Wednesday, April 1, 2009

April Fool's: The Official Motto of California is Exodus

Eureka; I Found It!

“Eureka, I Found It” is not just the official motto of California, but also the historic spirit of California, startying with the 49ers.

California for centuries has been the promised land. Blest by beautiful weather and bountiful natural resources, the state has issued a siren call to generations of immigrants. The Surf, Redwoods, Golden Gate and Tahoe called.

Opportunity beaconed to all.

“Veni, vidi, vici”, Caesar’s famous phrase, aptly summarized the draw of California.

Entrepreneurs, such as Hearst, Kaiser, Hewlett, Packard, Beckman, A.P. Giannini, Ahmanson, Zellerbach, Ralston, Stanford, Crocker, Huntington, Hopkins, Irvine, Sutro, De Mille, Spielberg, Douglas, Martin, Northrop, Ryan, Lockheed, Disney, Mulholland, Doheny, Getty responded and built the state.

“Hollywood” and “Silicon Valley” say it all.

A state which can build the Golden Gate Bridge can build anything.

Hiram Johnson, Pat Brown, Ronald Reagan, and Jesse Unruh were political leaders par excellence.

Cesar Chavez and Deloris Huerta gave voice to a people. The Beach Boys gave voice to a state.

Wheeler, Sproul and Kerr built the University of California Berkeley into the world’s greatest university by 1964. Jordan and Sterling at Stanford, Topping at USC, Millikan at Caltech, and Murphy and Young at UCLA led their institutions into greatness.

Wooden, Russell, Johnson, Robinson and Montana shine above a galaxy of great athletes.

But that was then; this is now.

Exodus is the new motto of the state.

Roughly 1.4 million non-immigrant Californians left the state over the past decade. The net exodus last year was 135,173. Popular destinations are Arizona, Nevada, Texas, and Washington, three of which have no income tax. The émigrés are entrepreneurs, taxpayers, and retirees, reducing the tax base in the state. The top 10% of California’s taxpayers pay 75% of the state’s income taxes.

Ten years ago, with the election of Gray Davis as Governor, California effectively became a one party state, and that party is the public employee unions controlling the Democratic legislature.

Tax and tax, spend and spend, elect and elect, FDR’s motto, became the governing philosophy in California.

The state budget in 1998 was $56 billion. It rose to $104 billion in 2003 and $145 billion last year. The growth was unsustainable, but neither the legislature nor the governor blinked. Taxes and fees rose. State holidays rose to 16 compared to 6 in most states.

The Legislature does not do math. Neither does the Governor. Revenues rose by $30 billion in the period, but expenditures $40 billion.

But unless spending is controlled, taxes cannot be raised fast enough to sustain explosive growth.

California had become the most taxed state, but that was no bar to the legislature. A $42 billion budget deficit emerged.

The “budget agreement” in theory raised taxes $12.8 billion, cut spending $15 billion, borrowed another $11.4 billion, and eliminated two of the state holidays, leaving state employees 14 paid holidays. $8.6 billion was cut from the education budget, with 10% coming from the University of California and the state college system.

The colleges and universities are responding by cutting enrollment, eliminating faculty positions, and classes. Graduation in 4 years is increasingly difficult at the state colleges.

California now has the nation’s highest income and sales tax rates. The marginal tax rate on millionaires is 10.55%, double even the tax rate of Taxachusetts. The marginal tax rate on couples earning $94,110 is 9.55%.

The tax increase is even regressive at lower income levels because of reduction in the dependent credit. A single mother of two children with an income of $15,000 will see her income taxes increase by $498.

The sales tax rose 1%, which means the sales tax varies from 8.25% to 10.75% throughout the state. The car tax essentially doubled. 15% of the sales tax revenues come from the transportation sector. Needless to say, auto sales have plummeted in California. Sales dropped 23% in 2008, with sales drops of over 50% in recent months in affluent Orange County. 137 dealers closed their doors in 2008 while 22 have failed so far this year. Even a Nissan dealer went under in recent weeks.

The tax increases transfer disposable/discretionary income from the lower and middle classes to the legislature's favored beneficiaries. The state has substituted its judgment for that of earners on how they should spend their disposable income.

5,000 of the state’s 25,000 millionaires, measured by income, left the State earlier this decade. they vote dwith their feet.

The last major corporate success from Silicon Valley was Google, over a decade ago.

Corporations are leaving the State; the most recent are Fluor and Hilton Hotels.

Even Hollywood is fleeing the state. 66% of Hollywood’s movies in 2003 were made in the greater LA area. By 2008 the percent dropped to 31%.

Shortly after the Governor signed the budget bill, the state announced it is now facing a new deficit of $8 billion.

The unemployment rate is now 10.1% and rising, up from 6.9% last summer.

California now offers the nation’s highest taxes, lowest credit rating of any state, and near Michigan level unemployment. California Dreaming is no longer becoming a reality.


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