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New Chart: More Spending Impossible
DEC. 8, 2011 By JOHN SEILER This week, Gov. Jerry Brown unveiled his new proposal to increase taxes $7 billion to support higher state spending. The Think Long group of the rich and famous is proposing $10 billion in higher taxes to back more spending. Other tax increases are on being cooked up. Voters would have to pass one more of these tax increases in November 2012. But a new chart I’ve devised shows the state just does not have the economic foundation to support higher spending, and the taxes to pay for it. The chart follows. It is a “combination chart” showing two different things along the same timeline.
Close CorrelationNote how closely the data correlate, especially in recent years. (All data are adjusted with the Consumer Price Index to reflect 2010 dollars. For 2010 expenditures, I’m using the 2010-11 budget number, $91,480 billion, from the governor’s enacted Budget Summary. All other budget data are from his January 2011 Budget Proposal, Appendix Section 8.) The left vertical axis, which tracks the red line, scores Californians’ median household income from 1995-2010. That’s how much money our people make, per capita. It’s how much can be tapped to support state spending. Notice how it has risen and fallen depending on the booms and busts in the California economy. Next, notice the right vertical axis, which tracks the blue line, and which scores state general-fund expenditures per capita. That’s how much, on average, the state spends of the taxpayers’ money. (Median household income data come from the U.S. Census Bureau, and are not yet available for 2011.) The one anomaly is on the far right, in which expenditures are much higher than median income. This may indicate that the state still is spending more than Californians can support. But it might be that the data need to be revised. When Gov. Brown presents his next budget proposal in January, I’ll re-do this analysis to reflect fresher numbers. Seiler’s Second LawBut for most years, especially recently, the ratio is that the state general fund spends approximately 1/25th of median household income. I call this “Seiler’s Second Law of the California Budget”: The California state general fund can’t spend more than 1/25th of median household income. (Seiler’s First Law is that the state general fund can’t spend more for the general fund than 6.2 percent of personal income. I plan updating this, too, when the January budget numbers come out.) There’s also a corollary to Seiler’s Second Law: If the state wants to increase general-fund expenditures, it must enact policies that foster increases in median income. Increasing tax rates, which will suppress median income, thus would be counterproductive. The tax rate increases would chase away businesses that create high median-income jobs, and well could decrease tax revenues. Already, California’s median income has been hammered by the recession. From 2006 to 2010, median incomes in California crashed by 9 percent, almost double the 5 percent national rate. Put another way, if California’s recession had struck at the national rate, our median income would have dropped only 5 percent, instead of 9 percent. Thus, our median income would be about 4 percentage points higher, or about $2,000 more. Not the 1970sIn his “An Open Letter to the People of California,” calling for his $7 billion tax increase, Gov. Brown wrote, “Spending is now at levels not seen since the 1970s,” during his first stint as governor. He’s living in the past. The real numbers are shown in the chart above, indicating that median income has crashed to the levels of the mid-1990s. The numbers show that, except for population growth, the California economy hasn’t grown since about 1998, when Pete Wilson was governor. We’ve suffered a “lost decade” — and are working on a second. In his letter, Brown lamented cuts he made to schools, public safety and aid to the poor. But you can’t spend what you don’t have, and can’t get. In his first stint as governor in the 1970s, Gov. Jerry Brown spoke of an “era of limits.” He was wrong. The economy, especially median income, kept growing through the 1970s, 1980s and up to about 1998. On the foundation of median income growth, the state general fund could expand. But the foundation first had to be laid. The era of limits is now. And the only way out of this new era of limits is to increase median household income through pro-business, pro-jobs and pro-taxpayer policies. The chart shows there’s no other way. ———————————————————————— If you want to play with the numbers yourself in an Excel spreadsheet, I’ve included them below. DATA APPENDIX
Median Income source: http://www.sacbee.com/2011/09/13/3906899/california-incomes-plummet-poverty.html General Fund source for 1995-2009: http://www.ebudget.ca.gov/BudgetSummary/BSS/BSS.html General Fund source for 2010: http://www.ebudget.ca.gov/pdf/Enacted/BudgetSummary/FullBudgetSummary.pdf For the CPI adjusted numbers in Column D, I plugged the numbers in Column C into the Bureau of Labor Statistics’ CPI Calculator: http://www.bls.gov/data/inflation_calculator.htm Finally, California’s fiscal years begin on July 1. For the years in column A, I used the first half of the year. Thus, in column A, “2009″ means “fiscal year 2009-10″
Tags: budget, Bureau of Labor Statistics, Jerry Brown, John Seiler, median household income, Seiler's Law Comments(23) |
May 20, 2013
Jerry Clown’s stuck between a rock and a hard place. He needs to improve the local economy to grow the median income. With the pending fall of the Eurozone good luck with that. When that happens it will have a Lehman Bros. effect on our economy and all the bailout money is pretty much gone. They will have to go back to the QE scam which will debase the value of our currency enormously. Buying power goes poof! There is no good answer here. If I were governor I know what I would do. I would start slicing every ounce of fat off the bone and get the State as lean and mean as possible in anticipation for the economic tsunami coming across the ocean. The economic situation in Japan is as bad if not worse than Europe. Japan is manipulating the numbers on their GDP like you wouldn’t believe. We lit the fuse on the global crisis – it’s going to implode economies across the globe and then come back to bite us. Sorry. I don’t see any solutions here other than duck and cover and hope for the best. It’s just progressed too far.
