The state of California is in trouble because of its heavy reliance on the wealthy and its revenue is highly exposed to financial markets. The states top 1 percent of personal income tax earners generate about half of the personal income taxes – in short, the rich pay a lot of taxes. And note, many of them are starting to leave the state, moving to Arizona, Texas, Florida, South Carolina and Virginia which are other sunny and in some cases, to Red States.
The S&P 500 moved into bear market territory on Friday and the month of December is shaping up to be the worst month since the Great Depression – as stocks just imploded. Since the state of California is so driven by the price of the stock market, this current collapse in stocks could have long lasting and negative impact on the state budget. Like France, which is being mismanaged, California is seeing its revenue base fade while it is taking on waves of people who are dependent on the state for food, housing and education, with the education being subpar now.
According to a Sacramento-based nonpartisan group, the Howard Jarvis Taxpayers Association, “revenue volatility is one of California`s biggest problems.” Even the left-wing governor Jerry Brown is saying that the state does have a surplus now but a long-term downturn in the stock market would leave the state in a more difficult situation.
Remember that 25 percent of all homeless people in America now live in California. The state also has seen its top ranked education system fall about 15 notches, now falling below some of the weaker states in the West and South. And at the current rate, California will have a higher percent of people living in poverty than the states of New Mexico, Tennessee and South Carolina. California is now in a situation in which 9,000 companies have left in the past 10 years and even more are moving their home offices.
California is clearly in trouble and the state budget will start to implode if the US economy fades in 2019.