Here lies the key to the Democrat failures. Look at what Gray Davis did. When the Democrats crow about the economy just see how they reason. Remember Davis was touted as the next Democrat president.
"Companies aren’t the only ones needing a spare dime or billion. The government of California (5th largest economy of the world) is about to go broke. Upon taking office at the beginning of 1999, Governor Gray (I-don’t-understand-budgets-and-energy-prices) Davis embarked on a reckless spending program that has now brought the state to the point of fiscal bankruptcy. Davis lavishly raised government salaries and expanded government payrolls from 282,000 to 326,000 in just two years. Davis began to spend extravagantly and carelessly, rewarding constituents and contributors to his election campaign. The only problem was that the state at that time was running a surplus based on additional tax revenues from capital gains and stock options from the tech run-up of the late 1990’s. In 2000 the state received $17 billion in additional tax revenues as a result of capital gains and stock option taxes from the state’s technology industry. Davis saw that money as a windfall and embarked on a massive spending program based on good times. The only problem for Davis is that his spending plans were made permanent, but were based on temporary tax windfalls from capital gains.
The governor then mismanaged the state’s energy crisis, costing the state and its citizens tens of billions of dollars. Now the bull market is over and the state economy has sunk deep in a recession. The only thing holding up the state’s economy is consumer spending and housing. The governor is now forced to take emergency steps to try to plug a $10.2 billion budget gap. The situation is so dire that the Democratic Assembly speaker, Herb Wesson, in response to the state’s $25 billion budget shortfall said, “That’s a hole so deep and so vast that even if we fired every single person on the state payroll—every park ranger, every college professor and every Highway Patrol officer—we would still be more than $6 billion short.”
The problem is the state’s massive welfare system, which is bleeding the budget coffers dry. Large taxes on everything from sin taxes on alcohol and tobacco, to large income tax hikes and a major increase in the sales tax are being considered. The Democrats are considering major tax increases levied against business. Businesses are threatening to leave the state if the high cost of government is imposed on the business sector. California is at the top of the list as being one of the highest taxed states. Sales taxes are 7.75%, income taxes are 9.3%, and property taxes counting the numerous fees assessed against homeowners can run as high as 2%. In the last recession California raised income taxes to 11%, and increased unemployment taxes substantially. Many large firms left the state because it became too costly to do business in the golden state. Public employee and teachers’ unions, the beneficiaries of the governor’s largesse, are threatening to put up a stiff fight against any pay or job cuts. Businesses are threatening to leave the state depriving the state of much needed tax revenues. The wealthy are also exiting. The top 10% of California’s taxpayers pay over 75% of all taxes.
The question many wealthy residents, business owners and corporations are asking themselves today is, Why live or do business in the state? California is the fifth or sixth largest economy in the world, accounting for $1.3 trillion in output. It is an economy on the fiscal brink due to mismanagement. Many of the governor’s proposals will only put a band-aid on the problem. The Legislative Analyst’s Office estimates that revenues are so far short that the state will run budget deficits of $12-$15 billion over the next five years even if the economy recovers. That is how bad things have been mismanaged fiscally. California municipal bonds could lose their high quality rating and are in danger of credit downgrades. California’s next step may be to go to Washington looking for dimes or billions. (Visit California Legislative Analysts' Office site for an eye-opening picture of the budget crisis. Link)"
financialsense.com |
