Self-Sufficiency Series

Friday, January 11, 2013

Why California is a mess

My husband recently found an interesting article entitled California Revenue Declines Since Passage of Prop 30.

Prop 30, it seems, was a tax-the-rich scheme that passed November 6, 2012 and which applies retroactively back to January 1, 2012. After it passed, business people wasted no time. Within a month, California State Controller John Chiang reported “that the total revenue for the month of November declined by $806.8 million, which is 10.8 percent below budget… The State of California experienced a decline in its revenue as several of the high income earners have relocated to other states, and have also relocated their businesses out of state. This led to a decline in corporate and income tax revenues by more than $1 billion.” [Emphasis added.]

A DECLINE of a billion bucks. And this article was written back in early December. Doubtless the businesses that left so quickly were either those that were small and light on their feet, or who were already in the process of relocating to another state. I’m guessing that in the next few months, California can expect to see an even larger exodus of businesses whose owners who aren’t interested in having every spare cent of their money confiscated against their wishes and redistributed elsewhere.

Even more comically, California bureaucrats are guilty of counting their chickens before they hatched. “With the expected increase in revenue to be derived from the passing of Prop 30, state bureaucrats increased deficit spending beyond the state’s $6 billion annual tax increase. The Department of Developmental Services and the Department of Health Services increased its spending in November by over $1 billion in comparison to its spending last year.” [Emphasis added.]

In other words, government goons – doubtless rubbing their hands together in lascivious glee – went on a spending spree without first finding out if they had any money in their checking account. And now California is more in debt than ever before. Surprised?

So what happened? Why didn’t the tax increase result in increased taxes? In an article entitled What Proposition 30 Means for California’s Entrepreneurs, Ethan Anderson wrote, “Nothing terrifies investors or entrepreneurs as much as the concept of expropriation. When governments decide to expropriate legally obtained assets, entrepreneurs who worked tirelessly to build businesses and investors who risked scarce capital end up with little to nothing for their troubles.”

For purposes of definition, expropriation is “when a public agency… takes property for a purpose deemed to be in the public interest, even though the owner of the property may not be willing to sell it.” In other words, it’s state-sponsored theft. Company profits are being stolen in the name of “public interest.” The California government – apparently steeped in greed, welfare, mismanagement, and other vices – decided to “stick it” to the rich (y’know, those folks who EMPLOY people) by stealing their money.

If I lived in California, why should I start (or continue) a business when I know all my profits will be seized by the state? What’s the incentive to continue running my company? Answer: there is none. I’d leave and take my business, my profits, and my employment opportunities someplace where they’re more appreciated.

We can’t necessarily blame the voters for passing Prop 30. “As is the case with many propositions,” notes Anderson, “the voters may have been fooled by the governor and his allies who aggressively pitched it as a way to ‘save education in our state.’”

The trouble is, this proposition disproportionately affects many people who patently aren't rich. Again I quote Ethan Anderson: “California’s entrepreneurs are hit particularly hard by Prop 30. Why? Because entrepreneurs often invest their life savings and go for years with a low or zero salary. Most start-up ventures end up failing in the end. But in those rare cases when something of great value is created and a meaningful liquidity event takes place (usually in the form of an acquisition or IPO), nearly all the money earned from the undertaking hits at one time. Instead of the income being spread evenly over the life of the company (the average time to exit for venture-backed start-ups is 7 or 8 years), a single once-in-a-lifetime event occurs such that eight years of income shows up in the single year, making entrepreneurs highly vulnerable to the top marginal tax rate.”

Many entrepreneurs and businesses, unwilling to hand over all the hard-earned assets they worked their butts off to earn – especially since Prop 30 is retroactive for almost a year – simply choose to leave California. They migrate to other states which welcome them (and their employment prospects and tax revenues) with open arms. States where they aren't punished for being a business.

Now I ask you, what on earth would compel ANY business to move to California? And what kind of reverse impetus is the California government using to encourage businesses to LEAVE the state? Talk about screwy. A state which desperately needs money is doing whatever it can to drive away investors, employers, entrepreneurs, and businesses.

