California’s Failed Policies Are Driving Away Businesses and Residents

The Golden State needs to mend its ways before it’s too late.

Not long ago, I penned a case for staying in California, arguing that there’s nothing wrong here that isn’t fixable. California, blessed by magnificent and varied geography, mild weather, and an “anything’s possible” culture, suffers mainly from a political process controlled by union advocates hell-bent on protecting their power and privilege, no matter what that means for the state’s public finances and public services.

While still standing by this “we should stand our ground” point of view, I’ve found little to be hopeful about in the current political season, with polls showing Gov. Jerry Brown’s tax-increase plan (Prop. 30) holding a solid lead, an initiative that would chip away at union power (Prop. 32) failing, and President Obama holding a 24-point lead in the presidential race. Polling results on all three above-mentioned matters are not surprising, but they do suggest how far we are from the paradigm shift needed to get California back on a better track.

The most troubling thing I’ve seen is the delusion embraced by the state’s dominant Democrats, who really believe that California is only one massive tax increase away from being fixed.

“Maybe I know too much about this stuff, but we’re in a recovery, a slow recovery, and it'll keep recovering with any luck,” Gov. Jerry Brown said in early September. “And if the Republicans would get out of the way and let, you know, the stimulus and the investment go forward, such as the Democrats have proposed, we'll be better off.”

The state’s problems don’t bother me nearly as much as knowing that voters and officials here are in denial about the problem and have no clue how to fix it. It's getting harder to blame Republicans for this any more, especially in California where they are an endangered species.

If voters approve Proposition 30, California’s income-tax rates will be the highest in the nation—21 percent above the second-highest state of Hawaii and 34 percent above the third-highest state of Oregon, according to anti-tax activist Richard Rider of San Diego. California is high on the list of most other taxes and regulations, and its wasteful public services are not reform-able because of union power.

Business owners talk not just about the costs, but about harassment by myriad government tax and regulatory agencies that often treat them like criminals. Freedom is on the decline as government gains more authority to micromanage virtually everything. Just check out the kind of bills the governor is now signing into law. (I love Steve Breen's cartoon, which says, "If you're a Californian and want to start a small business, there are a number of different routes you could take." It then shows the various Interstate highways that lead to other states.)

Yet Brown insists that California is still “the land of dreams.” And some academics say the talk about a California exodus to other states is not true. In May, University of Southern California Professor Dowell Myers argued that we shouldn’t believe “the tales of gloom. Californians aren’t fleeing.” The main problem,he wrote, is Californians don’t spend enough public money on schools.

This is where I want to bang my head against the wall. There have been some reductions in per-pupil public-school spending from 2008, given California’s budget problems. But these reductions come after massive spending increases in previous years and Prop. 98 mandates 40 percent of the general fund goes to K-14 education. Schooling is so important, yet California’s leaders have been resistant to imposing the real reforms that will improve schools through competition and teacher testing—ideas that run afoul of the powerful California Teachers Association.

Despite these delusions, productive people are leaving and they will do so more rapidly if this “just tax and spend more” advice is followed.

A new study from the Manhattan Institute called “The Great California Exodus: A Closer Look” offers a reality check. Yes, Californians are fleeing mostly for pro-growth states with a better tax and regulatory climate. California used to be a destination state, but has outsourced 3.4 million residents in the past 22 years.

“The data suggest that many cost drivers—taxes, regulations, the high price of housing and commercial real estate, costly electricity, union power, and high labor costs—are prompting businesses to locate outside California, thus helping to drive the exodus.” As authors Tom Gray and Robert Scardamalia explain, Californians are fleeing “chronic economic adversity,” congestion, and “constant fiscal instability” at the state and local governmental level, which “can be seen as tax hikes waiting to happen.”

All these reasons, even congestion, have a strong public-policy component. Businesses and individuals get tired of being viewed mainly as an ATM machine for government. If the state’s political leaders, most of whom come directly out of “public service” or the union movement, talked to business owners (and not just the crony capitalists they meet at the Capitol), they might learn about the trials of doing business here.

