Advent season for the Fiscal Cliff

Used to be, December was the season of Advent in anticipation of Christmas. Now, at least when viewing cable news and other media, the end of 2012 has ushered in a new kind of economic and financial advent; a season of alarum over the imminent arrival, not of a Savior, but an Armageddon-like Fiscal Cliff! Instead of joy to the world, Americans now can only look forward to the terror of an end to Bush era Tax cuts, Quantitative Easing to infinity and beyond, and debt ceilings from here to eternity.

Worse than agonizing in economic limbo, every family will have to pay an extra $3,500 or so to Uncle Sam per year. To avoid the apocalypse, the reelected Obama administration hopes to continue the present tax structure for the middle class while putting more burdens on the smartest guys in the manger…the wealthy wise white men. Meanwhile fallen angels from the GOP would prefer to keep taxes where they are and cut deficit spending at the same time.

Will this conflict be resolved? Of course it will. Much like raising the national deficit, our inept Congress will somehow find a solution to kick the can down the road and preserve the status quo. Entitlement spending, which along with excessive military spending, will be addressed another day. After all, the Federal Government can always print more money and find short term solutions to the nation’s economic ills.

As a result of continuing gridlock in Washington D.C., where no one party holds all the cards, increased burdens have fallen to the States as less tax revenues return to them from the Federal Government and their own shrinking coffers. This is especially true in California where entitlement spending combined with less revenue from all sources has resulted in the dismal condition of the Golden State’s $15-25 Billion deficit depending on which wise man you talk too.

Those thinking that the passage of Proposition 30 in the last election is any sort of solution are wrong. The increased revenue from the sales tax and from incomes of wealthier folks will only maintain the status quo. How it will effect job creation in the private sector can only be negative and will most likely result in more businesses leaving California for states that have more favorable tax structures for small business owners.

California will certainly avoid bankruptcy in Sacramento with Prop 30 revenues but at a huge cost. Aside from unemployment issues, California will have to contend with increased pressure to fund Medi-Cal, welfare, education, and other governmental services for non-documented workers and their families. The Federal Government has been unwilling to do this in the past and cannot be expected to do more in any foreseeable future.

A costly prison system that is filled with drug offenders, non-citizens, and the mentally ill who have little hope for making it on the outside, makes things worse, while labor and benefits for prison guards have been rising unto the heavens for the last decade.

Inefficient agencies, including as Caltrans and many others, have wasted valuable ressources and increased the costs of infrastructure improvements that have brought the State to its knees. One can only look to the cost overruns on the Bay Bridge and the sorry condition of the State’s highways to know that “something is wrong with this picture” And now we are trying to build a bullet train while “Rome” burns!

Californians are faced with gross over-regulation, competing agencies mandating environmental, safety, and business regulations have increased costs for building anything from factories to reservoirs, new homes, you name it. California has become the poster child for bureaucracy overwhelming the administration of State Government.
Not to be forgotten are the unfunded mandates of pension obligations owed State workers that represent ten+ billion-dollar tax-payer obligations. We don’t know the exact amount because the extra funds needed to be forked over by unwitting taxpayers of California can only be determined by the return of investment in the stock market by Calipers who oversee pension payouts. Even so, when Calpers commits to rosy projections of 7.5% rate of return and actual revenues barely approach 2%, guess who’s on the hook for the difference like lambs led to the slaughter…you, the taxpayer.

With these conditions unlikely to change in the near future, it will probably not matter how much additional revenue the State of California receives when the economy improves. When more tax receipts come in, look to State workers grabbing most of the cash while the taxpayers will be left “holding the bag” once again.

Unfortunately, the bottom feeders in the “fiscal cliff” world we live in today are local governments on the county and city level. Even though these entities are generally run more efficiently than the State and Federal governments, they will be asked to do more with less revenue than ever before. Case in point are redevelopment funds that have been eliminated as the State of California has picked the pockets of most city budgets and school districts. At the same time local governments have been asked to take on additional social service obligations and even had to incarcerate criminals that the State has passed on.

No wonder local governments in Walnut Creek, Pleasant Hill, and Concord have been under such great pressure to fund essential services with less revenue. These entities in recent years have been able to make up for their own “fiscal cliffs” by passing parcel and sales tax to prop up their revenue streams. However, there is a limit to how much the locals will be willing to tax themselves in future elections.

As the failure of recent County Measure Q, a parcel tax for fire district services shows, even basic services can be ignored by voters. Of course everyone agrees on the need for additional fire fighters and 911 dispatchers. However, this measure failed because of the cost ($75.00 per parcel) and the fact that the County did nothing to control labor and benefit costs for present or past employees. What makes Measure Q’s failure to pass even more pronounced was its endorsement by public employee unions, popularly elected politicians, and big business.

Which brings us to the battle lines for the coming years as voters must determine which services they want to preserve and what priorities are important to them. For example recall the bitter Concord City Council election where community activist Edi Birsan defeated a highly funded candidate supported by the Police Officers Association. At issue was not the need for law enforcement but rather the remuneration given police officers. This was not an isolated incident. In several locales including San Jose, City Council races were won by candidates who ran on pension reform platforms.

So we can see that the “fiscal cliff” is a force to be reckoned with at all levels of government from Washington D.C. to the towns we live in. The major question is will we fall off the cliff without a parachute, temporarily avoid the plunge, or actually solve the problems which draw us ever closer to the edge of disaster?

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Comments

  1. says

    There are many policies in action [& worsening conditions] that will make increase the severity of the great recession. Obama is continually pushing his divisive class warfare for higher taxes on the rich, regardless of facts:
    1.Investment & spending behaviors are changed to lower the impacts, thus:
    2.Additional revenue is lowered.
    3.Taking more money from the private sector lowers the GDP, than otherwise.
    4.This strategy hasn’t worked & the opposite of lower income tax rates leading to a higher GDP & more revenue has repeatedly occurred in the past.
    5. “Fairness” is false, & it’s immoral to demand so much more from persons’ earning higher incomes.
    6.The rich already pay a lot – the top 1% pay ~39% of all federal income tax revenue – that portion has risen w/lower rates.
    7.It’s a false premise that there is an existing “pie” of income, w/the rich grabbing more.
    8.Taking more money from the rich doesn’t translate into higher incomes for others.
    9.Most of the rich are not employers – meaning that their income is not from a company’s sales being paid to an owner/executive & the employees.
    10.The huge problem is excessive spending.
    11.If spending were similar to that under Clinton, it would be reduced by about 20%.

  2. Bruce R. Peterson, Lafayette says

    Interesting article. Since voters keep re-electing the same politicians, who are out of touch with reality, but well connected with special interest groups & lobbyists, it’s hard to be optimistic.
    Borrowing and spending is out of control, it appears to be an addiction. When I watch most local politicians, who are against taxing & spending, being soundly defeated, the addiction appears to have no end.