One of the things that really annoys me, but also makes me laugh because it is so absurd is the claim that the election of President Obama is a refutation of conservative tax-cut policies and that this economy is the final proof that Reagan supply-side economics does not work.  There are many reasons this is both a false and absurd statement, chief among them is the fact that the number one reason Obama won this election is because the electorate believed Obama would actually be the better tax cutter.

However, lets assume that this isn’t the case, what more proof do you need that liberal tax/spend policies don’t work then examples like California.  California has one of the highest tax rates in the country and they use these onerous tax rates to fund their very lavish social policies (I could list some of the more assine ones like higher education benefits for illegal immigrants, but what’s the point).  What has this yielded the once great state of California?  Near bankruptcy and one of the highest flight rates in the country.  For the fourth year in a row more residents have left the Golden State then have moved there and they also lead the country in the rate in which people leave.  Where are all these people going?  States like Texas, Arizona, Nevada, even Tennesse and the Carolinas.  The reason these states are seeing very large growth rates is because they all have very low tax rates (or none at all).  They also have less restrictive regulations for businesses that make it easier to for businesses to operate there.  If I were going to open up a small business (which employs about 70% of all Americans) the last state I would pick would be California.  So, I think instinctively we all see (even our liberal friends) that Reaganomics works. The very tenant of conservative tax policy is that if you lower business tax (or personal income tax) you will actually see an increase in the treasury and in tax revenues because more jobs and business is created, thus more taxpayers, thus a higher number of dollars going into the treasury.  Indeed, one of the hall-marks of the Bush Administration is that despite the lower taxes, the “rich” have actually paid more in terms of real dollars.  Here are some facts of tax revenue from the Bush Adminisitration (all figures taken from the Wall Stree Journal):

  • The top 1% of taxpayers (income over $388,806) paid 40% of all income taxes (highest share in 40 years)
  • The top 10% (income over $108,904) paid 71% of all income taxes.
  • Americans below the median income level paid a record low of 2.9% of all income taxes
  • Americans above the median income level paid 97.1% of all income taxes
  • The top 1% earned 22% of all reported income, but paid a share of taxes that is nearly double their share of income.

The news now is that California may even issue I.O.U.s to their tax payers because they can’t afford to send out refund checks.  The comptroller of California stating:

“My office has projected that, in approximately 60 days, there will be insufficient cash available to meet all expenditures reflected in the 2008-09 Budget Act,” stated a Tuesday letter from Controller Chiang to the directors of all state agencies. “To ensure that the State can meet its obligations to schools, debt service, and others entitled to payment under the State Constitution, federal law, or court order. California may begin, as early as February 1, 2009, issuing registered warrants…commonly referred to as IOUs…to individuals and entities in lieu of regular payments.”

I wonder what would happen if I decided that I couldn’t afford to pay my taxes and I issued an I.O.U. to the state.  I’ll tell you what would happen, at the very least I’d be assessed with penalties and interest, at the extreme I could be convicted of a crime.  Does anyone here think California will be issuing penalties or interest payments to their tax payers?

The fact is, eventually some of these states are going to have to figure out what kind of tax policies they want to pursue and revamp their whole system.  California has been able to get away with a very liberal agenda for several years now because many people are willing to move there due to the climate and proxmity to the ocean etc., and they are willing to pay a premium in cost of living and higher taxes to do so (indeed I nearly accepted a job offer in San Diego recently but decided to turn it down very relunctantly because I just couldn’t afford to live there, and I’m a lawyer).  Michigan has been able to implement their very liberal agenda by literally milking the Big Three out of billions of dollars because the cost to relocate for the auto-makers is too prohibitive, and thus we see that even the Big Three are not immune.  I wonder what would happen to the state of Michigan if the auto-makers did go out of business?  It would be catasrophic for the state, but they would have no one but themselves to blame.

At some point these states will have have to get back to a more realistic tax-policy and they will have to cut “essential services” (like rebate coupons so that people can get free digital cable boxes, why are we paying for this????).  It will be painful, and it won’t happen over night.  However, if California wants to recapture its status as one of the largest economies in the world, they are going to have to go back to the roots that built the state, rugged individualism, hard work and conservative values.  Until then states like Texas will continue to be the big winners because they get it.

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