As more and more people and businesses leave the state, the state loses tax revenue and jobs which results in budget shortages and more and more unfunded financial liabilities. This causes the political class to raise taxes and reduce government services which drives more people and business out of the state and the financial death spiral starts.
Thus, a strong case can be made that the state of California and possibly a California city, e.g. San Francisco, could likely be the first state and next large city to go bankrupt. However, they will face some tough competition from other states and cities in the race to the bankruptcy court steps. New York, New Jersey, and Illinois have also entered into a financial death spiral. New York City, Chicago, Baltimore, Philadelphia and other cities are also strong contenders to be the next major city to go bankrupt.
Consider the assets of these other government entities in the race to bankruptcy:
1) Rather than stop wasting taxpayer money, stop politically connected expenses or run more efficient government bureaucracies, politicians always think that raising taxes will solve their short term and long term fiscal problems. Besides raising tax rates, they come up with ever more bizarre and freedom zapping new taxes.
My former home state of New Jersey and their politicians have come up with some original tax ideas to futilely try to close government budget deficits. First, they now assess a tax on any New Jersey homeowner who sells their house to move out of state. They then came up with a tax based on how much of a homeowner’s property is covered with hard substances such as the house itself, patios, driveways, etc. and then assessed the house on that square footage.
None of these higher tax rates or additional taxes ever create a large enough tax stream to offset the wasteful and useless spending of politicians and governments. A number of years ago, the state of Maryland raised the state income tax rate on all income over a million dollars, i.e. soak the rich concept. Unfortunately within just a few years despite a higher tax rate, the amount of tax revenue from income over a million dollars actually declined. People and businesses either moved out of state or restricted their earnings to not pay the additional taxes.
Again the principle is pretty straight forward: raising taxes almost always results in lower tax revenue streams and usually the out migration of residents, jobs, businesses, and taxable income.
As our recent discussions of California and New York have shown, at some point the high taxation rates drive rich and poor alike out of the state, reducing the tax base which reduces the tax stream which politicians then use as an excuse to raise taxes even more and the death spiral is in place.
Nowhere is that more prevalent than in New York City and New York state. They have trouble making their own annual budget numbers which prevents them from addressing their huge future unfunded liability burden which will eventually bankrupt the city and the state.
But rather then reset their priorities, cut wasteful spending, make city and state government more efficient, they continue to raise taxes with the latest idea showing how desperate an ignorant they are:
- According to a local WNBC report, NewYork state assemblyman, Robert Carroll, has proposed a tax idea that is almost beyond comprehension.
- He wants to place a $3.00 delivery tax on any item(s) that are ordered online and delivered to a household or business.
- So think about all of the Amazon and other packages that you had sent out this past month for the holidays: this tax would have made every one of those packages $3.00 more expensive.
- The only exception would be those packages that contain medicine or food.
- Carroll tries to justify the new tax by saying it would help with climate change, generate $1 billion a year for the NYC Metropolitan Transportation Agency, and encourage people to do more in person shopping.
- For now, people cannot do in person shopping and probably will not be able to or want to for a while due to covid concerns.
- If and when they do get back to in store shopping they will be driving to stores which will have a negative effect on climate, the exact opposite of what Carroll says he is trying to do.
- Amazon, UPS and FedEx trucks are going to be driving around everyday anyway so the reduction in carbon from these trucks will be minimal: most people order one thing at a time from online stores and most of the time when they order multiple things, they usually show up all at once so the reduction in orders, and impact on the climate, will be minimal.
- The MTA is going bankrupt because of covid, no one wants to ride the subways with other potential covid infected riders so fixing that problem rather than making up new taxes is the better solution.
- If a politician says a new tax will generate $1 billion in tax revenue, you can bet it will not get anything close to that number.
- And be sure that Amazon and other online retailers are not going to pay that tax, they will pass that tax along to New York residents, increasing their cost of living.
2) As tax revenue goes down, or the desire to defund the police goes up, or both, the safety and welfare of law abiding citizens goes way down. This is another factor in driving some cities and states into bankruptcy, residents and businesses are fleeing because safety is no longer either a priority or a capability of city politicians and governments.
Consider one day of violence that happened recently in NYC, a list of violent acts that is far from comprehensive:
- In Brooklyn, a street gun fight broke out which injured at least six people.
- A man walking into his apartment building was robbed of his gold necklace and then shot and killed for no reason.
- At least two subway riders were pushed onto subway tracks for no reason.
- As we previously discussed, this year there were almost 1,700 reported shootings in NYC by November 15, a number that doesn't account for shootings that were not reported.
- City murders are up 37% this year when compared to 2019.
