As you can see from this chart (based on data from the National Association of State Budget Officers), California has the opposite of good fiscal policy.
At the risk of understatement, it’s not good when government grows more than twice as fast as inflation.
I was motivated to create this chart after reading this article in National Review.
Written by Will Swaim, it discusses how California got in trouble. It starts by looking at how red ink forecasts have dramatically worsened ins a very short period of time.
In the summer of 2022, California governor Gavin Newsom, apparently high on the smell of cash, announced that California had just smashed through the state-budget equivalent of the first four-minute mile: a one-year surplus of $100 billion. …Just one year later, Newsom announced — this time without the trumpet blasts, chest-thumping and press tour — that California was $32 billion in the red. Today, the governor is staring into the business end of a $78 billion deficit. You didn’t have to be a prophet to see the financial chaos coming. In this state’s notoriously mercurial tax system, which depends largely on revenue from just 150,000 wealthy Californians and massive, occasional paydays to investors in the state’s tech sector, what went up in 2022 was certain to fall hard, fast, and soon.
But volatile tax revenues are not the problem.
California is in trouble because of too much spending. Governor Newsom and other politicians in Sacramento can’t resist buying votes in every possible way.
…back in 2022, when Newsom was still feeling like the casino’s biggest whale, he spent as if there’d be money forever, boosting spending to $308 billion, more than double Jerry Brown’s last, 2019 budget of $140 billion. In the Year of the Historic Surplus, there were gifts for almost everyone and a soundtrack of Vegas slots paying off. …He announced that the state will pay $5 billion to cover health-care insurance for illegal immigrants. And though he has already spent a remarkable $20 billion to reduce homelessness — while the number of people on the street continues to grow — Newsom asked voters on March 5 to approve a $6.4 billion bond program that would feed California’s voracious homelessness–industrial complex but almost no one else.
Since Texas is a very popular landing spot for California refugees, that creates profitable opportunities.
Which leads us to our third item.
Next we have a cartoon that presumably was motivated by some of California’s bizarre environmental policies (such as preventing the clearance of underbrush, thus increasing the risk of dangerous fires).
But if you ignore the sign in the lower-right of the cartoon, it’s a general indictment of California’s bad policies.
I’ve saved the best for last, as usual.
Here’s a screenshot of the headline fro a Babylon Beestory about the big contract that Shohei Ohtani received when signing with the Dodgers.
But the reason this is my favorite is that Ohtani actually signed a contract that will keep an extra $100 million in his pockets.
Not the greatest-ever act of tax avoidance, or the most licentious, but what he did probably ranks in the top 10.
California voters made a terrible mistake back in 2008 when they narrowly approved a referendum for a $33 billion high-speed train between San Francisco and Los Angeles.
Opponents said the project was a boondoggle and they made several predictions.
It will wind up costing far more than advertised.
It will take much longer to build than initially promised.
It will benefit special interest groups.
Lo and behold, skeptics were right.
Since I’m a fiscal economist, I was especially interested in the first concern. Based on real-world experience, we know that almost everything government does winds up being very expensive.
Indeed, this pattern is so clear that I wrote a column back in 2017 about the California project’s cost overruns and said it was the “least surprising headline ever.”
New we have another “least surprising headline.”
It’s from KCRA in Sacramento, California’s capital. Here’s what was reported yesterday.
If you want some of the grim details, I’ve excerpted a few sections of the story.
California’s mega high-speed rail project between San Francisco to Los Angeles also faces major funding hurdles, the project’s CEO Brian Kelly told state lawmakers… Kelly told lawmakers the project…was still a few billion dollars short to complete the Central Valley segment between Merced and Bakersfield. …Project leaders estimate it will still need an additional $100 billion to finish what voters were originally pitched in 2008: a bullet train that runs between San Francisco and Los Angeles. A timeline on its completion has not been set.
Here’s some additional analysis on this absurd boondoggle.
Charles Lane of the Washington Postopined on the California project in 2022. Here’s some of what he wrote.
Originally touted as a sub-three-hour link between San Francisco and Los Angeles, this mega-project has not carried a single passenger in the 14 years since the state committed to building it. It has made a lot of public money disappear, though: more than $10 billion…the public was told to expect completion by 2020. …Early on, France’s national railroad company ended its bid to help develop the California line and went somewhere with less red tape: Morocco. …At this point, the best thing for California might be to cut the project’s losses and abandon it. Yes, this would leave in place several massive concrete structures that have been completed. Passersby could look on them as monuments to magical thinking about infrastructure.
That same year, the Wall Street Journaleditorialized about throwing good money after bad.
California Democrats once hoped that their 500-mile bullet train from Los Angeles to San Francisco would be a high-speed rail model for the nation. It’s a model, all right—in how politics can drive public works off the rails. …The California High-Speed Rail Authority this week increased its cost estimate for the bullet train to $105 billion from $100 billion two years ago. In 2008 when voters approved $10 billion in bonds for the choo-choo, the estimated price tag was a mere $40 billion. That’s enough to have built 10 large water reservoirs in the parched state. This latest $5 billion doesn’t even account for rapidly rising material and labor costs.
The infamous, $113-billion-and-counting California high-speed rail line between San Francisco and Los Angeles, which was supposed to be completed by 2020 for a cost of $33 billion yet has only begun tinkering on a 171-mile stretch in the Central Valley…there never has been, at any stage of this living monument to political unseriousness and hubris, even a “little chance” that the S.F.-L.A. line would zip passengers between the cities in just 160 minutes, let alone deliver on the whole ragbag of laugh-out-loud promises that the state and federal political establishment delivered with a straight face. …There is a point to rehashing these old arguments beyond saying we told you so. The fact is, these reality-based objections were widely known at the time. It’s just that the people who otherwise fashion themselves as serious thinkers about public policy made the conscious choice to jettison rationality in favor of pie-in-the-sky dreaming.
Sadly, this is not just a problem for California taxpayers.
People from every other state are coughing up a lot of money to finance this boondoggle.
For instance, if tax rates increase, people may decide to earn and/or report less taxable income. When that happens, revenue won’t increase by as much as politicians hope.
And the reverse is true (in some cases, dramatically true) if tax rates decrease.
For today’s column, let’s look at a real-world example of the Laffer Curve.
Joshua Rauh of Stanford and Ryan Shyu of Amazon have new research that looks at what happened after California voters approved a big class-warfare tax increase in 2012.
Here are some excerpts from their study.
In this paper we study the question of the elasticity of the tax base with respect to taxation…on the universe of California taxpayers around the implementation of major 2012 ballot initiative, Proposition 30. …The Proposition 30 ballot initiative increased marginal income tax rates…by 3 percentage points for singles with over $500,000 in taxable income (married couples with over $1 million)…, the highest state-level marginal tax rate in the nation. …We…document a substantial onetime outflow of high-earning taxpayers from California in response to Proposition 30. …For those earning over $5 million, the rate of departures spiked from 1.5% after the 2011 tax year to 2.125% after the 2012 tax year, with a similar effect among taxpayers earning $2-5 million in 2012. …California top-earners on average report $522,000 less in taxable income in 2012, $357,000 less in 2013, and $599,000 less in 2014; this is relative to a baseline mean income of $4.15 million amongst our defined group of California top-earners in 2011. Compared to counterfactuals in similarly high-tax states, California top-earners on average report $352,000 less in taxable income in 2012, $373,000 less in 2013, and $481,000 less in 2014.
So some upper-income taxpayers moved and others (unsurprisingly) earned/reported less taxable income.
Did that have an impact on tax revenue?
The answer is yes.
…we assess the implications of our estimates for tax revenue in the context of California Proposition 30. A back of the envelope calculation based on our econometric estimates finds that the intensive and extensive margin responses to taxation combined to undo 45.2% of the revenue gains from taxation that otherwise would have accrued to California in the absence of behavioral responses within the first year and 60.9% within the first two years.
Wow, more than 60 percent of projected revenue evaporated within two years.
By the way, these estimates are based on data only through the middle of last decade. And something significant happened after that: The state and local tax deduction was curtailed as part of the Trump tax package.
The authors speculate that this will have very important implications.
…the “Tax Cuts and Jobs Act” (TCJA). Under this law, the top rate is 37% for single and head-of-household filers earning over $500,000, and for married filers earning over $600,000. Despite this nominal cut to top rates, the legislation on net increased rates on top earners because it capped state and local deductions at $10,000 total. … we use our top line intensive margin elasticity estimate to provide a ballpark quantification of the federal tax revenue implications of TCJA for the particular set of California high earners in our treatment group. …Consider a married California taxpayer earning $4.15 million of wage income. In 2017, this taxpayer pays a federal tax bill of $1,431,305. In 2018, incorporating the 8.6% income decrease, this taxpayer pays a federal tax bill of $1,333,946. This amounts to a 6.8% decrease in tax revenue, putting the TCJA on the wrong side of the Laffer Curve for high-earning individuals in California. … the TCJA increased incentives (in terms of the level of the average tax rate gap) to leave California for zero-tax states by 2.15 times the amount of Proposition 30 for those earning over $5 million, and by a factor of 2.43 for those earning from $2-5 million. Based on these scaling factors, we would predict an out-migration effect of 1.46% of those earning $2-5 million, and 1.51% of those earning $5 million.
