Taxes

No Confidence in California

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File photo.

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Now, however, the tax reform is back on the table as Democrats are suggesting the tax change measure be repealed as part of this year's budget fix.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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  1. the Venezuela and/or Greece of North America

    Also the greased vuvuzela.

    (The “BZZZZZZZZZZZthoomp” one and the “THOOMPbzzzzzzzzz” one.)

  2. As a 5th generation Californian and serial business owner I can attest that much of the problem stems from an unpredictable regulatory environment.

    You never know what is going to get outlawed next.

    For example, in the last 2 years we have created laws that have motivated egg ranchers to move to Arizona and Nevada. But the additional unemployed can take pride that any remaining California chickens now have a right to better working conditions than any chickens in the world.

    Who could have seen that coming? Really. You might have had the opportunity to buy an egg ranch 15 years ago, looked at the numbers and figured “OK”. You might have thought “maybe they could get trucked in from out of state, but the transportation cost will equalize any advantage.” And in the back of your mind, you’d think “If they do get trucked in, you can always sell the idea that local eggs have a smaller carbon footprint.”

    Could you have predicted that some college students would have whipped up a statewide rage against the injustices associated with laying eggs under oppressive conditions? That the egg rancher would be held up on TV ads as a villainous foe of all that is fair and righteous?

    Who is next?

    This state lost its way in the 90s and won’t be coming back anytime soon.

    1. Adam Sullivan|7.2.10 @ 10:48PM|#
      “As a 5th generation Californian and serial business owner I can attest that much of the problem stems from an unpredictable regulatory environment.

      You never know what is going to get outlawed next.
      For example, in the last 2 years we have created laws that have motivated egg ranchers to move to Arizona and Nevada.”
      In speaking with people about things like this, the response is that those moving are ‘being spiteful’
      As an example, the city of SF is working on a law requiring signage on cell phone radiation levels, so woos can compare one harmless level to another.
      The cell phone industry pulled the convention from SF, ‘out of spite’ according to the local paper.

      1. Yes – I know that one.

        I am in a town like many in California where “main street” has a bunch of boarded up businesses. Got into a “discussion”/ was lectured at by a local opinion maker who told me that the selfish landlords had raised rents in order to force those businesses out. I asked him if it was part of the diabolical landlord conspiracy to forgo income and pay property taxes on empty buildings. He then informed me that I obviously know nothing of economics.

        1. Further strange:
          Business people collude, conspire, lobby, etc to “make money!”
          Except when they do the same to, well, I guess lose money.
          You’d think the built-in contradiction would ring bells now and then, but it doesn’t seem to.

        2. So you’ve actually met Chad or maybe it was Tony.

    2. This state lost its way in the 90s and won’t be coming back anytime soon.

      Yeah it will be,

      This state has always had tension between working class common sense people and intellectual fantasizers.

      In good times the fantasies when, in bad times the common sense prevails.

      CA will get back on track eventually.

      1. While I’d like to agree with you, the deck is stacked. Gerrymandering will continue to create ultra-safe districts for both the blue team and red team. So expect more moronic posturing and moralist legislation designed to preserve our collective moral purity and righteousness. Whatever tension may seem to exist doesn’t play out in Sacramento – The SF Bay Area delegation works with the LA Metro delegation and dominates all activity. All else be damned.

        1. Well, not this one, but the next election will have new districts that SUPPOSEDLY are immune to traditional gerrymandering.

          Not that I’m convinced that will help that much, after all, look at who runs for state-wide office, and the governor’s race this year in particular.

        2. We definitely need some serious reform of the state government. I’d like to see a unicameral legislature and a unitary executive. The foundation of the problem with the state government is that power is so diffuse that no one is responsible for anything and the state just coasts from crisis to rebound to crisis.

          We’re already seeing some push back on the craziness – for example the initiative that will suspend the carbon reduction bs.

          San Francisco is especially crazy and LA is a few steps behind. But both of those municipalities compbined are only about 10% of the state’s total population. Most all of the other cities that make up the LA metro area for example are much much saner that LA itself.

  3. I blame the governatobr. Maye Maria too.

  4. Hey, what i do not understand is: If a state like CA is getting everything for free by only robbing, selling out people, fucking over people who trut in honesty and businesses on win win bases, how can specially this us state which robbed so much from us… can go bankrupt? i mean, what the fuck are they doing there, these socalled american patriots under the friend of superpatriot g.w. bush, arnie? LOL…

    1. WTF is this clown trying to say?

      1. Drunk blogging?

        1. I want to read it 🙂

          1. Yes, we need more from Salem Maxi.

  5. California is amazing dude.

    Lou
    http://www.anon-surfing.at.tc

  6. I’ve lived in California 16 years… yeah, I’d hate to try to operate a business here… but god damn, it’s fucking CALIFORNIA!

