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Sunday, May 24, 2009

California is Obama's Future Vision for the United States

If you really want to see the future vision of America, all one really needs to do is look at California. That's because California has been trying, and failing, to implement Obama's vision in that state for decades.

First, let's look at the dynamics that have put California on the brink of disaster. In its simplest form, the state of California has spent far too much money on a range of government services. Furthermore, to raise money to pay for all of this the state has gone more and more to raising taxes on its most productive citizens.

The roots of California's budget disaster have several areas. Some of its roots can be found in the .com explosion of the late 1990's. The explosion of revenues to the state also came with an explosion in spending. The dot com boom busted but spending has been permanently increased without the same revenue pool.

In 1988 Proposition 98 passed and mandated that 40% of general funds be spent on education. So, when the revenue increased into general funds so to did education spending. As with most spending, once it went up cutting education spending was no easy task. Furthermore, California's massive education spending hasn't been rewarded. It's educational system tests in the bottom five of all fifty states in most years.

Furthermore, California is not only inviting to all, legal or not, but the state provides a robust system of entitlements for everyone. California provides everything under the sun for citizens of the state including those that are in the country illegally. For instance, Medi Cal, its universal health care for the poor program, is billions in the red. Their entitlement programs included food stamps, unemployment, and free health care and education for all those that can't afford it. Providing everything for everyone that can't afford it is not without its own costs. As such, California boasts the highest state income tax in the country and, frankly, is among the highest in state capital gains, property, and sales taxes as well.

Finally, two special interest groups dominate the state, the unions and the envirnomentalists. The unions represent workers in all sorts of state government jobs. The unions are often instrumental in negotiating higher wages, health care benefits, and and retirement plans for their state employees. All of this needs to be paid and ultimately it is paid by the tax payers of California.

The other major player is the environmental lobby. In 2007, California passed the landmark Global Warming Solutions Act. This raised the emissions standards on almost all carbon emitters.

Schwarzenegger especially celebrated California for its leadership on energy and the environment. Just three months earlier, he had signed the Global Warming Solutions Act, committing California to reducing greenhouse-gas emissions to 1990 levels—roughly 25 percent below today’s—by 2020, and all but eliminating them by 2050. The Governator then lambasted the Bush administration for failing to tackle global warming: “It would not act, so California did. California has taken the leadership in moving the entire country beyond debate and denial to action.” Such performances have helped establish Schwarzenegger as a national figure, even a statesman, on the environment. In April 2007, he posed for the cover of Newsweek, spinning a globe on his finger under the banner leadership & the environment, and in September, he even addressed the United Nations on climate change.

Whatever its effect, the GWSA, along with much of California's other environmental initiatives, have increased energy costs and forced California to become dependent on other states for its energy needs.

The spending hasn't stopped even in the middle of the crisis. Despite the utter failure of Medi Cal, the state was near the passage of a single payer universal health care package. On the other end, there wasn't a tax that the state didn't want to increase: taxes on alcohol, pop, cigarettes, gasoline, along with increases on income, sales, and capital gains. All of this not only hurts the poor that consume most of these "excises", and it also has meant a migration of the wealthy which have been the primary target of most of the main tax increases.

If all of this sounds familiar, it is almost an exact replica of the vision of President Obama. Both the environmentalists and the unions have emerged as the two special interest groups dominating his administration. He has a vision to provide entitlements for everyone that can't provide for themselves. The utter failure of both Medicaid and Medicare have not deterred Obama from pursuing universal health care that would implement a similar structure on the economy as a whole. Finally, to pay for the massive increases in spending, President Obama has found all sorts of creative new taxes including taxes on cigarettes, soda, and even on charitable giving.

The only difference is that the state of California demands a balanced budget whereas President Obama can carry these obscene deficits until there is no one there to fund them. Yet, the due date on Obama's massive government expansion and deference to both the unions and the environmentalists is coming and the state of California is a good marker for the final product.


Anonymous said...

You left out the part where energy manipulators gouged the state for billions because of deregulation.

Simon said...

Seems the different ideologies like to blame one another for California.

This from the economist Paul Krugman

"The seeds of California’s current crisis were planted more than 30 years ago, when voters overwhelmingly passed Proposition 13, a ballot measure that placed the state’s budget in a straitjacket.

Property tax rates were capped, and homeowners were shielded from increases in their tax assessments even as the value of their homes rose.

The result was a tax system that is both inequitable and unstable. It’s inequitable because older homeowners often pay far less property tax than their younger neighbors. It’s unstable because limits on property taxation have forced California to rely more heavily than other states on income taxes, which fall steeply during recessions.

Even more important, however, Proposition 13 made it extremely hard to raise taxes, even in emergencies: no state tax rate may be increased without a two-thirds majority in both houses of the State Legislature. And this provision has interacted disastrously with state political trends."

mike volpe said...

It seems you read Paul Krugman an awful lot. Nothing you said explains the budget deficit, and the budget deficit wasn't caused from not being able to tax enough but from spending too much.