Can California Survive?

 When I see stories like this I can't help but ask the question, "Can California Survive?"

Not only did one lifeguard top $500,000 in pay but 98 other lifeguards made at least $200,000.

An investigation by OpenTheBooks.com discovered that LA's highest-paid ocean lifeguard, a captain named Daniel Douglas, raked in a total of $510,283 in total compensation last year, nearly half of which – $246,060 – was from overtime pay. Douglas' base salary is $150,054, and he brought in another $28,661 in "other pay" and $85,508 in benefits to surpass the half-million-dollar mark.

Douglas is not the only high-earning lifeguard on the county's payroll. The No. 2 earner in 2021 was lifeguard chief Fernando Boiteux, who made $463,517, followed by section chief Kenichi Ballew-Haskett at $409,414. All told, 98 LA lifeguards made at least $200,000 last year, and OpenTheBooks.com founder Adam Andrzejewski wrote in a substack post explaining the breakdown that "it's time we put Baywatch on pay watch."

The story indicates that there are just 166 full-time lifeguards that are supplemented by 600 seasonal lifeguards. Therefore, that means the median pay for a full-time lifeguard in LA is over $200,000.

Nice work if you can get it.

Of course, someone is paying the bill and that someone is the taxpayer.

California has the highest marginal state income tax rate in the nation at 13.3%. That applies to individual incomes exceeding $1 million.

However, under California's graduated rates, someone making just $61,214 is subject to a 9.3% income tax rate.

As the Tax Foundation graphic shows, that 9.3% rate is much higher than the top tax rate in most states.

Source: https://taxfoundation.org/state-income-tax-rates-2022/

California also has the highest state sales tax at 7.25%. Local sales taxes are typically added on to this up to an additional 3.00%.

The total sales tax in the city of Los Angeles is 9.5%. In Long Beach and Pasadena it is 10.25%.

Californians also pay the highest gasoline taxes in the nation---68.15 cents per gallon.

Property taxes are below the national average (thanks to Proposition 13 passed by the voters in 1978) in California where annual taxes average about .8% of the property value. However, when you take into account California's high median house values, property taxes paid at that median value actually rank in the top ten.

California is a state with over 40 million residents.

However, the top 0.5% of income tax filers by income are shouldering 40% of the state's income tax collections. That is a group of less than 100,000 taxpayers.

These taxpayers are principally tied to Silicon Valley. A large share of their income is not tied to salaries and wages but to income from stock options, dividends and capital gains on stock sales.

It doesn't take a genius to see that funding a large portion of state government and supporting 40 million people, while relying on a small group of people and a continuing stock market boom to pay the bills, is not a strategy likely to endure for the long term.

First, at what point do those paying the bills pack up and leave the state?

Exhibit one is Elon Musk who headed to Texas with Tesla and his other ventures.

That is in addition to other companies who have announced they are leaving California, or have already left, including Hewlett Packard, Oracle, Uber, Airbnb, Salesforce, Yelp, Twitter, and Pinterest.

Second, what happens if those IPO's, stock options and large stock gains go away with stock market losses?

In the early days of the pandemic, when the stock market was in freefall, California projected it was facing a $54 billion deficit after having a $21 billion surplus the year before.

Massive federal assistance and the stock market rebound saved California from economic devastation two years ago and the state projects it will end fiscal 2022 with $41 billion in higher revenues than projected in the original annual budget.

Of course, what does government do when they get more money?

They spend even more more money under the assumption that the good times will last forever.

The chart below shows spending in the California budget in REAL DOLLARS. adjusted for inflation.

Note that spending has almost DOUBLED in the last decade after taking account of inflation.

The last couple of years make it look like an Elon Musk SpaceX rocket taking off.

All of this is still not enough for the Democrat legislators in California who have introduced bills to increase the top tax rate to 16.8% and also implement a wealth tax on those with household net worths that are above $50 million.

What happens if more of those rich taxpayers leave the state and the stock market goes down rather than up?

Governor Gavin Newsom has recently been crowing about his state's budget surplus. He seems to particularly enjoy needling Texas and Florida (no state income states) and their "right-wing" policies in pointing out how a "progressive" state like California can show such impressive budget results.

However, Texas and Florida are also  enjoying record budget surpluses for the current fiscal year.

Source: https://www.click2houston.com/news/investigates/2022/05/20/what-to-do-with-texas-24-billion-budget-surplus/

Florida will also end the year with a budget surplus of over $20 billion.

Source: https://www.flgov.com/2022/05/20/governor-ron-desantis-announces-record-budget-surplus-as-floridas-economy-continues-to-outperform-the-nation/

Both states have no income tax and are not dependent on a relatively few wealthy taxpayers and the stock market as California is.

I am fairly certain the lifeguards in Texas and California are also not being paid over $200,000 per year.

Can California survive the government structure the people have put in office?

Make no mistake this could not occur without votes for the representatives who have allowed all of this to take place in what once was called "The Golden State".

The wagon is getting heavier and heavier in California. More people are in the wagon and fewer and fewer are pulling it.

How does this end well?

Basic common sense says it doesn't.