The California Nightmare: Why California Leads the Nation in Deficit, Debt and Out-Migration

The latest reports are out- and there's good news and bad news for California. The good news is that California leads the nation. The bad news is that California leads the nation in deficit, debt and the amount of residents escaping to other state...

By Wayne Root

The latest reports are out- and there's good news and bad news for California. The good news is that California leads the nation. The bad news is that California leads the nation in deficit, debt and the amount of residents escaping to other states. The Mamas and Papas are rolling over in their graves. The California Dreamin' of the 1960's has morphed into the California Nightmare.

My new book “The Conscience of a Libertarian: Empowering the Citizen Revolution with God, Guns, Gambling & Tax Cuts� is about the fact that liberal fiscal policies, government expansion, government employee unions, and government over-spending have all combined to bankrupt America. Examining the economic crisis occurring at this moment in America's largest state proves the point of my new book beyond a shadow of a doubt. “The People's Republic of California� experiment is Exhibit A that liberal “tax and spend� fiscal policy is a terrible failure. It is an experiment gone bad. VERY bad.

California is the perfect test tube baby- the state is arguably the most liberal, big spending, big government state in the entire United States of America. After decades of spending like there was no limit to taxpayers' money, California is mired in a deep economic crisis- poised to turn into economic Armageddon. The reality is that the state of California is bankrupt. Actually the state is far beyond bankrupt- what do you call “so bankrupt, there is no amount of money available anywhere in the world to pay off our debts�? California is so bankrupt that bankruptcy attorneys have no words to describe the depths of this disaster. Let's just call it “Bankruptcy squared.�

This is a lesson for the rest of America about what happens when you spend too much and tax too much. How much has California spent? The state has an expected budget deficit of at least $41.8 billion over the next two years. That's a bigger deficit than any state EVER. That's a bigger deficit than most countries. Yet since Governor Arnold Schwarzenegger's election in 2003, spending has increased by a staggering 40%. The actual dollar increase was $41 billion, to a total of $144.8 billion annually under the Governator. That's called “whistling past the graveyard.�

Here are the facts, plain and simple:

*California leads the country in spending on government employees.

*California spends twice as much as the national average on education (with dismal results).

*California spends almost $200 million per year on free college educations for illegal immigrants (no that's not a typo).

*California has the most draconian anti-business rules and regulations in the nation. That forces businesses to spend too much. The result is that California is the most costly place in America to do business (according to the Milken Institute's business cost index).

*California is heaven for trial lawyers and hell for small businesses. That could be why so many major employers have left the state (according to Investor's Business Daily).

*California has the second highest income tax rates in all of America. And it is among the nation's leaders in virtually every tax category possible- income taxes, business taxes, sales taxes, property taxes, taxes on real estate transactions, taxes on stock transactions, capital gains taxes, workers compensation taxes, the list is endless.

The results:
*Over the next 18 months, California is facing (according to the Governor) a budget deficit of over $40 billion dollars- and that may prove to be conservative.

*California is reduced to begging the federal government for a bailout. There is no other solution on the table. But one year after a federal bailout, the state would undoubtedly be $20 billion (or more) in debt again.

*California has been given the lowest bond ratings of any state in America (soon no one will dare to loan a penny to California). That little problem costs California's taxpayers millions of wasted dollars per year in increased interest costs.

*In the 1970's California led the nation in job growth. Since 2000, California's job growth is 20% lower than the nation. But it's not just any jobs that California is losing. According to the California Manufacturers and Technology Association, the state has lost 440,000 high-wage jobs.

*California's unemployment rate is now the 3rd highest in the nation.

*In the 1970's California was among the nation's leaders in population growth. Last year, over 144,000 more people left California than moved in. That led the nation. This was the 4th straight year of out-migration. Why is that important? As more and more high-income and high-net worth individuals move out, homes will drop in value, small businesses will fail (as they lose customers), and taxes will rise on the remaining citizens (to replace the taxes no longer paid by those who have escaped).

Do you get the picture? The proof is in the pudding- big government spending leads to economic disaster. When your state (or country) is run by government employee unions; teachers unions; trial lawyer unions (The Bar Association); auto unions (who demand billion dollar bailouts from politicians they supported); lobbyists; and special interests; the result is financial Armageddon. California is Exhibit A.