Mr. Beelzebub, The Euro confederacy will not work because God declared…”And as the toes of the feet were part or iron, and part of clay, so the kingdom shall be partly strong, and partly broken. And whereas thou sawest the iron mixed with miry clay, they shall mingle themselves with the seed of men: but they shall not cleave one to another , even as iron is not mixed with clay.” Daniel 2
Napoleon tried to unite Europe, Stalin tried, Hitler tried, they all failed. So any nation or group of men who tries to mix what God has said will not “adhere” to one another will fail.
Our safety is in not trying to do what God has said will not be done.
Yes, David H.
The basic problem is that whether in Europe, in the United States or in California, the electeds made promises to the masses that they couldn’t possibly keep. It was all done in pursuit of obtaining a political office and keeping it. It’s the achilles heel of democracy. It works out fine for a few years until the bill comes due. That’s where we are now. There is no way that the system can honor social security, medicare, medicaid or the public pensions. It’s a mathematic impossiblity. In Europe you have two extreme cultures – vis-a-vis the Greeks and the Germans. Like oil and water. One expects the other to carry them. Here in America we have something similar: the private and public workers. Same difference. It was bound to reach a tipping point sooner or later.
Pinheads should not over analyze reality!
We are targets…the state is broke…the moochers are in charge….bend over!
Unfortunately, Mr. Brown doesn’t have any idea how to create a lean, mean machine in state government. His all too caught up in increasing the salary of all the employees, particularly the Unions. there’s no way out of this!
If I were governor I know what I would do. I would start slicing every ounce of fat off the bone and get the State as lean and mean as possible in anticipation for the economic tsunami coming across the ocean.
#1= FREEZE all gov hiring
#2- Cut ALL gov employee compensation, progressivley, the more you comp, the more you get cut.
#3- Any increase in revenue goes to paying OFF all bonds and all debts BEFORE any pay raises or hiring.
That would cure the problem 100% within 5 years
Robleslaw#1 We will not have the “true picture”, until we know “things” like how much the Assembly spends for office expenses and it’s staff.
Robleslaw#2 We will not have “true picture” until we see a truly balanced budget.
Robleslaw#3 We may never have the “true picture.”
Robleslaw#4 When Sutter Brown starts the next press conference, we will know what we know, now.
I have so many things to say, but they are of a religious nature, and I don’t think you will put up with me. Yes, the signs appear to read we are at a tipping point as political corruption is destroying the love of justice. But I’m not a prophet or the son of a prophet so I don’t want to try to predict the future, even short term. We are losing our prosperity, but disaster has not struck yet, it takes a while. Even though the politics are a disaster. There is still hope. American is still the strongest nation on earth. My opinion is that we are decaying from within, not from attacks from without, for the most part. A morally weak and degenerate people may still be held together for a time by some strong, centralized despotism, but what can hold a democracy together when the citizens themselves have become degenerate and base?
I can draw another analogy from the destruction of the Roman empire. Here’s a statement to ponder. Given by Macaulay in the English House of Commons in 1848, a year of the social revolution throughout Europe.
“I remember that Adam Smith and Gibbon had told us that there would never again be a destruction of civilization by barbarism. The flood, they said, would no more return to cover the earth; and they seemed to reason justly, for they compared the immense strength of the civilized parts of the earth with the weakness of those parts which remained savage; and they asked whence were to come the Huns and the Vandals that should again destroy civilization? It had not occurred to them that civilization itself might engender the barbarians who should destroy it. It had not occurred to them that in the heart of the great capitals–in the very neighborhood of splendid palaces, and churches, and theaters, and libraries, and museums–vice and ignorance might produce a race of Huns fiercer than those who marched under Attila, and Vandals more bent on destruction than those who followed Genseric.”
Argentina and Iceland are but two examples which clearly reflect the following: Debts that can’t be paid, won’t be. Since September 2008 $13T in private banking debts have been tranferred onto the Federal government (taxpayers) balance sheets. If such an atrocity had been put to a vote of the people it would have been voted down by a margin of 90%. The failure to take the desires of the voters into consideration on these matters erodes confidence in the very fundamentals of our democratic republic and leaves the national debt on very shaky ground from both a political and legal standpoint. Massive debts imposed by government or even by foreign financial organizations without the consent of the governed is a very risky move indeed. History has proven that many times over.
