We have had a running discussion for a number of years under the theory that certain city and state governments across the country are on a course to relatively quickly go bankrupt. The states we think have the best chance of winning the race to bankruptcy court include California, New York, New Jersey and Illinois. The cities with the best chance include New York City, Los Angeles, Chicago, and San Francisco.
The bankruptcy trajectory is unfolding as follows:
State and city politicians continue to implement and manage government programs that are inefficient, ineffective, wasteful, or criminally infested.
Rather than become more efficient, the politicians raise taxes which drives residents and businesses to leave and relocate, reducing the tax base.
Faced with a reduced tax base, rather than cut back spending to match the reduced tax revenue, politicians typically raise taxes even more, which drives more residents and businesses out of the state.
Eventually police fire, education, and other city and state services suffer from lack of funding which reduces the quality of life and drives more folks out of the city or state.
Eventually, taxes cannot be raised enough on a shrinking tax base to offset the government spending and debt obligations and the financial viability of the government entity crashes in bankruptcy proceedings.
Over the years, different states and cities have jockeyed for the lead in the race to bankruptcy. They all share the death spiral scenario laid out above. Citywise, we now believe that New York City will be the next major city to go bankrupt, given the idiotic and naive governing theories of the recently elected mayor, Zohran Mamdani. His communist like ideas about governing have failed around the world and historically but that is not stopping him.
However, state wise, we think that California will be the first state to declare bankruptcy. Consider the following realities about living in California:
Only two states, New Jersey and New York, place heavier tax burdens on their residents than California.
California has the highest state government debt load of any other state
Only five states have a higher crime rate than California.
Only one state (Hawaii) has higher average gas prices than California.
Only one state (Hawaii) has higher consumer electricity prices than California with the average cost of residential electricity being 75% higher than the national average.
Only one state (Hawaii) has higher commercial electricity prices than California with the average cost of commercial electricity being more than double the national average.
Only four states have higher egg prices than California.
No state has higher prices for ground beef than California.
Only one state (Hawaii) has a higher median housing prices than California which is more than double the normal average.
California has the sixth highest homeless rate and the most homeless people in the county.
Among states, California currently has the highest unemployment rate in the country, about 40% higher than the national average.
As an example of the ineptness of the state’s politicians, their highly touted high speed rail line is now at least 13 years behind schedule and its cost overrun is up to tens of billions of dollars.
I could go on and on but you get the idea: high taxes, high unemployment, high gas and electric prices, high crime and homeless rates, deteriorating quality of life all of which result in residents and companies (Tesla, Schwab, Toyota, oil companies) fleeing the state.
But rather than learn from their past mistakes, rather than taking an honest look at why people are leaving the state which reduces the tax base, the brilliant politicians in the state want to raise taxes even more:
Their proposal is to levy a one time 5% tax on the total WEALTH, not INCOME, of billionaires living in the state.
So if the total assets of someone in the state was exactly $1 billion they would have to pay a wealth tax of $50 million to the state.
This tax would be on top of the regular state income tax burden.
Needless to say, billionaires do not like this idea of taxing wealth and many have already made plans to abandon the state for other states.
Larry Page and Sergey Brin,, co-founders of Google, have a combined wealth total of about $518 billion which means if they stay in the state they would owe about $26 billion.
News reports say that they have already moved much if not all of their business interests out of state and have purchased homes in tax friendly Florida.
Peter Thiel, Paypal founder and early investor in Facebook, moved his assets to a new office in Miami.
And these are the ones that have announced their plans, there are likely many others that already silently moved out of state to avoid this onerous and stupid tax.
It is stupid because not only will the state not get the amount of wealth tax that they anticipate, they will no longer get the state income tax revenue that these billionaires are not going to have to pay in the future since they are no longer state residents.
Also, many of these folks built huge business successes in the state of California and now the state is coming after them with a taxing vengeance. Thus, future entrepreneurs may say no to getting started in California, given this additional tax onus and thus, the California Silicon Valley tax bucket gets smaller and smaller in the future.
A number of years ago we talked about what happened in the state of Maryland. Several years ago the Maryland state politicians decided that it would be a great idea to raise the state income tax rate on every resident earning over a million dollars a year, Very shortly after the tax increase tax rate took effect, the state government found out that they were getting less tax revenue from the state’s millionaires even though they had raised the tax rate on those folks.
Very simply: the state’s millionaires simply moved into neighboring states where the tax burden would be less onerous on them. Thus, the higher tax rate was not enough to overcome the reduced number of millionaires which resulted in a smaller tax base. The same thing will likely happen in California but it will be the billionaires who got out, not the millionaires.
Details of the Maryland case can be read at the following link:
https://loathemygovernment.blogspot.com/2012/12/day-7-eight-days-of-logic-and-sanity.html
Thus, given the existing problems in the state, the flight of billionaires out of the state, and the lowered attractiveness of starting new businesses in the state, it looks like California may have now taken the lead in the race to bankruptcy court.
One last thought: think about the “near billionaires” in the state. Since politicians rarely, if ever, reduce a tax rate or eliminate a tax, think about the resident who is worth almost a billion dollars in total wealth. You can be sure that this person will certainly be seriously looking to leave the state, anticipating that at some point in the future that billion dollar barrier is going to get lower and the tax on wealth will go higher.**********************
If you agree that we need to deseat every member of Congress for their lack of success and accomplishment, then please consider going to the following petition link to help the cause:
https://www.change.org/p/deseat-congress-reset-freedom
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