"High-Tax and High-Regulation" California Targets Underground Economy With New Bureaucracy

California's self-inflicted economic woes are nicely summarized in the state Senate's passage of a bill targeting underground economic activity, and a Board of Equalization press release trumpeting the same. In explaining the need for SB 1185, BOE Vice Chair Michelle Steel describes her own Bulgaria on the Pacific as "a high-tax and high-regulation state" in which "it becomes attractive to operate businesses outside the law in order to obtain a competitive advantage." Is the solution to reduce taxes and ease regulation? Of course not! Instead, the legislation establishes a new bureacracy with its own staff to which people can snitch about off-the-books businesses, and which will also pool data compiled by other agencies.

As described in the June 1, 2012 Board of Equalization press release (PDF):

The BOE is partnering with Senator Curren D. Price, Jr. (D-Los Angeles) to promote legislation (Senate Bill 1185), which would create a Centralized Intelligence Partnership (CIP) – a central location for the BOE, the Franchise Tax Board, and the Employment Development Department to share information that will help them expose, investigate and prosecute illegal operators as well as create a statewide evasion hotline for the public to anonymously report illegal activities. SB 1185 continues to accelerate towards becoming law, heading next to the Assembly.

Steel's full rationale is:

“The underground economy takes a heavy toll on California businesses and state revenue,” said Vice Chair Michelle Steel. “In a high-tax and high-regulation state such as California, it becomes attractive to operate businesses outside the law in order to obtain a competitive advantage over law-abiding citizens. We must work together to ensure that no California business is put at a competitive disadvantage for simply following the law.”

With regard to Steel's comments above, it may be worth noting that Chief Executive magazine has ranked California dead last in terms of business environment for eight consecutive years. "Once the most attractive business environment, the Golden State appears to slip deeper into the ninth circle of business hell. ... Each year, the evidence that businesses are leaving California or avoid locating there because of the high cost of doing business due to excessive state taxes and stringent regulations, grows."

The Tax Foundation puts California at 48 out of 50.

The Pacific Research Institute's 2008 Economic Freedom Index put California at 47 out of 50 (PDF).

Forbes doesn't quite agree, giving the state's regulatory climate a merely awful 40 out of 50.

Maybe there's a clue in there. As I've pointed out before, Friedrich Schneider, one of the world's foremost experts on "shadow" economic activity — business conducted out of the sight of government that would be perfectly legal if forms were filed and taxes paid — says, "tax and social security contribution burdens are one of the main causes for the existence of the shadow economy," and "every available measure of regulation is significantly correlated with the share of the unofficial economy."

If you want people people to work in the open, you can't tax them and regulate them so heavily that they'd rather hide. That's not so hard to understand, is it?

But California opted for a new intelligence bureaucracy, instead. Wait ... Let me modify that to an expensive new intelligence bureaucracy, instead. An analysis of the bill released May 29 by the California Senate Rules Committee (I'd link to it, but the new legislative Web site doesn't seem to generate permanent links) included in its "Fiscal Effect" section staffing and facility costs adding up to around $2.5 million annually, plus "[s]ignificant cost pressures to hire additional administrative, investigative, and enforcement staff among the participating entities upon full implementation of the Partnership." This is supposed to be offset by "[u]nknown future revenue gains, likely tens of millions of dollars annually beginning in 2014-15."

In fact, the BOE bold-facedly trumpets that the legislation "is expected to generate $38 for every dollar invested by its third operating year."

Really? Has any bureacracy ever generated such a return? And this one seems to be nothing more than a glorified snitch line and filing cabinet for tax data.

California: a state that acknowledges its problems, and picks exactly the wrong solutions. Head for the exits, folks.

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  • Fist of Etiquette||

    ...Michelle Steel describes her own Bulgaria on the Pacific as "a high-tax and high-regulation state" in which "it becomes attractive to operate businesses outside the law in order to obtain a competitive advantage."

    Classic. Recognize the problem but not the solution.

  • ||

    Government enables the very existence of viable economies. Only government can save the world from the capitalist horde. Oh Grandfather Lenin, how your ideological children labor for the salvation of mankind!

  • Heroic Mulatto||

  • ||

  • Canman||

    How did I miss that scene in "Team America"?

  • Fist of Etiquette||

    Do svidaniya, Rodina.

  • Brandybuck||

    She is the highest ranking Republican in the state. Which just goes to underscore the Republican mindset: correctly identify the problems; implement the wrong solutions.

  • wareagle||

    in CA, Repubs don't have the numbers to even propose solutions, let alone implement them. Lame reasoning, but no less true.

  • Brandybuck||

    All it takes is one guy in the assembly to propose a solution. It won't make it past a vote, but it can get proposed.

  • Raven Nation||

    And just so I'm clear: she is HAPPY about being a high tax, high regulation state?

  • Fist of Etiquette||

    Apparently at least either comfortable with it or resigned to it.

  • db||

    I like This flag better.

  • ||

  • Voros McCracken||

    I gotta go old school here:

    NCR

  • Sam Grove||

    The bear should be mauling a taxpayer.

  • Can't Wait To See||

    I wonder how times they will get calls about illegal immigrants working for a construction company or restaurant and then realize that this law is just inhumane to the those hard working people who just want to earn a living.