Governor Arnold Schwarzenegger should stand by a Washington D.C. freeway exit with a sign that says, “Broke. Need $40 BB handout. Will NOT work for food. We will spend it as soon as you give it to us- plus 20%. See you tomorrow.�

There is no way out for California, short of bankruptcy. The problem of course is California Dreamin. What I mean by that is that Californians live in a liberal, bleeding-heart, utopian dream world. It sounds like a nice thing to pay government employees huge salaries and pensions, as well as lifetime health benefits (as much as 60% higher than similar jobs in the private sector). It sounds nice to mandate a “living minimum wage.� It sounds nice to enforce tough rules and regulations on business. It sounds nice to offer generous welfare benefits to the poor. It sounds nice to spend lots of money on the homeless. It sounds nice to let anyone sue his or her employer for virtually anything. It sounds nice to make it virtually impossible for business owners to fire an employee. It sounds nice to mandate fines for whatever government thinks is beneficial for society (recycling, carbon taxes, greenhouse gases). It sounds nice to spend more money on education "to benefit the children." It sounds nice to offer free breakfast and lunch (as well as courses taught in Spanish) to poor students at public schools- even if they're here illegally. It sounds nice to pay for the college education of illegal immigrants. It sounds nice to defend animal rights. It sounds nice to ban offshore oil drilling. All of that sounds like “the right thing to do.� But in the real world, with real consequences, it is a dramatic failure.

The lesson here is that “nice� may sound nice in theory. It might work out well in some kind of utopian dream state. But in the real world “nice� doesn't pay the bills. “Nice� doesn't pay a budget in the real world. All the liberal do-gooding in the world only leads to one thing: the bankruptcy of your state and a massive exodus of taxpayers. Nice has turned the California Dream into a Nightmare.

Is this a problem (as liberal “tax and spend� politicians claim) of too little taxation in California? Not with the second highest income tax rates in the country. California even imposes an additional “millionaires� tax surcharge on the highest incomes. The result is that the wealthy pay huge taxes in California. The top 1% of the California population pays 50% of the income taxes. The top 14% of taxpayers (those earning $100,000 or more) paid 83% of the income taxes in California (the latest 2005 figures). Could there be a connection between these numbers and the mass exodus of productive people (like me) out of the state? I escaped to Nevada a decade ago for these very same reasons. The California Nightmare of big government, big taxes and big spending drove me away. My loss has cost California dearly- in the way of millions of dollars of lost tax revenues to the state. But in the real world that's what happens when you choose to treat the people who create the jobs and pay the taxes badly- they choose to leave. The result: California gets none of my money.

The California economic model proves once and for all that taxes are not too low. The out-of- control deficit in California has nothing to do with taxes. California has a spending addiction. It just doesn't matter what the tax rates are. Whatever tax revenues flow into government coiffeurs, the spendthrift politicians and bureaucrats in California find a way to spend it all- and then some. The actual total is irrelevant. Give them $1.00, and California politicians will spend $1.50. But raise taxes and give them $2.00 (thereby bankrupting small businesses and forcing them to flee your state) and they'll spend $3.00. There's always some “worthy� new government program to spend it all on. When you give billions of dollars of tax revenues to a government bureaucrat looking to keep a job for life, or a career politician looking to keep his or her job for life, they will find a way to spend it all- plus 20%.

How do we stop the insanity? Let's start with state and federal employees. No sane state can justify paying government employees compensation packages 40% to 60% higher than the private sector. Have you ever been to the DMV? Is government run efficiently for all that money? Is it run effectively for all those big salaries given to public service employees? In many cases, government employs people who couldn't get a job in the private sector. Do they deserve compensation 60% higher than you or me? On what grounds? Do they deserve to retire at age 55, while you and I work till the day we die, to pay all the taxes necessary for their huge pensions and unlimited health benefits?

Education is another place to start. “Spending more for the children� is one heck of a sound bite, yet what it sounds like and what it means are completely different things. A raise in “education spending� has little or NOTHING to do with spending more money on our children, or improving their economic opportunities in the future. It merely means spending more money on the education bureaucracy. It means hiring thousands of new bureaucrats (administrators) who will never pick up a book, grade an exam, or teach a course. Raising teacher salaries to far above the national average doesn't help the kids (just look at California for the proof). It does however increase union dues for the teachers union. It does fund more bureaucrats. It does bloat the population of the teacher's union- thereby giving it more clout and more reliable votes (in order to vote themselves more raises and pension increases).

Giving teachers tenure, so that under-performing teachers can never be fired- doesn't help the kids either. Giving teachers bigger pensions and allowing them to retire at age 55 to enjoy a pension for LIFE doesn't help the children one iota. But if that teacher lives to age 85, collecting a big pension for 30 years, it is guaranteed to overwhelm California's taxpayers and bankrupt the state budget. In many cases, government employees are retiring young enough to be paid a pension for more years than they worked. Perhaps now you understand why California is mired in deficit and debt.

It all sounds “nice� and seems like “the right thing to do.� In reality it's a one-way street leading to deficit, debt, and eventually bankruptcy. There just aren't enough taxpayers, nor is there enough money in any state or country, to allow people to retire at age 55 and collect pensions for 25 to 30 years (or more). The numbers just don't add up- unless you expect the rest of us to pay 70% or 80% tax rates until the day we die to pay for this “privileged class� of federal and state employees. And even that might not be enough.

