California Dreaming Turns To California Fleeing

On Tuesday night, 54% of California's voters approved Proposition 30 which would raise both sales and income taxes in a supposed attempt to "fix" the not-so-Golden State's debt problems.   The state sales tax will be raised by 1/2 percent and, of course, that cost will be borne by everyone in the state who buys anything.

Then there's an increase in income taxes; retroactive to include all of 2012.  Apparently, having taken a lead from Obama, the Democratic-supported Prop 30 will "only" raise taxes on "millionaires and billionaires".   You know, that same old song:  Individuals making more than $200,000 and families making $250,000 and above.  The surtax will be progressive; starting at 1 percent on the low end and  incremented upwards to 3 percent for true millionaires.

Now, if Obama is also able to raise the federal tax on those same $200,000/$250,000 wage earners to 39.6% from 35%, it means that that those "rich" in California will see an "additional" increase of 4.6%. Then, add to that the 2013 0.9% tax increase for ObamaCare and the plus $200,000 crowd will see a rate increases of  ranging from 5.5% to 8.5%.  But, here's the thing.  California already has one of the highest income tax rates on high end wage earners at 9.3%; and, 10.3% for those making more than a million dollars.  So, overall, rich Californian's -- at the very minimum -- will ultimately have to pay a combined minimum tax rate of 50.8%.  53.8% for those truly making a million dollars or more.   Of course, both these rates assume that Obama will get his tax increases on the rich. So, if you do make $200,000, you will only get to keep  a little more than $98,000 of it.  For someone making a million dollars, their minimum tax bill will be $538,000.  Of course, this doesn't even include the sales taxes and real estate tax burdens and all the other taxes imposed on these very same people.  This, then, means that these income earners are no longer "unfairly" working for themselves.  Instead, they are primarily working in support of the state and federal governments and all their waste, corruption, and multitude of giveaways.

The problem with these high taxes is that it "will" force many talented and wealthy Californians to flee the state in seeking lower taxes.  Some amount of businesses will also leave. Those who are independently wealthy and not tied down to California by job, may actually move to places like Bermuda or Canada or some other country.  Besides being a brain-drain, ultimately, this will shrink the tax base by lowering the mean income; and, that means a lowering of tax revenues. In fact, all these new tax increases may actually result in less tax revenues than California is currently taking in.  Already, because of high taxes and over regulation, an estimated 3.4 million residents have fled the state since 1990.  I know this well; being a Nevada resident with no state income tax.  Many of the people in our particular neighborhood have moved here from California.

One last comment.  Despite the state's high deficits and debt, the Democrats who are in control of the State legislature have found it  impossible to lower any of the State's spending. This fact alone must infuriate those making high incomes and give them another incentive leave.  States that raise taxes and don't cut spending are just whistling past the graveyard; as was noted in my previous blog post, Obama Should Learn A Lesson From His Home State, where Illinois implemented a 67% across-the-board tax increase and their debt just continued to increase.

References:

--- Wall Street Journal: California Voters Approve Higher Taxes: http://online.wsj.com/article/SB10001424127887324439804578104854095658918.html?mod=googlenews_wsj

--- Federation Of Tax Administrators: State Tax Comparisons: http://www.taxadmin.org/fta/rate/tax_stru.html

--- Fox and Hounds: The Great California Exodus: A Closer Look: http://www.foxandhoundsdaily.com/2012/09/the-great-california-exodus-a-closer-look/

--- CNBC: Two Days After The Election:  Boeing Announces Big Layoffs in Defense Division: "Boeing announced a major restructuring of its defense division on Wednesday that will cut 30 percent of management jobs from 2010 levels, close facilities in California and consolidate several business units to cut costs.": http://www.cnbc.com/id/49729998

A Debt Reduction Commission - Or - Just A Sneaky Way To Break A Tax Promise

Yesterday, Obama's Debt Reduction Commission held their first meeting to decide what measures should be taken to reduce this nation's spiraling deficit. According to the Republican Co-Chair, former Senator Alan Simpson, "everything is on the table". Of course, for me, the best debt reduction action that could be taken right now would be to fire this President and send all Congressional Democrats home. But, maybe in the Fall?