My husband pointed out how Prop 30 exemplifies three misconceptions politicians invariably fail to remember: (1) No business is obliged to remain in a state where taxes and expenses discourage success and decrease profits; (2) Government always makes the assumption that when it increases taxes, it will increase its revenues (which has been shown time and time and time and time again to be incorrect); and (3) Either government legislators are dumber than a box of rocks, or the concept of “sticking it” to rich people is more pleasurable than fiscal reality.

To modify Margaret Thatcher’s famous line, “The problem with socialism is that you eventually run out of other people's money. ” – I might add: “Or until you chase people WITH money out of the state.”

We lived in California for decades. We fled in 1993 – first to Oregon, later to Idaho – and have never regretted that decision. We left because California was too crowded, too expensive, too full of crime, and too high in taxes. Looks like not much has changed. California has one-eighth of the country’s population but one-third of the country’s welfare recipients. Something’s gotta give, and when it does it ain’t gonna be pretty.

I have no solution to this mess. I just wish my family wasn’t still there when the powder keg blows.

39 comments:

  1. Maryland tried a similar "Millionaire's Tax" a couple years ago - instead of collecting an extra $106 million in taxes as they hoped, they collected $100 million LESS than before. http://online.wsj.com/article/SB124329282377252471.html
    I also suspect it is a result of the same mindset that these high tax states also have expensive regulatory environments (building permits, business licenses, environmental rules, etc), high crime rates, and poor education systems.
    These are connected because they aren't willing to actually address fundamental problems; they just keep throwing more money and rules at things instead of sitting down and looking at how and why problems come up.

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  2. I haven't commented on your blog for some time, but I have been a faithful reader for years (and now my daughter is!). May I ask you and your readers to please pray for the people of Taft, where there was yet another school shooting. This is our town, those are our people--we know the teacher that was shot, the security guy who helped diffuse the situation, my brother-in-law is a local police officer who had just gotten off work and had to turn around and go spend the whole day there, etc. My granddaughter attends kindergarten a few blocks away and was on lockdown for several hours while my daughter waited for "permission" to take her own daughter home.

    What is really bothering me is the eternal focus on the wrong thing. We are a conservative town and we are NOT afraid of guns. We don't have a Wal-Mart or a Target, but we have two gun shops. Guns are not the issue.

    My understanding is that the shooter was bullied for quite a while before he went postal. This happens all the time, and I'm not at all convinced that there's much the school or the government can do about it. Both of my oldest girls attended Taft Union High School, and the stories they told me of TUHS made me cringe. I was so thankful when I was finally able to pull my second-oldest out and homeschool her.

    I spoke not long ago with the parents of a student who had been bullied for a long time but had received no real support from the school. He finally had to defend himself and knock some sense into those boys. Sadly, his parents did not see homeschooling as an option. Most kids in his position somehow find a way to survive school, or they get into trouble and end up in the "alternative" high school, where they are even more likely to be given a hard time. Honestly, hit lists are not at all unusual. Kids make them, and they talk about them. Grade school, middle school, high school--it happens. I think it's the nature of the beast that so much of this falls through the cracks.

    Please pray for our whole town, that God would give us wisdom, protection and mercy as we slog through this mess, and that he would heal and restore all the hurting hearts here.

    Thank You
    Birdy from Taft

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    1. birdy you have prayers from northeast mississippi flying your way....

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  3. What baffles me is that despite years and years of data, a State government is still using a static revenue model!

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  4. This situation is about as crazy as when Nancy Pelosi said that 'unemployment checks are the fastest way to create jobs' ... presumed wealth redistribution enables the masses to have no 'drive' and why should they? I'd like to just pull the rug out from under the government and let the chips fall .. once and for all!

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  5. I have no doubt that CA will self-destruct, but the ability of it's public 'servants' to delude themselves is almost unbelieveable. Check out this article on MarketWatch:

    http://www.marketwatch.com/story/california-upgrade-and-4-more-views-for-muni-bonds-2013-01-11

    Here's the jist of it:

    "California will enjoy a rating upgrade, a positive sign in general as Larkin sees the state as a bellwether for the muni market. Basically, as California goes, so go other municipalities.

    On Thursday, California Governor Jerry Brown announced his budget plan for the year and said deficits would disappear in part because of tax hikes recently approved by voters. Read: Gov. Brown says state deficit disappeared. "

    What a hoot!

