NCPA - National Center for Policy Analysis


December 28, 2007

In the contest to be America's most spendthrift state, New York and California are typically ahead of the pack, says the Wall Street Journal.

But California is clearly taking the lead, says the Journal:

  • Officials in Sacramento are now projecting the state's budget deficit at $14 billion, and climbing.
  • That's a big enough hole that if the state were to slash 10 percent from every public service -- from schools, to courts, to highway patrol units -- it would still be $2 billion in the red.

One reason for the budget deterioration is that the state is also losing many of its most productive workers:

  • Over the past decade nearly 1.5 million more Americans fled California than arrived; 275,000 left last year alone, according to Census Bureau data.
  • An influx of foreign immigrants has maintained the state's overall population, but those departing include upwardly mobile middle-class families moving to lower-tax states with more affordable housing.

Taxes are another problem:

  • The Golden State applies a top marginal income tax rate of 10.3 percent, the highest rate on earnings of any state (excluding some city levies, such as New York City), according to the Tax Foundation.
  • A rising share of those who pay the 10.3 percent rate are now hit by the federal Alternative Minimum Tax, so about one-third of California's income tax is no longer deductible from federal tax liability.

As if taxpayers needed another reason to leave the state, the Governor and legislature are promoting a new government health care plan at a cost, coincidentally, of $14 billion, says the Journal.  The state Assembly recently passed the plan. Politicians are floating a $2 a pack increase in the state's cigarette tax to pay for it.  So a shrinking number of smokers would be tapped to finance a growing number of citizens dependent on the state for health insurance.

Source: Editorial, "The Red Ink State," Wall Street Journal, December 28, 2007.

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