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, let's look at the mounting evidence across the country on how this is playing out.
1)As readers of this blog know, it is our opinion that New York state and New York City are the leading state and city governments in the race to going bankrupt. This view was recently reinforced by reporting by the Blue State News website that provided some data that supports our premise on the bankruptcy race leaders and is in line with the process outlined above. That link can be accessed at:
1)The facts uncovered in the article include the following:
Recall back in 2022 that New York governor, Kathy Hochul, told New Yorkers who did not like her policies to “jump” on a bus and head to Florida.
Unfortunately, for her and the state government tax base, tens of thousands of New Yorkers took her advice, left the state, and moved out of state, taking their tax payments with them.
But by 2026 she realized her mistake and that people had left the state in droves, causing a budget crisis and tax revenue shortfall: "I need people who are high-net-worth to support the generous social programs that we want to have in our state. 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."
The reality that Hochul does not realize that this is idiocy: people left because of high taxes and a worsening of the quality of life and none of that has changed under Hochul so who in their right mind would come back to the same situation that caused them to leave in the first place?
Hochul’s Republican opponent in the upcoming governor’s race, Bruce Blakeman, tried to explain her economic ignorance to Hochul: "When you raise taxes, drive up the cost of living, make it harder to do business, and try to destroy families' savings, people leave. Apparently Hochul's new economic development strategy is to ask them politely to come back."
And the devastation to the state tax base is pretty amazing.
According to the Citizens Budget Commission, just over 20,000 or so New Yorkers who recently relocated to Florida’s Palm Beach county were earning on average about $190,000, three times the national average.
The Commission found that the 26,000 ex-New Yorkers who relocated to Miami itself averaged a whopping $266,000 a year in income.
New York state’s share of millionaires has dropped 31% over the past five years while Palm Beach's billionaire population has grown by over 50%.
When New York City mayor, Zohran Mamdani, said he wanted to begin taxing inheritances starting at $750,000, about 90% lower than the current level, and raise the tax on any inheritance over that number to 50%, Palm Beach real estate deals in Florida immediately spiked by $100 million.
Wealthy people most affected by tax increases have the easiest time moving out of a state or city to avoid paying higher and higher taxes. Politicians either do not have the brains, the fortitude, or courage to make government operations smaller, more efficient, or kill them off altogether. So they take the coward’s way out and raise taxes. And the financial death spiral is in full motion, as outlined by the bankruptcy steps listed above.
Hochul at least realizes that the situation she and her New York political brethren have created, she just does not have the mindset to fix what she started breaking back in 2022 with her flippant jump on the bus to Florida attitude.
2)But the Blue State News article goes on, outside of New York, to show that similar insanity is going on elsewhere in mostly liberal/Democratic government entities around the country:
When Washington's state government politicians raised the state capital gains tax back in 2021, over 2,300 of the state’s wealthier residents left for other states that same year before the tax even took effect, not waiting around to pay more in taxes,
The year the increased tax load took effect, another almost 6,400 high earners left the state, taking another $2 billion in income with them.
Notable and wealthy out-migration folks including Jeff Bezos of Amazon fame and Ken Fisher of Fisher Investments..’
Not learning from their mistake in 2021 on raising capital gains tax rates, Washington state politicians recently introduced a state income tax on earners making over a million dollars a year.
Shortly afterwards, Starbucks billionaire founder, Howard Schultz, moved out of the state and Starbucks moved a chunk of its headquarters operation out of Washington and relocated it to Tennessee
Washington politicians should have listened to the chief economist of the Heritage Foundation E.J. Antoni when he observed that wealth taxes have “literally never worked anywhere” and “The tax base collapses,. The burden shifts to whoever stays behind.” And that tax burden falls on those that can afford it least, the middle class and the poor, the only ones left once the wealthy leave.”
3)As we have often discussed, and Blue State News reiterates, the insanity of constantly raising taxes on the wealthy has been so prevalent in California:
State politicians in California have imposed the highest gas taxes in the county on its citizens and the state has possibly the highest state income tax burden .
As a result, residents have been moving out of the state in much larger numbers than who are moving in.
Businesses have also been getting out of the state due to not only high taxes but ridiculously insane and burdensome business regulations.
As we have discussed, big businesses like Tesla,Yamaha, Toyota, and Schwab along with other middle sized and small businesses have already left, taking their tax base and economic buying power with them.
The proposed introduction of a stupid tax on wealth, not income, has already driven billionaires out of the state and with them went about $1 trillion in assets that the state can no longer tax or rely on for economic growth.
Just six California billionaires who departed the state to avoid the weather tax took $27 billion in potential tax income with them.
The Blue State News article concludes with the following simple analysis of what happens when you tax and tax and tax and do not fix the underlying government budget problems: “The blue states built their budgets on the assumption that high earners had no choice but to stay. Remote work ended that assumption. And now the governors who told conservatives to leave are standing in Palm Beach with their hands out. When the wealthy leave, the bill doesn't disappear. It gets redistributed. Services get cut, or the next rung of earners gets hit – the $150,000 household, then the $100,000 household, then yours. That's not a theory. That's New York's recent history playing out in real time, and California is two steps behind on the same road.”
And again, it is not just the tax base that gets eroded when the wealthy are driven out. These folks have a lot of disposable income, income available to spend on dining, car purchases, concert tickets, clothing, etc. that will no longer be spent in a city or state when politicians cannot live within their tax base revenue.
So, I think our premise still holds: pretty soon a major city or state government will go bankrupt, the financial death spiral is already taking place across the country. The only question is which one wins the race to bankruptcy court.
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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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