Monday, January 12, 2009

California's Muerte Anunciada

One of those stories that leave a lot unsaid.

The number of people leaving California for another state outstripped the number moving in from another state during the year ending on July 1, 2008. California lost a net total of 144,000 people during that period — more than any other state, according to census estimates. That is about equal to the population of Syracuse, N.Y. ... California's loss is extremely small in a state of 38 million. (emphasis mine) And, in fact, the state's population continues to increase overall because of births and immigration, legal and illegal. But it is the fourth consecutive year that more residents decamped from California for other states than arrived here from within the U.S.

Ahem, maybe so, but the only 4 years ago, a $6.7 bln deficit was considered "deceptively difficult challenge" there, and now they are talking about $41.6 bln. Cutting spending just does not happen over there, taxes are already the highest in the US, and businesses are running for the border because of regulatory overkill.

Furthermore, when a state or country begins to lose people because of high taxes, the first "refugees" tend to be the wealthiest and the most mobile - because they stand to lose the most, and can move with the least amount of disruption to their lives and careers. Those same "refugees" contribute disproportionately more taxes - as California is discovering now (to wit, California charges a 1% additional tax on incomes over $1 mln - with the proceeds used for... mental health services; maybe they need to charge 2%, given the number of mental cases in their government ). Those with AGI over $200,000 accounted for 4% of filers, and 65% of personal income taxes paid, as of 2006 - approximately 582,000 thousand taxpayers. Thus, even though the 144,000 people who left California are a tiny portion of the population, they are very likely about 58,000 (assuming 2.5 persons per household - grown-up children, couples filing separately, etc.) households, and (again, my guess) disproportionately in the $200,000 AGI group. If only half are indeed in that group, then California lost in one single year almost 5% of those filers, and thus over 3% of its personal income tax revenue. I have thrown in a lot of assumptions, but they do not appear very unreasonable, and I am aiming for a ballpark number anyway.

How unreasonable is it to expect that this flight will not only continue, but also accelerate, especially as taxes are further raised to make up for revenue lost? You decide. If you want to invest conservatively for retirement in the relatively near future, short California bonds and buy just about any other bonds you can think of - okay, not New York or New Jersey, maybe. Socialism failed everywhere else, it'll fail in California too - and California cannot print money, only bonds.

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