Thursday, March 24, 2011

IS GOVERNMENT PRICING ITSELF OUT OF THE MARKET?

I read an interesting article on cnbc.com (click on title for link) about California's tax increase not working as far as raising projected revenues.  During the "Great Recession", many local, state and federal politicians have been promoting the "need" for tax increases to meet record budget deficits.  Personally, I believe they should be upfront and say they need the money to buy votes by pandering to special interest groups, promoting pet projects and pork barrel spending.  Since we all know that's not likely to happen, there's no need for further debate on that issue.

What government in general should take away from the results of California's failure to raise revenues through tax increases is this:  They are pricing their services (government services) beyond what the market (or taxpayers) are willing to pay.  My guess is consumers are spending less, not only because of the recession, but also to avoid paying higher taxes.  Businesses as well as wealthy individuals are relocating to more tax friendly states or countries, which is what I've been predicting would happen when taxpayers reached the breaking point. 

Even people who are not quite so wealthy are deciding to relocate to foreign countries when they retire, because the taxes and cost of living are so much cheaper than many places here in the U.S..  They're taking with them their Social Security checks (aka U.S. tax dollars) and spending them elsewhere, creating a better standard of living in other countries, but creating no residual benefit for the economy here.  No one can really blame them, if you can live better in your golden years by relocating, then why not? 

At any rate, before our elected officials get in too big of hurry to add new taxes on top of old, they really should consider how much more the market will bear before taxpayers say no thanks.

No comments: