sunset from behind the wire

sunset from behind the wire

Wednesday, December 8, 2010

If California goes Bankrupt

California taxpayers receive less federal funding per dollar of federal taxes paid than the average state. In 2005, California taxpayers received only 78 cents in federal expenditures for every dollar in federal taxes sent to Washington DC. (source - LINK) Mississippi, for example, takes $2.02 for every dollar they pay pay in federal taxes. New Mexico takes $2.03 for every dollar they pay in federal taxes. Therefore, California is referred to as a donor state because they give more than they get.  (The highest donor state is New Jersey). The District of Columbia isn't a state, but it takes $5.55 for every dollar it contributes.

As contemptible as some California politicians seem to be (Gov. Jerry Brown and Sen. Barbara Boxer being some of the most notorious), the state's bankruptcy would increase the federal deficit because California would no longer be a donor state. Taken as a world economy, if California was a nation on its own, it would be the eighth largest. Is is the largest of any US State, even though it is clearly a state in decline. (source - LINK) California's GDP is roughly equal to France.

State Bankruptcy would mean that all California's revenue would be kept inside the state and used to bring it's financial house into order. Those outside California who gleefully hope for its demise might want to think twice because it would benefit that state at the expense of the other states.

I am not suggesting that California is too big to fail. I am suggesting that if it fails, and reorganizes, it will become stronger at the expense of the rest of the country.