    Beaches…
    mountains…
    redwoods…
    death valley…
    yosemite…
    hollywood…
    silicon valley…
    perfect fucking weather…
    legal pot…
    liquor in the grocery store…

    We’re all too distracted by the wonderful things in our state to give much of a thought to sane government.

    You can punish people quite a bit and they’ll still want to live here.

    1. earthquakes…
      killer fires…
      Hollywood…
      Mexicans, not that there’s anything wrong with that…

      1. How much is a pack of smokes?

        1. I think I paid $6.50 the other day… Cheaper than NY, at least.

          1. Guys, just buy crack. Its cheaper and lasts longer.

      2. My state started getting mexicans from cali.

        I gotta say, there is no downside there. Some nice restaurants and renovating some of the older neighborhoods.

        1. Yeah, the shit-hole town in Washington that I grew up in is finally getting some Mexicans. They take better care of their trailers than the previous waves of white-trash. And tacos! Jesus, we grew up without real tacos… how did we do it?

      3. Can’t buy an AR-15(well at least legally). That’s a deal breaker for me.

    2. How much is a pack of smokes?

    3. How much is a pack of smokes?

      1. $6-$6.50, surprisingly cheaper than much of the country…. for now…

    4. You know, whenever I get into arguments with people about economics, they always say, “If California’s policies are so bad, why do people make so much money there?”

      I can’t quite explain it, outside of geographical trade position and climate, but there is something about California that keeps people coming back for more. It just makes me wonder if they are going to push themselves over the edge one day…. What if that intangible something disappears?

      1. A sort of inertia, I might say. A new Los Angeles (or, to a lesser extent, San Diego or San Francisco) can’t spring up overnight, so businesses are drawn there just as they’d be drawn to New York: the city’s already enormous, the population’s there, and so is a pre-established business climate for partnerships.

        1. No mention of the draw of dollars from far and wide? So, only californians spend money in california? I mean, all those box office receipts go to WashDC, right?

    5. Uhm, it also happens to be full of californians. Now, don’t get me wrong, I want them to stay in california, so keep preachin’ the good word.

    1. Warty,

      It takes a professional and years of study to unlearn common sense things like endlessly printing money is going to create asset bubbles and cause inflation at some point. Claiming that real estate prices can never go down and are the key to prosperity takes a professional. Don’t try this at home.

    2. Right, because you need that PhD coursework to know how to keep interest rates too low too long and create a real estate bubble that eats the western world.

      And you REALLY need that PhD coursework to successfully deny responsibility later.

    3. Ah, here I found it. “Leave economics to the professionals; only we know what we’re talking about, because 80% of submissions to leading economics journals are rejected.”

      1. “Before I continue, here’s who I am: The relevant fact is that I work as a rank-and-?le PhD economist operating within a central banking system”

        And you’ve done a great job so far.

        1. I now have the referee reports to prove that I live in a world where people are not falling over themselves to believe my assertions.The reports are often scathing, but usually very insightful, and have over the years pointed out all manner of incoherence in my work.

          I think is someways he’s just projecting.

      2. And only 80% of what IS accepted is crap!

      1. And this is his e-mail address: kartik.athreya@rich.frb.org

  7. As a long-time resident who has recently returned (by necessity, family obligations), I can vouch for the fact that the economic situation here is pretty grim indeed.

  8. Venezuela? I thought we were trying to match Argentina!

    1. The rate y’all’re going, even =Mexico= won’t want ya back in a few years. (Although the prospect of the MEChA types tossing their handbills away in disgust is rather pleasant…)

  9. Since Balko is probably off this weekend, here is the daily kick in the nuts.

    Since 2003 the city has paid some $7 million in legal fees to fight five police torture lawsuits it probably can’t win. The latest turn in this saga involves a secret settlement agreement designed to protect Daley.

    http://www.chicagoreader.com/c…..oid=925394

    1. Since 2003 the city has paid some $7 million in legal fees to fight five police torture lawsuits it probably can’t win. The latest turn in this saga involves a secret settlement agreement designed to protect Daley.

      We now know where those secret CIA torture prisons were.

  10. It will be funny in a few years to see illegal Californians sneaking over the border to look for jobs in Mexico.

  11. I am surprised that this coverage does not include the news that Arnie has decreed that until a budget is passed, all state government employees in CA must work for minimum wage.

    And the CA appeals court just backed him up.

    http://www.mercurynews.com/breaking-news/ci_15429519

    Step Two: Never pass a budget.

    1. 911 operators went on strike immediately over that one.

      1. I’m sorry, the all took sick leave.

        1. I have it on good authority that public sector unions are exactly the same as private sector unions…provided you don’t understand they can cripple necessary social functions.

          Safeway butchers going on strike is exactly the same as, oh, an entire police force calling in sick.

  12. Here’s a money quote from another article on the minimum wage story:

    A cut to a minimum wage would mean state workers would make the equivalent of $15,000 a year. The average state worker makes $65,000 annually, according to the state Department of Personnel Administration.

    http://www.google.com/hostedne…..gD9GNG49G0

    1. Maybe they should make the pay cuts permeant.

  13. OT: Times of London has now put all content on its website behind a pay-wall. That’s a big gamble given how many UK newspapers are available for free online.

