No Confidence in California

Why has the Golden State—which has almost as many business incentive plans as palm trees—become the Venezuela of North America?

Joel Fox of Fox and Hounds Daily takes a look at how political uncertainty keeps business from growing in California. Fox keys off this Allan Meltzer article on the failure of the American Recovery and Reinvestment Act and the prospect that "High uncertainty is the enemy of investment and growth." What's true for the country, says Fox, is especially true of the bellwether on the Pacific:

Corporations in this state face uncertainties on the tax front that will cause them to hesitate investing in their California operations. That in turn will keep the Golden State unemployment rate high and economic growth subdued, which only extends, if not deepens, the state's economic chaos.

Last February, the legislature and governor agreed to change the tax law so that beginning in 2011, multi-state corporations can base their state income taxes on in-state sales, rather than the current formula that includes property, sales, and employees. The goal was to encourage economic growth through job creation.

Small business benefited from the tax package by allowing net operating losses to be paid off over a couple of years. This would allow new or struggling business an opportunity to gain its footing instead of being overwhelmed by tax obligations.

Now, however, the tax reform is back on the table as Democrats are suggesting the tax change measure be repealed as part of this year's budget fix. The Democrats say the tax change should not go into operation, which they claim will deprive the state of needed cash in the coming year.

More on the Venezuela and/or Greece of North America.

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