    Dennis

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    1. Schwarzenegger got them into this mess and Jerry Brown is getting them out!

      The GOP can't bare this wonderful news...so they love to play it down with half truths.....and man....do I dare say it....yes..LIES. Business as usual.

      Hope this example DOES take the lead for this country. How can you not say taxing billionaires and millionaires to even at least EQUAL the burden that the middle class has had to bare percentage wise could not raise revenue?

      There are also billions lost in subsidies that we pay oil companies, massive loop holes in corporate tax, money evaded in the Cayman Islands, yacht tax breaks...should I go on? If we could recapture some of these...it would be .....what deficit????

      Who says that these taxes owed to this country could not balance the budget? You would be a moron to think otherwise. Instead....it is the thinking of the right that there should be even MORE tax cuts to the middle class on top of what programs have already been slashed.(this includes veteran assistance.)

      ....But no....they want our social security. What I really have trouble with is the fact that all of us have been PAYING into SS all of our lives. It has NEVER been a charity or had anything to do with the deficit but that's on the chopping block too. It is currently in the black now for the next 21 years.

      Un fricken believable!! Sorry for the rant...but it just gravels me.....I hope the country DOES follow California. Common sense please. BJ

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    2. The current mess was started long before Schwarzenegger was Govenor.

      And why should the middle class shoulder the vast portion of the tax burden? Why should we work and pay for everyone else? My husband and I don't qualify for a dime of assistance for our kids to attend college, so don't suggest there's a program we're using.

      And all you're concerned about is your social security being cut? Thank your President for that. As for being in the black...not true, and hasn't been true for a very long time. Fact is, more people are drawing than people are paying into it, and many people who have never worked are drawing. Check the stats on the GAO website.

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    3. Obviously you don't know much about social security.....

      and the last time I checked....it was the "weeper of the house" and all of his cronies that were wanting to mess with SS and are still trying to do so. Not Obama for God's sake.

      No...I don't think the middle class should be hit with this burden.

      There would be no deficit at all if we were to remove oil subsidies, receive the taxes that are sheltered in the cayman Islands, cut massive corporate loop holes allowing corporate giants to sometimes pay nothing in taxes and removing the yacht tax loop hole, etc.

      Why are these sources not on the table
      instead of hitting up the middle class for even more cuts than they already have? BJ

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  6. We also moved out of San Diego back in 2003. Our property taxes were almost the same as our house payment. I worked for a big school district and saw many changes taking place and wondered how the school was even going to handle a crisis. We decided that before the bubble popped on the housing market we had to move and get out before the going got tougher. I don't see how anyone can now even move to California with all the housing problems, less full time jobs, and high housing and utility costs. I have a friend that can't even sell here triple wide, which is values at 98,000 for a low price of 25,000.! The space rent is just as high as a house payment. No one is going to touch it. It's been on the market for over two years now. I have a feeling that they are just going to have to walk away from it just to move up closer to us.

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  7. And no one learned anything by that so now they are doing it to the whole country.

    Idiots the lot. >:/

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  8. This tears me up. I was born and raised in California and all our family is still there. We moved via a job layoff in 2009 to Texas and haven't looked back. I miss my beloved Sierra Nevada Foothills terribly - and for those that don't know, much of California (excepting the large cities) is far more conservative - but I am deeply troubled by what I see. It's as if I want to go back but can't convince myself that it would be a good thing.

    I honestly keep hoping the Red Parts of the State (largely everything excluding the coast) vote to split the state, but I don't see it happening.

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  9. Un-friggin'-believable. California forgot to seal the exits before they voted for THAT proposition.

    Maybe that's next.

    Just Me

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  10. I don't know where this guys gets his info.....but Here's a sampling of headlines as of today, 1/11/2013 on results from Calif. prop 30.

    New York Times: "Back From the Fiscal Abyss, California Balances Its Budget."

    Wall Street Journal: "State's Rare Sight: A Budget Surplus."

    San Jose Mercury News: "California Gov. Jerry Brown Wins Praise For Eliminating Budget Deficit."

    Orange County Register: "Brown Releases Restrained State Budget."

