Tuesday, May 05, 2009

The California in Our Future

In a recent column, George Will calls Governor of California Arnold Schwarzenegger “the best governor the states contiguous to California have ever had.”

The flight of workers and entrepreneurial capital from California to other less tax punishing states has been in process for many years. More people have moved out rather than into California for the last four years. Connecticut also has been losing population to the South for as many years, though no one yet has bestowed upon Connecticut Governor Jodi Rell the same unflattering remark, possibly because her opponents in the Democrat dominated state legislature have been complicit in the out migration. Connecticut's total out migration from July 1990 to July 1997 was approximately 186,000. Connecticut and Rhode Island were the
Nation’s only States to have a smaller population in 1994 than in 1993.

There are other points of similarity between Connecticut and California. According to Will, “If, since 1990, state spending increases had been held to the inflation rate plus population growth, the state would have a $15 billion surplus instead of a $42 billion budget deficit, which is larger than the budgets of all but 10 states.”

The bottom line of Connecticut’s budget has tripled since former Governor Lowell Weicker graced the state with an income tax in 1991, much above the rate of inflation plus population growth. The recession that followed the imposition of the income tax cost the state 162,000 jobs, and by the second quarter of 1995 the state had replaced only 14 per cent of its recession-based job losses.

In California, according to Will, “Liberal orthodoxy has made the state dependent on a volatile source of revenues — high income tax rates on the wealthy.”

Connecticut’s state Democrats have just proposed a 30 percent increase in the corporate tax on industries that have not yet fled the state to… well… not California.

Liberal orthodoxy reigns supreme in Connecticut; its high priests are union friendly leading Democrats who control the state legislature and blinkered commentators in the state’s media who believe Connecticut will continue to prosper as more and more money is moved from taxpayers to state government.

Of course in their saner moments, these same liberals know very well that punishing taxes reduce demand and productivity, which is why many of them favor high gasoline taxes and confiscatory taxes on tobacco. High taxes on gasoline -- very bad for those who depend on their internal combustion engines to get them to and from work -- are very good for fanciful folk who imagine a world full of fuel cell powered cars. And highly regressive confiscatory taxes on tobacco likewise are good for those who want to drink Black Bowmore Scotch in smoke free bars.

The reduction of the inflow of taxes to state coffers in Connecticut is an indication, among other things, that the state is overly dependent on volatile taxes the bulk of which are paid by those earning over $250,000. These taxes certainly will increase in a national administration that does not want those earning less than $250,000 per year to carry their fair share of the nation’s “investment’ in higher taxes.

The most recent report from Comptroller Nancy Wyman indicates that the “payroll withholding portion of the income tax also dropped by about 14% for the month, driven by job losses that total nearly 60,000 since March 2008. Overall, the income tax is down by about 23% for the fiscal year that ends June 30.”

Other Connecticut tax receipts also have suffered diminishment as a result of the collapse of the financial sector: Taxes levied on oil companies are down down 64% and the real estate conveyance tax is down 52%.

Will traces California’s ailments to “centrist evasions. The state's crisis has been caused by ‘moderation,’ understood as splitting the difference between extreme liberalism and hyperliberalism, a ‘reasonableness’ that merely moderates the speed at which the ever-expanding public sector suffocates the private sector.”

Here in Connecticut, the compromise state, we are all too familiar with centrist evasions. As a result of such evasions on the part of its Republican governors and Democrat legislature, the state has tripled its spending. Now faced with crippling deficits, Democrat legislative leaders have tickled the fancy of its unionized phalanx with a 30 percent tax on corporations, while the Republican governor has proposed a quick fix solution that the governing class can live with.

Verily, the road to economic perdition in Connecticut has been paved with moderation, when what we need is – a revolution.
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