California is a highly urbanized state and coastal metropolises are understandably crowded, but draconian land-use restrictions and misguided transportation policies (roads are bad, rail is good) exacerbate the problem. These “New Urbanist” policies embraced statewide have created unnecessary sprawl and congestion by pushing development far from job centers and into the Inland Empire and the Central Valley.

Governmental instability is an understandable reason to flee. In cities that have overspent on lush pensions and wasteful redevelopment projects, traditional public services (infrastructure, public safety, parks, etc.) suffer—something that will get worse as more localities file for bankruptcy.

The Manhattan Institute authors argue that California can be fixed if Californians have the “political will.” Unfortunately, protests in Spain and Greece, much further down the same path California is taking, suggest that politicians can go many more years without showing the necessary political will to make necessary but tough reforms. Let's hope California retains enough of its historic entrepreneurial spirit to muster the will to turn things around.

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • Bobarian||

    Didn't you hear? California's "historic entrepreneurial spirit" moved to Houston.

  • The Late P Brooks||

    Time to build a wall.

  • stoneymonster||

    Around Sacramento.

  • Bobarian||

    Lex Luthor had the perfect plan and executed it to a tee.

    DAMN YOU, SUPERMAN! Ruining the world for some crazee-lady poontang!

  • ||

    Not only crazy lady, but concern troll journalist crazy lady poontang. What a fuckin pussy.

  • Paul.||

    Headline: California's finances are douched up, and its political climate makes it difficult for reform. Film at eleven.

  • Ryan60657||

    Illinois suffering the same fate as California:

    "Jimmy John Liautaud is moving part of the sandwich chain that bears his name to Florida next year, making good on a threat issued in 2011 after Illinois hiked its corporate tax rate."

    http://www.chicagobusiness.com.....-next-year

  • The Hammer||

    HuffPo is having a discussion about France's now-official 75% "temporary" tax rate on high earners. It's...illuminating.

    http://www.huffingtonpost.com/.....22089.html

  • NotSure||

    What are they saying there, that the tax is too low ?

  • Lisa||

    I loved the comment that, in so many words, said that people will get richer if they are taxed more. I don't know if they have a mental disability that causes them to confuse their hopes with facts, or if the propaganda they read is that good at distorting the truth, or what.

  • The Hammer||

    Oh, it's a gold mine. A quick survey revealed 3 different 'Reductio ad Somalia' arguments on one page. And then there are the truly special ones:

    kokobell616
    Satan laughing spreads his wings
    305 Fans Become a fan
    27 minutes ago ( 3:53 PM)
    Cheers to France for seeing the error that is austerity alone.

    So long as there are targets to reinvest in France to compel capital to stay and reinvigorate a stagnate economy the overall effect of raising to 75% on 'super incomes' should be a boom for economy in France.

    I think the reasoning behind this new maneuver is sound and very applicable in the US as well.

  • The Hammer||

    Even better, openly bloodthirsty, but still vague, unhinged fantasies/threats:

    MISSAVALON
    25 Fans Become a fan

    7 minutes ago ( 4:28 PM)
    no place to run,....Maybe just maybe they'll know there are some things money cant buy. The Franch KNOW BETTER.....the let then ( 47% ) eat cake doesnt work for the French people...... and the French goverment remembers...Marie Antoinette....so, all will be well in France.

  • The Craig||

    Florida has no personal income tax, but they do tax corps. Their corp rate is 5.5%, so isn't he increasing his tax burden? Unless Jimmy John's is an S-Corp...

  • LTC(ret) John||

    IL went way over 7% plus...

  • R C Dean||

    I'm sure JJ talked to his lawyers and accountants first.

    But even if he didn't, and did so just as an act of protest even though it would cost him, so what?

  • Doctor Whom||

    This is where I want to bang my head against the wall. There have been some reductions in per-pupil public-school spending from 2008, given California’s budget problems. But these reductions come after massive spending increases in previous years and Prop. 98 mandates 40 percent of the general fund goes to K-14 education. Schooling is so important, yet California’s leaders have been resistant to imposing the real reforms that will improve schools through competition and teacher testing—ideas that run afoul of the powerful California Teachers Association.

