40 years as a one-party state has made California very vulnerable to bear markets, like the one that we’re experiencing right now. Sometimes black swan events can come in the form of a virus and the effects move down the money digestive tract to the California taxpayer. Watch out taxpayers, pensioners, younger government employees and the whole gamut of local governments.
There are two bears stalking the state. One is the huge bond and pension indebtedness and the other is the public employee unions. The second one gave birth to the first one.
Here’s the scenario. Unsustainable defined-benefit public employee pensions – the most expensive to maintain, as opposed to the defined-contribution kind – requires a high rate of return to successfully service the payouts to retirees like my wife and I. The coronavirus bear market has shattered the 7 percent rate of return to adequately fund CalPers, CalSTRS, and any others out there. The pension bear was beget by the public employee union bear, the most powerful lobby in Sacramento. Who’ll make up the loss? If you said the taxpayer and lower-rung government employees, move to the front of the class.
The pension fund managers will go to the one-party state, which is housed in the state capital, to make ends meet. These clowns will then try to bilk more out of the “rich”. Already the top 1% of the state’s income earners account for 50% of the state income tax, which contributes 60-70% of the dough to the state’s coffers. What’ll happen? You guessed it: capital – meaning the “rich” – have already begun to flee to places like Incline Village just across the border in Nevada. Others seek refuge further points east. For a state that prides itself in its open heart for refugees, why is it so intense about making them?
Watch for how totalitarian taxation leads to totalitarianism. The State Franchise Tax Board is already manning up to scowl the nation for what it considers its truant millionaires and billionaires. We’ll see what the Supreme Court has to say about California’s attempt to fleece the new-found residents of other states. Does a state have the power to enter another state – literally or digitally – and force that state’s residents to prove that they didn’t spend 6 months in the People’s Republic?
The next in line to the guillotine will be local governments. To meet their pension obligations, they’ll have to layoff workers. It’s highly unlikely that the state with one of the highest combined rates of taxation in the nation can squeeze any more out of local residents. To pay the bill, they’ll have to raise the contributions from a shrunken workforce.
And what’ll happen to current retirees (like myself) whose retirement decisions were based on contractual obligations over a 30-year career? I’m nervous for the bear in the woods. Little did we know that Reagan’s 1984 commercial would have relevance beyond the Soviet threat. Watch the 1984 ad below to get my point.
The situation is clearly laid bare in a podcast interview of state Senator John Moorlach (R., Costa Mesa) by Will Swaim of the California Policy Center. You can listen to the discussion by clicking on Moorlach’s picture.
RogerG