Let’s take a brief break from our run of posts regarding the massive corruption and fraud in government programs along with our political class insanity thread and return to one of the hottest topics we have been covering over the past few years, coverage that has intensified recently: which major city or state government will get to bankruptcy court first? Our primary cities in the race to bankruptcy include New York City, Chicago, Los Angeles, San Francisco, and newcomer, Seattle. The state governments that we think are soon heading into bankruptcy include New York, New Jersey, Illinois, and California with Washington state a newcomer to the race.
The reason for returning to this topic in the midst of our corruption series is because there have been some significant developments in the race to bankruptcy court. However, 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 check the progress some of the above listed government entities are making to achieve this bankruptcy goal against this process:
1)One of the best states in driving high tax paying residents and businesses out of their respective states is New York. High taxes, high business regulation, high crime rates, and other lower quality of life issues have shrunk the tax base and tax revenue stream. And a main driver of the lower tax base is discussed below:
According to an analysis by the Citizens Budget Commission, millionaires moving out of the state cost the state $10.7 billion in personal income tax revenue in 2022.
The study found that in 2010, New York was home to 12.7% of the country’s millionaire base.
By 2022, that share has fallen to 8.7%, the largest decline of any state, a 31% decrease.
Economist Jared Walczak recently told the New York Post: “In New York, the top 1% of earners pay about 45% of all state income taxes in any given year, so New York’s revenue is very reliant on high earners to stay in New York, and that has been a challenge in recent years.”
But this loss of high warners and high taxpayers was measured four years ago and does not capture the reality that the out-migration of the tax base’s most profitable taxpayers has accelerated since 2022.
According to Mr. Walczak: “New York isn’t done raising taxes, and … it won’t be surprising if high-earner taxpayers choose to relocate.”
More bad news: the Tax Foundation's business competitiveness index ranks New York as the worst state to do business in based on a number of factors.
According to Audrey Yushkov of the Tax Foundation: “Without reforming the tax structure, New York won’t be competitive for attracting population and business. Wall Street is the golden goose. But for how long?”
As you can see, New York has been in a tax base shrinking mode for a while as high earners and high taxpayers leave for more economical locations. Unfortunately, as the above analyses and experts have pointed out, continually raising the tax burden continually drives taxpayers out of the area. Which strengthens our assertion that New York City and New York state continue to be leaders in the race to bankruptcy court.
2)California and Los Angeles are still contenders for bankruptcy court. Billionaires, millionaires, and major and small businesses have been migrating out of the state for years, making significant reductions in the state and city tax base.
Companies from a whole spectrum of industries, including such companies as Chevron, Yamaha, Tesla, Toyota, and Charles Schwab, have already moved most if not all of their company operations out of the state. But Hollywood and the long running California show business entertainment industry may soon also be a victim of outmigration of tax assets:
According to the RedState website, Paramount, a film making icon of Hollywood and Los Angeles, is considering moving its entire film operation out of California.
The straw that may break camel’s back is a threat from the state government to block Paramount's $110 billion takeover of Warner Brothers Discovery.
Paramount CEO, David Ellison, has been advised by friends and business partners to consider moving Paramount out of the state where a merger would likely be easier.
The warning signal is that the state government’s Attorney General, Rob Bonta, has threatened to sue to block the merger.
A move out of state is estimated to take $30 billion in planned spending and investments by Paramount to other locations.
While other Hollywood and entertainment entities have already moved assets and the related tax revenue out of state, a move by Paramount to another state would be a massive hit to the show business industry in LA and the state.
The Attorney General claims his threat of an anit-trust lawsuit is about protecting jobs and consumer choice but if Paramount moves out of state there will be no job protection for the local employees who likely lose their Paramount jobs.
Ellison and his advisers claim they have tried to negotiate with the Attorney General but have been frustrated by his hardline stance.
It is amazing that state and city politicians in the state STILL do not get it: high taxes, intrusive and onerous business regulation, political posturing, and a declining quality of life have been forcing residents and businesses out of the state for years. And now a longtime California and LA bedrock company in the show business industry is seriously contemplating moving out of the state, taking economic power and tax revenue with it.
As the old saying goes: there is no cure for stupid and California politicians continue to prove that every day.
3)But New York and California still need to make sure that strong competitors, Illinois and Chicago, do not pass them in the race to bankruptcy court since the state and city just got a massive massive hit to their respective tax bases:
For almost eight decades (78 years) the hardware store company, True Value, has been headquartered in Chicago.
But it looks like the company will also be joining the many other large and small businesses that have recently fled Chicago and Illinois for better tax and business locations.
True Value has announced it is moving its headquarters out of Chicago and the state and heading for Fort Wayne, Indiana.
True Value joins Caterpillar, Boeing, Morton Salt, Tyson Foods, and Citadel that have already left the city and state, taking jobs, economic power, and taxes with them.
Much like the California politicians, the Chicago and Illinois politicians do to get it either. And as a result, both the city and the state are already in financial death spirals as described above and they have no clue how to stop it.
4)Finally, let’s check in with Seattle, a latecomer in the race to bankruptcy court but coming on strong:
Seattle now has the highest downtown business office vacancy rate in the country as businesses flee the high tax environment that city officials have created.
As a result of the increased business downtown vacancy rate, the Downtown Seattle Association says the tax burden of the high vacancy rate will shift more taxes onto city home owners and renters.
The vacancy rate is now estimated at a whopping 36.5% according to the real estate firm, Cushman and Wakefield.
Many believe that the city’s so-called Jumpstart employee payroll tax helped drive companies and about 30,000 jobs out of the city.
As a result, the city government faces an almost half a billion dollar budget deficit over the next three fiscal years.
And as a result, the mayor of the city, Katie Wilson, says that even more taxes including a city capital gains tax and an expanded payroll tax would help solve some of the budget shortfall even though high taxes is what started the city's financial death spiral to begin with.
Jon Scholes, president of the Downtown Seattle Association, agrees: "Well, I think it's the wrong move for Seattle and it would continue, I think, to push jobs outside of our city. We don't need more business taxes in Seattle. We need more businesses located here paying taxes. I think it's important for the city to spend within their means. They haven't done that over the last five or six years. They've spent beyond the revenues that they've collected and they've tried to make up the difference by putting a lot more taxes on Seattle employers, which have sent a lot of jobs elsewhere."
The 36.5% vacancy rate and the out-migration of businesses and jobs, along with the associated tax revenue, has caused downtown business real estate values to decrease about 50% compared to just four years ago.
This decrease in value eventually reduces the property tax collection as Mr. Scholes points out: "That property tax burden really shifts to residents. Those buildings were paying a lot more five years ago to contribute to city property taxes, but also school district property taxes and the county and state property taxes than they are today. So if you care about affordability, you ought to care about downtown Seattle having a high vacancy rate."
As we have said before: “if you are stuck in a hole, stop digging.” If you are overtaxing your population, stop increasing the tax burden. Seattle seems to just want to keep digging.
As you can see, the race to bankruptcy court continues to be a heated one. Seattle is the late comer, Chicago continues to hemorrhage jobs and business, California is possibly going to see one of its biggest assets, show business, start to melt away, and New York’s tax base continues to leak its most valuable tax assets. Stay tuned.
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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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