Reason.tv: More Taxes or More Jobs—California Shows You Can't Have Both

It's hard to find a politician who isn't eager to "do something" about high unemployment. Turns out California has found one way to save and create certain kinds of jobs—spend like mad and raise taxes.

That job-creation strategy has worked quite well for government-sector workers. Problem is the statewide unemployment rate is still among the highest in the nation, and many private-sector employers are heading to states like Texas, where taxes are lower and regulations are lighter.

"I would love to have companies calling me saying, 'We'd like to move to California, can you help us with that relocation?' I get none of those calls," says business relocation coach Joe Vranich. "The calls I do get are, 'Hello, we want to move out of California, can you help us do that?'"

Vranich says there's no one reason why businesses leave. He calls it "death by a thousand cuts," where job creators get fed up with everything from high taxes to traffic gridlock and legal hassles.

Take Rick and Jack Newcombe, the father-son team that runs Creators Syndicate. A long legal battle with the city of Los Angles might end up being their company's final cut. The Newcombes say the city arbitrarily stuck the company into a higher tax category and officials are applying the hike retroactively. City officials are demanding $400,000 in back taxes, but Rick Newcombe calls the whole episode "legalized theft," adding that a tax penalty of that size would force the company to lay off 10 employees.

It's ironic that such drama unfolds in a city where Mayor Antonio Villaraigosa is always doing something—transit projects! green jobs!— he hopes will stimulate the economy. And steep statewide unemployment persists long after Gov. Arnold Schwarzenegger eagerly accepted billions in federal stimulus funds. In fact, the Bush-Obama scatter shot of bailouts, stimuli, and rescue plans has fallen well short of proponents' promises.

Want to create and save jobs? Maybe it's time for politicians to stop doing so much and start undoing some of their worst blunders.

"More Taxes or More Jobs?" is written and produced by Ted Balaker, who also hosts. Camera-Animation: Hawk Jensen; Associate Producer: Paul Detrick; Additional Photography: Alex Manning.

Approximately seven minutes. Go to Reason.tv for downloadable iPod, HD and audio versions of this and all our videos.

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Comments

[true religion]

http://www.jeanushop.com

[Douglas Fletcher]

Revenge the Okies, I guess.

[Spoonman.]

Well, the forecast today for Houston is "partly sunny and delightful", though if you get on the 610 Loop between 7am and 7pm I'm not sure you'd agree with the thing about traffic flowing.

[R C Dean]

Houston? That swamp?*

Try San Angelo if you want "partly sunny and delightful." A traffic jam here is when a traffic light doesn't clear on the second try.

*Great restaurants, though.

[domoarrigato]

RC - I had the misfortune of spending a year there back in my Air Force days - I found the lack of any noticable things to do other than get drunk quite annoying. Not that theres anything wrong with that per se, just got kinda old...

[dave b.]

Please don't invite any more Californicates to Texas. Austin is full.

[Dave A.]

Will you accept Northern Virginians that want to get away from the federal government?

[dave b.]

It's not so much the geography as the desire to bring the liberalism along with them. They complain about California while simultaneously lamenting the fact that the TX gov't doesn't spend enough on social services and bigger government.

[Bob Smith]

Lamentation isn't the problem. Voting for more liberals in local and state government is. They're like a swarm of locusts, destroying everything and then leaving.

[Brian Trust]

We get the same problem with Massachusetts natives moving up to New Hampshire.

[Brian]

I want to leave the overtaxing big government of New York State. Living here is a rip off. I've been looking at New Hampshire. I was turned on to it by the Free State Project. I won't vote in any liberals when I arrive.

[Paul Krugman]

But... but... taxes are better than jobs!

[Jeffersonian]

I'll beat you like a rented mule.

[chemman]

"Maybe it's time for politicians to stop doing so much and start undoing some of their worst blunders."

Maybe that would happen in an alternate universe but in this universe the politician's reason for existence is to screw things up.

[Wegie]

But, of course.

[Suck It!]

I forget who said it but it went something like this.

Government is full of people who proudly stand up and annouce really bad, shitty proposals. Only to have another politician stand up and say I know how to make it even shittier!

[Hayne Crum]

It would be very nice that to make a new law congress would have to repeal an old one. The new laws should also be limited to 20 pages. That might even give the regulatory agencies, which we unfortunately need, the flexibility to find something that works.

[The Libertarian Guy]

Nice start, Hayne, but IMO the ratio should be "for each new law passed, ten old laws must be repealed".

At least.