  • ThemAPPLEs||

    ^This^

  • Brutus||

    More leeches...the answer is always more leeches.

  • Raven Nation||

    Oh, and +1 to JD for the "Bulgaria on the Pacific" line.

  • juris imprudent||

    +2

  • Mickey Rat||

    "Board of Equalization"

    Really? I liked it better when "Atlas Shrugged" was an over the top, hyperbolic philosophical rant and not SOP.

  • VG Zaytsev||

    That agency administers the sales tax and has been around with that name for eighty odd years.

    But yeah, it is Orwellian.

  • Brett L||

    Average ranking in the bottom decile? Fuck it, not good enough. They want a lock on 50.

  • Gannicus||

    What the fuck is wrong with these people? What the fuck is wrong with the people who keep electing these people?

  • ||

    They're Californians, not people.

  • califernian||

    I will soon be a nevadan if all goes well.

  • James Anderson Merritt||

    I was born here and have watched with dismay as the transplants and transients have invaded and reshaped my home state in their own collective(-ist) image.

    Ironically, perhaps, the hard-working, family-oriented immigrants from South and West of the border have tended NOT to be part of the problem. But the control-freaks and leeches from East and North have done a number on us.

    I've tried to talk people out of some of the worst lunacies, but it is hard. Ultimately, you just have to watch the calliope crash to the ground with a very unpleasing sneezing and wheezing, then pick up the pieces after all the rats and insects who were blinded by the light have scurried away.

  • Sevo||

    JAM,
    Yes, it's a mess, but I'm not sure "transplants and transients" are the cause. Did Oregon and Washington end up that way for the same reason? Even if it is true, so what?
    Regardless of the birthplace, CA voters continue to act as if the money harvest from the orchard is only one season away...

  • ||

    I've had a theory for many years. Back in the day, when a businessman couldn't cut it in the East and his business went under, what did he do? He packed up and moved to California...

    ...hence, you end up with a state full of losers.

  • Gannicus||

    Look on the bright side, California is on an unsustainable path so its only a matter of time before something changes.

  • Brutus||

    Put the Light Worker back into the WH in November, and what will change is big suitcases of cash getting sent to Sacramento.

  • Suellington||

    It is unbearably sad what has happened to this once great state. I don't know about the rest of the state, but here in SF it does seem like a good amount of the damage was done by "transplants and transients" who have migrated here in search of leftist utopia. Ultimately though, as Sevo said, it doesn't really matter. We can only hope the pendulum will swing back towards reality, but even though I'm generally an optimist, I don't see it happening anytime soon.

  • Sevo||

    Oh, and just to show CA is still running right at the edge of the cliff, we got a new HSR manager!:

    "The latest plan calls for the authority to complete the initial stretch by 2017."
    Right! After that, well, when the windmills deliver all the electricity...

    http://www.sfgate.com/cgi-bin/.....1OP7DU.DTL

  • Suellington||

    Yeah, thank god they got a new manager. I'm sure he will bring this thing in under budget and on time. That is exactly what HSR needed, a new manager.

  • Suellington||

    Oh, and the city of SF just released their new proposed budget at a very modest 7 billion. This is for a city that has less than 900k residents.

  • Sevo||

    Skimming the article in the Chomical this morning, I didn't see a single comment concerning the deficit required to fund the $7Bn. Maybe it was there, but it must have been under the fold on page 27.

  • Sevo||

    Uh, a bit of hyperbole there; the Chomical doesn't *have* 27 pages.

  • Suellington||

    Bankruptcy is not far on the horizon.

  • db||

    I bet they still charge the same amount as when the paper did have 27 pages. Stealth price inlation!

  • VigDaRig||

    OK wow so who comes up with all that crazy stuff. Wow.

    www.Data-Privacy.tk

  • fish||

    Yeah...wow!

  • LarryA||

    New Jersey and New York must really suck.

  • ||

    The People's Board of Equalization????
    Could these fuckers get any creepier?

  • Old Mexican||

    "The underground economy takes a heavy toll on California businesses and state revenue," said Vice Chair Michelle Steel. "In a high-tax and high-regulation state such as California, it becomes attractive to operate businesses outside the law in order to obtain a competitive advantage over law-abiding citizens. We must work together to ensure that no California business is put at a competitive disadvantage for simply following the law."


    California State bureaucrats are irony impaired.

    On the one hand, Steel concedes the regulatory and tax environment in California is detrimental enough to entice businesses to go underground. Yet, at the same time, she insinuates the problem is the "unfair" competition from underground businesses.

    Maybe it's not so much irony impairment but just pure schizophrenia that drives the thinking of these politicians and bureaucrats.

  • LarryA||

    I took it to mean, "We've screwed over all the legal businesses, now we're going after what's left."

    As in, "We must work together to ensure that no California business is competitive."

  • Old Mexican||

    In fact, the BOE bold-facedly trumpets that the legislation "is expected to generate $38 for every dollar invested by its third operating year."


    ONE more piece of evidence that shows without question that

    a) Government bureaucrats can't calculate,
    b) They still think people respond to stimuli like cells in a game of Life, that is, with total fulfillment of expectations, instead of acting like self-interested individuals.

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