If you haven't heard, the United States of America is having some serious state budget problems! It's estimated that 44 out of 50 states will have a budget shortfall for fiscal year 2012, which starts on July 1, 2011.
The largest absolute dollar offender is my home state of California, with a $25.4 BILLION shortfall. That accounts for a whopping 29.3% of the state's 2011 budget!
Everything is relative though. And there are three states more screwed than California based on a deficit as a percentage of 2011 budget. Nevada at 42%, New Jersey at 37.4%, and surprisingly Texas at 31.5%. The overall US shortfall is $112 billion dollars, accounting for 17.6% of 2012's overall budget. Talk about some serious state budget problems.
* In order to pay for President Obama's $450 billion Jobs Act Bill, he has proposed removing the muni bond tax exemption benefit for those above the 28% marginal tax rate (~$200,000 for singles). Given those in the 33% and 35% tax brackets invest the most in muni bonds, there will be a huge sell-off, and a resultant rise in borrowing costs for State governments. This will lead to more budget shortfalls due to higher expenses, and less local construction. As a result, MORE jobs will be lost or never to be re-created!
Taking advantage of State level governments to pay for a Federal Jobs Bill is very astute. The more States get crushed, the more dependents and voters will be created for the Crusher.
No Pleasant Solution To State Budget Problems
We've heard the alarms ring loudly by many prominent analysts in 2010 that 2011 is the year of reckoning for states. You've seen muni bonds sell off in 1Q11 as a result. Yet, it's so funny to see how strong the economy and stock markets are. In reality, nobody really cares about such massive budget deficits. If they did, they wouldn't be buying up stocks like crazy.
The solution to balancing our state budget problems is quite clear: 1) cut spending and 2) raise taxes. No politician wants to be the one to do either, which is how we got here in the first place. I proposed several months ago to introduce a Renter's Tax to raise money from all Americans, and not just homeowners.
Many of you shot the proposal down, presumably because most of you are renters and think part of your rent goes to pay for property tax. Maybe, but all one has to do is compare the absolute amount of state taxes you pay vs. the homeowner and you will see a huge difference. Tell me, how does a homeowner raise the rent to pay for his/her property taxes when most homeowners live in their own homes?
Is it so bad that all citizens pitch in to pay for public services equally? I don't think so. The Renter's Tax is a great example of how we are all fooked on a larger scale. We all demand access and benefits the government provides, but we don't all want to pay for it the same.
Let the “rich”, who consume the least amount of public resources pay for it instead. Brilliant! I'm sure a Renter's Tax proposal would anger a lot of people, and guess what? That's THE POINT! Everybody thinks they pay their fair share already, and nobody wants to pay more. It takes sacrifice people.
What people don't understand is that if the most indebted states announce fiscal emergencies or bankruptcies, we are ALL going to pay, not just the wealthy who pay most of the taxes. The stock market will implode. Muni bonds will implode. Companies will start firing people and taxes will go up anyway!
Take The Medicine Now, But Maybe Not!
If you like big government, just look at how well supposedly smart politicians have done in balancing their own budgets. Why anybody would entrust a stranger to overspend their money is beyond me.
There is another solution though, and it is a very easy one. All states have to do is play a game of chicken until the Federal Government can't take the pain anymore.
No stage is bigger than the Presidential stage in Washington DC, and he and his buddies Timothy and Benny will have NO CHOICE but to bail out the most indebted states! We've seen it happen in Europe with Greece and Ireland, whose economies are smaller than California's. Surely, we will see it happen again in America.
The Moral Hazard Of America is alive and well. Let's watch it play out again in 2011.
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Readers, how do you feel about the state budget problems? Do you think we are screwed? Or, do you think the problem is overblown?
Why do you think President Obama wants to crush local State governments? Do you think it's a way to make people more dependent on Federal Government?