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National Debt

CA Fiscal Crisis: The Nation's Future?

  • May 25, 2009

    After residents of California voted against using budget-balancing measures such as tax increases and additional borrowing, the state is now faced with the only means available to close the revenue gap: cutting services.

    Faced with record deficits, California will likely be forced to reduce funding for various programs such as health insurance and education, as well as lay off many state employees and early release prisoners in order to eliminate costs.

    With state Republicans unwilling to raise taxes and Democrats unwilling to cut programs, there is an impasse in the state capital that has finally forced the state to closely examine the way it operates and even reconsider the shape and function of the government.

    The realization that deficits matter and the perennial borrowing has created a deficit from which there is no escape will likely affect most of the roughly 38 million residents of the state and lead to higher local taxes as the state government becomes unable to provide as much financial assistance as in years past.

    As the state reduces the amount it redistributes to localities, those localities will be forced to cover their own deficits by raising taxes since state and local government employees won’t work for free and since it is probably even more politically unpopular to release prisoners onto the streets and cut the length of the school year than increase taxes.

    While the size of California’s government and the scope of its responsibilities will certainly be scrutinized (and probably rightfully so), the painful changes that the state is about to experience should serve as caution to the rest of the nation and our federal government.  While the federal government can print its own money, each additional dollar printed reduces the value of all of those before it and diminishes the incentive for other countries, such as China, to continue to buy our debt, which in turn keeps our country solvent.

    Of course, the necessary (yet painful) solution for both California and the U.S. is to only spend what it takes in and if needed, raise taxes to pay for the services that are required for our states and country to function.  That being said, it is the citizens’ responsibility to hold elected officials to fiscal standards and realize that the money spent and/or wasted by government all comes from our pockets and by wasting less, we’d all keep more.

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