    1. My hometown paper just did this. I used to visit their site for local news, despite the obnoxious popup ads, but that was a dealbreaker.

    2. news.google.com

  14. No doubt, that aronld dude needs to stick with what he knows best, making action movies and pumping iron!

    Lou
    http://www.anon-surfing.at.tc

  15. Hope Germany holds and wins. Argentine players are a bunch whining a-holes.

    1. And Maradonna is fucking insufferable.

      1. And is wearing a suit that’s at least two sizes too big.

        http://www.facebook.com/pages/…..042?v=info

        1. Germany get’s a well worked goal just when they needed one. Both teams getting tired, Argentina looking likely to score, Germany really needed one to get a buffer.

          1. How good is Schweinsteiger.

      2. Well, at least he’s a cokehead.

        1. And an acolyte of Hugo Chavez. He’s been a prick all along.

  16. It will be funny in a few years to see illegal Californians sneaking over the border to look for jobs in Mexico.

    I wish them well.

    Whatever it takes to keep them away from here.

  17. “High uncertainty is the enemy of investment and growth.”

    Any discussion of California’s economic troubles needs to include the fact that quite a few people here consider this a feature, not a bug.

    1. Exactly. Thats why they all love Hugo.

  18. Illinois Stops Paying Its Bills, but Can’t Stop Digging Hole

    For the last few years, California stood more or less unchallenged as a symbol of the fiscal collapse of states during the recession. Now Illinois has shouldered to the fore, as its dysfunctional political class refuses to pay the state’s bills and refuses to take the painful steps ? cuts and tax increases ? to close a deficit of at least $12 billion, equal to nearly half the state’s budget.

    “We are a fiscal poster child for what not to do,” said Ralph Martire of the Center for Tax and Budget Accountability, a liberal-leaning policy group in Illinois. “We make California look as if it’s run by penurious accountants who sit in rooms trying to put together an honest budget all day.”

    On any given Monday morning, the agency’s chief administrative officer, John J. Troy, 61, has no idea how he is going to keep its doors open until Friday. He said the state had not come through with an expected $2.2 million, which is about six months of arrears. He has laid off and recalled employees three times in the last two years.

    “Two weeks ago, I had days to meet my $420,000 payroll and all I was looking at was a $200,000 line of credit from a bank,” recalled Mr. Troy. “I drove down to Springfield and said, ‘Hey, you owe us $3 million.’ They said: ‘Oh, that’s nothing. We owe another agency $10 million.’ “

    It’s no fun being a Cassandra.

    1. Thank the Great God Hindu they have handguns!

    2. I’m so confused about these problems in CA and IL. I thought that the way out of economic difficulties was to spend more money? Why doesn’t that seem to be working? It must be that they’re just not spending enough. They need Paul Krugman on that locomotive shoveling money in that boiler as fast as possible. That should fix everything. I sure hope they don’t do anything stupid like cutting back on spending like all of the citizens in this country have had to do. That will never work. Right?

    3. As comptroller, Mr. Hynes has trained his attention on the public and nonprofit agencies that rely on state money; he tends to roll his eyes at the notion that slashing alone is a solution.

      “Only the most delusional people think you can solve this without raising taxes,” he said.

      Yes, you must be delusional to think that laying off some public workers will solve an imbalance between taxes incoming and paychecks outgoing.

      Fucking statist.

  19. Why? Because the state legislature is filled with corrupt scumbags who are owned by the state employee unions? Bullets to the heads of these utter scumbags would be a waste of good ammo. Behavior like this in eras gone by led to sociological and theological uphevals. Now it just leads to the POTUS implying that securing the border will prevent a legion of Einsteins from coming in and building steel mills… or whatever the fuck came out of his vastly overrated pie hole this week. Oops! Wait. I’m on the Reason site where I’m supposed to stand by and shout “Rah rah rah!” as more waves of uneducated peasants flow into the country. Oh, it’ll be fine if we just block them from getting benefots. Oops! California already tried that. Was overturned by a judge 7.3 microseconds after the polls closed. Oh well.

  20. He picks the papers off his desk and points to a figure in red: $5.01 billion.

    “This is what the state owes right now to schools, rehabilitation centers, child care, the state university ? and it’s getting worse every single day,” he says in his downtown office.

    Mr. Hynes shakes his head. “This is not some esoteric budget issue; we are not paying bills for absolutely essential services,” he says. “That is obscene.”

    I think part of their problem is public workers thinking that the state running such things constitutes “absolutely essential services.”

  21. Funny how schools, rehabilitation centers, child care, the state university all provide services that compete with the private sector, meaning none of them can be provided only by the government, and none of them would be provided by a minarchist night watchman state.

    Its the usual confusion between “good to have” and “good for the government to provide”.

  22. There ought to at least be a free lunch.

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