Wednesday, November 3, 2010

California Bucks the National Trend

The voters of California have successfully defied the national trend toward smaller government and less taxation, voting almost universally in the other direction. If we assume the voters understood what they were voting for (as assumption which is far from certain, but I'll go with it), the majority of voters in California stand against the Tea Party principles, and want more taxation, more big government, more destruction of businesses, and more of the status quo. One could argue, certainly, that the powerful union lobbies purchased the election results in California, but at the end of the day, the voters have spoken, and California will live with the consequences.

To recap, here's what the voters decided:
- "Moonbeam" Jerry Brown, friend of unions and mortal enemy of taxpayers, for governor
- Barbara "rubber stamp" Boxer for Senate
- "New taxes with simple majority" Prop 25 passed

It remains to be seen exactly what form the new taxes and regulations will be in, but with a looming $20+ Billion deficit and a clear mandate to go "all in" with the tax and spend approach to governance, you can be assured that some form of tax hike is coming for California. It's mildly surprising that the state which already has the highest taxation rate and one of the worst business climates in the country would be voting for more taxation and regulation, especially with unemployment around 12.5% and combined underemployment hovering around 25% in the state, but California has a long-standing tradition of forging its own political path. As a silver-lining, bond rates for tax-exempt California municipal bonds should go up (Greece's bonds are paying over 10% currently), so at least it's not all bad for people living here, at least until the state can't borrow any more.

Speaking of which, if I were someone concerned about the future of the US, I'd start thinking now about how to handle the eventual default point, when California can't borrow any more and goes to the federal government for a bailout. If the rest of the country doesn't want to get stuck with the bill for California's largess, get a plan in place now, before the crisis hits. The conservative part of me says to let the state go down in flames, relying on the taxation authority to suck everyone there dry until there's nobody left, and then have a procedure in place to rewrite the state Constitution and redistribute the state resources after it collapses. A more reasonable approach might be to create a program whereby the state can get a loan from the federal government if it agrees to harsh austerity measures designed to both get the state finances in order, and be punitive to the people who voted the state into its fiscal mess. Whatever the approach, though, the federal government needs to have a plan, because California's economic collapse is not a matter of 'if', but a matter of 'when'.

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