None of this should be a surprise.
Indeed, I wrote back in 2012 that bad things would happen when Proposition 30 was approved.
I feel safe in stating that this measure is going to accelerate California’s economic decline. Some successful taxpayers are going to tunnel under the proverbial Berlin Wall and escape to states with better (or less worse) fiscal policy. …It goes without saying, of course, that California’s politicians…will act surprised when revenues fall short of projections because of the Laffer Curve.
To be fair, I don’t know if California politicians are genuinely surprised. I suspect many of them privately understand the adverse consequences of class-warfare tax policy. But they nonetheless support bad policy because they are motivated by a selfish desire to maximize votes.
According to researchers, the answer is none-of-the-above. The right answer is either Riverside, CA or Oakland, CA.
But that doesn’t mean the other cities aren’t doing their best to become the worst.
Today, let’s take a look at San Francisco’s campaign to become America’s worst city. And we have a story that tells you everything you need to know.
In a report for the New York Times, Heather Knight describes how the city can’t even waste money properly.
Noe Valley still needs is a toilet. Fifteen months after city officials were ready to throw a party in the Noe Valley Town Square to celebrate funding for a tiny bathroom with a toilet and sink, nothing but mulch remains in its place. The toilet project broke down the minute taxpayers realized the city was planning an event to celebrate $1.7 million in state funds that local politicians had secured for the lone 150-square-foot structure. That’s enough to purchase a single-family home in San Francisco — with multiple bathrooms. Even more confounding was the explanation that the tiny bathroom would take two to three years to install because of the city’s labyrinthine permitting and building process. City leaders quickly canceled their potty party, and Gov. Gavin Newsom of California took back the funds. …the episode has illustrated why San Francisco so often gets bogged down by inefficiency. …an army of more than 30,000 city employees with a $14 billion annual budget cannot build a simple bathroom in a reasonable way.
Actually, the reason things can’t get done in a “reasonable way” is in large part because there is “an army of more than 30,000 city employees.”
Those bureaucrats are part of various commissions and panels that get to review and micromanage projects. Which means they make things take longer and they increase costs. Typical government. TypicalSanFrancisco.
All of these factors help to explain why school choice is expanding all across the nation (at least in places where lawmakers are not controlled by teacher unions).
Today, though, let’s set aside the national arguments and focus on a local example from the reliably crazy state of California.
Heather McDonald has a sobering column about Los Angeles government schools in City Journal.
Much of her article focuses on ideological indoctrination of students, but here’s the passage that caught my attention.
Any school system that can afford climate advocates (as part of a black uplift plan, no less) is not hurting for taxpayer dollars. Any school system that runs a massive system of subcontracting for “psychiatric social workers” and “counselors” is not hurting for taxpayer dollars. Such a system has more money than it knows what to do with. Indeed, the LAUSD budget for the 2022–23 school year was $20 billion—more than that of some nations. Divide that pot among the district’s 397,623 K-12 students, and taxpayers are paying the equivalent of an Ivy League tuition—over $50,000—for every student, every year. Add “clients” in other functions that the LAUSD has embraced— early education centers, infant centers, and adult education—and the district spends a still-lavish $35,341 per student. The LAUSD is not underfunded. It is overfunded. The reasons for student failure lie elsewhere than in allegedly inadequate resources.
Wow.
I wrote about the failing Los Angeles government schools system back in 2010, but the focus then was about under-performing teachers.
Today, the issue is an over-funded system. The government schools are getting $35.000-$50,000 per student, yet doing a crummy job.
How crummy?
Howard Blume of the L.A. Times wrote about the bad news last October.
In math, …about 7 in 10 students do not meet standards. …for Black students…, only 19% met the learning standards in math. …Latinos make up about 3 in 4 students; about 24% met learning standards. …L.A. Unified math scores still were below levels from the 2017-18 school year, two years before the pandemic resulted in campus closures. The same is true for English scores, which were slightly down overall compared with last year, with 41.2% of students meeting standards. Among all district students, scores dropped by half a percentage point.
The only practical answer to this mess is school choice.
Instead of squandering $35,000-$50,000 per student of government schools that produce bad test scores, divvy up the money and give families some type of voucher or educational savings account that can be used to pay tuition at higher-performing private schools.
Families could opt to stay in government schools, of course, especially if they value indoctrination.
But it’s safe to assume most families will be more interested in better education.
I’ve written lots of columns comparing Texas and California (see here, here, here, here, here, here, here and here), and also several columns comparing Florida and New York (see here, here, here, here, and here).
We’ll break from that pattern today because we’re going to compare Florida and California, motivated by tonight’s Fox TV debate between Gov. Ron DeSantis and Gov. Gavin Newsom.
We’ll start with this table put together by Peter Coy of the New York Times. If Florida won, I awarded a red star and if California won, I awarded a blue star (and no stars if there was a tie or the category was irrelevant).
Florida won the most categories, though California has higher income (but also a much-higher cost of living).
Here’s a table prepared by the Committee to Unleash Prosperity. No need to add any stars since Florida wins every category.
I’ll close with a few excerpts from an editorial by the Wall Street Journal.
Gavin Newsom and Ron DeSantis are set to square off…in a Fox News debate… Besides offering voters a look of the alternatives to Joe Biden and Donald Trump, the showdown between the California and Florida governors could provide a revealing policy contrast. Sacramento has rushed to the left in recent decades while Tallahassee has moved to the right. Since winning election in 2018, Messrs. Newsom and DeSantis have advanced sharply different policies on Covid lockdowns, taxes, school choice and climate regulation, among other things. …here is a scorecard of policy results. …Since January 2019, employment has increased by 1,031,030 in Florida while declining by 85,438 in California. …California’s 4.8% jobless rate is the second highest in the country and nearly twice as high as Florida’s (2.8%). …State and local taxes in California add up to $10,167 per capita versus $5,406 in Florida. …Despite its higher taxes, California boasted a $31.5 billion budget shortfall in May while Florida ran a $17.7 billion surplus.
Based on the data, DeSantis has already won the debate.
Though messaging and style matter in politics, so we’ll see what happens in tonight’s debate.
P.S. We’ll make this column Part V of our series on red states vs blue states (previous editions available here, here, here, and here).
I’ve written several time that greedy politicians in these states are driving away taxpayers. Simply stated, successful people are “voting with their feet” and choosing to move to states with lower tax burdens.
But it’s not just people that are moving. As shown by these maps, money is also escaping from California and New York.
The above map comes from Linly Lin and Tom Maloney, who wrote a column for Bloomberg about money-management firms fleeing high-tax states.
Here are some excerpts from their report.
The drip, drip, drip of the finance industry’s exit from New York and California has been measured anecdotally… Elliott Management decamped to West Palm Beach. AllianceBernstein to Nashville. Charles Schwab moved to suburban Dallas. Now, for the first time, there are hard numbers quantifying the exact scope of the exodus. Both states have in the past three years lost firms that managed close to $1 trillion of assets…The exodus from the Northeast and West Coast has meant the loss of thousands of high-paying jobs, straining city and state finances by sapping tax revenue. …The moves, often born out of a desire for lower taxes, …spurring plenty of angst in the places left behind… From the start of 2020 through the end of March 2023, more than 370 investment companies — about 2.5% of the US total, and managing $2.7 trillion in assets — moved their headquarters to a new state. The vast majority of the migration was out of high-cost-of-living locales in the Northeast and on the West Coast and into Florida, Texas and other Sun Belt refuges.
Here’s another map from the column.
In this case, the authors look at how Texas and Florida are the main beneficiaries of America’s internal money migration.
By the way, I think taxes play a much bigger role than weather.
Nobody moves from California to Texas for the climate. Meanwhile, it’s possible that weather helps to explain the big shift from New York to Florida, but keep in mind that most people find Florida summers just as unpleasant as New York winters.
I’ll close by noting that red states have been outperforming blue states, and this Bloomberg data is another piece of powerful evidence to add to our collection.
But what about the state’s other big city? Don’t politicians and voters in Los Angeles do things that deserve verbal abuse?
The answer, of course, is yes.
And I’ve already done that, writing earlier this month about a class-warfare tax on expensive homes that has backfired.
Today, we’re going to look at an even-crazier idea that the left is promoting.
Here are some excerpts from a column in the Los Angeles Daily News by Susan Shelley.
…voters in the city of Los Angeles will be asked to decide whether to approve the “Responsible Hotel Ordinance,” a measure that would require hotel operators to report to the city, every day, the number of vacant rooms in their property so the city can send homeless people over to the hotels to stay in the rooms that night. …Business travelers, tourists and visitors will be side-by-side in the corridors, elevators, lobby and breakfast room with people who have been relocated from a nearby tent encampment to enjoy the same accommodations, paid for by city taxpayers. …If you thought insurance companies were bailing out of California before, wait until they have to cover this. …Hotels in other parts of L.A. County are not affected, except possibly by an unexpected boost of bookings from conventions and other events that are avoiding Los Angeles like the plague.
