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 one specific of the above listed government entities, New York, are making to achieve this bankruptcy goal against this process:
Note: The first point discussion segment listed below is a copy of a discussion we had on a previous post about how we think that the state government of New York is the leading state likely to go bankrupt first. It is listed here again to set up the second discussion:
1)The following discussion points proves that some cities and states are definitely going to go bankrupt pretty soon because politicians are ignorant of economic realities and really and just plain stupid when it comes to common sense. But before we explore one of the most inane recent reactions to the financial death spiral one state finds itself in, consider a little history and background:
Back in 2022, the New York Post reported on some incredibly stupid comments made by the governor of New York, Kathy Hochul.
Hochul is a Democrat and told state Republican voters back in 2022 that they should “Just jump on a bus and head down to Florida where you belong. You are not New Yorkers.”
Yes, the top political official in the state told about half of her state’s constituents, about 5.4 million Republican voters, that they should just leave and not come back, likely one of the most insensitive and disgusting comments ever made by a sitting politician.
The Post reported at the time that the state government of New York was staring at a five year anticipated budget gap of $14 billion and yet she told a large portion of the state’s taxpayers to leave town.
Of course, back in 2022, many of the state’s residents and businesses had already taken her advice, driven out by high taxes, high crime rates, and high business regulation, since over the preceding ten years, 1.5 million New York residents had already left the state with 350,000 leaving during the year long pandemic epidemic.
At the time of her comments, she was proposing a record high state government budget of $220 billion, making the out immigration of residents and their tax dollars even more financially dangerous.
In 2022 when the Post reported on Hochul’s comments, New York City by itself had lost 300,000 jobs during the previous two years.
Opinion polls conducted at that time showed that the number one reason people were leaving the state was overwhelmingly associated with high taxes.,
And finally the Post article reported that an IRS analysis of those people leaving New York had an average income of over $100,000, i.e. the highest paying taxpayers were the ones getting out of the state.
So, four years ago the governor of a state with a record setting budget and record setting budget deficits told millions of taxpayers, and some of its highest paying taxpayers, to go away and not come back. An elected official, who is supposed to equally represent every citizen in their domain, told half of them to go to hell, they were not welcome in their home state.
So Hochul sets the stage with her insensitive and despicable comments in 2022 for the following reality:
A recent New York Post article covered some recent Hocul comments where she said that New York must win back the high earning taxpayers that fled to Florida.
Yes, four years after she told millions of state residents to “just leave,” she finally realized, duh!, that they took a lot of tax revenue with them and that she created a financial crisis in New York.
Rather than reduce government spending to match the reduced New York state government tax base, she insists that more tax dollars, this time by former state residents coming back to the state to pay high taxes, is the remedy.
Her out of touch with reality statements to that effect include: “I need people of high net worth to support the generous social programs that we want to have in our state. There are some patriotic millionaires who stepped up. OK! Cut me the checks. But if you want to be supportive, maybe the first step should be to go down to Palm Beach and see who we can bring back home. Because our tax base has been eroded.”
Can a politician be any more out of touch with reality than Hochul? She does not want people to come back to a better life that she created in the state. She blatantly just wants them back to pay for her government programs, i.e. “CUT ME THE CHECKS!” Don’t come back for a better life for you and your family or your business, just come back to fix the tax base that I helped erode by telling over 5 million taxpayers to leave the state.
But her behavior is completely consistent with the process described above of how a state goes bankrupt: raise taxes and drive out residents and businesses who do not want to pay high taxes, do not make government smaller or more efficient due to the the smaller tax base, raise taxes to overcome the reduced tax base which drives out more residents and businesses, etc. Hochul made the process even worse when she actually told residents to get out of town, her stupidity is amazing.
This reinforces our belief that New York state will be the first state government to go bankrupt, a process that is accelerating, a reality the governor finally realizes is happening. Unfortunately her solution is ridiculous and shallow: why would people who left a bad situation voluntarily return to that same situation?
2)Okay, the above paragraphs set the stage for some of the latest state related statistics related to Hochul telling millions of her citizens to go to Florida and take their taxable income and assets with them:
Recent IRS tax return analyses show that it is not just billionaires leaving the state of New York.
Between 2020 and 2024, according to the iRs data and analysis, a whopping 892 New York based companies left New York state.
They took $47 billion worth of income with them, business income that the New York state government could no longer rely on for taxation.
38% of those exiting companies landed in income tax free Florida while other lower taxation states such as Texas and North Carolina also landed a hefty chunk of those businesses leaving the state.
But it is not just the almost 900 businesses that left the state.
Between 2020 and 2024, the state’s population decreased by about 348,000 residents who also took their taxable income with them to other states.
Given the loss of 348,000 residents, it is obvious that not just billionaires are fleeing the states for lower taxes, lower business regulations, lower crime rates, and better quality of life.
This represented about a 1.7% decrease in population while the national population during that time grew by 2.6%.
Thus, there is a 4.3% loss to the state’s population relative to the national population growth (1.7% plus 2.6%).
Hundreds of lost businesses, hundreds of thousands fewer residents, and billions lost in taxable income. Hocchul told them to leave and by golly, they took her advice, enabling the New York state government to take a commanding lead in the race to bankruptcy court.
As new developments occur across the likely bankrupt candidates for city and state we will continue the discussion. But given that New York City under Mamdani and New York state under Hochul seem to be clueless on how to manage their government entities as they continue raising taxes, which drives taxable income out of the state and city, we still maintain they still lead the financial death spiral into bankruptcy.
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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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