What matters is total spending, including cities and counties. By shifting spending to counties, CA hides the damage. It also is used by the unions as an argument that government is smaller than in other states, because they compare headcount of state employees in CA with other states which do not have local government spending booms and large local government workforces.
The fact of the matter is the state spends more than it takes in and until this changes, California cannot recover! Recently, an analysis done by an organization named 24/7 Wall St. compiled data to determine the “Best and Worst Run States”. California ranked dead last. Here’s the link:
http://247wallst.com/2011/11/28/best-and-worst-run-states-in-america-an-analysis-of-all-50/7/
Interesting to note that the smaller populated states do much better as a whole to manage their affairs. Perhaps CA has become too large (in population) to control. Something has to give here before it’s too late!
Since September 2008 $13T in private banking debts have been tranferred onto the Federal government (taxpayers) balance sheets. If such an atrocity had been put to a vote of the people it would have been voted down by a margin of 90%.
The % of the American population that did NOT want TARP was 94%, yet the stooges passed it anyway.
The pols will always do what will keep them in power and $$$ from the special interests in their back pockets, and that is going to destroy us b/c there is no fixing it now-we see that in CA with the public unions.
We have been in a depression for 4, going on 5, years now and the state has not done a thing to cut back spending, limit costs, control employee comp/spending, just gimmicks to raise taxes.
Pay attention, folks.
Today the combined Federal Spending for medicare and medicaid is $866 billion. Since 1980 Federal medical spending has risen at a clip of about 9% annually. If you are 50 years old and expect to qualify for medicare @ age 65 consider this: If medical expenses continue to rise at the average rate they have risen for the last 30 years – Federal annual spending on health care will reach $3.15 trillion. Our current total federal budget is $3.7 trillion.
It ain’t going to happen, folks. It’s can’t. It’s mathematically impossible. The goofballs in charge know it too. Even their stupid Super Committee didn’t have the courage to cut a lousy $2T from the budget over 10 years (a lousy $200B a year when we are running over $1 TRILLION annual deficits).
They know what’s coming. And it ain’t going to be pretty. There’s going to be a huge smackdown on the economy – either by a government imposed devaluation of your dollar or inflation that will destroy your buying power.
Personally, I don’t think they have the dry powder to hold the economy together until the Nov 12 elections. Not with the eurozone breakup on deck.
If the euro fails the USA is going poof….it will meltdown. We are still in a 5 year depression with no end in sight, we have the lowest polling for hope for the future in the history of this nation and the world-69% think we are a country in decline and the place will not be better for our children-it has never even come close to reaching that 69% level.
Watch out, the disastrous effects of outsourcing our manufacturing and tax base are now hitting home, and it is too late to do anything about it.
The fact that the public has been looking towards the PUBLIC SECTOR for jobs for the last 25 years now proves we are history. When the government pays MORE than the private sector, offers FAR BETTER benefits and pensions and has bullet proof job security then the train wreck has gone off the tracks…….
In response to this outstanding investigative report and reader comments, it would be more precise not to say “More spending impossible,” but rather that more spending is not only possible, but a virtual certainty given the wretched political makeup of our state government. Of course more INCONSEQUENTIAL spending is impossible! God help us, and thank you, Cal Watchdog!
Jerry Clown must be nuts!
Doesn’t he realize that his economic policies are convincing producers to flee the state while persuading leeches to enter or remain in the state? How’s that for a winning formula? He is rewarding non-productive public leeches and illegal alien leeches while punishing those producers who are paying most of the freight. How will that drive the economy to prosperity? Some on Jerry, pull your head out, man! You keep digging the hole deeper and deeper.
I heard on the radio today that 2/3rd’s of private contractors in California are claiming no employees so they don’t have to pay worker’s comp and taxes.
Most of them are forced into it since a large percentage of contractors hire cheap labor (illegals)under the table which makes the ones with a propensity to follow the rules & laws to follow suit just to be able to compete and stay in business. See what happens when the damn laws aren’t enforced? It has a domino effect. Tax revenue gets destroyed and they shift the burden to those who are already getting saturated in taxes – causing them to flee the state. It’s a vicious circle.
I find the find the current fiscal situation in California not surprising at all. As a life long entrepreneur, it is the “revenge of economic rules”. I would love to rail at the politicians and others, but surprisingly find myself somewhat sympathetic. No one expected the recession to be as long or as deep as this current one. It is reasonable that the “managers” running the state would defer tough choices, hoping that the end of the downturn was right around the corner. After all, no reason to change policy based on a temporary problem. But, now it is apparent that the economy is not changing for the better. And, since the economic climate is not getting better the only course left is to structurally change our state economy to better reflect the current economic realities.
