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State Fiscal Problems
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coboardhead



Joined: 26 Oct 2009
Posts: 4303

PostPosted: Mon Jan 17, 2011 10:35 am    Post subject: State Fiscal Problems Reply with quote

Total state budget deficits for FY 2011 will total close to 140 Billion dollars. Revenue sources are flat.

So far, the Federal Government has aided the states with the stimulus package. Those funds are nearly depleted.

Serious cuts may be required to services and, possibly, pension plans.
Tax increases at the state level are likely.

Will this drag down the economic recovery? Will these deficits be absorbed by growth in the economy?

http://www.cbpp.org/cms/?fa=view&id=711
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isobars



Joined: 12 Dec 1999
Posts: 20935

PostPosted: Mon Jan 17, 2011 11:33 am    Post subject: Reply with quote

States raising taxes instead of cutting expenses are seeing mass exoduses of individuals and companies/corporations of every size. That's lowering those states' revenues.
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coboardhead



Joined: 26 Oct 2009
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PostPosted: Mon Jan 17, 2011 12:34 pm    Post subject: Reply with quote

Isobars said

Quote:
States raising taxes instead of cutting expenses are seeing mass exoduses of individuals and companies/corporations of every size. That's lowering those states' revenues.


That is certainly a POSSIBILITY. But, has this been happening yet? If you look at the data that I have been able to find, the deficit free states are not experiencing large increases of population.

That said, if I were going to full time retirement now, and looking for a new location, I would look at that states ability to fund long term pension obligations as part of the equation.
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isobars



Joined: 12 Dec 1999
Posts: 20935

PostPosted: Mon Jan 17, 2011 2:05 pm    Post subject: Reply with quote

Google something like high tax state exodus. Some local CA chambers of commerce deny it, but most hits rail about people and companies leaving high-tax states, especially CA. Seattle and Boeing used to be almost synonymous, but not since Boeing HQ bailed to Chicago for lower corp taxes. OOPS! Now Illinois' corporate taxes -- not to mention their 66% increase in personal income taxes -- are beginning to drive businesses to adjoining states. Don't these states, or this and the last administrations, understand or care that, historically, every extra dollar in increased revenue leads directly to a $1.17 spending increase?

Considering the number of states in serious throes over state-guaranteed pensions and the public's outcry over federal bailouts thereof even if the White House laughingly calls them "stimulus" or "jobs" packages, I'd be very leery of tying my future to state pensions.

I'd be a bit panicky these days if we hadn't lucked (via the draft) into federal pensions AND invested almost half of our net income in probably the best stock market in history throughout the '90s AND done what state and federal governments should be doing right now: spending well within their means. I've estimated several times that our spending choices alone save us much more than we pay in income taxes. I surely as hell couldn't have retired at 45 if we spent as freely as virtually everyone I know of all income levels.

I presume the time you spend here is a guilty pleasure, rather than a significant portion of your fact-gathering, but things you've told us imply you're missing out on another source of business and financial insight: cable TV business financial networks such as Blumberg TV and Fox Business Network. Watching them closely would eat up too much time until you learn which specific programs appeal to you, but having them on in the background may let your "barely-conscious" pick and choose the most useful ones. I know you like to put more faith in interviews and your circle of friends and business contacts, but that can be biased by the circles one hangs in just as well as it can be by one's choice of networks; be careful on both counts. Every few months I phone a lifelong friend known nationally among his peers for his corporate and business contacts and insight, and double check my conclusions with him. He usually says the professional insiders' outlooks and level of alarm are higher than mine.

That's alarming, so we plan to keep spending much less than we bring in. No more depending on any state or too-big-to-fail corporation, let alone hoping our last dime barely pays for our pine boxes.

