California: a warning, not a solution

When the Founders were devising the construct of our nation, they often referred to the states as “laboratories of democracy.” What they meant by this was states were free to test new ideas on their own populations. With 50 (at the time 13) states all experimenting simultaneously, good and bad ideas would hopefully become evident relatively quickly and bad ideas would be recognized before doing nationwide damage. Armed with the knowledge of what worked and what didn’t, each state could make the prudent choice to adopt the best ideas.

Jason Blair is a contributor for The Brenner Brief.

Jason Blair is a contributor for The Brenner Brief.

California’s experiments have served as a consistent example for the rest of the nation of what not to do. Most recently is California’s realization that tax increases levied on themselves (mostly on the rich) in November are not resulting in the higher revenues they were expecting. Forgive me if I’m not scratching my head over this outcome.

There are too many examples of decreased revenue becoming the result from tax increases. So much so it’s really not even fair to say California was experimenting with an idea – they were just adopting a well-known bad idea, and we don’t have to look far for proof.

On 19 December, The Brenner Brief tackled this issue as it pertains to the fiscal cliff negotiations. In this column, Pamela Seley references the “Laffer Curve” – an economic theory that proves when taxes become too burdensome people change their behavior rather than pay more money. She goes on to show how highly successful Presidents Reagan and Kennedy lowered taxes and got better results.

There are several ways one can change behavior to avoid paying higher taxes, but one of the easiest is to simply relocate. This is exactly what happened in England last year when they chose to raise taxes on their rich. Two-thirds of their wealthy population moved out of the country.  Not only did England not make more money from the higher taxes, they took in less money than they made when taxes were lower. Not surprisingly, when England realized the error of their ways, they lowered taxes. Since then, their wealthy populace has started to trickle back.

If it weren’t bad enough, California is pushing people out of the state, and several other states are actively courting California businesses, using their lower taxes and regulations in the hopes of enticing them to move. According to Joseph Vranich, a business relocation consultant, the top states picking up California businesses are (1) Texas, (2) Arizona, (3) Colorado, (4) Nevada and Utah tied, and (5) Virginia and North Carolina tied. Of these only two have democrat governors and North Carolina elected a republican in November. The trend speaks for itself; in 2009, 51 businesses left the Golden State. In 2010 the number skyrocketed to 202, and in 2011, 254 left.

Sadly, even if California chooses to lower its taxes it still may not be enough; the regulatory red tape is simply too onerous and costly. Hardee’s and Carl’s Jr. restaurants are no longer expanding in California as it takes roughly two years to get through the regulatory process for one restaurant. Compare this with Texas where it takes about six weeks and $200,000 less. If this is what it takes for a fast food chain to get started, one can only imagine what it takes for a large business to move in. Even the companies that aren’t leaving California are expanding elsewhere. Google, eBay, and Intel are all opening new locations outside California.

The final nail in California’s coffin is its unflinching liberalism, which is more based on how it makes people feel than the results it produces. Take this article from Dante Atkins of the Daily Kos reveling in the very job/population killing policies passed in the 2012 November election. The author concludes that California’s election results are a trend the nation will soon follow. Sadly, this article proves that unlike England, California is not likely to learn from past mistakes.

With an estimated 225,000 people leaving California annually, I’m confidant the beacon Mr. Atkins claims California is will be burning more brightly as a warning to the rest of the nation than as a solution.

 

 

Comments

  1. Jason, thanks for the mention. I don’t know what’s wrong with my fellow Californians as the consistently vote to increase their own taxes. The word around here is Texas is where the jobs are as California continues to experience high unemployment — higher than the rest of the country. Like you say, even if taxes are lowered, regulations have become so onerous and expensive it makes it so small businesses can’t compete. In one way it could be pointed out that these regulations are taxes.

  2. Pamela, as a 4th generation Californian, it pains me to see what has happened to our beautiful state. I noticed a distinct change when Gray Davis was elected governor. We went from being a refuge for the rest of the nation, to their go-to punchline. Sadly all of my siblings and I have since moved out of the state for many of the reasons indicated in the story. When I left I always had it in the back of my mind that it was temporary (I still vote absentee there for what it’s worth). Part of me still would love to come back, but another part of me is beginning to think it’ll never happen….very sad.

  3. Jason I feel your pain. I was born in NY and lived much of my adult life in NJ. I miss them very much still but have realized that I miss what they used to be and not what they are now. Taxes are too high and middle class neighborhoods are now working class poor. Neighborhoods that used to be good family and friend areas are bankrupt of values and virtue. It’s heartbreaking.

  4. I can’t blame you for leaving this state; if I hadn’t been trapped because of my job loss in 2008 (downsized from over 50 full-time employees to 15 part-time employees) where I had worked for 12 years, I would have left, too. We have a Democrat Dictatorship here and Nancy Pelosi, Barbara Boxer, Diane Feinstein and Governor Brown have led the parade of destruction. The California “reputation” is getting around though, so I hope the other States put this experiment in their dungheap.

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