America's Big week of Promises

As January winds to a close, the US is looking to the future and wishing for better times. Some are pleased that 2012 is behind us and are hoping 2013 will be a year of prosperity and opportunity. This will be a year of new governments, new policies and, for nearly all Americans, higher taxes.

President Obama's inauguration speech was befitting of the beginning of a new, post-fiscal cliff era. It was the ideal motivational oration for a country in need of direction, policy and most of all, hope. Obama promised to satisfy all of these criteria but just how much America's most-celebrated president in decades can achieve over the next four years is uncertain.

Whether you're a fan of Obama, sit on the fence or despise his middle-of-the-road political ideals and watered down policies, you have to admit the man has a gift. His ability to motivate the masses and deliver every word with expression makes the speeches of his predecessor George Bush sound like short-winded waffle from a high school public speaking competition. In fact, as I recall some of Bush’s rather entertaining slip-ups, a comparison to high school-level English may be a little generous. Obama’s second inauguration speech was smooth, concise, well-rounded and highly motivational. He touched on the most pressing issues facing the nation over the next four years and had a dig at his Republican opponents at the same time.

We have also recently had California's Democratic Governor, Jerry Brown deliver a provisional budget, which announced an attempt to rein-in the state's budget deficit in the coming year. This was big news for the Golden State, which flanks much of America's productive West Coast, is a gateway for visitors to the US and is an important neighbour of Central America's most promising rising star, Mexico.

California's previous Governors haven't been able to keep a lid on rising costs, leading to the deserved reputation of California as America's version of Greece. In fact, under the governance of Arnold Schwarzenegger, California’s debt actually tripled. By the end of his two-term tenure, debt had risen to an unsavoury $42 billion. The movie-star tuned politician 'terminated' any attempt at fiscal responsibility.

Sworn-in for his third stint as Governor in January, 2011, Brown has taken a less ‘Hollywood-esque’ approach to his 2013-14 budget. He plans to tackle the state’s problems head-on; initiating spending cuts and announcing that in 2013-14 California will all but eradicate its budget deficit for the first time in decades. It’s still early days but Brown could be a godsend for a state that has been a drag on America's recovery for some time.

The road to recovery will be far from smooth and the already highly-taxed state will be walking a tightrope as it tries to recover from the consequences of profligate spending habits. If some of his social services spending cuts are defeated by the predominantly Democratic legislature, costs could soar and the budget deficit could rise to previous levels.

One recent change put in place by Gov. Brown was the addition of a state tax on all products bought online and shipped to Californian addresses. This will add to the high cost of doing business in California. From an economic standpoint, California does not do enough to attract enough large tax-effective business or tax-conscious high income earners as it is, and this tax grab won’t help. In fact, combined federal and state tax for high income earners can be as much 65%! That’s way more than any other US state and is also more than other highly-taxed nations, including Australia.

As much as we love California and all its tourist attractions, it is likely to remain a better destination for a stop-over visit and may continue to hinder the US recovery for years to come.

Stay Ahead of the Game,
Lachlan McPherson