Mike \m/
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boggsman1



Joined: 24 Jun 2002
Posts: 9110
Location: at a computer

PostPosted: Mon Jan 17, 2011 2:14 pm    Post subject: Reply with quote

ISO..Nice spelling of "Bloomberg" . You'd figure a guy worth 20Billion , three time mayor of NYC, would garner a little more respect from you. The "Bloomberg" is one of the best inventions in AMerican history, for those of us who seek information. You my old friend seek info from Faux News, FauxNews biz, and the Drudge Report.
Let me know when Facebook, Google , and Apple leave California. Boeing, left Washington, and couldnt decide between DC, and Chicago. They settled on Chicago, beause of its central location, and a quick G-5 sprint to DC, where they could do battle on big GOVT bids, like the refueling tankers.....nothing to do with state corporate taxes.
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isobars



Joined: 12 Dec 1999
Posts: 20935

PostPosted: Mon Jan 17, 2011 2:47 pm    Post subject: Reply with quote

coboardhead wrote:
if I were going to full time retirement now, and looking for a new location, I would look at that states ability to fund long term pension obligations as part of the equation.


Even more than that, I'd place low cost of living WAY up on my list of priorities (unless that eliminated other high priorities) and/or I was so well-off I didn't care about that.
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coboardhead



Joined: 26 Oct 2009
Posts: 4303

PostPosted: Mon Jan 17, 2011 3:26 pm    Post subject: Reply with quote

Boggsman said:

Quote:
Let me know when Facebook, Google , and Apple leave California. Boeing, left Washington, and couldnt decide between DC, and Chicago. They settled on Chicago, beause of its central location, and a quick G-5 sprint to DC, where they could do battle on big GOVT bids, like the refueling tankers.....nothing to do with state corporate taxes


Obviously, there are a lot of different reasons that corporations choose locations rather than corporate tax rates.

If you look at statistics for deficit budgets vs tax burden by state, it is hard to find much correlation that suggests that high taxes reduce or increase deficits.

Colorado has one of the lowest tax burdens in the nation. That alone has not kept the state fiscally healthy. Similar in per capita deficit to California.

My point in starting this topic, is that many of the states (by some estimates more than 40) are facing serious budget issues. Many of the government services provided to the middle class are administered and delivered by the states. Some high tax states are going to cut these programs. Some low tax states will need to raise taxes to avoid cutting essential services. Either way, this could have significant effect on the economic recovery.

Longer term, many states (not to mention the federal government) have made commitments to pension funds but have no clear plan for funding the projected shortfalls.
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isobars



Joined: 12 Dec 1999
Posts: 20935

PostPosted: Mon Jan 17, 2011 4:30 pm    Post subject: Reply with quote

coboardhead wrote:
it is hard to find much correlation that suggests that high taxes reduce or increase deficits.


Right ... probably because, at least at the federal level, Hauser’s Law proves with hard data that tax revenue stays near 19% of GDP regardless of tax rates. Thus the best way to increase tax revenues is to increase GDP. You do that by freeing up capital by lowering taxes. The other half of deficit reduction, which CA doesn't comprehend, is spending less.
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mac



Joined: 07 Mar 1999
Posts: 17736
Location: Berkeley, California

PostPosted: Mon Jan 17, 2011 5:42 pm    Post subject: Reply with quote

Interesting question coboardhead. Despite Isobars ranting, he's off base. He doesn't even remember Voodoo economics. But neither did Ronnie in his second term. (So says his son, about both points.)

In my opinion, there are three root causes of the current tax deficit. First, few states established reserve accounts. Instead, politicians of both parties tried to allocate increases in revenue to their supporters, forgetting that what goes up sometimes comes down. Second, the fall off in revenue was severe--close to 30% in California. The root of that was, of course, , # 3, speculation in housing and housing-based "securities." The author of that little goody? Phil Gramm, Texas Republican Senator.

I've seen the housing lemmings go off the cliff 5 times in my life time. None of them apparently have read Santayana. This time the cliff was way higher.
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coboardhead



Joined: 26 Oct 2009
Posts: 4303

PostPosted: Mon Jan 17, 2011 6:10 pm    Post subject: Reply with quote

Mac:

As we have discussed previously, Colorado and California both do not allow us to retain surpluses. Colorado did this with a voter mandated changes to the State Constitution. The result, was low taxes (yeah!!) and the possibility of significant budget shortfalls (oops!!).

Then, kick the pension funding can down the road to the next administration.

Now, what to do? We can cut some spending here; but 20%? Especially, when such a large portion of the budget is Medicaid and Education. Cuts to Medicaid have been severe and ongoing - finding more will be difficult. Education cuts may make Colorado less desirable for businesses.

So, I think Isobars may be correct when he warns of potential bailouts by the Federal Government.
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