California optimists point out they their state is home to the Silicon Valley jobs machine and an incredible real estate boom. And if it were a sovereign nation, the $2.5 trillion California economy would make it the sixth-largest economy in the world.
But make no mistake. The Golden State is in trouble.
Their income tax rate is over 13%, the highest in the nation. And it’s dead last in Chief Executive magazine’s ranking for “Best and Worst States For Business”.
While some point to California’s population growth as an encouraging sign, that statistic masks the fact that working people and companies are fleeing the state, while illegal immigrants who are dependent on state services are arriving in droves.
Investor’s Business Daily reports that between 2004 and 2013, 5 million working people left the state, taking $26 billion in net revenue with them. And since 2008, thousands of companies have left, and that trend appears to be accelerating. Making things worse, California legislators approved a minimum wage hike to $15 / hour, which economists predict will destroy 600,000 more jobs.
The Golden State makes up 12% of the country by population, but is home to 34% of the nation’s welfare recipients. And illegal immigrants are swarming into California, after Democratic Governor Jerry Brown made it clear that they are welcome. Most of these illegal immigrants require free services like healthcare, housing and schooling. California is heavily dependent on federal tax dollars; 37% of the state’s entire budget comes from Washington DC.
Newly elected Donald Trump has threatened to pull back the purse strings if California doesn’t start enforcing immigration law. But Gov. Brown and the other liberal state politicians have no plans on stopping the immigrant invasion. If Trump forces Congress to withhold tax dollars, California is screwed.
Perhaps California’s most daunting fiscal problem is their underfunded pension system. California’s generous public employee retirement system is underfunded by a staggering $1 trillion according to Stanford University’s Kersten Institute for Governance and Economic Policy Research. That’s $93,000 per household.
Good luck with that.
This pension bomb will, at some point, destroy California’s economy. Taxes will have to rise sharply. The ever shrinking working class in California will, at some point, say they’ve had enough, and leave. That’s when the state goes bankrupt.
At this point, California politicians like Gov. Brown are hoping another liberal president like Barack Obama will eventually get elected and bail out the state, in the name of “working men and women”.
Let’s hope California cleans up their own mess, before the rest of us are forced to.
Feel free to share your thoughts about the state of the Golden State in the comments section.