[R C Dean]

Don't forget to add that no administrative regulations will have any legal effect until passed by both houses of Congress and signed by the President.

I dunno about your copy of the Constitution, but mine doesn't have anything about delegating legislative authority to executive branch agencies.

[EPA]

Maybe you should look a harder counselor.

[The Libertarian Guy]

True dat. My Cato Institute-issued pocket Constitution concurs, RC.

Too bad the Gang of 535 is pretty much clueless.

[A is Awesome]

Who needs a job when there's MARIJUANA!!!

[Punster]

I'm a 4th generation Californian and business owner employing nine people. The business climate here is too expensive. As soon as my son is done with high school in 2011 I'm taking my business to Colorado. I'll get an instant 15% raise on personal income and a 40% cut in business taxes. That'll put about $50k per year back into my bank account. Think of how much economic stimulus I can do with that.

[R C Dean]

Ask the little delinquent if he would rather have half of your savings and spend his senior year being the New Guy on Campus, or if its really that goddam important to him to stay where he is.

I continue to be amazed at the parents who won't disrupt their offspring's teenage social lives to make major improvements in their living situations. But, what do I know. . . .

[ArizonaJoe]

Taking a kid out at senior year could be a huge disruption. You know not what you speak of RC

[R C Dean]

Taking a kid out at senior year could be a huge disruption.

(1) How so?

(2) Hey, I suggested you bribe him.

[myth buster]

First off, you have to make sure the credits transfer and he would still be on pace to graduate on time. Different schools have different graduation requirements. Then, you have to consider the college application process- it becomes a lot harder to ask your old teachers and coaches for letters of recommendation when you're hundreds of miles away.

[FUBAR]

You could take the GED. If it was a problem. I don't recall too many colleges wanting recommendations from teachers and coaches, but if they did, you could always ask them via the Interwebs.

High school is a joke, it couldn't be that big a deal to chanage.

[Rob]

You cold, heartless libertarian! Think of all the hungry, cold, needy people you are helping with your ridiculously high taxes!

[John C. Randolph]

Where in Colorado? I've been to Denver a couple of times, and found it quite pleasant. Have you scouted out any other towns there?

-jcr

[Suck it up Crybaby]

California is in a free fall. They need to claim bankruptcy to free them selves of the union contracts which are financially killing the state. It can only be saved by electing a republican who will not be beholding to the unions. He or she will need to slash ten's of thousands of state jobs. If Jerry Brown is elected he will have no where to turn as the state employee union will own him as he created this union under his watch as Governor in the 70's.
http://www.suckitupcrybaby.com

[Suck it up Crybaby]

California is in a free fall. They need to claim bankruptcy to free them selves of the union contracts which are financially killing the state. It can only be saved by electing a republican who will not be beholding to the unions. He or she will need to slash ten's of thousands of state jobs. If Jerry Brown is elected he will have no where to turn as the state employee union will own him as he created this union under his watch as Governor in the 70's.
http://www.suckitupcrybaby.com

[Suck it up Crybaby]

California is in a free fall. They need to claim bankruptcy to free them selves of the union contracts which are financially killing the state. It can only be saved by electing a republican who will not be beholding to the unions. He or she will need to slash ten's of thousands of state jobs. If Jerry Brown is elected he will have no where to turn as the state employee union will own him as he created this union under his watch as Governor in the 70's.
http://www.suckitupcrybaby.com

[John C. Randolph]

LA is the new Detroit.

-jcr

[Rich Gall]

Each city has specific things to offer but how are you to know who's the best? We've done a few green energy searches for companies. Some states have better incentives for certain alternative energy companies. We put out a blind search to 450 communities around the US to find who has the best offers in the following:

1. Tax structure
2. Real estate options (subsidized and otherwise)
3. Non-dilutive funding
4. Debt buydowns
5. Education and social structures
6. Transportation
7. Supporting business communities to tap into

We do that for a number of companies over the past few years. There are plenty of incentives out there but each city has their own goals. By casting a wide net we can find who's most aggressive.

If you're looking to expand or relocate we can find the best location for your business.

Richard Gall
EcoDev, LLC
[e-mail]

[Jeffersonian]

Most of all, I love the "C'mon to Kollivornia" commercials. The PR flacks think we see a grinning, washed-up bodybuilder and Tinseltown fave. What I see is a guy in a black sedan offering a kid some candy.

[Kurt]

I'm sure California's HSR project will solve all our problems. Or not ...

http://www.sfgate.com/cgi-bin/.....1CSF3I.DTL

[Fen]

I wonder if China would take California for the 800 billion we owe them.

