California Running Out of Other People's Money

In the past, when I've written about how, "the trouble with Socialism is that eventually you run out of other people's money", I've used Greece as an example.  Although I still think Greece is the best example, several states in the US are doing their best to catch up.  California is arguably in the lead.

The real cause for California's fiscal crisis is simple: They spend too much money. Between 1996 and 2012, the state's population grew by just 15 percent, but spending more than doubled, from $45.4 billion to $92.5 billion (in 2005 constant dollars).

What are Californians getting for all this government spending? According to a new census report released Friday, almost one-quarter, 23.5 percent, of all Californians are in poverty. One-third of all the nation's welfare recipients live in the state, despite the fact that California has only one-eighth of the country's population. That's four times as many as the next-highest welfare population, which is New York [another "Liberal" bastion ~ OS]. Meanwhile, California eighth-graders finished ahead of only Mississippi and District of Columbia students on reading and math test scores in 2011.

Surely, California can solve all its problems by taxing the rich, right?  I mean, that's what Democrats always tell us.  Except, California has already tried that.

Despite Brown's historic tax hike, the California Legislative Analyst's Office announced this week that the state still faces a $2 billion budget deficit just for the next fiscal year. California's liberal electorate has already racked up an additional $370 billion in state and local debt over that last decade. That is more than 20 percent of the state's gross domestic product.

According to the California State Budget Crisis Task Force, that comes to more than $10,000 in debt for every Californian. And because the state's credit rating is so low, California taxpayers must fork over about $2 for every new dollar borrowed. In 2012 alone, the state budget included more than $7.5 billion in debt service -- more than most states' budgets.

Don't think for a second that California's chronic deficits are caused by low taxes. Even before last Tuesday's tax hikes, California had the most progressive income tax system in the nation, with seven brackets, and the second-highest top marginal rate. Now it has the nation's highest top marginal rate and the nation's highest sales tax. And the budget still isn't balanced.

What do Californians do when fed up with excessive taxation, regulation and debt?  Move to Texas.

Middle-class families that want actual jobs, not welfare, are fleeing California in droves. According to IRS data compiled by the Manhattan Institute, since 2000, almost 2 million Americans have left California for other states. Their most popular destination: Texas.

It isn't a tough move to make. Thanks to low taxes and simple regulations, Chief Executive magazine ranked Texas as the best state to do business in for 2012. Guess who ranked dead last? That's right, California. And not only does Texas (6.8 percent) have a far lower unemployment rate than California (10.2 percent), but, according to the Census Bureau, income inequality is worse in California than it is in Texas.

Again, this is a case of federalism at work.  States with low taxes, light regulation and a business friendly climate attract businesses (duh!), which create jobs, which attract people.  The opposite is also true.

From the Manhattan Institute's Civic Report of September 2012.

Note how the top "sender states" - the ones people are leaving in droves - are "Liberal" bastions, while the top destination states - the ones to which people and businesses are escaping - are largely Conservative.  This shouldn't surprise anyone.

What makes matters worse for California is that when they push people out of their state, those people take their money with them (duh!), which shrinks California's tax base.  California isn't just losing people to other states, it's losing money.

From the Manhattan Institute's Civic Report of September 2012.

So, California keeps raising tax rates on a smaller number of people, which causes more people to move out, which shrinks the state's tax base, so they raise tax rates...

California really should be the #1 place to live in the US.  The state's natural beauty, raw materials (petroleum and natural gas abound), fertile soil and weather should make it a great place to live and do business.  Instead, California's politicians, elected by California's people, keep making it increasingly difficult to make a living, so people move to Texas, where doing business is much easier.

So, which model do you think the US as a whole is currently following; California or Texas?  Which model should we follow?