Allowing trial lawyers to run wild sounds great for California consumers, patients, and of course the “victims� of abuse by big business- until you realize a few facts of life. First, if you raise taxes on business, the result will be a mass exodus by big business, small business and professionals (like doctors). They will flee your state by the tens of thousands- thereby reducing the tax base and requiring more tax increases for those who are left. Second, most jobs and tax revenues are created by thousands of small business owners- not by big business. Small business is hurt far more by high taxes and workers compensation rates. Third, business (even big business) isn't all bad- the reality is that business pays the bills for all these bloated government programs and government employee pensions. Chase business away and there's no one to pay the bills. Government (and all the people living off government) desperately needs business to be successful and satisfied, or government ceases to exist.

Fighting on behalf of the rights of “defenseless animals� sounds like the right thing to do- until new laws requiring more humane treatment of chickens (just approved by the voters of California in the 2008 election) force the entire egg industry to leave your state. That reduces tax revenues by millions of dollars- once again increasing the deficit and debt of California.

Radical environmentalism sounds nice too. Saving the beaches by banning offshore drilling; making it virtually impossible for new oil refineries to open within your state borders; and mandating draconian new greenhouse gas rules that will add billions of dollars to bills paid by business and consumers; all sounds great, until it you get your latest utility bill…until you see the bill as you fill up at the pump…until you realize every product you buy at the store now costs more…until you realize that these government mandates result in more energy dependence on foreign nations that support terrorism. The result is that Californians are treated to the highest energy costs in all of America- 35% higher than the national average.

This reliance on big government, big unions, big taxes and special interests is a toxic brew that has poisoned the future of California, its citizens, its taxpayers, and future generations. The California Dream has turned into a toxic nightmare.

Now it's coming to a city, county or state nearest you. Instead of running from Armageddon, we're embracing it. We're electing more big government proponents (Obama and his friends); creating more bureaucracy (more agencies with hundreds of thousands of employees like Homeland Security); more draconian government rules and regulations (in the name of global warming); more government involvement in our everyday lives (universal healthcare); more foreign aid, foreign entanglements and wars across the globe; more powerful unions (our bailouts of the “Big 3� automakers will prop up bloated auto union contracts); more corporate welfare (by handing taxpayer money to wealthy companies through trillion dollar bailouts); more government “economic stimulus� packages; and certainly higher energy costs for consumers.

In reality the best way to stimulate the economy is not for government to spend more, while the citizens must cut more from their budgets. It is not for government to increase budgets and hire more employees, while the private sector cuts budgets and lays off employees. It is not for government to choose winners and losers- by giving away the taxpayer's money through bailouts, corporate welfare, or stimulus giveaways. It is not for the government to impose new mandates and higher taxes in the name of global warming that force businesses out of business.

The best way to stimulate the economy is simple: dramatically cut the taxes of those who earn the money and create the jobs. There's no middleman (government) needed. Let people keep more of the money they already earn. Now that's the most powerful economic stimulus plan in the world. Give taxpayers and job creators like me a vacation for the next year from income taxes and watch the economy rebound. Watch real estate prices rise again. Watch the stock market soar. Watch credit and capital markets start to lend again. Watch jobs increase. Give taxpayers and job creators dramatically and permanently reduced taxes, so we can keep more of our own money, and get ready for the greatest economic expansion in history.

President Ronald Reagan already proved it works. But he made the mistake of allowing government spending to increase wildly out-of-control, at the same time as he dramatically cut tax rates. That was a big mistake. Now combine the Reagan tax cut model with a dramatic cut in the size, scope and spending of government, and watch the economy go and grow. But that would be far too simple. Too much common sense confuses politicians. Either that, or my plan ruins their plans to get re-elected by spending more and giving away taxpayer's money to special interest groups and entitlement addicts.

We're headed in the wrong direction. Instead of running away from the train wreck of California's economic model, we are embracing it. With Obama as President, now all of America can turn into one big California with crushing debt; dramatic job losses; out-migration; failing schools; failing businesses; higher energy costs; higher business costs; bigger legal bills; and a drastically poorer quality of life. California Dreamin' has turned into our national obsession…and our national nightmare.

Wayne Allyn Root was the 2008 Libertarian Vice Presidential candidate. His new book, “The Conscience of a Libertarian: Empowering the Citizen Revolution with God, Guns, Gambling & Tax Cuts� will be released in May 2009 by publisher John Wiley & Sons. For more of Wayne's political views, commentaries and to watch his many media appearances on FOX News Channel, please visit his web site at: www.ROOTforAmerica.com