[JCA]

I think we'd get better value for money if they take DC.

[Fiscal Meth]

You don't have to be a business to be chompin at the bit to get the hell out of this overpriced, overpopulated, overtaxed and underemployed hell hole.

Traffic citations start at about $150 and go up from there and then you have to take off work to go to traffic school which costs quite a bit of money as well. And there are more and more cops out every day giving tickets. They're like locusts. I think they're actually trying to balance the budget with these crazy paycheck splitting tickets and fines and court fees. GET ME OUT OF HERE!

[Chad]

Traffic citations are zero if you aren't a moron. I wonder why so many libertarians complain about them? Why SHOULDN'T we tax stupid assholes?

[Erik]

So now a "traffic citation" is indeed a tax. And being a "stupid asshole" means you should get a higher tax rate?
And then people turn around and wonder why the stupid assholes leave, and why noone except the government is hiring...

[Andy Dufrane]

Yes when municipalities and cities get in the hole they send out armed revenue collection agents to rob people on the highways, this is also called enhanced enforcement of traffic rules.

[Suck It!]

Consider it that state and local cities way of PRINTING MONEY minus the printing press.

[Edward]

Maybe I missed something, but is spending $1 million to save $400,000 from the government really good business sense?

[zaire67]

When I left California in 2006. The cost of a one-way UHaul rental from Antioch, CA to Ft Worth, TX $2,900. One-way from Ft. Worth to Antioch $380. Enough said.

[Fiscal Meth]

Wow. That's messed up.

[Chad]

The reason business are moving out of CA is not the taxes, it is the housing prices.

I had a job choice between CA and the midwest last year. Being an anal-retentive math geek, I looked up the tax rates in both locations, studied the housing markets, even poked around the grocery stores while I was there for the interview, and calculated what an equivalent salary was in the two states. The difference was about 20%, but only 5% was due to taxes...and almost half of that was due to higher federal taxes under our progressive system. 13% was housing, and the rest was due to higher prices for food, bills, etc.

Businesses have to pay a premium to attract people to the land of $500k starter homes (compared with

[MikeP]

And people will gladly pay a premium for a home in such a nice climate and for economic opportunities due more to the network effects of that climate than the state government.

[MikeP]

And California's government has no compunction about swiping some of that consumer surplus for itself and its purported public needs.

This process does have its limits. There are of course always some marginal people whose consumer surplus goes negative due to the new government costs. But the government can quickly find itself getting into the meat of the bell curve -- all for practically zero marginal benefit to those same people!

[Bluffricky]

My wife's company, in software development, has moved eight large companies out of California in the past two years, three out of the country. All left for a variety of the "thousand cuts" reasons, but many were victims of the "shakedown" by local tax collectors for nefarious reasonings. And they have lots of reasons to "find" taxes.

Add deteriorating public schools, union pensions that have been "gamed" while public services rapidly dwindle, an aging population, and illegal immigration creating a "dark" economy--under the table payments and few taxes paid--and you have a failed state. Even PBS agreed.

Multiply that with "termed-out" legislators, who find a second career as lobbyists when they finally figure out how to rig the system. We can all now sit back and watch the sixth largest economy in the world self destruct. It's getting ugly, but it's gonna be entertaining.

[Chad]

So, I got bored and looked up "tax burden by state". I found this nifty website:

http://www.retirementliving.com/tax_burden_2008.pdf

So, what happens when we look PAST a simple California-inspired anecdote? Well, I invite any of you to dump this data into excel and plot it. Does it prove your contention that high taxes kill your economy?

Nope. GDP per capita goes UP as the tax burden increases. Indeed, according to the simple best fit line of this data, New Jersey residents are over $8000/year richer than the residents of Alaska *because* of their wonderful tax burden.

Now, correlation really isn't causation, but I think this blows a six-mile wide hole in any theory which assumes the correlation runs in the opposite direction.

[RockLibertyWarrior]

What about California? What about Detroit? A couple of examples, but how the hell could anybody gain wealth from tax increases. Nobody does. These stats you site smell to high heaven like a rotting rat.

[Chad]

CA has the 6th highest taxes and the 11th highest per capita GDP. Michigan ranks 25th and 28th, respectively. Both fit the "more taxes correlates to higher GDP" trend nicely.

Why do the stats "smell to high heaven"? Because they utterly and totally undermine your ideology?

[Brian Trust]

Washington State: 35th highest tax burden, 8th highest income per capita.

New Hampshire: 46th highest tax burden, 10th highest income per capita.

