Cautionary News Out of California

Some crazy ideas are coming out of California, and the rest of the country would do well to see them as cautionary, not instructive; and hope those ideas stay contained in that state.

california

February 4, 2019

By: Bobby Casey, Managing Director GWP

When the US was created, the states were meant to be independent and free to run whatever economic and social experiments they wished.  Things have become a LOT more centralized since the inception of the US, but you still see remnants.  You see people fleeing high tax states like California, New York, and Illinois for low tax states like Florida, Texas, and Arizona, for example.

On the one hand the convenience of reciprocity and portability is nice… on the other hand, some things are best left contained… and the nonsense coming out of California lately is absolutely among them.  While California is an easy target to pick on, it’s also often the testing grounds for some very dangerous policies, that could seep to the national level.  Keep in mind these facts FEE was good enough to itemize:

  1. California spends about $98.5 billion annually on welfare, the most in the US, but has the highest poverty rate in America.
  2. California has the highest income tax rate in the US, at 13.3 percent, but the fourth greatest income inequality of the 50 states.
  3. California has one of the most regulated housing markets in America, yet it has the highest homeless population in American and ranks 49th (per capita) in housing supply.

Kamala Harris

She is a junior Senator from California, and a 2020 presidential hopeful.  She is doing no favors for any Californian with her weak and unprincipled politics.  She hails from a state with a very high cost of living, especially when it comes to housing.  Los Angeles and San Francisco have some of the most outrageous housing costs. 

It doesn’t take a genius to figure out that if the permits and zoning regimes are prohibitive to increased housing development, then, when met with high demand, you inevitably are left with a very expensive supply.

Government is responsible for restricting supply, and her solution is to subsidize demand! 

With the Rent Relief Act of 2018, she wants to “help” people afford their high rents. 

For a moment, let’s assume her intentions are to help the struggling working class and poor.  If we look at what happened when the government decided to subsidize higher education through easy access to low interest loans to a very high risk demographic, what can we observe about the cost of higher education?

According to US News and World Report, over a 20 year period, the following effects can be seen:

  • The average tuition and fees at private National Universities have jumped 168 percent.
  • Out-of-state tuition and fees at public National Universities have risen 200 percent.
  • In-state tuition and fees at public National Universities have grown the most, increasing 243 percent.

That only helps ONE group, and it’s NOT the poor.  How can it help the demand side when the supply remains the same?

This would result in a whole new level of cronyism with landlords.  If people are upset about imbalances in wealth now, this should send them over a cliff.  I find it disturbing, as this sort of redistribution to purchase a vote, and line pockets of a select group is passing the sniff test.

Where she really falls apart is with her “LIFT the Middle Class Act”.  It’s a redistributed spin on the current Earned Income Tax Credit (EITC). 

According to the Tax Foundation, such a tax policy would “reduce federal revenue by $2.7 trillion on a conventional basis and $2.8 trillion on a dynamic basis. It would reduce economic output by 0.7 percent and result in about 825,906 fewer full-time equivalent jobs”.

Essentially, it incentivizes people to work in order to qualify like the EITC, but not TOO much!  There is a point of diminishing return where the “phaseout” of the policy would be a disincentive for people to earn more than that level, with an additional $0.15 per dollar earned over that threshold.

Economist Daniel J. Mitchell makes the following observation: “the tax cut is ‘refundable.’ This means that money goes to people who don’t pay taxes. In other words, it is government spending being laundered through the tax code. So Harris claims to be cutting taxes, but part of what she’s doing is expanding redistribution and making government bigger (and encouraging more fraud)

Kamala Harris isn’t the only crazy thing coming out of California!

Laws

The Golden State kicked off 2019 with 1,016 new laws on their books!  Not ALL of them are necessarily restrictive or burdens on the private sector.  Some of the newly active laws do lift the regulations off small businesses like street venders, while others are a call for more transparency from police giving public access to footage of police involved shootings.

The overwhelming majority of the laws, unfortunately, still manage to promote California from Nanny State to Nagging State.  Here’s a sample:

  • Straws given ONLY on demand in sit-down restaurants.
  • Unflavored milk or water must be the new default beverage offerings for kids’ meals
  • Minimum wage increases to $12 for companies with 26 or more employees (in the protracted quest toward $15)
  • Publicly traded companies will require a minimum of one woman on their board of directors
  • That state must increase its sourcing of renewable energy from 50% to 60% in 2019
  • A series of further gun restrictions including California’s version of red flag laws, longer wait periods, higher age restrictions.

Pacific Gas and Electric Files Bankruptcy

A good number of fires in California can be traced back to power lines.  Not climate change.  Not mismanagement of forestry resources.  Not to say that climate itself or the presence of dry foliage doesn’t contribute to worsening the conditions, but they don’t start the fires.

PG&E filed for bankruptcy this past week, with $30 billion in overall liabilities.  It employs approximately 23,000 people and roughly the same number of people drawing pensions. Their stock has plummeted nearly 80% since 2017.  They owe money to gas providers.  They borrowed money from the federal government as part of a renewable energy initiative.  It adds up very quickly. Never mind the damage done during the fires themselves.

Does the entity responsible for providing electricity and gas to over 40% of California get a bailout?  Or does the bankruptcy go through, and they are broken up by those who cast lots for their viable assets?  Or is it some combination of the two, with the state breaking this company up and running it at a city or county level as a true government run public utility?

There is a LOT coming out of California, and the rest of the US better hope it stays there. 

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