    Go figure.....maybe a little propaganda floating around with the article?

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    1. Has the governor ACTUALLY seen the money he is planning on or is it just as Partice say "counting his chickens be fore they hatch"? Dems are well known for never letting facts get in way of a good press release.
      JW M

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    2. What would you expect news media reports, that backed the governor to say? "We were wrong, he was stupid?" I don't think so. Of course the news media always reports the truth and facts!!!! Suggest you do some digging and analysis on your own and beware of "propaganda" that, of course, has an agenda.
      dbn

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    3. You don't need to be a bean counter to figure out that more revenue is more reveue. The next few months will prove that for California.

      Why aren't you guys ever happy when something good happens to fellow Americans? Jeeeeze!

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    4. My taxes went up, the value of my home went down, my car,home and health insurance went up and I am supposed to be "happy" for the "fellow American" that gets food stamps, welfare, and unemployment checks for crossing the border and doing nothing??? We Californians, Americans, cannot continue to provide "free" handouts to those that do not and will not produce in society. Always help those in NEED, but the word IS "NEED". dbn

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  11. To quote an old saying "Figures do not lie, but liers figure". We unfortunately live in CA, and if we could leave, our bags would be packed and I would not wait for the door to hit my backside. Prop. 30 was failing until Jerry Brown(excuse me while I cough up another hair ball)went to the students on the University campus, told them it will "lower" your cost on classes, we will use that money just for you. The youth being as bright as a burnt out light bulb pushed it over to win. Yes, guess what, those students got an increase in the class costs as a present from Jerry Brown.

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    1. I also live in CA and was agast at the lies being spewn by Jerry Brown that Prop 30 would "help schools". If anyone bothered to actually READ the Proposition, they might have noticed that simply was not so. Prop 30 said that some of the money "could" be spent on schools.

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  12. Yep, California will collapse fairly soon.
    However, after that comes a rebirth - just as spring follows winter. Just as the South rose again after the war of Northern Aggression California will rise again. This will happen in my lifetime and I'm an 80 year resident of The Golden State

    Semper Fi
    Hangtown Frank

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  13. From the CA State Controller's Office web page at: http://www.sco.ca.gov/eo_pressrel_12984.html

    "December's sales tax receipts were affected by a large timing issue at the end of the calendar year. While $1 billion of sales tax was deposited into the Board of Equalization's bank account on December 31, those dollars were not transferred to the General Fund for another two days. Because the Controller's monthly cash report shows General Fund balances reported by close of business on December 31, the $1 billion of late-deposited December sales tax dollars will instead appear in January's report. Without accounting for this timing issue, total revenues fell $896.6 million below (-9.6 percent) monthly estimates."

    It will be interesting to see if January's numbers show the $1B of revenue above estimates.

    The real telling item in the press release is in the last paragraph:

    "The State ended the last fiscal year with a cash deficit of $9.6 billion. As of December 31, that cash deficit totaled $24.2 billion and was covered with $14.2 billion of internal borrowing (temporary loans from special funds), and $10 billion of external borrowing."

    Sooner or later California will have to pay off that $24.2 BILLION in borrowing!

    (My wife and I left California over twenty years ago and moved to the midwest. Best thing we ever did!)

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    1. Funny you should post that. My husband is a retired firefighter from CDF (Cal Fire). Normally his retirement check is deposited in our account the next to last or last day of the month. Instead, it was deposited on January 2, 2013 instead of Dec. 30 or 31, 2012.

      We were quite concerned, to put it mildly. Not that we're living check to check, but that it seems the State of CA didn't have funds to pay him.

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  14. This whole notion of a so called business exodus to another state is a complete falacy...

    ....oh...maybe a few might leave...but if your a middle class business man and you have a nice home with a built up clientele that you have created through the years and lots of prestige in the community.....I REALLY don't think you will give that up to risk starting over.

    Not everyone falls into this warped image of always being focused on the bottom line. Some actually have a concern for their states welfare and enjoy living in California.

    This will actually make their businesses more prosperous because when the middle class has more money in their pockets....middle class businesses prosper.

    The larger Corporate businesses are already doing just fine.....and if they were smart....they could make up for what they lose in taxes with more business. (This isn't from me but from various millionaires from California that have expressed this sentiment. You've got to get both sides.)

