideology and form of government.

    4. Douglas Dauntless says:

      If the Calif. Government would stop giving away money to all the dead beats and Illegal mexicans with free every thing they wouldn't be broke. Marxist Democrats at work braking the Country

    5. Pingback: » Financial News Update - 07/02/09 NoisyRoom.net: “Extremism in the defense of liberty is no vice. Moderation in the face of tyranny is no virtue.” Barry Goldwater

    6. Tom Nally, New Orlea says:

      The solution to the state's problem is so simple, I'm surprised no California legislator has thought of it. California needs to print its own currency — "California bucks" — and pay off all their obligations with those! What could be easier?

      After all, California legislators already live in a fantasy kingdom where you can attach chains to the wealth creators and other members of the productive class without impacting the standard of living and happiness of the state's citizens. Is it such a big leap to go from that to printing the state's own currency?

      —Tom Nally, New Orleans

    7. cris, CA says:

      I live in California and work for the public school system; I can verify first hand that California's problems were caused by and continue to be fueled by the exact reasons your article sited … spending beyond our means, driving out the business revenue, employment base through ridiculous fees and regulations, expanding the government bureacracy and entitlement programs,far reaching EPA regulations,and the offering of seemingly endless free services to non-citizens. California's government initiated policies have buried the state.

    8. Susie says:

      Let the depression come!!!!!!!!!!!!!!

    9. Susie Fresno says:

      Let the depression come.

    10. Susie Fresno says:

      Let the depression come, sooner than later

    11. Bailmeout, NV says:

      I'm with you Susie. I think the collapse is inevitable now. Our gov't is not trying to fix the problem, only make it worse. "This town needs an enema!" I am surprised no media compares California to the current federal gov't. California's situation is America's future.

    12. a.g.katona Campbells says:

      Republicans need to educate and constantly remind people on the damage liberal policys are doing to their quality of life.Start by explaining how businesses dont pay taxes only they do and how taxes and regs are losing us jobs and how wasteful spendind is risking our future.Then maybe we can make progress.

    13. Pingback: California: The National Petri Dish « Conservative Thoughts and Profundity

    14. Dale, Cincinnati says:

      California provides a preview of the United States' future financial picture. If Washington politics wasn't bad enough, Obama is delivering a heavy dose of Chicago and all that goes with it. Get ready for corruption and croneyism as never seen before. Acorn induced voter irregularities are just the beginning. Obama may not be able to raise the dead, but expect their votes to be counted.

    15. Jill, California says:

      Thank you for emphasizing that California's budget woes are due, in part, to bad policy decisions.

      I was injured in the line of duty as a VOLUNTEER firefighter. When the County illegally denied my claim and broke numerous local, state, and federal laws to prevent me from getting proper medical care, the State (clear up to our illustrious governor) encouraged the illegal conduct. What started as a minor knee injury has cost taxpayers more than $30,000 in medical expenses alone because of the delayed and improper medical care. Lord only knows what the legal expenses were. And I will continue to need medical care in the future. Our governor is steadfastly determined to shift the cost of legitimate work-related injuries from the employer to the injured employee. And where he can't shift the costs, he's determined to make the injuries as expensive as possible, causing tremendous suffering and aggravation to innocent workers injured through no fault of their own.

      Meanwhile, I also own my own business. The State keeps making it increasingly difficult for small businesses to function efficiently. For example, by law, I'm not required to provide taxpayer identification information to a customer when the transaction involves only the sale of merchandise (goods as opposed to services). But some customers require it for their systems. Fine. I'll provide it as a courtesy. However, the State will no longer take a standard W-9 form. Rather, the State demands that people complete a custom form … with all the same information. In other words, the State requires business professionals to waste time filling out useless forms not required by law … which takes time away from earning an income, resulting in lost revenue to the State. How stupid can the State be?

      The State is equally short-sighted when it comes to sales tax collection. A few years ago, I worked with Senator Joseph Simitian to introduce a bill to simplify sales tax reporting … a bill that would have benefitted small businesses and the State alike. The State shot it down. Had it passed, small businesses that were required to report sales tax revenue quarterly or monthly could opt to pay via estimated taxes (like we do state and federal income taxes) and do the paperwork just once a year instead of quarterly or monthly. In other words, instead of taking time away from generating revenue quarterly or monthly, we could pay a percentage of our estimated sales tax liability based on the previous year's figures. But no, the State didn't like that idea. Far better be it that we waste time doing useless paperwork, thus decreasing our income and paying less in taxes to the State.

      California is a disgrace, as are the politicians that run it. None of them uses common sense. None of them plays win-win. They all play win-lose … with our tax dollars.

