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Laffer Throws a Curve at California

Written by Gary North on June 15, 2012

Arthur Laffer has proposed a new tax code for California. California is a continuing disaster zone: high unemployment, exodus of high-income people (Laffer was one), massive deficits, and slow economic growth.

California is an anti-business state. But start-up businesses create jobs. In California, there are few new jobs.
The climate is nice; the business climate is not. The state is headed for bankruptcy.

He left California in 2006. I left in 1975. He left for a zero-income tax state. S did I.

He makes a good point: economies do not tax themselves into prosperity. He writes:

Taxes are indeed a big part of California’s economic problem. At 10.30 percent, the state’s top marginal personal income-tax rate is the fourth-highest in the country, and its top marginal corporate income-tax rate of 8.84 percent is 25 percent above the national average. Excessive taxation is an equal-opportunity tormentor, afflicting labor and capital, poor and rich, men and women, old and young.

Smart people leave this kind of environment.

California’s income-tax system is also the nation’s most progressive—and that’s not a good thing. Progressive tax systems magnify tax-revenue volatility, with lots of money pouring in during periods of growth and the till running dry during downturns. This volatility occurs because wealthy people, who pay more taxes in a progressive system, experience sharp income swings from boom to bust. Depending disproportionately on the wealthy for its own revenues, the state experiences the same swings. This dynamic has a bad effect on politicians, who go on spending sprees during booms and then raise taxes during busts, harming competitiveness.

The bad times hit in 2008. They have not departed.

He recommends a flat tax, with deductions only for charity, mortgage interest, and rent on a primary residence. Everyone pays 6%.

As John Wayne said in The Searchers, “That’ll be the day.”

Such a tax reform would spark a surge in economic activity in California, since the after-tax rate of return for doing business would rise, both from the decline in tax rates and from the elimination of myriad fees that harm productivity. The result would be more businesses moving into California, fewer moving out, and more economic activity emerging from the underground economy. The California economy would soar, generating higher tax revenues, which would reduce the state budget deficit. The revenue stream would also be far more stable from year to year.

Envy will nip this in the bud.

So, what is going to happen when all this is ignored? More debt, more promises, and higher interest rates on bonds. Then the state will default. It will be the biggest default in America in modern times.

As Herb Stein said, “When something can’t go on, it has a tendency to stop.” That includes payments to lenders who were silly enough to ignore the numbers.

Continue Reading on www.city-journal.org

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27 thoughts on “Laffer Throws a Curve at California

  1. I hope my state does go bankrupt. California deserves it. But, I am afraid that my fellow Californians will still not get it through their thick skulls that voting Democrat is not for the state or their health. They will continue to vote Democrat even when the state finally goes bankrupt. They will scratch their silly heads and wonder why bankruptcy occurred; they will never make the connection that it was their fault.

  2. sean murry says:

    That state sucks.

  3. Illegal immigrants and public sector unions with outrageous pensions. That is a big part of the problem. It costs billions to fund the social services for illegals and drug addicts, and there are billions of $$$$ shoveled into the worst pubic school system in the nation. The communist judges mandated a NEW medical system for all state prisons in Cali that will cost $8 billion!!!! Your hospital shutting down? Incarcerated child molesters, carjackers, Crips, MS13, Nortenos, Latin Kings, Mexican Mafia, Bloods, serial killers, transgender prisoners and meth addicts get a world class medical system…

  4. You know, I was born and raised in Southern California and loved that state but had to leave it when I was around 16. I spent the next 20 years on the east coast and swore once my daughter was grown and moved out that I would return to California and I did. But when I returned and saw the huge numbers of illegals that had taken over the state, it broke my heart. So many people all over and nobody even speaking english, not to mention trash was everywhere, I mean garbage. Well, I didn't stay long and that was about 15 years ago. I can't even imagine how bad it is now.

  5. victorbarney says:

    Part 1: Also, I took Economics 101 in college way back in 1967 and extravagant spending of money ALWAYS causes INFLATION, UNEMPLOYMENT and ECONOMIC DEPRESSION! Also, that is JUST WHY this PROPOSED "Fundamental transforation of government" promised to our gatherer's, which make up over 70% of our population has doomed u.s. to total destruction! Remember this, as England, which as had a marxist philosophy all of the 1900's has been doomed for years. In fact, in 1943 they were in a position about where we are now & we bought their debt and took away their ability to make currency, which we then obtained!

  6. victorbarney says:

    Part 2. We have no brother to save u.s. However, we do have a CREATOR who is really angry about this MARXIST(ANTI-CHRIST BY DEFINITION) TRANSFORMATION OF GOVERNMENT VOTED FOR BY OUR SUPER MAJORITY 70+% POPULATION, OUR "GATHERER'S", AND WE ARE NOT O'BAMA'S MARXIST CHINA'S IDOL MAO, WHO MURDERED OVER 100,000,000 CHINESE, NOT THAT THEY WOULD HAVE EVEN OPENED THEIR MOUTHS ABOUT IT, BUT "ONLY" BECAUSE THE "MARXIST MANIFESTO" MANDATES LYING & A HOLOCAUST! Well, we are NOT O'bama's China, but Israel, as England by the way and through the seed of Joseph(Gen. 48:16). Next, I predict this coming SEPTEMBER 16, 2012 comes the two-witnesses of Revelation, chapter 11, where only 144,000 ango-saxons will be left, excluding Dan(Irish). Just saying… p.s. Obama, is the only human ever mentioned in the old Covenant about u.s. "forbidden foreigner'(Deteronomy 17:15).