When I first read this article, I wondered whether it runs afoul of the Bill of Rights and the Third Amendment. I’ll be curious if any lawyers can comment on that.
But the weirdest part of the story is that this initiative is being pushed by the union representing hotel workers. I can’t help but wonder about motives.
Does the union hate management so much that they want to ruin the hotels, even though that means fewer jobs for unionized workers?
Does the union actually think this will produce more business and more jobs, even though it should be obvious that the policy will discourage normal travelers?
Does the union have some other agenda and simply views the proposed initiative as a way of extorting hotel managers to achieve that goal?
I don’t know the answer, so feel free to offer your best guess.
Ms. Shelley’s column concludes with these two sentences.
Fortunately, voters can just say no. That’s the other power of direct democracy.
These sentences are true. Voters in the City of Los Angeles will decide whether to sabotage local hotels.
Sadly, I don’t think L.A. voters are as sensible as Swiss voters, so I don’t expect direct democracy to produce a good result. If that’s the outcome, Professor Garret Jones will be tempted to say “I told you so.”
Simply stated, the more you tax of something, the less you get of it.
For instance, politicians often argue that there should be higher taxes on tobacco and alcohol in order to discourage smoking and drinking.
Given my libertarian proclivities, I obviously don’t like them trying to control our private lives, but they are right about higher taxes reducing cigarette and booze consumption.
Since my goal is to improve understanding, I prefer clear and simple analysis and explanation.
It also helps to have lots of real-world evidence.
For example, a report by Erica Werner in the Washington Post shows how taxes affect behavior.
A tax on mansion sales in Los Angeles was intended to raise millions to fight homelessness. It hasn’t quite worked out that way.Instead, wealthy Angelenos rebelled, putting the brakes on sales of homes priced at $5 million and above — those targeted by the initiative — with the result that the tax has raised far less money than expected since taking effect April 1. …The measure imposes a 4 percent tax on properties listed between $5 million and $10 million; at $10 million and above, the tax bumps up to 5.5 percent.
People are responding in predictable ways.
In the months before the tax took effect, high-end real estate sales exploded in L.A., as homeowners maneuvered to unload costly properties ahead of the new levy. The Los Angeles Times reported that celebrities including Brad Pitt and Mark Wahlberg were among those selling homes in the days leading up to April 1. …In the final days of March, some real estate agents even threw in free luxury cars to get clients to close sales before April 1. …Other tricks include separating properties into lots, or dividing a property between two spouses as “tenants in common” who can then sell their shares separately. …In the first quarter of the year, there were 248 sales of commercial and residential properties priced at $5 million and above in Los Angeles, according to Nathan Stark, an account executive at Chicago Title. Since April 1 through mid-June, there were only 34 sales.Stark and others argue the tax is counterproductive, since the city is losing out on transfer tax revenue it would be collecting if sellers weren’t holding back.
One realtor has a very sober-minded view of the issue.
Revelins has a home listed in the Venice Beach neighborhood of L.A. for $4,999,000 — a price tag she freely admits is aimed at avoiding the $5 million trigger for the new tax. …“That property is worth a little bit more,” Revelins said. “But if we listed it at $5.2, they would have to pay $200,000″ in taxes, money that Revelins says the city would squander.
Proponents initially hoped the tax would raise some $900 million a year… But…the city administrative officer pegged first-year revenue closer to $670 million. …Mayor Karen Bass included just $150 million from the tax as part of…her first budget proposal. Through the end of May, the tax had raised a total of $15.5 million.
For what it’s worth, I’m sure the tax eventually will raise several hundred million dollars each year.
But I also feel confident that it will never raise as much as politicians expected.
California voters will vote on a 2024 ballot initiative that would give them greater say over taxation in the state, and require two-thirds support for local tax increases, retroactive to Jan. 1, 2022.
Since California voters supported Prop 30 back in 2012, I’m not overly optimistic about a return to common sense.
I have done eight columns comparing Texas and California and five columns comparing Florida and New York.
But maybe it is time to compare Florida and California?
If I do, there’s no comparison, at least based on how people vote with their feet. Even though California has the nation’s best climate and geography, the state’s politicians have made the state economically unattractive and people are leaving.
Indeed, the no-longer-Golden State leads the nation in out-migration.
And it probably will not surprise you to learn that Florida leads the nation in in-migration.
Why are people leaving California and why are people moving to Florida?
Perhaps because Florida ranks as America’s economically freest state while California is #49.
Perhaps because Florida ranks in the top 5 and California ranks in the bottom 5 for tax policy.
Perhaps because Florida ranks very high (#2) and California ranks very low (#48) for overall freedom.
Perhaps because Florida has no state income tax while California has the nation’s highest income tax rate.
Perhaps because Florida ranks #1 for school choice while California languishes in the middle of the pack.
Incidentally, I’m comparing Florida and California because that may be where 2024 (or even 2028) politics is taking us.
The Governor of Florida, Ron DeSantis is officially running for president and the Governor of California, Gavin Newsom, is unofficially running.
And because they see each other as rivals, there’s some sniping about which state has a better track record. The Wall Street Journal has opined on their disagreements.
Why not a public face-off between these two combative, young, upwardly mobile Governors? This could be the substantive argument the country needs, pitting Florida’s red-state model against California’s blue-state approach. Instead of catcalls in the media, they could make a case to the public, with evidence and data, for the country to follow their lead. Mr. DeSantis, as an announced 2024 candidate, has more to lose, but in our eyes his state has the better story, and if the Governor is confident about it, he should take the challenge. A good showing by Mr. Newsom could even nudge him into a primary against Mr. Biden. Florida vs. California is what the electorate deserves in 2024, and if it isn’t an official presidential debate, an extracurricular one beats nothing.
For what it’s worth, I hope the two of them do a public debate. We’d presumably have some honest discussion about whether government should be bigger or smaller.
And both DeSantis and Newsom could come out winners in the sense that the public would favorably compare them to the elderly frontrunners for the Republican and Democratic nominations in 2024.
But I’m not a political pundit, so that’s just a guess.
I’ll close with another look at migration data. Only this time we’ll focus on businesses rather than people. Here’s a chart from a recent Wall Street Journalcolumn.
The good news for Newsom, at least relatively speaking, is that New York did even worse than California.
P.S. California leads Florida in per-capita income, though that’s offset by big differences in the cost of living.
P.P.S. And you can see here and here that California leads in generating political satire.
Good folks on the left (and every other part of the spectrum) push for equality of opportunity. And what’s great about that approach is that more opportunity for one person does not require less opportunity for another person.
Bad folks on the left push for equality of outcomes. And that’s unfortunate because an agenda of coerced equality (based on the notion of “positive rights“) means that one person has to suffer for another person to benefit.
Or, in really crazy circumstances, the goal is simply to deny good things for some people simply because they are not available to other people.
Three major utility companies in California are looking to restructure customer billing, and part of that means customers could be charged based on how much money they make. Southern California Edison, Pacific Gas & Electric and San Diego Gas & Electric filed a joint proposal this week for a flat-rate charge based on income. …Under the proposal, it would cost as little as $15 a month for low-income households and up to $85 more per month for households making more than $180,000 a year. …The income-based bill proposal is part of the companies’ compliance with legislation passed by the California state government last year requiring these types of plans for utilities. …The fixed rate could start showing up on bills as soon as 2025.
The Wall Street Journalopined on this policy. As you might imagine, class-warfare pricing was not celebrated.
Climate policies are driving up California electric rates… Now Democrats plan to double down on their policy distortions by charging electric customers based on income. Democrats snuck this second progressive income tax into a budget trailer bill last year… No other investor-owned utilities in the country link electricity costs to income. …Pacific Gas & Electric floated charging customers fixed fees ranging from $15 a month for those earning less than $28,000 annually, up to $92 a month for those making $180,000 or more. …California’s electric rates have surged over the last decade to an average of 26.5 cents a kWh—more than twice as much as in neighboring states… California’s electric rates are currently both regressive and progressive. Middle- and higher-income folks subsidize discounts for lower-income customers. However, lower- and middle-income households also subsidize the affluent with solar panels and electric vehicles. …Thus they want to impose this de facto graduated income tax to light up your home. This is another form of income redistribution… The very rich will cope, but the middle class will get soaked, as they always do.
I wonder if our friends on the left will expand this approach. Maybe require McDonald’s to charge rich people more for a Big Mac? Or tell gas stations that they have to lose money when poor people fill up their tanks?
Yes, legalization may lead a few more people to get hooked on drugs, but we also need to pay attention to the politicians who are so addicted to tax revenue that they are enabling black markets to continue.