The problem with the Debt Commission is that it will be used to raise taxes; and, nothing else. Everyone on Capitol Hill, Republicans included, knows damn well that any "program eliminations or reductions" would take an act of god to happen. For a politician, cutting any program and possibly losing even a single vote is anathema. So, my prediction is that only tax increases will be implemented out of this commission's December recommendation.

For Obama, the tax recommendations from this "bi-partisan" commission will be particularly beneficial. That's because (and I predict) that commission will recommend some form of tax that will hit the middle or lower classes of this country; thus giving Obama cover to break his promise of not taxing anyone below $200,000. Afterall, that's why he really created the commission. Duh!

Everyone on Capitol Hill knows what has to be done to save this country from collapsing under its own debt. But no one wants to make the hard choice because, in doing so, some voters are going to be offended. But, having a bi-partisan commission, not made up of current office holders, is just the ticket. Now, if the voters get angry, they'll have to get angry at the commission and "not" any particular elected official. How gutsy!

Three Strikes And You Should Be Out!

George Bush, Sr. lost his reelection bid because of his "read my lips, no new taxes" and, of course, the votes taken away from him by Ross Perot. Now, we have another President who has made a "no new taxes" promise that may ultimately bite him in the rear.

During the campaign and following his win, Obama has repeated this well-worn promise:



However, he has already broken that pledge once and he appears to be on the way to breaking it again; at least two more times.

First, as part of the health care bill, as promoted and signed into law by Obama, the Congressional Budget Office (CBO) now estimates that 4 million Americans will be taxed (actually fined) by the IRS for not having health insurance. And, it is estimated, in the same CBO report, that most of those 4 million will be middle class Americans that Obama promised not to tax (Click to See Full Story: Nearly 4 million to pay health insurance penalty by 2016, CBO says).

Then, Obama and the Democrats will let the Bush Tax cuts expire. As part of that, the capital gains tax will again rise to 20% from the current 15%. This means that any middle-class families that have put their savings away in Mutual funds, stock, or other investment securities will be taxed at a higher rate. A direct contradiction to the above video.

Lastly, as a result of an interview that Obama gave Wednesday on CNBC, we now know he is "not" opposed to the Value Added Tax and that, presumably, Volker's broaching of that concept two weeks ago was done to intentionally pave the way for it. Of course, the VAT will not only hit the middle class hard but it will hit the poor and working poor the hardest.



If you can't believe this guy when he promises no taxes, how, then, can you believe him when he promises his policies are going to make our lives better?

A "VAT" Chance That The Deficit Will Ever Be Reduced

Over the years, numerous countries have implemented the Value Added Tax (VAT) as a means of lowering their high deficits. Initially, the VAT did manage to lower the debt level in each of those countries. But, eventually the debt returned to even higher levels than before and the rate at which the VAT was set just kept being increased. Almost every country started their VAT at 10 percent. Today, most are now at a 20% plus level and expected to go even higher as governments try to fight the worldwide recession.

Initially VATs sounded like the ultimate solution for solving a country's debt problems. However, there is a human component that almost always causes it to fall short of its intended goal. Almost genetically, a politician can't view any new tax as a means of reducing debt. Instead, they only see any new revenue stream as a means of spending more taxpayer money. Politicians see a new tax as the cachet they need to spend more and more money in order to buy votes. The best example of this, today, is Greece who at a 19% VAT is literally at the doorstep of complete financial collapse.

If the U.S. goes with the Value Added Tax, you can expect spending to never stop. Over time, the VAT will continue to be increased with more spending to follow. And, it isn't just me saying this. History has proven it so.

What we need in this country is a mandate that forces politicians into controlling spending. We don't need another tax. We need a Balanced Budget Amendment to our Constitution with financial penalties or even jail time for any politician or politicians who violate that law. Only then will spending and deficits get under control.

What A Value Added Tax Will Do To America

Yesterday, Obama's lead man on financial issues, former Federal Reserve Chief, Paul Volker, said that America must consider a Value Added Tax (VAT) in order to reverse deficit spending and clear our high national debt.

