December, 2019, Political Class Insanity, Part 1: Elizabeth Warren's Horrible Priorities and New Jersey Going Bankrupt

It is another month which means it is again time to review the latest political class insanity from Washington and around the world. Political class insanity takes many forms including the wasting of taxpayer wealth, criminal fraud within government programs, inane and stupid political quotes and actions, the inability to create and implement effective and efficient government programs, stupid and ill performing economic policies and strategies, and other forms of insanity that continue to evolve and surprise and shock us.

Let’s get started:

1) Consider some of the major issues facing the country today:

• Social Security and Medicare are fast approaching fiscal insolvency with over $80 TRILLION in unfunded liabilities.
• Tens of thousands of Americans die from drug addiction related causes every year.
• Our nation’s infrastructure is crumbling.
• Every day thousands of American kids are abused and often killed by their abusers.
• Our public education system is generally a failure.
• Millions of Americans are homeless and/or hungry every day.
• The world is a very dangerous place, from the Middle East to Russia to China to North Korea.

These problems will likely affect just about every American at some point in time. But what is Democratic Presidential candidate Elizabeth Warren all excited about these days:

• Long, long ago, American soldiers massacred hundreds of native American women and children in what is historically called the massacre at Wounded Knee.
• This was certainly a heinous crime against humanity and probably 20 soldiers should not have gotten the Medal of Honor for committing such atrocities.
• In fact, we would probably agree with Warren’s assessment of the tragedy: “The horrifying acts of violence against hundreds of Lakota men, women and children at Wounded Knee should be condemned.” 
• But this event happened well over a hundred years ago, anyone who was alive when it happened is dead.
• And yet given this timeline reality and the fact there are so many other pressing issues facing current day Americans,, Warren is wasting everyone’s time by writing and introducing the “Remove The Stain Act” legislation.
• This legislation would revoke the Medals of Honor of 20 U.S. soldiers who participated in the slaughter.
• And she is not the only member of Congress wasting everyone’s time since a Democratic Congressman in the House has introduced a similar bill.
• A press release from her office showed how pompous and self important this effort is: “The horrifying acts of violence against hundreds of Lakota men, women and children at Wounded Knee should be condemned, not celebrated with Medals of Honor. The Remove the Stain Act acknowledges a profoundly shameful event in U.S. history, and that’s why I’m joining my House colleagues in this effort to advance justice and take a step toward righting wrongs against Native peoples.”

Again, this was a terrible chapter in American history. But Congress already formally apologized for it back in 1990. Nobody remotely involved in the event is alive today. It will not bring back the dead or embarrass those whose medals are revoked. And it certainly will not positively impact the major issues of our time listed above.

What it is is simply another example that people in Congress have no idea how to fix the real issues of our times and go about wasting their time and our taxpayer dollars on issues that will have an infinitesimal impact on the vast majority of Americans, especially those that are homeless, hungry, drug addicted and in need. A waste of time.

2) We have often shown and proven how either Illinois, California, or my original home state of New Jersey will be the first U.S. state to go into bankruptcy. Their politicians have overspent way beyond the state government’s ability to eventually pay for all of the fiscal liabilities those politicians have incurred. 

As a result, these states have entered into a financial death spiral: as more and more liabilities become due, the state politicians have to raise taxes. And as they raise taxes, more and more residents and businesses leave the state to avoid the high taxes which results in a state tax revenue shortfall which results in higher taxes and more people leaving and the death spiral is in full force.

We recently came across a 2017 analysis by a gentleman named Dan Mitchell who wrote on October 15, 2017 that:

• His Article, “New Jersey’s Continuing Fiscal Decay” did a nice job summarizing how New Jersey politicians have sacrificed the state’s long term financial health for their own short term political gain.
• He points out that even back in 2017 the state had the highest property taxes in the country which caused many people, including myself, to leave the state for less expensive living conditions.
• He says those high taxes have to go up even higher to fund the state’s pension and health care costs for retired state government workers.
• Mr. Mitchell cites evidence that the state’s current set of politicians still did not get the death spiral concept explained above since in 2017 they were still clamoring for more money to be spent on education and the pension system which, of course, will drive up taxes.
• The state in 2017 contributed only $2.5 billion to the pension system where more than twice that much was needed from a future liability perspective which means the unfunded future liabilities will continue to grow.
• There had been past efforts to increase the taxation of millionaires living in the state but that tax was estimated to bring in only $600 million.
• And the state would probably never see anything close to that much since those millionaires at some point would just leave the state to avoid the heavier and heavier tax burden.
• When Maryland did such a tax play several years ago it found out the hard way that money and wealth walks: even though the state had raised the tax rate on millionaires they receive less tax revenue from millionaire despite the high tax rate due to millionaire migration out of the state.

