The Golden State has killed the golden goose

California is facing a larger than expected budget shortfall, according to Governor Jerry Brown.

The expected $9.2 billion deficit has ballooned to over $16 billion despite tax increases and big cuts to education and health care.

New York Times:

Gov. Jerry Brown, speaking in a video posted on YouTube, said that California's budget shortfall was now projected at $16 billion, up from $9.2 billion in January. Mr. Brown said that he would propose a revised budget on Monday that was intended to deal with the shortfall.

State officials said Mr. Brown's proposal would include a package of new, immediate cuts, in addition to other cuts that would occur if voters failed to approve a temporary increase in sales tax as well as a higher income tax on the wealthy.

Mr. Brown said the shortfall was the result of disappointing revenue collections this April as California continued to struggle to pull out of recession. At the same time, the deficit projections -- which began increasing soon after Mr. Brown and the Democratic-controlled Legislature approved a budget last summer -- suggest that the state may have been overly optimistic in projecting the amount of revenue that it would take in.

Increasing taxes on business and the wealthy never brings in the expected amount of revenue. This is because projections are not based on how people actually make decisions. Most successful people are not stupid. If you are going to punish someone for working harder, they will invariably refuse to cooperate. We are seeing the same, exact situation emerging in Illinois. Massive increases in taxes are bringing in far less revenue than expected. This will lead to more tax increases which will bring in even less revenue than planned for.

California has killed the very thing that made it an economic powerhouse; the incentive to work hard and succeed. Sure there are individual companies like Apple that are doing extremely well. But the overall climate for business has turned hostile and companies are voting with their feet. Corporations are fleeing California for low tax havens in Texas, and even Utah. This trend will continue until 1) someone takes on the powerful state employee unions and their health and pension benefits; and 2) reforms the tax code to create a business friendly climate once again.

Jerry Brown is not the man for either job.

California is facing a larger than expected budget shortfall, according to Governor Jerry Brown.

The expected $9.2 billion deficit has ballooned to over $16 billion despite tax increases and big cuts to education and health care.

New York Times:

Gov. Jerry Brown, speaking in a video posted on YouTube, said that California's budget shortfall was now projected at $16 billion, up from $9.2 billion in January. Mr. Brown said that he would propose a revised budget on Monday that was intended to deal with the shortfall.

State officials said Mr. Brown's proposal would include a package of new, immediate cuts, in addition to other cuts that would occur if voters failed to approve a temporary increase in sales tax as well as a higher income tax on the wealthy.

Mr. Brown said the shortfall was the result of disappointing revenue collections this April as California continued to struggle to pull out of recession. At the same time, the deficit projections -- which began increasing soon after Mr. Brown and the Democratic-controlled Legislature approved a budget last summer -- suggest that the state may have been overly optimistic in projecting the amount of revenue that it would take in.

Increasing taxes on business and the wealthy never brings in the expected amount of revenue. This is because projections are not based on how people actually make decisions. Most successful people are not stupid. If you are going to punish someone for working harder, they will invariably refuse to cooperate. We are seeing the same, exact situation emerging in Illinois. Massive increases in taxes are bringing in far less revenue than expected. This will lead to more tax increases which will bring in even less revenue than planned for.

California has killed the very thing that made it an economic powerhouse; the incentive to work hard and succeed. Sure there are individual companies like Apple that are doing extremely well. But the overall climate for business has turned hostile and companies are voting with their feet. Corporations are fleeing California for low tax havens in Texas, and even Utah. This trend will continue until 1) someone takes on the powerful state employee unions and their health and pension benefits; and 2) reforms the tax code to create a business friendly climate once again.

Jerry Brown is not the man for either job.

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