      If California falls into the ocean someday, it won't be because of an earthquake. It will be because the State collapses under the weight of the stupidity in Sacramento.

    16. Jeff says:

      Sadly Republican is not synonymous with conservative as Swarzenegger and McCain can attend to. The only way to end this debacle in California and Washington is for the people to vote them out of office. Hold every Senator and Congressman responsible who votes for crap like cap and trade. It is time to rid the country of the Nancy Pelosi's and Barney Franks and get back to the principles that made this country great. As California goes, so does the country if you listen to the Obamites. California is not exactly a great role model for success and prosperity. It is the epitome of the type of damage liberal policies can wreak on an economic and social environment. California is a failed experiment, will we let America become one as well?

    17. Mike Mancuso, San Jo says:

      All of your state and federal representatives have websites with email contact information. Whenever something is reported by Heritage Foundation, the NRA, MSNBC (really) or the local news that goes against my conservative values, I fire away to the appropriate politician. I am only one voice, but thousands or millions of us can make a difference. We did last time they tried to ram "comprehensive immigration reform" down out throats. Most democrat politicians also have their own email bulletins. Sign up! They're proud of their socialist agenda and are are not afraid to publish their plans. Those activists among us probably already know this.

      My wife gave me Heritage Foundation for Father's Day. Nice gift, huh?

    18. Tim AZ says:

      People who owne businesses in California should leave. And take their businesses with them. Don't continue to feed the liberal rot with the fruit of your labors. Leave the rot behind to starve itself.

    19. Angel, Ohio says:

      California here we come….. The entire country will look like California because that is what Obama wants. His goal is to bankrupt the entire country. California with all its environmental regulations and restrictions is to become the foundation for the entire country. What does that say? I would say it says it all — We will all be in the same boat and that boat is sinking. Who will through us a life jacket is the question?

      We all need to be prepared for the depression that is looming if Cap and Tax and Socialized Medicine get passed.

    20. Pingback: California: The National Petri Dish | Democrat = Socialist

    21. Chantal, Palm Beach says:

      I just got my doctorate degree and applied for a job at UC. From all the comments, maybe I'll skip moving to CA.

    22. Carol in az says:

      Suggestion for Ca and it's lack of decison making from all fiscal venue.

      Pass the folowing laws ;

      Require all CA state education institutions upon admitting students, require legal proof of U.S. residency from their parents.

      Require all forms for hiring ( which also includes schools ) to utilize e-vertify upon hiring.

      Require all forms of public housing authority's in towns, county, cities, to require verification of US citizenship for all forms of public housing applications.

      Re-classification of human smuggling laws that enforce the crime as a class 2 felony when it involved a deadly weapon.

      All temporiary workers, be required by law from CA, to have photo I.D.'s, registered as a temporary worker an accounted for, by the Dept. of immigration and the Buss. they work for.

      All other business's that hire any un-documented worker, "not verify" i.e. construction sites will have their licenses revoked and fined.

      Declare all special treatment currently under the blanket of "Sanctury protection" through out CA, which is direct violation of Fed Law declared (illegal).

      If these areas do not comply with Fed Law withhold all Federal funding where it applies.

      Give all illegals living in the shawdows a specific time frame to apply for legal status and became citizens of the U.S. I certain that their contribution on all levels will be welcome by the CA treasury. Paying state & local taxes, S.S.and all other requirements.

    23. Ross Bradenton says:

      I immigrated from California over 20 years ago. State regulations were making it almost impossible for me to build a business. Finally I closed the doors, immigrated and never looked back. The culture had change significantly, as had the state government from my first experience in California in '65. Greed and personal power has created this mess. The Golden state has turned to lead…and lead is toxic to living beings!

      Obama is a puppet. Even the Democrat party members are puppets. Can't forget a few Republicans. The question is, who are the puppeteers? Is it a fellow American who hates everything the USA stands for? Or is it someone else unbeknowns to us from another country?

    24. Cynthia says:

      Sure, California has its problems, but it's a mighty fine place to live. I live in San Francisco, and our economy is doing fine; in fact, even manufacturing is beginning to return to the City due to a buy local, made in San Francisco campaign.

      A word about the Pacific Research Institute’s U.S. Economic Freedom Index Report…it's not really an Economic Freedom Index. It's more of a "Favorable Business Environment" or "Market Exchange Free From Government Interference" Index. For example, its indicators don't include self-governance in the workplace (i.e. workplace autonomy, and how much discretion people have over their working conditions, compensation, and/or company strategy); market exchange free from government AND private interference; or the median amount of wealth or discretionary income people have. After all, it's a little difficult to have economic freedom if you don't have any moola.

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