So even when faced with a mountain of debt, politicians are too stupid to stop the spending. Their solution is always more taxes and not less government spending. As a result they keep increasing the future financial liabilities down the road and higher and higher tax levels. Eventually this entire mess will implode on itself and bankrupt the state. 

3) How close are states like New Jersey close to bankruptcy, given the inane and stupid financial and spending policies of their state politicians? Much closer than you or any of the inept politicians want to believe. Consider an example from the death spiral theory discussed above relative to a very rich FORMER New Jersey resident:

• According to New York Times article, David Tepper is a billionaire hedge fund manager.
• He lived in New Jersey for 20 years where the top state income tax rate is 8.97%.
• Several years ago he moved himself and his hedge fund company, Appaloosa Management, to Miami, Florida.
• Florida has no state income tax so right off the bat he saved himself from paying 8.97% of his income to the state government of New Jersey.
• Tax experts cited by the Times estimate that New Jersey lost hundreds of millions of dollars a year in taxes from just Tepper’s move.
• If we assume, for illustration purposes, that the state lost $200 million a year from Tepper’s move, and that the income tax revenue for the state in 2019 is $16.2 billion as reported in the state budget, than Tepper cost the state 1.2% of its income tax revenue stream.
• That is a lot of state income tax money to lose to a SINGLE taxpayer and this reduction is year in and year out, not just a one time loss.
• If only ten billionaires leave the state, than possibly 10-15% of the state’s income tax stream is lost.
• And since politicians never cut spending, they need to raise taxes to cover this 10-15% shortfall and the death spiral has begun as the higher taxes drive out more and more wealthier taxpayers.
• In fact, the How Money Walks website, a fabulous website for looking at state level financial death spirals, estimate that from 1992 to 2016, a 25 year period, New Jersey lost $18.3 billion in adjusted gross income to just the state of Florida and this was before Tepper left for Florida.
• Overall, New Jersey lost a whopping $35 billion to all other states on a net basis.

Such, arrogance, ignorance, and stupidity of the state’s politicians. Their fiscal irresponsibility is almost criminal. And it will drive any number of states like New Jersey into bankruptcy, as Mr. Mitchell explains: “…states with the highest tax rates on the rich are growing increasingly dependent on a smaller group of super earners for tax revenue. In New York, California, Connecticut, Maryland and New Jersey, the top 1 percent pay a third or more of total income taxes. Now a handful of billionaires or even a single individual like Mr. Tepper can have a noticeable impact on state revenues and budgets. …Some academic research shows that high taxes are chasing the rich to lower-tax states, and anecdotes of tax-fleeing billionaires abound. …In California, 5,745 taxpayers earning $5 million or more generated more than $10 billion of income taxes in 2013, or about 19 percent of the state’s total, according to state officials. “Any state that depends on income taxes is going to get sick whenever one of these guys gets a cold,” Mr. Sullivan said.”

It is sad that the states with the highest tax burdens, e.g. California, New Jersey, Illinois and Connecticut, are also in the worst fiscal shape because their politicians got drunk with spending. You would think that the state’s with the highest tax burdens would be the most financially stable. 

Back in the 1960s, New Jersey had no state income tax and no state sales tax and there was never any talk of budget shortfalls or going bankrupt. The state now has the highest property taxes in the land, high income tax rates, and a hefty sales tax and bankruptcy is on the horizon. You cannot make up this insanity.

That will get us a good start on this month’s political class insanity. Elizabeth Warren focused on fixing a non-problem from over a hundred years ago rather than focusing on fixing today’s problems and politicians continue to being totally inept and stupid when it comes to basic economic and fiscal theory and discipline.

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:

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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