  7. DoctorBob says:

    I moved out of California in 1995, and have no desire to return so long as DemocraPs run that state. They have taken a beautiful state with everything going for it, and have run it into the ground! What used to be paradise on earth is today Tax He11. All the businesses (employers) have moved out, and STILL the DemocraPs don't get it. They only care about their own personal power, and NOTHING ELSE MATTERS! Whoever they have to ruin to keep their power is of no concern to them.

  8. DoctorBob says:

    They'll blame Republicans. They always do.

  9. Ronald R. Johnson says:

    Why do you think they have a school holiday for old Harvey who infected so may young guys with AIDS?? Give up they suck and play hide the sausage till infected!

  10. Ronald R. Johnson says:

    Obama and Holder love it!

  11. Ronald R. Johnson says:

    Sounds just like Pelosie land to me!

  12. 66% of the morans in this country believe the sorry economy is George Bushs' fault. Was it Goerring who said , "tell a big lie loud enough and long enough and people will start to believe it's the truth"? Obama's certainly proving the worth of that adage. The truth is…that Obama doesn't want to fix the economy, he wants to break it and replace it with SHARIAH FINANCE.
    Obama wouldn't be allowed to handle money if he were in the private sector. Give the maggot a trillion dollars to stimulate the economy and he will make the money disappear and they'll be no evidence that anything got better. Don't let him have any more money for his ,"Pass my jobs bill" soggy deals.

  13. Yeah, they will say it’s all Republicans’ fault that the nations of the world end up refusing to accept U.S. currency. Obama and the Democrats have printed it by the trillions to give to wastrels, illegals, drug addicts, and tax cheats, some of whom are their in-laws and relatives. Printing monopoly money is like a Ponzi scheme. The people who get the money on the front end get to spend money that will buy something, and the people received the money in exchange for their goods and services end up holding Monopoly money.

    Madoff is in prison. Why aren’t Reid, Pelosi, and Obama?

  14. Not to mention Fienstien and Jerry Brown.

  15. Ummmm……England still makes currency. In fact they change it every so many years. Bad part about it is if I have a coin that was changed over years ago it's no good anymore as currency today. They also got rid of the L1.00 note and replaced it with a coin,etc. Scotland I think still has their L1.00 note I think the last time I was there,etc.

  16. …and Feinstein and Brownland too.

  17. William 1 says:

    Liberals are tooooo dumb to figure this out as they are so focused on their p[perception that they cannot see not count-"If the blind -(liberals) lead the blind they'll both fall into the ditch" and Calif is a BIG DITCH NOW!

  18. Max Penn says:

    Too many fruit's and nuts in the population for that ever to happen.. Did you notice they voted Moon Beam back, what does that say?? Huumm…

  19. I way I see it this– IF we are fortunate enough to get a Rep. WH and Senate and Congress in Nov. then there will be no more Fed money for Brown to fund his habits. He will have to sing to a different song, and not be able to hide behind Obummer and his Odummer toy train idea. When he has to wake up and smell the coffee, he may lead in another direction only out of necessary. There will need to be some federal mandates for the states so they all fall in line under the new plan. God willing.

    This is only happening because it still can. If the music stops and the chairs change, it will be a different day and a different story.

  20. It is a shame what has happened to California the state that for a long time was the best and had it all. I never lived there but still have some cousins that do and visited many times. Now you could not pay enough to live there. The main cause of it's down fall has been illegal immigration.

  21. 1. Listen to TruNews with Rick Wiles.
    2. Listen to The PowerHour with Joyce Riley.
    3. Don't vote for ANY evil (greater or lesser).

  22. Stan_in_Texas says:

    The state will do bankrupt and the rest of the US (well at least the ones that are working) will bailout California.

    This crap has got to stop……..reasonable, responsible, honest tax payers will have to pay for corrupt, dishonest, greedy leeches that just want more and more and have no clue how to prosper.

    I am sick of this $hit!!

  23. stan_inTexas says:

    sorry GO bankrupt

  24. if the strate would stop all the freebes to the ilegals and make them eather go home or pay there own way then the state might have some money.
    if there was no freebes i bet the illeagl's would go home to mexico but the mexican goverment don't want them back

  25. Capitalust says:

    I moved to Santa Barbara for one year some time ago (from Atlanta). It was the most depressing, disgusting time I ever spent. I have traveled to 40+ countries around the world, and that was the only time I really felt totally alienated, didn't belong, and could not WAIT to get out. It was like being in prison, or in Beijing, only worse. California SUCKED totally. There was absolutely NO redeeming features to it. The worst part was the people. Brain dead parasites, one and all. The most wonderful day of the entire time was when I managed to escape and get back to civilization in Atlanta. I REALLY wish we could "secede" California from the rest of the country ("Surprise! You are no longer part of the U.S. – Good luck!").

  26. Capitalust says:

    Laffer is kidding himself if he thinks there is any way to cure the disease that is California today. It is terminal. No hope of any recovery ever. It just just going to get worse and worse. If I had a dog in that condition I would take it to the vet to have it put down, to put it out of its misery.

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