The public finance news out of California is slipping from grim to bleak. First Stockton in the Central Valley declared bankruptcy. Then, San Bernardino followed suit. Now we learn that Victorville, its neighbor in the inland empire east of Los Angeles, is not only going belly-up, but is facing an S.E.C. investigation for practicing some fiscal sleight of hand.
Municipalities in California are running out of money, and there is little chance in the coming years that they will cover their behemothic pension obligations to city workers by the tens of thousands. The developing drumbeat of failures in medium-sized places you’ve sort of heard of—Stockton…San Bernardino…Victorville—means the resounding crash of big names—San Francisco…Los Angeles…San Jose—can’t be far behind.
Then there’s Sacramento, where the state government sits, and where the legislature just blessed a passenger-rail boondoggle that will surely cost $100 billion. Plus there’s Governor Jerry Brown’s oppositionless proposal to raise the top rate of the state income tax to over 13%, highest in the nation.
“Heads up” to residents, actual and potential: Your property taxes (to cover municipal obligations) are going to make a huge increase over the coming years; your income taxes are in the process of doing the same; and the money is going to be blown on civil-service lifers when not white-elephant spending projects. Ergo: get out while the getting is good.
Lately California has been losing residents by the millions, replaced in part by immigrants living a dozen to an apartment. It’s giving this nation the prospect of something it’s never really had: a feudal-like society where there are moneybags and support staff and little in between.
One of the places those hard-hit residents have been scurrying to is Texas. The Texas economy has sailed most impressively through the Great Recession, with GDP up 7% since the 2008 peak, as California has stagnated. Unemployment in Texas is 7%, compared to nearly 11% in California.
Another positive in Texas is that state tax revenues are bursting all records. This year, sales tax revenue will be up 12%, well above the pre-recession peak. And most intriguingly, leaders like Houston mayor Anise Parker are laying the groundwork for pubic-sector pension reform now, such that the Stockton/San Bernardino/Victorville doomsdays don’t come to stalk Lone Star municipalities.
If there is one gloriously opportune time to cut taxes, it is when revenues are booming. California of course should cut taxes right now, to stanch the outflow of capital and middle-class earners that’s killing the state as we speak. But the beautiful moment to do it, to cut taxes, is when receipts are cascading in.
If Texas cuts taxes right now, it will encourage all the more business and entrepreneurship, on top of what has already occurred, without jeopardizing current governmental operations. Indeed, a virtuous circle will unfold in which tax cuts make the state ever more attractive, generating receipts that can bring about yet another tax cut down the line.
The alternative, of course, is to do what California did in the late 1990s, during the tech boom. Then, California interpreted a burst in receipts as the new baseline for expected future receipts, and locked in new spending accordingly.
Given the great rise in state tax receipts in recent years, Texas stands in jeopardy of repeating California’s grave mistake. If Texas does not cut taxes soon, it will guarantee an increased level of governmental displacement of the real economy and choke off the sources of what’s emerging as one of the proudest moments in all of Lone Star history: the state’s great prospering in the context of national economic stagnation.
One way to guide California back to the sunny uplands of success, where it belongs, is to be a beacon of how things are done right. For the sake of its own continued prosperity, and to maintain itself as a model of the kind of reform that this nation needs,Texas has to make the easiest of moves as its legislature meets in a few months, and cut taxes in the face of the receipts explosion.
The article first appeared in Forbes.
W styczniu 2020 roku Wielka Brytania formalnie opuściła Unię Europejską. Oczekiwane korzyści z brexitu, poza odzyskaniem suwerenności w zakresie kształtowania prawa i zewnętrznych relacji gospodarczych, jednak się nie zmaterializowały. Widoczny jest natomiast spadek wydajności i konkurencyjności brytyjskiej gospodarki, co wpływa także na kondycję rynku pracy.