3) Still do not believe that NYC is a leading candidate to be the next big city to declare bankruptcy? Take a look at the following video. The video is taken out of a car driving down world famous Fifth Avenue in NYC, the shopping center for NYC.
It captures the reality that crime and riots have forced businesses to basically “board up” their storefronts to avoid being robbed, vandalized, etc. If these images do not scream out financial death spiral then I don't know anything that does:
https://rawconservativeopinions.com/2020/08/16/shocking-dystopian-video-of-nyc-shows-an-abandoned-and-boarded-up-5th-avenue/
3) Since politicians in failing cities and states do not know how to properly downsize government to make it more efficient and less wasteful of taxpayer wealth, when the financial death spiral starts, their first reaction are to 1) raise taxes and 2) reduce government services, making the quality of life more dangerous and less satisfying to their constituents. We have talked about the stupidity of raising taxes in a death spiral and we know that cutting funding of police, fire and EMT services makes a city less safe and prone to population loss, consider another aspect of lowering government services and budgets:
3) Since politicians in failing cities and states do not know how to properly downsize government to make it more efficient and less wasteful of taxpayer wealth, when the financial death spiral starts, their first reaction are to 1) raise taxes and 2) reduce government services, making the quality of life more dangerous and less satisfying to their constituents. We have talked about the stupidity of raising taxes in a death spiral and we know that cutting funding of police, fire and EMT services makes a city less safe and prone to population loss, consider another aspect of lowering government services and budgets:
- New York City has had to cut its short term budget because of a shrinking tax base.
- This budget cutting has resulted in a smaller sanitation department, which means fewer garbage pickups which leaves more garbage on the city streets which has led to an exploding rat population problem.
- The problem is defined as, “Rats as big as bunnies are roaming the streets in broad daylight, nesting in trees and chewing through car engine wires that can cost thousands to fix. And there are so many that residents are kvetching about them every chance they get — 311 hotline complaints about rats have totaled 12,632 so far this year — a third more than the 9,042 for all of 2019.”
- The city has had to start broadcasting a two hour video on rat prevention training, “Rat Academy.”
- Residents believe the lack of garbage pick up is a main driver for bigger and bigger rat populations.
- A long term resident is quoted as saying that it is the mayor’s fault, Bill de Blasio: “He’s a f–king waste. He’s turned this city into a s—hole.”
- Another long term resident claims she saw a gang of 10-15 rats hanging out by a subway stop recently.
4) Other cities are also having the same types of problems and some that have their own unique twist on how to drive out residents and businesses due the failings and ignorance of their own politicians:
- Minneapolis politicians have defunded their police department which has resulted in them needing to use taxpayer money to hire private security guards to protect themselves but not their citizens since the police force has been so decimated.
- Truckers are threatening not to deliver food and other products into the city because of safety and crime reasons.
- Minneapolis was the first major city to defund their police department and as a result, violent crime against businesses and residents has skyrocketed, encouraging law abiding people and businesses to abandon the city, taking their tax revenue and jobs with them.
- Portland, which has been under siege for almost a year by Antifa, gangs, criminals, and other lawbreakers, all of whom have taken over the streets in the face of another defunded police department, now have to deal with insurance companies who are threatening not to insure businesses in the city because of the violence, destruction, and attacks on businesses.
- No business insurance means no businesses in the city which means residents have no place to shop which means residents move out of the city.
- A bloated government bureaucracy, which wastes taxpayer wealth, and over-promised government employee pension and retirement plans which results in short term budget shortfalls and long term, unpayable unfunded financial liabilities which results in ever higher taxes which drives tax paying residents and businesses out of a city or state.
- Crime increases drive out businesses and residents for fear for their lives and businesses so they flee out of a city or state for a safer environment for their family and selves.
- As the annual budget crunch gets worse and worse, politicians belatedly start cutting government services such as police, fire, EMT, schools and sanitation to meet the budget shortfalls which results in a lower yet more expensive quality of life driving more residents and businesses out of a city or state looking for a better life for their families, their employees, and businesses.
- And as the city or state gets hollowed out by the out-migration of businesses and residents, the tax base collapses, the tax revenue stream cannot keep up with current expenses, never mind funding future liabilities, and the financial house of cards collapses into bankruptcy. Not a pretty sight.
- Next major city to go bankrupt: my money is still with Chicago with New York City coming in second and San Francisco going bankrupt third.
- First U.S. state to go bankrupt: my bet would be Illinois followed by New York, California and then New Jersey.
Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at:
Please visit the following sites for freedom:
http://www.reason.com
http://www.cato.org
http://www.bankruptingamerica.org
http://www.conventionofstates.com
http://www.youtube.com/watch?v=08j0sYUOb5w
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