Without getting into the moralities of who should get what, the immutable rule of economics dictates that you cannot take resources from producers and give them to non-producers without adversely effecting the economy as a whole. It makes no sense to continue to do this and expect an expanding “economic pie”. It seems that the state has little choice but to dramatically change the structure of income generation to encourage growth, while in equally dramatic fashion reduce expenditures to non-income producing parts of our state economy. This would correct those structural problems and put the state on a path to grow again. Failure to make such changes will continue the slow but steady erosion or our economy. An economic rule can be ignored or avoided but not for a long period of time. The more the state continues to fund non-producing parts of our economy (or over paying for some parts-such as pensions) the more the shrinking income stream will crowd out needed but less urgent things like education, parks, roads, etc. As the income/expenditure problem becomes more apparent, as it is now, it will just be a matter of time until the cost to borrow the difference (bond sales) will become prohibitively expensive and the cuts to expenditures will need to be ever more draconian. Both citizens and politicians can choose to ignore these “rules” but they are “rules” because you can’t wish them away, you must deal with the fundamental issues. As my first mentor would tell me, “if you want different outcomes, you must change your behavior”. I wonder if California is ready yet to change its “behavior” or we need to continue watching our economic situation erode until we must act.
Here, read this:
“A burgeoning underground economy is costing California about $7 billion annually in lost tax revenue and undercutting companies that play by the rules”
“A recent survey of 305,000 licensed California contractors showed that nearly two-thirds had filed papers with the board claiming that they should be exempt from carrying workers’ compensation insurance because they had no employees. Experts said it’s unusual for so many licensed contractors to have no workers on their payrolls; more likely, they said, many of those contractors are illegally misclassifying the status of their employees to avoid carrying workers’ comp insurance”
http://mobile.latimes.com/p.p?a=rp&m=b&postId=1307225&curAbsIndex=2&resultsUrl=DID%3D6%26DFCL%3D1000%26DSB%3Drank%23desc%26DBFQ%3DuserId%3A7%26DL.w%3D%26DL.d%3D10%26DQ%3DsectionId%3A6220%26DPS%3D0%26DPL%3D3
Now how can you run a State that has any chance of survival when the rules are rigged to punish the producers and reward the scofflaws? How could 2/3rd’s of the contractors claim to have no employees? Many are doing it because they are forced into it for survival. If the roofing contractor down the street hires all illegals and pays them off the books he can undercut the rule follower by 40% and get the business.
When the rules aren’t enforced it opens up Pandora’s box. For every action there is a reaction. For every cause there is an effect.
Now Jerry Clown wants to impose $7B of new tax increases on people who are already paying more than their fair share – while he refuses to generate $7B by merely enforcing our State’s labor laws.
And we continue to swirl the bowl.
There is no voluntary solution to what this article describes. Only an involuntary one. As long as the pols protect their jobs by promoting the current paradigm, which is to spend more than they receive in revenue and to fix a debt crisis with higher taxes or more borrowing – the endgame is an inevitable economic armaggedeon.
What should have been done in 2007-08 is this: Default on all debt that could not be repaid and spend only that amount you can generate in a reasonable tax system. At the time, before the bailouts and the massive money printing by the Fed, this would have caused some temporary economic havoc – but by 2011-12 we would have seen the worst and REAL recovery would have started.
Now, with our current debtload, if this solution were implemented the entitlement class would have to take a %50-65% immediate haircut, there would be riots in the streets and the pols would be sent packing (all of them) and chances are we’d end up with another Hitler.
The solution will still come. But now it will be involuntary. Mr. Math will force it upon us – and the impact will be exponentially worse than what it would have been in 2007-08.
Are you sure that many “contractors” are not single person entities? The law is that you have to be a contractor to do work over $500 on a home. Which means you have to have 4 years supervisory experience, pass the test, and pay a $360 biannual fee (which Jerry raised by 20% this year) and carry a $200/yr. bond, at minimum, some require liability coverage too. And that’s before you can bid on a job or even earn any money in a depressed sector. Many “employees” are contractors because a contractor can not afford to hire anyone else but other contractors. Yes it’s a racket, but the regulations make it that way. Thank your union snubs which seek to control labor sectors and your government representatives that oppress and starve the poor man. And it’s the working poor they oppress. Not the welfare poor.
Well, I see where 55 Occupy Wall Street demonstrators were arrested for occupying the sidewalk in front of the Federal Reserve in San Francisco last night.
So no longer can the naysayers claim that OWS is only bashing Wall Street. Perhaps it’s time to give credit where credit is due, eh???
Don’t let your pride stand in the way.
They should abolish the Federal Reserve, that agency has no oversight or any other external control whatsoever, they are a ticking time bomb ready to destroy the country thru inept and dangerous policy actions.
Anyone who as the time to write these long boring pieces needs a good dy job!