In an article for the Wall Street Journal, Zusha Elinson and Jimmy Vielkind report on how New York and California have botched legalization.
The illegal marijuana trade is booming in California, seven years after the state legalized its possession, cultivation and distribution. Unlicensed sales totaled $8.1 billion last year, dwarfing legal sales of $5.4 billion… New York legalized cannabis possession in small amounts in 2021. Two years later, just five shops sell marijuana legally in New York City, while 1,400 bodegas, smoke shops and other outlets without licenses do, according to an estimate by the city sheriff. …The persistence of the illegal pot business in the face of state legalization reflects a variety of forces. …high taxes on legal sales fan the embers of illicit ones. “When you start seeing tax rates that are approaching 30 to 40 percent on products, it’s really going to be difficult to compete against the remnants of an illegal market,” said Mason Tvert… In California, the historic cannabis basket of America, many growers find it easier and more profitable to supply illegal shops or to ship their product elsewhere than to comply with licensing requirements. …Curaleaf Holdings Inc., a large, publicly held company, is shifting its focus to states where taxes and regulations are less onerous. …legal shops thought they could succeed… But they have to add a 10% city cannabis tax, a 15% state excise tax and a 9.5% sales tax not exclusive to cannabis.
California has been the poster child for bad policy on marijuana taxation, but the Empire State is trying to catch up.
J.D. Tuccille takes a closer look at New York’s mistakes in an article for Reason.
Empire State officialdom still hasn’t learned its lessons, as evidenced by the heavy regulatory hand stifling sort-of-legalized marijuana…the legislation intended to bring the booming underground market into the open was hobbled from day one. “New York’s law…is surprisingly permissive in some respects but includes high taxes and other provisions that compromise the interests of consumers,” Reason‘s Jacob Sullum warned… Last year, as taxes and regulations added up, and licenses were issued based on social justice grounds, it became increasingly obvious that the state was creating a “legal” market “so hobbled that it will offer uncompetitive prices to consumers and daunting barriers to vendors,” as I noted… Unsurprisingly, the “unlicensed and illicit sale of cannabis” has been barely challenged by tax- and rule-hampered legal-ish competitors. …New York officials might have learned from their own cigarette policies. Those so burdened tobacco with taxes and rules that they managed to (this sounds familiar!) hand the majority of the market for a legal product to illegal vendors.
I’ll add one final point, which is that the greed for tax revenue is not just a fiscal issue.
I realize it’s not nice to take pleasure in the misfortune of others, but that rule does not apply when bad things happen to greedy politicians.
As such, I greatly enjoy reading about when taxpayers “vote with their feet” by moving from high-tax jurisdictions to low-tax jurisdictions.
I enjoy when there is tax-motivated migration between nations.
And I enjoy when there is tax-motivated migration between states.
Regarding the latter version, there’s a must-read editorial in the Wall Street Journal about the ongoing exodus from fiscal hellholes such as Illinois, New York, and California.
The IRS each spring publishes data on the movement of adjusted gross income (AGI) and taxpayers across state lines from year to year. …the IRS data shows blue states are losing taxpayers and income at an increasing clip. …a net 105,000 people left Illinois in 2021, taking with them some $10.9 billion in AGI. That’s up from $8.5 billion in 2020 and $6 billion in 2019. New York’s income loss increased to $24.5 billion in 2021 from $19.5 billion in 2020 and $9 billion in 2019. California lost $29.1 billion in 2021, more than triple what it did in 2019. By contrast, the lowest tax states added some $100 billion of income during the pandemic. Zero-income-tax Florida gained $39.2 billion—up from $23.7 billion in 2020 and $17.7 billion in 2019. About $9.8 billion of the total arrived from New York, $3.9 billion from Illinois, $3.7 billion from New Jersey and $3.5 billion from California. Texas was another winner, attracting a net $10.9 billion in 2021, which follows a gain of $6.3 billion in 2020 and $4 billion in 2019. Californians represented more than half of Texas’s income gain in 2021.
Congratulations to Texas and Florida. Having no income tax is definitely a smart step.
Here is a chart that accompanied the editorial.
By the way, migration is the headline event, but it is also important to pay attention to who is migrating.
The WSJ‘s editorial notes that the people leaving high-tax states tend to be economically successful.
The IRS data shows that the taxpayers leaving Illinois and New York typically made about $30,000 to $40,000 more than those arriving. Of Illinois’s total out-migration, 28% of the leavers made between $100,000 to $200,000 and 23% made $200,000 or more. By contrast, the average return of a Florida newcomer in 2021 was about $150,000—more than double that of taxpayers who left. High earners spend more, which yields higher sales tax revenue. This helped Florida post a record $22 billion budget surplus last year. California is forecasting a $29.5 billion deficit.
I wrote last week about the ever-expanding burden of government spending in California.
And that was after writing two columns last year (here and here) about the state’s economic decline.
But sometimes a specific story is more compelling than broad economic trends. So here’s a tweet that caught my eye. It tells us a lot about the nature of government contracting, inefficiency, and cost overruns.
But it also tells us a lot about California (sort of like this story from 2021).
By the way, I don’t know if the above numbers are correct. But even if they are only half right, they are a damning indictment of California budgeting.
As you might expect, bad budgeting and extravagant waste also mean high taxes.
And high taxes mean economic decline, and that’s the focus of today’s column.
In a recent column for the Washington Post, Henry Olsen offers a depressing assessment of the California’s future.
California’s…falling population coupled with its $22.5 billion budget deficit suggest it could experience a swift and wrenching decline. …California offers natural beauty…, but people decide how much they want to pay for these things just like other goods. The state’s…high taxes are a significant deterrent to living there, driving many people to flee. …That outward flow of people is turning into a flood. The state’s population dropped by more than 500,000 people between July 2020 and July 2022. Outmigration to other states fueled the decline: Almost 900,000 more people have moved to other states from California in the past three years than have moved in. …This exodus poses massive risks for the state’s finances because of its reliance on revenue from the rich. As of 2018, almost 35 percent of California’s personal income tax revenue came from the sliver of taxpayers earning $1 million or more. Nearly two-thirds come from those earning more than $200,000. That means a small change in these people’s residence can cost the state billions. …It could take a New York-style collapse to force significant change. Given the direction California is heading, that unhappy prospect is no longer unthinkable.
California’s net domestic outmigration ranks highest among the states…In fact, the biggest leavers by far are lower- and middle-income people. And middle-class losses have grown in the last five years to about 200,000 adult residents. Meantime, some 300,000 adult Californians from lower-income categories have also left in that time… Taxes don’t exist in a vacuum; they are one component of a governing philosophy. High taxes represent an approach that favors bigger, more pervasive government, which takes many other forms besides taxes: a tendency to greater regulation and differing spending priorities than those of lower-taxed states, for example. …Fueled by its taxes on high earners and on businesses, California has an enormous budget. Its general fund alone tops $200 billion. You might expect, for that money, top-notch services from government, but the opposite is true. …Advocates for higher taxes often argue that progressive tax systems like California’s are fairer because wealthier residents pay at higher rates. …And yet high-taxing states like California, New York, and New Jersey also have among the highest rates of outmigration. These states are so “fair” that a significant number of their lower- and middle-income residents can’t wait to leave.
The most important insight of Malanga’s column is that California politicians say that they are trying to punish the rich, but lower-income and middle-class people are suffering a lot of collateral damage.
I have a seven-part series (here, here, here, here, here, here and here) comparing Texas and California, mostly to demonstrate that the not-so-Golden State has hurt itself with excessive taxation and a bloated government.
Today, we’re going to augment our comparisons by looking at a very practical example of how California’s approach is much worse.
The National Association of State Budget Officers publishes an interesting document (at least if you’re a budget wonk) entitled State Expenditure Report.
And if you to to Table 2 of that report, you’ll find the most important measure of state fiscal policy, which shows how fast the burden of government spending increased over the past two years.
Lo and behold (but to no one’s surprise), California politicians increased the spending burden much faster than their Texas counterparts.
As you can see, both states were irresponsible the first year, thanks in large part to the all the pandemic-related handouts approved by Trump and Biden.
But California was twice as bad. Politicians in Sacramento used federal handouts to finance a grotesque spending binge (whereas the spending binge in Texas deserves a more mild adjective, such as massive).
Both states were better the second year, with California’s spending burden climbing by 2.2 percent in 2022 and Texas actually delivering a spending cut.
Remember, though, that the spending burden exploded between 2020 and 2021, so the 2022 numbers only look reasonable compared to the bloated trendline.
Now let’s consider whether California’s grotesque spending binge had negative consequences.
The answer is yes, according to a Wall Street Journaleditorial.