    California isn't the only place where the political class loves to do less with more, but it seems hellbent on perfecting the art.

    Despite these delusions, productive people are leaving and they will do so more rapidly if this “just tax and spend more” advice is followed.

    We should impose a penaltax for leaving.

    These “New Urbanist” policies embraced statewide have created unnecessary sprawl and congestion by pushing development far from job centers and into the Inland Empire and the Central Valley.

    It's funny how policies designed to prevent sprawl consistently have the opposite effect. It's almost as though there were things called unintended consequences.

  • Bobarian||

    "We should impose a penaltax for leaving."

    You know those produce checks out in the desert between CA and 'merica?

    Just turn em around and confiscate everything on the way out.

  • Bobarian||

    'Check-outs'

    Do you have any fruits or vegetables to declare?

  • ant1sthenes||

    Finally, a corrupt Democratic money grab I can get behind. In fact, let's help them build an Iron Curtain. Sorry SB.

  • Sevo||

    "Yes, Californians are fleeing mostly for pro-growth states with a better tax and regulatory climate."

    But, you see, none of that matters. The problem is "the lack of a coherent trade policy".
    http://www.sfgate.com/business.....900340.php
    This from a guy who claimed Comcast is moving only because they read anti-tax, -regulation 'tropes' from the Chamber of Commerce.
    The denial is painful to watch.

  • C. S. P. Schofield||

    The various denials that the Liberal Intellectual Radical Progressive Left has indulged in for decades have ALWAYS been panful to watch. Their serial schoolgirl pashes on violent revolutionary mass murderer after violent revolutionary mass murderer. Their absolute scientific illiteracy. Their peculiar belief that life in some past age - when they would almost certainly have been peasants and died in their thirties - was just too wonderful for words.

    *sigh*

  • ||

    As a Californian, I must offer my apology to those states that's now getting some of our exodus people. Soon they'll bring the EXACT brain dead policy with them. It's already proven not to work here, it too will destroy your state.

  • dinkster||

    I'm moving to New Mexico, from Santa Barbara, but I plan on buying a gun rack for my truck. I think they are safe.

  • ChrisO||

    an “anything’s possible” culture

    When was the last time that was true? 1973?

  • Ed the Oregonite||

    Our family and business moved from San Diego County to coastal Oregon in 2004.

    Having grown up and living in California for over 40 years, I wasn't able to fully see how disfunctional the state was until I moved away. I am almost ashamed that I stayed there as long as I did...the tax and regulation on small business are virtually impossible to deal with, and there are changes all the time. In fact, the state employees who enforce the laws are often ignorant of the rules and regulations that they are trying to enforce. Of course, you can't really blame them because the politicians and regulators are constantly adjusting the rules and most of the state employees are products of California public schools...which are largely in disarray.

    Now I run my business in Oregon and have great fellowship with many other former-California business owners (all of whom earned over $100k/year) who have discovered the error of our ways and started businesses in Oregon and elsewhere.

    I might go back to CA someday, but I expect there will be a major meltdown in the system before then. The economic 'pie' is limited and the public service unions will soon be at each other's throats.

  • ricketson||

    People in CA are more concerned with making a point than in getting stuff done -- whether it's making a political point or demonstrating their own greatness. This erodes confidence in institutions, and prevents institutional leaders from being effective (because they don't care about being effective). California is going to fall into the sea.

  • Bruce Hall||

    My son and family life in California so we visit often. A beautiful state in many ways... especially the central and northern coastal areas. Despite it's size, it is essentially hollow like South America when it comes to population. San Francisco is a good metaphor for California... cramped and costly. Whenever we go, we are appalled at the price of homes and food and general living.

    Hence this: http://hallofrecord.blogspot.c.....alist.html

  • buddhastalin||

    Whenever we go, we are appalled at the price of homes and food and general living.

    It's actually not so shocking once you know how much we get paid.

  • Richard Rider||

    If you'd like to see a detailed, dismal fact sheet comparing CA with the other 49 states -- on taxes, regulation, utility costs, litigation, education, etc. -- go to my blog. Here's the latest version:
    http://riderrants.blogspot.com.....sheet.html

    Note that I continuously update this fact sheet -- at least twice a month. All the factoids include a URL for verification.

