It seems we are in a little bit of a rut in that we seem to be getting overwhelmed with news about our choice for states and major cities that are likely to go bankrupt relatively soon. As always, our top state governments that we think are nearing bankruptcy include New York, New Jersey, Illinois, and California. Our top major cities we think are rapidly approaching bankruptcy include New York City, Chicago, Los Angeles, and San Francisco.
Before reviewing the latest news and seeing which state or city is making the best progress towards government bankruptcy, let’s review how these cities and states got themselves into this financial death spiral position to begin with:
A government entity keeps expanding its budget, eventually putting pressure on the tax revenue stream it receives.
At some point, rather than cut government spending or make its programs more efficient financially, the politicians in charge raise taxes to meet the ever growing government expenditures.
The raising of taxes causes some residents and businesses to leave the city or state for less tax burdensome areas, reducing the tax base and reducing the revenue stream.
Rather than cut expenses and become more efficient to match the reduced tax revenue stream, politicians in the above cities or states raise the tax burden even more.
This causes more residents and businesses to flee the city or state, further reducing the tax base and tax revenue stream.
At some point politicians panic and raise taxes more and start cutting vital government services (e.g. police, fire, education) in order to try and balance government spending against the shrinking tax base and revenue stream.
The reduction in quality of government services in particular and quality of life in general drives more residents and businesses out of the area.
Eventually, the expenses, costs and financial liabilities outstrip the reduced tax stream and bankruptcy occurs.
Okay that’s the process, now lets specifically check the progress on how some of the above listed government entities are making to achieve this bankruptcy goal against this process:
1)Do not believe that states and cities are approaching bankruptcy? Consider the opinion of a CNN personality:
In a recent speech, CNN’s Fareed Zakaria put forth the proposition that certain liberal cities across the country have become prime examples of high taxes, runaway spending, inefficient government services, and quality of life issues.
His candidates for getting into deep financial trouble include New York City, Los Angeles, and Chicago, some of the same cities we have proposed are in a financial death spiral.
Specifically: “New York is really a prime example of a problem Democrats seem unwilling to confront. Blue cities are out of control, promising more, spending more, delivering less, and pushing off the fiscal problems to some future day.”
As an example, he pointed out that the city’s budget amount for rental assistance subsidies went from $263 million in 2020 to $1.34 billion in 2025, a five fold increase in five short years.
Los Angeles did not escape from his wrath since he pointed out that the city has spent billions of dollars on their massive homelessness problem and yet the city’s homeless population has grown 70% between 2015 and 2024.
He then moved to another favorite city of ours to go bankrupt, Chicago, where he pointed out that the city is run by a horribly unpopular mayor and the city's massive pension burden will bankrupt the city “sooner or later.”
His overall point is that the politicians operating these cities somehow constantly raise their city government budgets which require higher taxation but never resolve any problems which constantly grow despite higher spending on those problems.
Thus, the tax burden goes up, the quality of city life goes down and the migration of residents and businesses out of these cities accelerates which means they take their taxable income and wealth with them.
2)As we reviewed above, city and state politicians always think that raising taxes will resolve everything. Rather than make government programs more efficient or downsize them, they allow the bloated government bureaucracies to continue along with no changes and instead they raise taxes. As taxes get higher and higher, residents and businesses flee to less burdensome locales.
Given that it is our opinion that New York, New Jersey, California and Illinois are the states most likely to go bankrupt, a recent article by Money magazine showed why we might be on the money with those predictions:
Money magazine analyzed the average tax and living expense burden in each of the 50 states.
Not surprisingly New York was named as the fifth most expensive state to live in with high taxes across the board.
New Jersey was ranked as the fourth most expensive state to live in with high property and estate taxes.
And not surprisingly, California was seen as the most expensive state to live in with high housing costs, high gasoline prices that include high state gas taxes, and high income taxes.
The only surprise was that Illinois did not make the top ten of most expensive states to live in.
More proof and evidence of why people are moving out of these expensive high tax states and why unless the size of government is reduced or made more efficient, these cities and states will continue to see their tax base dwindle and their financial death spiral accelerate.
3)Speaking of making government more efficient, consider a case in point for one of our candidates to go bankrupt:
Phil Murphy is the former governor of New Jersey.
In eight years he managed to increase the state government budget by a whopping 57% without really resolving any issues facing the state’s taxpayers.
When Murphy came into the office the state government budget was $37.4 billion but when he left office eight years later the budget was $58.8 billion.
The new governor, Mikie Sherrill, recently had to go in front of the state legislature and explain that Murphy left her and the state with a $3 billion structural deficit and that the state government surplus will be gone within two years.
The New Jersey Business and Industry Association reported it clearly: Murphy's seven government budgets added a cumulative $5.5 billion in spending above his own initial budget proposals, ie. in underestimate what he needed to spend to keep the state government running.
Senate Republican Michael Testa appears to understand the problem: "We have a $4 billion structural deficit. I don't envy Gov.-elect Sherrill at all. Eventually, we have to stop kicking the can down the road. Someone is going to have to tighten the belt."
Pew Charitable Trusts analysis shows that new jersey has the worst long term structural deficit of any state in the union with expected state government tax revenue to cover only 95.6% of anticipated expanse over the next 15 years,
In other words, the bills that are coming due for the state government cannot be covered with the current tax structure unless other spending is reduced.
But as always it seems, Democrats in the state government never learn, they want to raise taxes on millionaires, a move that has proven catastrophic when other states did the same thing: millionaires move to other less taxing areas and take their taxable income with them.
As another example of how the state government spending has exploded without a sound financial underpinning: over the past 20 years the state government budget has grown almost 140% while the annual state economic growth has been only 1% annually on average.
While we have not talked a lot about New Jersey lately, my home state by the way, as you see from the above analyses, it has a serious economic and financial situation. And that situation is getting worse: massive government spending that will be hard to politically reduce, given what voting blocs will be against any reduction in their share of the taxpayer pie. Many of the economically ignorant politicians want to raise taxes on the wealthy which we have proven time and time again that actually reduces the tax stream since millionaires move to other states.
That will do it for today: New York State and New York City are still our favored candidates to go bankrupt first but New Jersey, California, and Illinois along with Chicago and Los Angeles are still worthy race opponents.
**********************
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
**********************
No comments:
Post a Comment