California Foreshadows

As California drowns in $16 billion of debt, we wonder:  Will the rest of the country see where America is headed and change course?

California is known to be a trend-setter, and they certainly are in the case of their fiscal situation.  To understand where America will be 5-8 years for now at current course and speed, look at the Golden State and see our future.  It is a state with well-intentioned social and environmental programs that are wildly unaffordable, fat contracts that make the majority of public sector workers millionaires with 38 hour work-weeks, and corruption and deception at many levels of government. The result is a state that projected “only” a $9 billion deficit for this year that suddenly has changed to $16 billion.

Click on the zoom-out button and now see America.  Led by a President who can tell us all the things we are entitled to and need, but who can’t tell us how to pay for it (remember, the Buffet tax raises $4.5 billion/year), we are headed in the same direction.  $5 trillion in debt, with $15 trillion projected, soon 75 cents of every tax dollar we collect will be used not for government programs, but simply to pay off debt.  In the face of all this, our President says almost not a word about fiscal policies, and spends his time on “gay marriage” and the alleged “war on women”.

Unfortunately for California Governor Jerry Brown, the ability to distract his people from the real issues at hand has passed.  He performed just enough sleight of hand during his campaign last year to get himself elected.  Elected, that is, over a successful businesswoman in Meg Whitman (former CEO of eBay, now of HP) under whom surely this $16 billion surprise would not have happened.

Governor Brown’s solution?  More cuts to education and public safety, but most significantly a temporary  4-year increase in the state sales tax from 7.25 to 7.50%, and an increase in the top state tax bracket to 13% from 10%.  (Temporary on that sales tax?  I’ll bet my house and car that this tax is in place 5 years from now, and my wife’s car that it will be even higher than 7.5%).

These of course will have the opposite effect of what he claims.  It is giving a patient with heartburn a plate full of jalapeno peppers.  Wealth will continue to flee the state, businesses will continue to locate in Texas and Arizona rather than California, state workers will retire at age 52 with lifetime medical and nearly full salary, and the deficit will grow.

There is an endless list of “wants” and “needs” for government to serve.  California has tried to cater to all of them, and at the same time it is paying state employees more generously than private sector employees with far greater skills and value.   Our Federal government is on the same path and this must stop before it is too late.  We must reform Medicare, Medicaid, Social Security, government pensions and benefits, and reduce the size and scope of government within the next year or deep trouble awaits.

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