Gov. Gavin Newsom last year touted a $100 billion budget surplus as evidence of California’s progressive superiority. He was less triumphant…when announcing a $22.5 billion deficit in the coming year, a contrast to Texas’s record $32.7 billion surplus. …California’s problem, as usual, is that Democrats baked too much spending into their budget baseline. They expanded Medicaid to undocumented immigrants over the age of 50, enacted universal pre-school and school lunches, extended paid family leave by two weeks, and boosted climate spending by $10 billion. …Much of Texas’s surplus this year owes to surging sales-tax revenue from inflation and population growth—i.e., Californians moving to Texas and spending their tax savings. Mr. Newsom claimed Tuesday that California has a more “fair” tax system than the Lone Star State and that Texans pay more in taxes. This is disinformation. According to the Census Bureau, California’s per capita state tax collections ($6,325) were second highest in the country in 2021 after Vermont. Texas’s ($2,214) were second lowest after Alaska. …California’s budget problems will grow as more of its rich and middle class move to lower-tax states like Texas.
Per-capita state tax collections are the most striking numbers in the editorial. The average Californian is paying $6,325 for state government, nearly three times as much as the $2,214 that is paid by the average Texan.
Does anyone think that Californians are getting nearly three times as much value as their counterparts in the Lone Star State?
Federal bureaucrats are overpaid compared to workers in the productive sector of the economy.
State and local bureaucrats also are overpaid compared to people in the private sector, though usually the gap is not quite as large.
But “usually” does not means “always.”
The most absurd examples of excess bureaucrat pay generally are found at the state and local level.
Especially in places like New Jersey where politicians and government employee unions have strong alliances against taxpayers.
And California, of course, where fleecing taxpayers has become an art form for some bureaucrats (see here, here, here, here, here, here, here, and here).
If you don’t believe me, read these excerpts from a Bloomberg report by Martine Paris.
A Beverly Hills cop tops the list of the highest-paid California municipal employees, 100 of whom took home $439,000 or more in total wages last year. The assistant police chief’s total compensation was $716,284 in 2021, $208,087 in regular income, with the rest for lump-sum and other pay… Marc Coopwood retired last year as assistant police chief in Beverly Hills after 4 years and 7 months in the role… As part of his separation agreement, he was issued a final payment that included 12 months’ salary and benefits, as well as compensation for unused leave, the city said in a statement. …The top 10 highest-paid list includes city managers in West Hollywood, Artesia and Fremont, two fire captains in the city of Los Angeles and a firefighter, as well as a load dispatcher at the Los Angeles Department of Water & Power who booked $400,000 in overtime compensation.
I don’t know what’s more outrageous, the assistant police chief with more than $716K of compensation, or the fact that 100 bureaucrats pocketed at least $439K?
Or is it the bureaucrat who fleeced taxpayers for $400K of overtime?
Our second item reminds me of the famous joke comparing coyotes in California and Texas.
Next we have a grim look at the state’s possible future.
For our fourth item, here are some excerpts from an article published by America’s top site for political satire, the Babylon Bee.
Florida Governor Ron DeSantis flew 50 migrants to an affluent island in Massachusetts… Progressives have labeled the action as “cruel” and “heartless,” but when California governor Gavin Newsom volunteered asylum for the migrants in his own state, they declined the offer since they had only recently escaped a collapsing communist state without electricity. …The migrants say that California’s trash-littered sidewalks, water shortages, and electrical outages bear too much resemblance to the Venezuela they left behind for it to be a desirable destination. …At publishing time, Newsom had reiterated his offer in a video at his $5 million home, gesturing to the plentiful electricity around him, but migrants have said that this reminds them too much of the opulence enjoyed by Chavez and then Maduro while they wreaked havoc on the nation.
Per tradition, I’ve saved the best for last.
With so many businesses and middle-class households fleeing California, here’s a helpful reminder that they should not push for dirigiste policies in their new states.
P.S. For what it’s worth, there’s actually some evidence that the folks moving into Texas are more conservative than average. Though I wonder if Colorado has been pushed to the left by California migrants. Let’s hope not since TABOR is definitely worth preserving.
P.P.S. Other California-themed jokes (not counting the state’s elected officials) can be found here, here, here, here, and here.
If you don’t want to spend a couple of minutes to watch the interview, the key takeaway is that California has lots of natural advantages, but the state is suffering from too much government.
I wrote about the state’s problems back in January, and I also addressed the link with California’s bad policy in columns in 2016 and 2020.
So instead of regurgitating some of my thoughts, let’s use today’s column to see what others have written.
For instance, Joel Kotkin wrote a very depressing assessment of California for Real Clear Investigations.
…most Californians, according to recent surveys, see things differently. They point to rising poverty and inequality, believe the state is in recession and that it is headed in the wrong direction. …Reality may well be worse… In a new report for Chapman University, my colleagues and I find California in a state of existential crisis, losing both its middle-aged and middle class, while its poor population faces dimming prospects. …Worse than just a case of progressive policies creating regressive outcomes, it appears California is descending into something resembling modern-day feudalism… California also suffers the widest gap between middle- and upper-middle-income earners of any state. …California lags all peer competitors – Texas, Arizona, Tennessee, Nevada, Washington and Colorado – in creating high wage jobs in fields like business and professional services… California’s “renewable energy” push has generated high energy prices and the nation’s least-reliable power grid… The state now ranks 49thin homeownership rate… California ranked 49th in the performance of poor, largely minority, students. …since 2000, California has lost 2.6 million net domestic migrants… In 2020, California accounted for 28 percent of all net domestic outmigration in the nation.
In a column for the Washington Examiner, Cole Lauterbach shares some of the findings from a new study published by the Hoover Institution.
A report studying business headquarter migration says California’s businesses are moving their centers of operations at a much higher rate in 2021 compared to previous years. …The authors use several different sources to track business migration out of the state, finding the number of companies who either announce or file that they’re in another state has risen sharply… The authors stress that the numbers are likely understated since smaller companies aren’t required to disclose a move. In their research, the authors found “high tax rates, punitive regulations, high labor costs, high utility and energy costs, and declining quality of life for many Californians which reflects the cost of living and housing affordability,” as reasons for the moves. …The most common destinations for states leaving California are Texas, Arizona and Nevada.
But let’s keep the focus on California’s overall problems.
Conor Friedersdorf, in an article for the Atlantic, offers a grim assessment of the Golden State.
This place inspires awe. If I close my eyes I can see silhouettes of Joshua trees against a desert sunrise; seals playing in La Jolla’s craggy coves of sun-spangled, emerald seawater; fog rolling over the rugged Sonoma County coast at sunset into primeval groves of redwoods that John Steinbeck called “ambassadors from another time.” …Yet I fear for California’s future. …the state’s leaders and residents shut the door on economic opportunity… Indeed, blue America’s model faces its most consequential stress test… the Institute for Justice, a public-interest law firm, released a report on barriers to work that disproportionately affect the middle and working classes. “California is the most broadly and onerously licensed state,” the report found, and is also “the worst licensing environment for workers in lower-income occupations.” …a survey of 383 CEOs by Chief Executive magazine, which weighed regulations and tax policy above all other metrics, ranked California the worst state for business, and Forbes ranked it among the worst for its high business costs and stifling regulatory environment.
Today, we’re going to make similar points, but we’ll use humor. Like we did in 2020.
There’s probably no better summary of the state’s misplaced priorities than this meme, which compares the laughable promises of high-speed rail with the reality of mass crime in rail yards.
I wrote last month about a tax-and-spend proposal for single-payer healthcare in California (sort of a state version of “Medicare for All“).
I also analyzed the scheme in this discussion with Gene Tunny of Australia.
What’s remarkable, as Gene mentioned in his preface, is that the left’s push for single payer failed – even though Democrats have complete control of the Golden State, including more than three-fourths of the seats in both chambers of the state legislature.
Almost certainly, the biggest reason is that even folks on the left have second thoughts about the enormous tax increase that would have been required.
As I noted back in 2016, big government is only fun when somebody else is picking up the tab.
Which motivates me to unveil a Thirteenth Theorem of Government.
Let’s take a closer look at what happened with single payer in California.
Here are some excerpts from a report by Sophia Bollag for the Sacramento Bee.
Efforts to create a government-run health care system for all Californians stalled Monday when the lawmaker pushing the legislation announced he didn’t have the votes in time for a key deadline. Assembly Bill 1400 aimed to create a so-called single-payer health care system in California that would essentially replace private insurance with a state-run health system. …To fund it, lawmakers would have also needed to pass a separate bill to increase taxes… The taxes Kalra proposed would also require voter approval. …Kalra said the fight for single-payer health care won’t die with AB 1400. Lawmakers could craft a different bill to implement such a system in the future. The bill’s failure represents a blow to the California Nurses Association, which had backed the bill. …This isn’t the first time a bill to create a single-payer system has died in the Assembly. The Senate advanced a similar bill in 2017, but it died in the Legislature’s lower chamber. Gov. Gavin Newsom…has said he supports single-payer health care.