Most American's are under the false belief that a VAT is just some kind of national sales tax. But, they're wrong. The VAT is actually a compounded tax that is applied every time any product gains or "adds value" over its entire production process. Take, for example, a piece of steel that will be ultimately sold as part of a new automobile. When the original iron ore was mined and, then, turned into steel ingots , there was a change in the ore's value and, as a consequence, the value differential that was created would be subject to a VAT. Once those ingots are turned into rolled steel, that, too, is a change in value, and the VAT would be applied. Then, that same steel, after being stamped into a more valuable automobile frame would be VAT'ed again. Finally, as part of a finished car, the value increase of that auto frame would be included in the final VAT that is applied to the finished car. Because the VAT is a compounding tax, it is highly possible that a nominal 10% VAT could result in a 30% increase in the price of any product; depending on how complex the manufacturing chain is. As a result, the VAT favors building products out-of-country so the step-by-step VAT charges can be avoided. That, then, favors importation and not domestic production. (So, much for Obama's promise to double our exports in 5 years!)

Throughout the health care debate, liberals would always point to Europe as the shinning star that we should strive to match. But, as part of my former job, I spent a lot of time in Europe and things are hardly rosier there than in the good ole U.S. of A. My experience is that people in Europe lived smaller; had less to spend; and, almost always paid higher prices for everything they bought. Clearly, this is the trade-off they've had to accept as part of all of their social programs.

To prove this point, let me give you some very interesting comparisons between Europe and the U.S. In this country, the median after-tax yearly income (disposable income) is about $31,400. Throughout Europe, that number is almost 25% less because of their high taxes. For example, the median disposable annual income in France is $26,416. In Germany, that supposed economic powerhouse of Western Europe, its even less at $25,146. So, right off the bat, people have less to spend.

Then, because of the VAT's throughout Europe, things cost more. We can indirectly see that from the average age of cars on the road in Europe versus the average in this country. In Europe, the median age of an automobile is 14 years. In the U.S., it just above 9 years. People just can't afford to buy a new car as frequently as they do here. On top of that, gasoline taxes are so high that the per-gallon price of gasoline is 2 to 3 times what it is here; all throughout Europe. In terms of housing, there is an even larger disparity in the standard of living. In this country, the average new home being built is about 2,220 square feet. In Europe, that number is closer to 1,000 square feet. In Britain, it is actually only 815 square feet.

I get a little tired of all the talk that we should be more like Europe. The direction that Obama and the Democrats are taking us would literally cut our standard of living in half. That's what being more like Europe is all about. And, that's what the VAT will do to us.

Just a few more comments. Despite all their taxation, most of Europe is still neck-deep in deficit spending. That because, as taxes are increased, the economic expansion is reduced and the effect of any new taxes is completely negated. It's like the Post Office raising rates in this country. With every rate increase, the U.S. Post Office actually get's even deeper in debt because they continue to lose business. As a result, any rate increase is never enough.

The European Union -- only just a few years old -- is close to collapsing in favor of returning to country-by-country individualism. That's because Greece, Spain, and Portugal are near bankruptcy and they are dragging down the "Union". In the U.K., they have just raised their taxes even higher and my guess is that will only hurt their economy even more than it is being hurt tight now. Throughout the last two decades, most of Europe has had unemployment rates that were 30-50% higher than this country. This is the great economic model that Obama and his socialist friends seem to think we should follow.

One last comment about Volker. All of a sudden he's worried about all of our debt and is proposing an expansive tax structure to fight it. Where was this supposed genius when Obama and the Democrats decided to raise the national debt by nearly 30% or by $3.2 trillion dollars in "just one year" from the previous $10.8 trillion. All these people have done is put this country on a typical liberal economic treadmill. First, they create the debt. Then, they plan to fix it with taxes. But, with new taxes, they again start spending. And, again, the fix is another new round of higher taxes.

Another Bad Employment Number

This morning, those filing first time unemployment insurance claims rose to 496,000. That's a 22,000 claim jump from last week and substantially higher than the drop that was expected by most economists. Except for a holiday and weather related one-week drop in claims, the amount of claims has been rising in the last 7 weeks of reporting. That is the opposite of what would be expected in a recovering economy.

