Friday, May 14, 2010

California is a Third-World State

On March 22, 2010 Mercury news published an article detailing some tax changes in the state of California:
The deal reached Monday provides $200 million in new tax credits for homebuyers, to be split evenly among those buying a home for the first time and anyone buying a newly constructed home. Anyone qualified who makes a purchase between this May and August 2011 will receive a credit for 5 percent of the home's purchase price, up to $10,000 over three years. (MB: This is in addition to federal tax credits)
It is no secret that CA has had it's share of budget woes. From the issuing of IOUs, to the $20 billion deficit, it hasn't been easy for CA to get it's finances in order. That's why this measure seemed a little backward to me at the time, especially considering the low efficacy of the federal program and the record-high unemployment rate of 12.6% and associated fiscal woes CA was facing. I understand the government wants to stimulate demand for housing, but as Bill at Calculated Risk said, they should have really focused on stimulating house-hold creation, preferably via jobs which create additional tax revenue as well. This short-lived scheme will only help to accelerate the turning of renters into buyers, depressing rents and leading to lessened demand for investment properties. Rather than trying to revive a housing boom that isn't coming back, the government should have focused on helping unemployed workers gain new skills so that when the economy recovers they are ready to get back to work, because it looks like they are going to need it.

Because you can't spend your way out of a debt problem, California's budget problems persist. Today, the Governator proposed violent cuts to welfare programs, including welfare-to-work, child-care, and medical aid for the elderly. I would be surprised if these cuts weren't just empty threats like "give us bailout or we'll just have to fire all the teachers," but it outlines the bigger problem at hand: California is suffering from some delusion of entitlement and refuses to live within its budget. It is simply unconscionable that they are getting $3.2 billion from the federal government and giving away $200 million of it as a de-facto stimulus payment to the people doing well enough to buy a house while trying to cut child-care programs. Naturally, the Democrats are now calling for increased taxes because nobody wants to take the unpopular action of cutting anything. The pain must be shared, though. You won't attract employers by raising taxes and taxing the workers will just reduce the attractiveness of the state. If they are going to be successful in getting their budget under control, it will have to be a balance of increases in taxes, decreases in social programs, cuts in wages and benefits, an end to wasteful giveaways and an investment in the human capital of the state. If it's in the cards, the future pensioners should share in the pain too, but I don't see that happening.

In my opinion, the Governator is just kicking the can down the road and delaying the problem, hoping that the feds come in at the last second and save the day with a California bailout but, considering the resistance we've seen from Washington to take-on the state's liabilities, I wouldn't plan on it. There is easy things in life and there is hard things; this is a hard thing, and there's just no way around it.

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