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The Corner

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Sink with California



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The upside of Mussolini’s being a dictator, the saying goes, is that he made the trains run on time. But what is the upside of California’s mad tax-and-spend-and-spend-and-spend regime if the state cannot quite manage to collect taxes? Receipts are running nearly $1 billion light this month, or almost 20 percent off:

 

“November’s disappointing revenues stand in stark contrast to recent news that California is leading the nation in job growth, has significantly improved its cash liquidity to pay bills, and even long-distressed home values are starting to inch upward,” Mr. Chiang said in a statement. “This serves as a sobering reminder that, while the economy is expanding, it is doing so at a slow and uneven pace that will require the state to exercise care and discipline in how its fiscal affairs are managed in the coming year.”

It is all Facebook’s fault — seriously: California made budget projections based on certain assumption’s about Facebook’s financial performance and the tax revenue it would produce. And while this may surprise you, it turns out the geniuses who have wrecked one of the most productive and inventive slices of God’s green earth are not very good at forecasting business developments. 

Worse, they do not seem to care. California’s political class has, not to put too fine a point on it, looted the state. Consider this observation from Reuters about the shenanigans of the worst city government in the country:

 

[San Bernardino's] decades-long journey from prosperous, middle-class community to bankrupt, crime-ridden, foreclosure-blighted basket case is straightforward — and alarmingly similar to the path traveled by many municipalities around America’s largest state. San Bernardino succumbed to a vicious circle of self-interests among city workers, local politicians and state pension overseers.

Little by little, over many years, the salaries and retirement benefits of San Bernardino’s city workers — and especially its police and firemen — grew richer and richer, even as the city lost its major employers and gradually got poorer and poorer.

Unions poured money into city council elections, and the city council poured money into union pay and pensions. The California Public Employees’ Retirement System (Calpers), which manages pension plans for San Bernardino and many other cities, encouraged ever-sweeter benefits. Investment bankers sold clever bond deals to pay for them. Meanwhile, state law made it impossible to raise local property taxes and difficult to boost any other kind.

But it is not only law that makes it difficult for California communities to raise taxes. U-Haul plays a role, too. There’s a lesson for us on the national level in this: While it is unlikely that very many Americans, even very rich ones, will turn in their passports or green cards for tax purposes (although a record number did in 2011, it was still fewer than 2,000), businesses and investment capital are very mobile — money can live wherever it likes. U.S. businesses can save themselves millions of dollars by moving their corporate domiciles not to the Cayman Islands or some other famous tax haven but to the United Kingdom or Ireland, as some already have. When it comes to tax rates (or the debt ceiling, for that matter) the grand dreams of politicians and the laws they enact eventually conflict with reality. And reality wins.



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