The Associated Press (AP) is trying to spin this as being "snow-related layoffs" (Click to See Full Story: Jobless claims rise on snow-related layoffs). Please! Since when does any employer, even in construction, let people go because of a week or two of bad whether? If anything, the weather will only delay business activities; not cancel them completely. But, the AP will do anything to soften bad news for this President.

The reality, and not some slobbering defense of Obama by the Associated Press, is that mass layoffs are on the rise again -- as I reported two days ago. Believe me, Harry Reid's $15 billion jobs bill -- the one that was passed just this week -- isn't going to do anymore to improve things than his more than 50 times that amount in the $787 billion Stimulus Bill of last year. These people just don't get it. It is both current and future Federal spending, taxes, and regulation that is killing this economy. Give businesses a stable expense and tax outlook and, I guarantee you, the economy will grow and the employment situation will turn around. Past history shows that it was Reagan's policies and not those of FDR, Carter, and, now, Obama that can turnaround and grow an economy.

The Vicious Circle Of Producer Price Inflation

This morning, the producer price data was released for the month of January and those prices soared 1.4 percent for that month (Click to See Full Story: January Producer Prices Rise More Than Expected). Producer prices reflect the cost of finished products that are making their way through the retail market system. These finished goods can be gasoline, heating oil and things like picked, packaged, and processed food stuffs and dairy products being delivered to the markets for retail sale.

The reason that producer prices are such a closely watched metric is because it is producer prices that will ultimately force retail prices up and that, in turn, will eventually hit us all in our wallets in the form of inflation. At the heart of any past rampant inflationary period has been the rapid rise of producer prices. If you assume that normally acceptable inflation rates should be at about 3 to 4 percent in an entire year then, having a 1.4 percent increase in a single month (as in this report) is very worrisome.

Producer price increases are a double edged sword; especially in a time of recession.

Any retailer who is hit with a big jump in the prices they pay for the products that they intend to sell are typically faced with only one of two choices: Either raise prices or hold the line. In the majority of cases, they will raise prices.

However, if a retailer fears that they won't remain price competitive in their own market space, they will hold their pricing. In doing so, this action means that their profits will be reduced. When profits are reduced, the income taxes that they will pay will also be reduced. The vicious circle that results from this decision is the fact that State and Federal taxing agencies will now see lower revenues; and, as usual, they will be forced to raise taxes in order to compensate for that loss. Then, in turn, all retailers will be forced to make another pricing decision to compensate for the new higher tax rates.

As I said before, most retailers will make the decision to raise their prices. But, what that does is take disposable income away from the consumer. If the consumer's paychecks don't rise at the same rate as inflation, then we could see a variety of bad things happening in our economy. And, it is typical, in a recession, that workers have little or no leverage to demand salary increases in the face of rising prices. Therefore, the amount of people who are unable to pay their bills will rise. This could also result in higher number of bankruptcies, foreclosures, and defaults on other loans and credit cards. It also means that non-essential spending will be curtailed and the retail sales for things other than food and clothing could suffer a setback and cause a double-dip recession. Once again, tax revenues will be reduced; forcing taxing agencies to raise taxes. And, so, higher taxes will force higher prices and the vicious circle will just keep repeating.

Normally, the Federal Reserve would fight inflation by raising interest rates. However, with business loans and mortgages already hurting, raising interest rates will only continue to reduce bank lending. Therefore, the Federal Reserve is in no good position to do anything because their actions to fight inflation could be as bad for the economy as the unbridled inflation they are trying to fight.

Any way you shake it, the continued high spending rate by this Congress and this President is probably at the core of this month's high rate of producer price increase; and, it is an early sign of the double-digit inflation we could see in the next 2 to 3 years; as most non-Keynesian theory economists have predicted. This is why the theory of Keynesian Economics to use a high rate of government spending to pull us out of recession is so wrong. What should have been done is broad base of tax cuts to stimulate our economy -- as was so effective under Reagan's watch. But this President doesn't seem to get it. It appears now that we have another Carter-like economic fiasco on our hands as this President continues to pursue an economy-killing, liberal agenda with high taxes and outrageous government spending.

