Report: High Taxes and Burdensome Regulations Are Killing California
California politicians’ policy choices are making the state unaffordable and unattractive.
California's proposed "billionaire tax" is keeping the state in the news these days, as are government policies that hike the price of gasoline in the Golden State to ridiculous heights. The propensity for ever-higher taxes and always tighter regulations in California is now a defining characteristic of the place and it has consequences. Those consequences can be measured in terms of lost jobs and a sluggish economy.
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California's Lagging Economy
"California's economic performance has fallen sharply behind the rest of the nation, with job growth since the COVID-19 pandemic at less than half the national rate, while the state's high cost of living is erasing its income advantage," according to a Pacific Research Institute (PRI) summary of a new report by the think tank's Wayne Winegarden and Kerry Jackson.
Specifically, finds the report, "California's share of the national economy has fallen precipitously from its 2021 peak and is now stagnant at around 13.8 percent. Had the state simply maintained its 2021 peak share, California's economy would be 4.6 percent larger today—the equivalent of an additional $14,000 for every household."
An Exodus of People and Businesses
Even before PRI started crunching the numbers, Americans were aware that California has been shedding population (partially offset by immigration from other countries). "From 2010 through 2024 (the year of the latest data) almost 10 million people moved from California to other states, while just over 7 million people moved to California from other parts of the country," According to the Public Policy Institute of California (PPIC). "California now experiences net losses among higher-income households as well as middle- and lower-income households."
The exodus of high-income individuals has been accelerated by proposals for a 5 percent (and potentially higher) wealth tax that has spurred people like Mark Zuckerberg, Larry Page, and Sergey Brin to head for the exits. In January, venture capitalist Chamath Palihapitiya estimated that $1 trillion of wealth fled the state ahead of the January 1 deadline to which the tax, if passed, would retroactively apply.
Businesses are leaving along with people. Tesla moved its headquarters from California to Texas, as did Chevron and real-estate giant CBRE Group. Palantir moved first to Denver and then to Miami. While new firms are still created in California, opportunities become more limited as entrepreneurs go elsewhere.
"Job growth from February 2020 to December 2025 has been less than half the rate that the rest of the nation has posted," comment PRI's Winegarden and Jackson. "The jobs record is even worse in the private sector, which drives innovation and fosters prosperity." In fact, they add, "outside of healthcare jobs, California's private sector employment market is not just stagnating—it is shrinking."
Sure enough, PPIC finds that 21 percent of Californians have considered leaving the state over the lack of well-paying jobs. Why are jobs, businesses, and people leaving? It's a matter of bad policy.
"From an economic perspective, residents are hampered by steep housing costs, high-priced energy, expensive cost of living, and high taxes that more than offset California's higher-than-average household income," note Winegarden and Jackson. "The state's high and rising taxes, overly burdensome regulations, and general anti-business environment are incenting businesses to leave as well."
Californians Are Overtaxed and Overregulated
California's tax policies put it at 46 out of the 50 states of the union in the Cato Institute's Freedom In the 50 States State Taxation rankings. "California is one of the highest-taxed states in the country. California's combined state and local tax collections are 13.0 percent of adjusted personal income," observe the authors of that assessment. "Regulatory policy is more of a problem for the state than fiscal policy."
California's overall regulatory ranking is 49 out of 50. "California is one of the worst states on land-use freedom," warn the authors. "Some cities have rent control, new housing supply is tightly restricted in the coastal areas despite high demand, and eminent domain reform has been nugatory." This all contributes to high housing costs that help make the state such an expensive place to live.
The Cato authors add that "labor law is anti-employment" and "occupational licensing is extensive and strict," both of which discourage the creation and growth of businesses.
For its part, in 2024, George Mason University's Mercatus Center assessed California as "the 1st most regulated state in the nation" with 420,434 restrictions as compared to 300,095 for second-ranked New York. Mercatus researchers cautioned that "jurisdictions that allow regulations to consistently pile up over the years experience slower economic growth" and that "growth in these regulations is correlated with increased poverty rates, lost jobs, and higher inflation, among other effects."
Without Reform, the Golden State Will Continue To Stagnate
PRI's Winegarden and Jackson highlight California's "economic repellants" which, they write, "include the state's high taxes and onerous regulations that are responsible for the growing unaffordability problem. California's lack of affordability is driving away families who discover that they can obtain a higher quality of life for less outside of the Golden State. Accelerating the vicious cycle, businesses, aware that the state is unattractive to families, are then further incentivized to either leave or not expand their business to California."
In explaining Chevron's move from California to Texas, Andy Walz, Chevron's then-president of Americas Products, commented that "California is a tough place to do business." He added that "cost of living is expensive. And we were not able to get employees that didn't live there to move there."
Spread those and similar concerns across hundreds of companies and millions of individuals, and you end up with an exodus of people and businesses to comparatively more attractive alternative destinations. Those places—with lighter regulations, lower taxes, and greater affordability—become homes to people, employers, jobs, and prosperity.
"The exodus of businesses, jobs, and residents is communicating to policy leaders that the state needs to embrace a pro-growth deregulatory and tax-reform agenda that directly addresses the state's high costs of doing business and consumer affordability problems," conclude Winegarden and Jackson.
Basically, California needs to roll back decades of control-freakery and abandon ongoing efforts to punish success. Without reform, the state will continue down the road of economic stagnation.