…higher taxes are a tough sell, even in the California Legislature where Democrats hold a super-majority. …Fiscal analyses estimate the bill could cost between $314 billion and $391 billion per year if it were implemented. That would dramatically increase total state spending; California’s current budget is $262 billion. To pay for it, Kalra proposed taxing businesses 2.3% of their income after the first $2 million through a proposed amendment to the California Constitution. His proposal would also have imposed a 1.25% payroll tax on employers of 50 or more people and an additional payroll tax on wages for California residents over $49,900 per employee. The measure would have added progressive income taxes starting at .5% for people making more than $149,500, up to 2.5% for people making more than about $2.5 million per year.
In a column for Forbes, Patrick Gleason points out that the failure of single payer in California is part of a pattern.
For progressive lawmakers and activists who want to enact a national single-payer health care system, rejection of a state-level “Medicare For All” proposal in one of the bluest states in the nation, where Democrats have sweeping control of state government, is seen as a major set back. …California isn’t the only state, let alone the only blue state, where single-payer health system legislation has crashed and burned. New York Assemblyman Richard Gottfried (D), the longest serving member of the history of the New York Assembly, has long pushed for the New York Health Act, a single-payer proposal for the Empire State. Assemblyman Gottfried’s bill was approved by the New York Assembly five times between 1992 and 2018, only to see the state senate decline to take it up. As in California, exorbitant cost projections have been the main obstacle to single-payer’s enactment. …it is single-payer champion Bernie Sanders’ state of Vermont where state-level Medicare-For-All first proved to be unworkable. More than a decade ago, Vermont state lawmakers enacted legislation to implement a single-payer system called Green Mountain Care. …Shortly after the single-payer bill was enacted in 2011, Vermont officials were confronted with the reality that “free” health care is actually pretty costly for taxpayers. Governor Shumlin and Vermont lawmakers discovered they would need to impose a new 11.5% state payroll tax and a 9.5 percentage point income tax increase to pay for the new entitlement. Together these tax increases would’ve represented a more than 150% hike in the state’s income tax.
If you want more information, I wrote about deep-blue Vermont’s disastrous (but fortunately temporary) experiment with single payer back in 2014.
The bottom line is that people (sadly) are willing to use government as a tool to steal from their neighbors. But the message of the Twelfth Theorem is that they generally don’t like to steal from themselves.
P.S. Here are the other 12 Theorems of Government.
The “First Theorem” explains how Washington really operates.
The “Second Theorem” explains why it is so important to block the creation of new programs.
The “Third Theorem” explains why centralized programs inevitably waste money.
The “Fourth Theorem” explains that good policy can be good politics.
The “Fifth Theorem” explains how good ideas on paper become bad ideas in reality.
The “Sixth Theorem” explains an under-appreciated benefit of a flat tax.
The “Seventh Theorem” explains how bigger governments are less competent.
The “Eighth Theorem” explains the motives of those who focus on inequality.
The “Ninth Theorem” explains how politics often trump principles.
The “Tenth Theorem” explains how politicians manufacture/exploit crises.
The “Eleventh Theorem” explains why big business is often anti-free market.
The “Twelfth Theorem” explains you can’t have European-sized government without pillaging the middle class.
California Democrats are busy reviving government-run, single-payer health care, despite its failure in the state five years ago. …Their revived legislation would replace Medicare, Medicaid and private health insurance with a state-run system… Californians would also be entitled to an expansive list of benefits including vision, dental, hearing and long-term care. A board of bureaucrats would control costs—i.e., ration care. …While Californians would technically be entitled to a “free” knee replacement, they might not get one if bureaucrats consider them too old—but the state won’t let people know that’s the reason. …Arizona could soon become a hot destination for medical tourism. …As for the tax increases… Start with a 2.3% excise tax on business with more than $2 million in annual gross receipts… Employers with 50 or more workers would also pay a 1.25% payroll tax, which would be passed onto workers. Workers earning more than $49,900 would pay an additional 1% payroll tax. …would raise the effective income tax on wage earners making more than $61,213 to 11.55%—more than millionaires pay in every state but New York. …An additional progressive surtax would start at 0.5% on income over $149,509 and rise to 2.5% at $2,484,121. …The top marginal rate would rise to 15.8% on unearned income, including capital gains, and 18.05% on wage income.
In a column for Reason, Joe Bishop-Henchman and Andrew Wilford of the National Taxpayers Union explain the likely impact of the proposed tax increases.
As the mad scientist laboratory for bad tax policy in America, California is constantly striving to come up with poorly designed and harmful taxes to pay for ever-increasing spending. But even by its own lofty standards, California has truly outdone itself with its latest proposal to fund a state single-payer health care system. …Not only would the proposed $163 billion in new tax revenue nearly double last year’s total revenue for the tax-happy state, but California would structure these new taxes in such a way as to be even more harmful than doubled tax liabilities already imply. …the 2.3 percent gross receipts tax sticks out. …whether a business has a profit margin of 0.1 percent or 10 percent, it would still have to pay the same percentage of its total revenues. …a rate that is three times the level of the nation’s current highest. …the proposal to institute a payroll tax on businesses with 50 or more employees…would create an obvious disincentive for businesses to hire their 50th employee. …the payroll tax would discourage both hiring employees and paying them higher wages, a disastrous outcome for workers. …individual income tax rates…would effectively be…an 18-bracket tax structure with a top marginal tax rate of 18.05 percent. …a trend that California appears to have its head in the sand about: overtaxed businesses and individuals fleeing for greener pastures.
Let’s elaborate on that final sentence and ask ourselves what the tipping point will be for various taxpayers.
Imagine you run a business and you have to pay a 2.3 percent tax on all your receipts, even if you happen to be losing money? Do you leave the state?
Imagine if you are a typical employee and government takes more than 10 percent of your income in exchange for bad roads and bad schools? Do you leave the state?
Imagine that you are a high-value entrepreneur facing the possibility of having to pay more than 18 percent of your income to state politicians? Do you leave?
Imagine being an investor who is thinking about forgoing consumption in order to make an investment that might result in a punitive capital gains tax? Do you leave?
And while you contemplate those questions, remember that California is already very unfriendly to taxpayers, ranking #48 according to the Tax Foundation and ranking #49 according to the Fraser Institute.
Moreover, while California politicians consider a massive tax increase, other states are lowering tax rates.
In other words, California already is in trouble and many state politicians now want to double down on a losing bet.
P.S. California considered a government-run health plan a few years ago and backed off, so maybe there’s hope.
P.P.S. Illinois has been the long-time leader in the poll that asks which state will be the first to suffer political collapse. That may change if this California plan is enacted.
P.P.P.S. When I’m feeling petty and malicious, I sometime hope jurisdictions adopt bad policy because that will give me more evidence showing the adverse consequences of bad policy.
California is a fascinating state for people who follow public policy. It has some immense advantages, such as climate, coastline, and natural resources.
And the comparative data will probably get worse over time because many taxpayers and businesses are now fleeing to lower-tax states.
Since I specialize in public finance, I’m tempted to say bad fiscal policy is California’s biggest problem. And that may actually be the case.
But if someone asks me for an example of what’s wrong with the Golden State, I’m going to direct them to this story in the Los Angeles Times.
The California Legislature on Monday approved a $100-million plan to bolster California’s legal marijuana industry, which continues to struggle to compete with the large illicit pot market nearly five years after voters approved sales for recreational use. …State officials initially expected to license as many as 6,000 cannabis shops in the first few years, but permits have been issued only for 1,086 retail and delivery firms. In 2019, industry officials estimated there were nearly three times as many unlicensed businesses as ones with state permits. …The $100 million would go to local agencies with the most provisional licenses for growing, manufacturing, distribution, testing and retail operations. Some of the money can be used by cities offering equity funding to cannabis businesses owned by people of color.
Yes, you read correctly.
The state did a smart thing (removing legal prohibitions on marijuana), but did it in the worst possible way (burdening the sector with high taxes and red tape).
As a result, there’s still a very robust black market.
Here are some additional details about how politicians and bureaucrats have made it difficult to operate a legal business.
Many cannabis growers, retailers and manufacturers have struggled to make the transition from a provisional, temporary license to a permanent one renewed on an annual basis — a process that requires a costly, complicated and time-consuming review. …some face two to four years to get through the licensing process. Many would face the prospect of shutting down, at least temporarily, if they don’t get a regular license by current state deadlines, Kiloh said. …Supporters of legalization blame the discrepancy on problems that they say include high taxes on licensed businesses, burdensome regulations… A key requirement to convert from a provisional license is to conduct a CEQA review to indicate how pot farms and other cannabis businesses will affect the surrounding water, air, plants and wildlife, and to propose ways to mitigate any harms. However, Kiloh said, some cities are just setting up ordinances and staffing to process licenses, meaning many businesses cannot meet the looming deadline. …industry officials note the money will go to a small fraction of California cities, and only those that have already decided to allow cannabis businesses. …said Kiloh, owner of the Higher Path cannabis store in Sherman Oaks. “The real problem is CEQA analysis is a very arduous process,” he added. “I think it would be good to have more reform of the licensing system instead of just putting money to it.”
P.S. The late (and great) Walter Williams joking speculated whether California should set up East German-style border controls to prevent taxpayers from escaping.