Lastly, I would like to point out that I, in this blog, and along with many many others in this world have been more accurate about the direction of this economy and the failure of Obama's economic policies than either Obama or his economic advisers. In most cases, economics is just common sense -- something that Obama and his academics don't seem to understand. But, then, how could they? None of them has ever run a business or managed anything other than their personal trips to the bathroom. And, based on the amount "crap" and B.S. that we keep getting from them, those trips are quite frequent.

It's A Scary Harry Christmas

For those of us that are happy with their health care coverage, the prospect of the Democrats destroying the whole system so that they can completely control health care delivery in America leaves us thinking that 2009 will be a "Scary Harry (Reid) Christmas" present that very few people really want.

All indications are that Harry's horrendous health care reform bill -- the one that he won't let anyone see or read -- will be voted for on Christmas Eve as a means of putting additional pressure on Senate members who possibly won't get to see their families over the Holidays if they don't vote for this bill the first time around.

From the get go, Harry and the Democrats have used every thuggish tactic in the books to get their own political compatriots in line to vote for this pig of a health care bill that no amount of lipstick or even eye shadow could make look better. Mary Landrieu got a bribe of $300 million dollars for her vote. Ben Nelson who may have received a threat of closing one of this nation's largest air force bases if he didn't succumb, also secured his bribe-of-bribes by getting Harry Reid to excuse all the state Medicaid charges forever that Nebraska would have paid under this health care reform bill. Joe Lieberman even had his wife's philanthropic job threatened by the left. And, Michael Moore is trying to use his influence to punish Lieberman by asking his friends to boycott Connecticut businesses.

If this health care reform bill was such a good thing for America, don't you think it would be sailing through this Democratic majority-ruled Senate with some Republican support. But, not one Republican wants to put their fingerprints on what Harry Reid calls "historic". Further, why would anyone have to be bribed to vote for a bill if it was so damned good for America.

But, most reasonable people -- some of those actually being Democrats -- know this whole process is wrong. The polls reflect that Americans don't want it and think it will do nothing but cost too much money and reduce the quality and availability of health care.

History has taught us that big social programs like Social Security, Medicare, and Medicaid are financially unsustainable. Every one of these programs will be insolvent in just a few years. Now, we're going to add a national health care system to this pile of financially failed social programs. Eventually, the salaries of the American people will be totally dedicated to support these programs. The only people who will actually benefit from them will be those who don't work and don't contribute to the economic growth of the country. These jobless people will be taken care of by the State. And, as wards of the state, they will have their every need addressed from cradle to grave without ever lifting a hand to work. In turn, the Democrats will get their votes. It's as simple as that. It's all about co-dependency.

So, try and enjoy your Christmas. Try to live in the moment with politics set aside. However, if you can't, and it just seems like things are scarier this year than ever before, you can thank Harry Reid and his buds Pelosi and Obama for that feeling.

Lastly, if you would like to know the full list of "bribes" and "punishments" that are contained in this badly wrapped and poorly conceived Christmas present that most of us are getting from Harry, you would be well advised to read this: Healthcare Pork: Senate Bill Laden with Favors, Pet Projects for Democrats.

What Is Obama Up To?

I don't know what Obama is up to but, on two separate occasions he has, in effect, criticized his own outrageous spending habits. On May 14th, he said that the current deficit spending is "unsustainable" and could result in skyrocketing interest rates for money being borrowed from other countries (See Full Story). Then, two days ago, in an interview with C-Span, the Drudge Report is quoting Obama as saying that "we are out of money" (See Full Story).

This guy is a sly politician; too sly to have slipped his tongue twice about his own excessive spending and the huge new deficits that he, himself, is largely responsible for. My guess is this is a "setup" for new taxes coming down the pike. For sure, he will probably "not" want to wait until 2010 to allow much of the Bush tax cuts to expire. Instead, expect him to call for a repeal of those cuts this year. These statements could also be a forewarning that all taxes, even those on the middle class, will have to be raised. If so, the Obama promise to not raise taxes on the middle class will just go down the toilet; just like so many other broken promises that he has made. Mark my words!