Wyoming: 48th highest tax burden, 5th highest income per capita.

[Brian Trust]

And before you splutter feebly about rural states vs. densely populated states...

Vermont: 8th highest tax burden, 22nd highest income.

Wisconsin: 9th highest tax burden, 23rd highest income.

Maine: 15th highest tax burden, 34th highest income.

[Chad]

Ahh, you immediately run to CHERRY PICKING!

*facepalm*

God damn, are libertarians really this dishonest?

Top four tax burdens: NJ, NY, CN, MA

Their GDP ranks? 3, 4, 1, and 6!

Plot the data. The trend runs the opposite way you wish. Also, most of the states that DO fit into your wet dreams of low-tax, high-gdp are low-population, high-resource states. Their royalties are what are allowing their low tax rates.

[SKane]

That data doesn't support either point of view. I just plotted the income/capita vs. % tax rate in Excel, added a trendline and looked at the R^2 value. A linear trendline explains a grand total of 4.9% of the variation - hardly an accurate predictor. Power, logarithmic and exponential fits give similar predictive values. The best you'll get is 44% (not exactly stunning, but better than 4%) with a 6 term polynomial, but that polynomial has multiple peaks, voting against both groups here. Unless someone can give me a reason why the relationship between tax and income/capita requires 6 terms I'll be quite happy believing that the data given by Chad is useless for proving either point of view here.

[Chad]

I agree. The correlation is weak.

However, it runs in the OPPOSITE direction of both your theory and this article. It is YOUR ideology which is undermined. My contention is that tax rates won't make much difference either way, which as you have shown, is borne out by the data.

[Erik]

*sigh*
You do realize that taxes and government spending is included in GDP?

So if a state should for instance decide to SPEND lots of money, and getting deeply in debt, the GDP would go UP. So hiring lots of Government workers and give them outrageous salaries is great for the GDP, as is spending lots of money on all kind of nice feelgood projects. What you cant pay for with higher taxes, you simply loan from somewhere else, and dont bother paying it back, that will just lower the GDP.
High taxes is a great way to get a high GDP, since you are actively inflating it. For as long as it lasts anyway, but then you can always ask for a bailout, and throw that money into your GDP too. Sounds familiar?

The fact that you cant see that makes me think you're a business major. I've heard several of them argue with a straight face that the more in debt a country is, the better the economy is. Not one of them realized that a debt had to be paid back at some point.

[Erik]

I realized I might have been a bit unclear for a business major to understand it, so I'll make it simpler.

If you take all the money you have in the bank, and every cent you earn, and go out and spend it, you will personally get a good GDP. If you start loaning more and more money to spend even more, your GDP will go up. You are now a very succesful person, living a very high lifestyle, spending lots of money. Until you cant borrow more money, and the people you loaned it from wants theirs back but you allready spent it.

So, to prove your point, I suggest you start spending like crazy, borrow as much money you can and spend that too, and come back in a few years and tell everyone how great your personal economy is doing.
Remember, any money you save or invest doesnt count on the GDP, so SPEND, SPEND, SPEND.

[MikeP]

Now, correlation really isn't causation...

Indeed not. In particular, I suspect the causation is exactly the opposite of what you suspect.

All else held equal, higher GDP induces higher government spending.

In particular, for California:

1. California is a great place to live for the climate alone.
2. Higher valued economic activity drives out lower valued activity and increases GDP per capita.
3. Higher GDP per capita induces more profligate spending by government.

[Andy Dufrane]

TEXAS DOES NOT WANT ANYMORE KALIFORNIA LIBERALS! Reason please do not put the idea to move to Texas in any more Kalifornian's heads. Austin has become infested with socialist liberals with bums all over the place. NO MORE! Send them to New York State where they belong.

[Andy Dufrane]

Texas needs to Secede and put a border fence up North and South. Control immigration so that Kalifornia liberals are not permitted. NO MORE KALIFORNIANS IN TEXAS! Civics and literacy test to vote. Texas has the economy and the resources to thrive without the burden of the U.S. federal governments taxes, welfare, imperialism, and commie Obama. SECEDE, and restore the Republic of Texas 🙂

[Ahhnald Schwarzenegga]

Cleahly Taxehs ahhh much bettah fouh thee ecahhnahhmee!

[Mike K.]

Here in Las Vegas we would welcome the Creators Syndicate with open arms and low taxes, as many other California companies have discovered. The State of Nevada actually advertises in California to attract businesses to relocate here.

[Scarpe Nike]

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