Today we’re going to mix two things that seem disconnected.
Our first topic is federalism, which is the sensible principle that deciding things at the local level, or even state level, is better than being ruled by faraway politicians and a big, centralized bureaucracy.
You can still get awful policies from local politicians and state politicians, of course, but at least it is easier to monitor their actions, remove them from power, or move away if necessary.
A big reason I’m a fan of federalism because it creates competition among governments. For instance, I cheer when businesses, investors, and entrepreneurs escape from high-tax states like California and New York and move to zero-income tax states such as Florida and Texas.
When programs are centralized in Washington, by contrast, you simply add another layer of bureaucracy and expense.
But it’s not just a money issue. When Washington is in charge, you get a one-size-fits-all approach. That means there’s no room for innovation and diversity, which makes it much less likely that policy makers can learn what works and what doesn’t work.
Our second topic involves a story about record-setting levels of waste in California.
In a column published by Reason, Steven Greenhut describes how the unemployment insurance program in the Golden State has experienced jaw-dropping levels of fraud.
This is one of the most infuriating scandals ever to plague our state. The department, which is responsible for paying out unemployment insurance claims, has been incapable of paying legitimate claims even as it has paid as much as $31 billion in fraudulent ones, often to inmates. …Here’s a desk-pounder from CBS Los Angeles: “A Fresno girl who just celebrated her first birthday is collecting $167 per week in unemployment benefits after a claim was filed on her behalf stating that she was an unemployed actor.” The Southern California News Group reported last month that one man “is suspected of using the identities of 23 inmates and others to obtain more than $3 million in state unemployment benefits.” Approximately 10 percent of the paid claims have been fraudulent, with another 17 percent under suspicion. This will be “the largest fraud investigation in the history of America,” according to one expert.
I suspect that we’ll discover that most of the suspicious payments also were fraudulent, which means one-fourth of the money went to crooks.
Meanwhile, the same bureaucrats who blindly sent out checks to the wrong people also managed to ignore inquiries from the right people.
The department’s call center only answered 1 percent of calls that Californians had made to check on their claim status.
Amazingly, the Biden Administration has decided that the person in charge of all this waste and fraud should be rewarded.
Julie Su, the state labor secretary who was responsible for the department, may receive a big promotion…to serve as President Joe Biden’s pick for deputy secretary of the federal department of labor.
I fully agree with Mr. Greenhut’s concluding observation.
Welcome to…government, where no good deed goes unpunished and no level of incompetence goes unrewarded.
At this point, you may be wondering about the connection between our two topics.
To show how they are related, I’ll ask this rhetorical question: Why aren’t people in California upset about losing at least $31 billion to fraud, especially since the entire state budget is about $134 billion?
The answer is that they’re not wasting their own money!
The vast majority of the pandemic-related unemployment funds were provided by Washington, most notably (1) extended benefits under existing UI, (2) pandemic expansion of UI to cover people not normally eligible for UI, and (3) bonus payments.
So we shouldn’t be surprised that California bureaucrats didn’t care how much of the money was lost to fraud. As Milton Friedman wisely pointed out, there’s no incentive to be responsible when spending other people’s money on other people.
Now I’ll ask another rhetorical question: What would have happened if California was in charge of not only spending the money, but also was in charge of raising the money?
I’m sure there would have been plenty of waste and fraud, but even profligate California officials would have figured out it wasn’t a good idea to squander $31 billion of their own money.
The bottom line is you get better outcomes when there’s genuine decentralization. Simply stated, politicians have to be at least semi-responsible when they have to raise the money that they spend. It’s called accountability.
Which is why even the left-leaning OECD and left-leaning IMF have produced research confirming superior results with real federalism.
Texas has better government policy than California, most notably in areas such as taxation and regulation.
Since people are moving from the Golden State to the Lone Star State, public policy seems to matter more than natural beauty.
Now let’s look at a bunch of evidence to support those three sentences.
We’ll start with an article by Joel Kotkin of Chapman University.
If one were to explore the most blessed places on earth, California, my home for a half century, would surely be up there. …its salubrious climate, spectacular scenery, vast natural resources… President Biden recently suggested that he wants to “make America California again”. Yet…he should consider whether the California model may be better seen as a cautionary tale than a roadmap to a better future… California now suffers the highest cost-adjusted poverty rate in the country, and the widest gap between middle and upper-middle income earners. …the state has slowly morphed into a low wage economy. Over the past decade, 80% of the state’s jobs have paid under the median wage — half of which are paid less than $40,000…minorities do better today outside of California, enjoying far higher adjusted incomes and rates of homeownership in places like Atlanta and Dallas than in San Francisco and Los Angeles. Almost one-third of Hispanics, the state’s largest ethnic group, subsist below the poverty line, compared with 21% outside the state. …progressive…policies have not brought about greater racial harmony, enhanced upward mobility and widely based economic growth.
Next we have some business news from the San Francisco Chronicle.
Business leaders fear tech giant Oracle’s recent announcement that it is leaving the Bay Area for Austin, Texas, will lead to more exits unless some fundamental political and economic changes are made to keep the region attractive and competitive. “This is something that we have been warning people about for several years. California is not business friendly, we should be honest about it,” said Kenneth Rosen, chairman of the UC Berkeley Fisher Center for Real Estate and Urban Economics. Bay Area Council President Jim Wunderman said… “From consulting companies to tax lawyers to bankers and commercial real estate firms, every person I talk with who provides services to big Bay Area corporations are telling me that their clients are strategizing about leaving…” Charles Schwab, McKesson and Hewlett Packard Enterprise have all exited the high-cost, high-tax, high-regulation Bay Area for a less-expensive, less-regulated and business-friendlier political climate. All of them rode off to Texas. …the pace of the departures appears to be increasing. …A recent online survey of 2,325 California residents, taken between Nov. 4 and Nov. 23 by the Public Policy Institute of California, found 26% of residents have seriously considered moving out of state and that 58% say that the American Dream is harder to achieve in California than elsewhere.
Not according to this column by Hank Adler in the Wall Street Journal.
California’s Legislature is considering a wealth tax on residents, part-year residents, and any person who spends more than 60 days inside the state’s borders in a single year. Even those who move out of state would continue to be subject to the tax for a decade… Assembly Bill 2088 proposes calculating the wealth tax based on current world-wide net worth each Dec. 31. For part-year and temporary residents, the tax would be proportionate based on their number of days in California. The annual tax would be on current net worth and therefore would include wealth earned, inherited or obtained through gifts or estates long before and long after leaving the state. …The authors of the bill estimate the wealth tax will provide Sacramento $7.5 billion in additional revenue every year. Another proposal—to increase the top state income-tax rate to 16.8%—would annually raise another $6.8 billion. Today, California’s wealthiest 1% pay approximately 46% of total state income taxes. …the Legislature looks to the wealthiest Californians to fill funding gaps without considering the constitutionality of the proposals and the ability of people and companies to pick up and leave the state, which news reports suggest they are doing in large numbers. …As of this moment, there are no police roadblocks on the freeways trying to keep moving trucks from leaving California. If A.B. 2088 becomes law, the state may need to consider placing some.
The late (and great) Walter Williams actually joked back in 2012 that California might set up East German-style border checkpoints. Let’s hope satire doesn’t become reality.
But what isn’t satire is that people are fleeing the state (along with other poorly governed jurisdictions).
Simply state, the blue state model of high taxes and big government is not working (just as it isn’t working in countries with high taxes and big government).
Interestingly, even the New York Times recognizes that there is a problem in the state that used to be a role model for folks on the left.
Opining for that outlet at the start of the month, Brett Stephens raised concerns about the Golden State.
…today’s Democratic leaders might look to the very Democratic state of California as a model for America’s future. You remember California: People used to want to move there, start businesses, raise families, live their American dream. These days, not so much. Between July 2019 and July 2020, more people — 135,400 to be precise — left the state than moved in… No. 1 destination: Texas, followed by Arizona, Nevada and Washington. Three of those states have no state income tax.
California, by contrast, has very high taxes. Not just an onerous income tax, but high taxes across the board.
Californians also pay some of the nation’s highest sales tax rates (8.66 percent) and corporate tax rates (8.84 percent), as well as the highest taxes on gasoline (63 cents on a gallon as of January, as compared with 20 cents in Texas).
Sadly, these high taxes don’t translate into good services from government.
The state ranks 21st in the country in terms of spending per public school pupil, but 27th in its K-12 educational outcomes. It ties Oregon for third place among states in terms of its per capita homeless rate. Infrastructure? As of 2019, the state had an estimated $70 billion in deferred maintenance backlog. Debt? The state’s unfunded pension liabilities in 2019 ran north of $1.1 trillion, …or $81,300 per household.
Makes you wonder whether the rest of the nation should copy that model?
Democrats hold both U.S. Senate seats, 42 of its 53 seats in the House, have lopsided majorities in the State Assembly and Senate, run nearly every big city and have controlled the governor’s mansion for a decade. If ever there was a perfect laboratory for liberal governance, this is it. So how do you explain these results? …If California is a vision of the sort of future the Biden administration wants for Americans, expect Americans to demur.
