Do You Live in a Death Spiral State?
by William Baldwin
buy a house in a state where private sector workers are outnumbered
by folks dependent on government.
buying a house? Or a municipal bond? Be careful where you put your
capital. Dont put it in a state at high risk of a fiscal tailspin.
make our list of danger spots for investors. They can look forward
to a rising tax burden, deteriorating state finances and an exodus
of employers. The list includes California, New York, Illinois and
Ohio, along with some smaller states like New Mexico and Hawaii.
If your career
takes you to Los Angeles or Chicago, dont buy a house. Rent.
If you have
money in municipal bonds, clean up the portfolio. Sell holdings
from the sick states and reinvest where youre less likely
to get clipped. Nebraska and Virginia are unlikely to give their
bondholders a Greek haircut. California and New York are comparatively
determine whether a state makes this elite list of fiscal hellholes.
The first is whether it has more takers than makers. A taker is
someone who draws money from the government, as an employee, pensioner
or welfare recipient. A maker is someone gainfully employed in the
Let us give
those takers the benefit of our sympathy and assume that every single
one of them is a deserving soul. This person is either genuinely
needy or a dedicated public servant or the recipient of a well-earned
But what happens
when these needy types outnumber the providers? Taxes get too high.
Prosperous citizens decamp. Employers decamp. That just makes matters
worse for the taxpayers left behind.
say you are a software entrepreneur with 100 on your payroll. If
you stay in San Francisco, your crew will support 139 takers. In
Texas, they would support only 82. Austin looks very attractive.
Ranked on the
taker/maker ratio, our 11 death spiral states range from New Mexico,
with 1.53 takers for every maker, down to Ohio, with a 1-to-1 ratio.
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© 2012 Forbes