    Here's the opening salvo (there is MUCH more):

    California has the 2nd worst state income tax in the nation. 9.3% tax bracket starts at $48,029 for people filing as individuals. 10.3% tax starts at $1,000,000. Governor Brown has put on the ballot a prop to change the “millionaires’ tax” to 13.3%, starting at $500,000 – including capital gains. If approved, CA will be by far #1 in income tax rates. We will be 21% higher than the 2nd highest state (Hawaii), 34% higher than the 3rd highest state (Oregon), and a heck of a lot higher than all the rest – including 7 states with zero state income tax. http://taxfoundation.org/sites.....ff2012.pdf Tables #11 13

    CA has the highest state sales tax rate in the nation. 7.25% (does not include local sales taxes).

  • Richard Rider||

    Here's a bit more (this website does not allow me to include all the URL's here, but they are in the fact sheet).

    CA corporate income tax rate (8.84%) is the highest west of the Mississippi (our economic competitors) except for Alaska.
    http://taxfoundation.org/sites.....ff2012.pdf Table #14 – we are 8th highest nationwide.

    CA has the highest gas tax (tied with NY) in the nation at 67.7 cents/gallon (June, 2012). National average is 48.9 cents.
    http://www.api.org/statistics/fueltaxes/
    (also CA has the nation’s 5th highest diesel tax – 71.9 cents/gallon. National average 53.8 cents)

    California in 2009 ranked 15th highest in per capita property taxes (including commercial) – the only major tax where we are not in the worst ten states. But CA property taxes per owner-occupied home were the 10th highest in the nation in 2009.

    CA has now instituted the highest “cap and trade” tax in the nation – indeed, the ONLY such U.S. tax. One study estimates the annual cost at $3,857 per household by 2020. Even proponents concede that it will have zero impact on global warming.

  • Sevo||

    "CA has now instituted the highest “cap and trade” tax in the nation – indeed, the ONLY such U.S. tax. One study estimates the annual cost at $3,857 per household by 2020. Even proponents concede that it will have zero impact on global warming."

    Dunno what to say.
    CA voters elected moonbeam, looks like moonbeam's tax increase is going to pass, Pelosi remains a fave.
    Is there something in the water?

  • Richard Rider||

    While CA is a Democrat state, when it comes to tax increases, not so much.

    Contrary to liberal cant, CA tax increases CAN pass with a simple majority vote. When such a prop goes on the statewide ballot, that's all that's needed to pass.

    Surprisingly, the last EIGHT such statewide tax increase props failed -- six by double digits.

    While TRIBAL loyalty favors the Dems (the GOP will NEVER make it in CA because if its perceived anti-Hispanic view), folks do NOT easily cotton to tax increases.

    That being said, it will be close (on the Brown tax -- Prop 30).

  • Stephdumas||

    From what I read at http://www.breitbart.com/Big-G.....nstability
    I hope then some of these liberal movers will see the light and have a Damascene conversion.

  • jmccroskey||

    It is due to special interest corruption. Special interest donations plague the productivity of Sacramento. Until we eradicate this plague, we will continue to see diseased legislative decisions in Sacramento, which ignore the healthy growth of Californian citizens. Lets revive a healthy economy, and cure California of this epidemic.

  • onelegacyfire999||

    So glad I left that leftist Sh*thole long ago. Best decision I ever made! if the illegals don't take it over eventually than the bloated Unions and Welfare State policies will long before that. I will enjoy watching the ensuing chaos.

  • GroundTruth||

    Didn't I just see this movie? Oh, wait, that was Atlas Shrugged - part II.

    Too bad CA can't be a wakeup call for the rest of the country to not try this foolishness at the national level.

    Rand Paul 2016!

GET REASON MAGAZINE

Get Reason's print or digital edition before it’s posted online

  • Video Game Nation: How gaming is making America freer – and more fun.
  • Matt Welch: How the left turned against free speech.
  • Nothing Left to Cut? Congress can’t live within their means.
  • And much more.

SUBSCRIBE

advertisement