    It's the old adage....what goes around, comes around.
    Common Sense please. BJ

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    1. We have a small business. In this climate, along with the constant threat of being sued by stupid people for insane reasons and the cost of defending ourselves in front of judges that use their "hearts" instead of following the law, we're planning to close our business in 2014 if leaving the state is not easily achieved.

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    2. My former boss makes 1-2 million a year. He didn't leave his business in California, he just bought a vacation property in Nevada and says he lives there full time. He got the idea from our even more wealthy silicon valley clients. Working on wall street made me want to Barf, after 15 years I quit, moved into the family cabin in the state of Jefferson. Now my husband has an awful commute but it is worth it! The state will get far less in taxes from us this year. With any luck will be in the redoubt soon.
      Patrice, I have been cracking up at how much our weather seems to match, who knew California got so cold! I still think we have more snow!

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  15. Can it be only me that sees the states where this tax and rob nonsense continues unabated are those with strong Democrat majorities? California is one of the worst, competing for rock bottom is Ill Noise, the home of our national troubles.

    Jerry Brown was a loser in the 70's and far worse now. He has been caught redhanded lying like a rug to the people of California. And the fools continue to support this nonsense???

    I agree with Hangtown Frank, the temple of fools soon will collapse and then a period of rebirth will begin.

    Meanwhile, the democrats are in charge, everyone keep their children well hidden and never mention the word money as they will want both.

    Winston

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    1. More bolderdash and fear!!

      The right never cared about money for 8 years of Bush.....funny they should care now.

      Stay tuned for prosperity in California....then we'll see who to hand the shovels out to!! BJ

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    2. Unlike the rest that have said this in history, I am sure they will get it right...this time. For Certain.
      trust them, they are with the government, and they are here to help.

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    3. Anonymous 2:35 BJ:
      There are many of us who are neither right nor left, but are Americans who long for a return to following the Constitution. Our country, once great and full of enterprising individuals, is about to go bankrupt because both the right and the left have spent more than we can ever pay back. Too many millions of people are dependent in some way on the government, too many people lack morals and even basic manners. This is nothing to revel in, and there's no easy way back to 1776 and restore us to greatness and promise.

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    4. WE NEED TO TAKE THE MONEY OUT OF POLITICS!!

      You can thank the rightys on the supreme court who are bought and paid for by the corporations for that one....I give you Citzens United.

      I agree.....the money is being spread to both sides of the isle. BJ

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  16. To "Anonymous @ January 12, 2013 at 2:35 PM",

    No, the "right" didn't care about debt when Bush 43 was President. It was the wrong thing to do then and if you could ask Patrice or most of her readers they'd tell you that. It's also wrong to not care about debt right now like the "left" is doing.

    The current national debt is unsustainable. The gov't is broken and it doesn't look like the system can be fixed. Even if it is fixed things ain't gonna be pretty for a while. You can't tax your way to prosperity. Even if you balance the budget by increasing taxes you just kick the can down the road for a few years.

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    1. Take an example from FDR who ultimately got us out of the depression. How did he do it?????.....by throwing money at it like the CCC and more government created jobs.

      That move was the only thing that gave the middle class a shot in the arm to generate more tax money and get back on track.

      That is what Obama had to do to pull us up by our boot straps (after 8 mercless years of Bush spending like a drunken sailor) before we ALL went under....but you guys can't seem to get that.

      The only thing you can come up with is that there is more debt. It takes DEBT to get out of DEBT! Believe me...you would not have liked the alternatives!!

      NOW we can start moving forward by recapturing taxes that are lost every day from big corporations and cutting the fat in spending (and NOT our already paid for insurance programs like SS) BJ

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  17. I was watching C-Span open forum in Santa Rosa California and was pleasantly surprised by the 90% pro gun opinions...in California of all places !!! Terry / NJ

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  19. http://articles.washingtonpost.com/2013-04-09/opinions/38399033_1_prop-30-new-budget-cuts-tough-cuts

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  20. http://articles.washingtonpost.com/2013-04-09/opinions/38399033_1_prop-30-new-budget-cuts-tough-cuts

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