Some might be tempted to dismiss Stephens’ column because he is considered the token conservative at the New York Times.
But Ezra Klein also acknowledges that California has a problem, and nobody will accuse him of being on the right side of the spectrum.
Here’s some of what he wrote in his column earlier this month for the New York Times.
I love California. I was born and raised in Orange County. I was educated in the state’s public schools and graduated from the University of California system… But for that very reason, our failures of governance worry me. California has the highest poverty rate in the nation, when you factor in housing costs, and vies for the top spot in income inequality, too. …but there’s a reason 130,000 more people leave than enter each year. California is dominated by Democrats, but many of the people Democrats claim to care about most can’t afford to live there. …California, as the biggest state in the nation, and one where Democrats hold total control of the government, carries a special burden. If progressivism cannot work here, why should the country believe it can work anywhere else?
Kudos to Klein for admitting problems on his side (just like I praise the few GOPers who criticized Trump’s big-government policies).
But his column definitely had some quirky parts, such as when he wrote that, “There are bright spots in recent years…a deeply progressive plan to tax the wealthy.”
That’s actually a big reason for the state’s decline, not a “bright spot.”
I’m not the only one to recognize the limitations of his column.
Who but Ezra Klein could survey the wreck left-wing Democrats have made of California and conclude that the state’s problem is its excessive conservatism? …Klein the rhetorician anticipates objections on this front and writes that he is not speaking of “the political conservatism that privatizes Medicare, but the temperamental conservatism that” — see if this formulation sounds at all familiar — “stands athwart change and yells ‘Stop!’” …California progressives have progressive policies and progressive power, and they like it that way. That is the substance of their conservatism. …Klein and others of his ilk like to present themselves as dispassionate pragmatists, enlightened empiricists who only want to do “what works.” …Klein mocks San Francisco for renaming schools (Begone, Abraham Lincoln!) while it has no plan to reopen them, but he cannot quite see that these are two aspects of a single phenomenon. …Klein…must eventually understand that the troubles he identifies in California are baked into the progressive cake. …That has real-world consequences, currently on display in California to such a spectacular degree that even Ezra Klein is able dimly to perceive them. Maybe he’ll learn something.
I especially appreciate this passage since it excoriates rich leftists for putting teacher unions ahead of disadvantaged children.
Intentions do not matter very much, and mere stated intentions matter even less. Klein is blind to that, which is why he is able to write, as though there were something unusual on display: “For all the city’s vaunted progressivism, [San Francisco] has some of the highest private school enrollment numbers in the country.” Rich progressives have always been in favor of school choice and private schools — for themselves. They only oppose choice for poor people, whose interests must for political reasons be subordinated to those of the public-sector unions from which Democrats in cities such as San Francisco derive their power.
Let’s conclude with some levity.
Here’s a meme that contemplates whether California emigrants bring bad voting habits with them.
So let’s make today’s column the sixth edition of Texas vs. California.
We’ll start with a column in the Wall Street Journal by Joe Lonsdale, a venture capitalist who explains why he and his company are moving to Texas.
I love California…and have spent most of my adult life in the San Francisco Bay Area, founding technology companies like Palantir and Addepar and investing in many others. In 2011 I founded 8VC, a venture-capital firm that today manages more than $3.6 billion in committed capital. …I am moving myself and dozens of my 8VC colleagues to a new land of opportunity: Texas. The harsh truth is that California has fallen into disrepair. Bad policies discourage business and innovation, stifle opportunity and make life in major cities ugly and unpleasant. …That’s not all. The California government is beholden to public-employee unions and spending is out of control. A broken environmental review process means it takes a decade of paying lawyers to build anything. Legislation makes it impossible for businesses to hire contractors without an exemption—granted by friends in the legislature, as with the music industry, or won by spending hundreds of millions on a referendum, as gig-economy companies with drivers just did. This isn’t how business is done in developed countries. …It’s tragic that California is no longer hospitable to that mission, but beautiful that Texas is. Our job as entrepreneurs and investors is to build the future, and I know of no better place to do so than Texas.
In a report for CNBC, Ari Levy and Lora Kolodny write about Elon Musk’s looming escape to the Lone Star State.
Tesla CEO Elon Musk put his California houses on the market this year while he was sparring with state lawmakers over Covid-19 restrictions. He’s simultaneously been expanding operations in Texas and cozying up to Republican Gov. Greg Abbott. Now, several of his close friends and associates say that Musk has told them he’s planning to move to the Lone Star State. …California, often condemned by the super rich for its high tax rates and stiff regulations, has seen an exodus of notable tech names… In May, as businesses across California were forced to remain closed because of the pandemic, Musk tweeted that he was moving Tesla’s headquarters and future development from California to Texas and Nevada. Getting out of California, with the highest income tax in the country, and into Texas, which has no state income tax, could save Musk billions of dollars.
Meanwhile, Hewlett Packard already has made the move, as reported by the Associated Press.
Tech giant Hewlett Packard Enterprise said it is moving its global headquarters to the Houston area from California, where the company’s roots go back to the founding of Silicon Valley decades ago. …”As we look to the future, our business needs, opportunities for cost savings, and team members’ preferences about the future of work, we are excited to relocate HPE’s headquarters to the Houston region,” CEO Antonio Neri said in a written statement… moving out of Northern California is a loss, at least symbolically, for the tech industry that electronics pioneers William Hewlett and David Packard helped start in a Palo Alto garage in 1939. A plaque outside the home where they worked on their first product, an audio oscillator, calls it the birthplace of Silicon Valley, the “world’s first high-technology region.”
To be sure, the three stories shared above are anecdotes.
But if you look at comprehensive data on both people and income, there’s a very clear pattern. Simply stated, Texas is winning and California is losing.
No, this doesn’t mean Texas is perfect. Or that California is always bad (it’s much better than Texas with regards to asset forfeiture, for instance).
But it’s hard to feel much optimism about the Golden State.
P.S. My favorite California-themed jokes (not counting the state’s elected officials) can be found here, here, here, and here. And here’s some tongue-in-cheek advice for California from the recently departed Walter Williams.
P.P.S. If you prefer comparisons of New York and Florida, click here, here, here, and here.
The day after the election, I wrote that “left-wing goals are now very unlikely” because Republicans almost certainly will retain control of the Senate.
But perhaps I should have been ever bolder and argued that the election was a rejection of the left-wing agenda.
An editorial from the Wall Street Journal points out that voters did not vote for bigger government or more statism.
…the closer we inspect the nationwide election returns, the more the result looks like a defeat…for the progressive agenda. …Democrats lost seats in the House, giving up some of the suburban gains they made in 2018 while continuing to struggle in rural areas. …A GOP Senate may compromise with Mr. Biden around centrist ideas, but the aggressive House agenda of the last two years would die again. This result is all the more remarkable given that Democrats had nearly all of the media, Silicon Valley billionaires, and all of the leading cultural figures and institutions helping them. …The lack of coattails was also evident in the states, where Democrats spent heavily to flip legislatures. …The GOP flipped both legislative bodies in New Hampshire, despite Mr. Trump’s loss in the Granite State, and Republicans protected their advantage nearly everywhere else. …There was no blue wave, and certainly no mandate for progressive change. …in their considerable wisdom, the voters may have elected Mr. Biden but they left his party and its radical ideas behind.
Some readers may think that the Wall Street Journal‘s editors are engaging in spin. In other words, because of their pro-market views, they’re trying to make it seem like a defeat wasn’t really a defeat.
But what about Helaine Olen, a reliably left-wing columnist for the Washington Post, who reached the same conclusion when opining about election results from California.
Proposition 22 — which would allow gig-economy companies such as Uber, Lyft and DoorDash to continue treating drivers as independent contractors — passed handily. On the other hand, Proposition 16, which would have restored affirmative action to California’s public college and university admissions, has gone down in defeat. …Let’s take Proposition 22. Activists have been unhappy with the tech giants of the sharing economy for years, pointing out repeatedly that they are using venture capital to subsidize an unprofitable industry and that, moreover, they offer almost nothing in either the way of labor or consumer protection. The entire business model is designed to get around government regulations. …Voters did not appear particularly concerned that allowing a major employer to override state regulationand effectively set its own working conditions is a terrible precedent — not when a few extra dollars per ride was at stake. When it came down to worker welfare vs. short-term convenience and financial gain, it wasn’t even a contest. …Proposition 16…supporters roundly outspent opponents and hoped the increased attention to issues of systemic racial inequities in the wake of the killing of George Floyd would help them garner support. …The biggest obstacle might have been the traditional antipathy toward affirmative action reasserting itself — a survey last year found that 3 out of 4 Americans opposed using race or ethnicity as a factor in college admissions.
And the New York Times isn’t exactly a bastion of right-wing thinking, yet an article by Thomas Fuller, Shawn Hubler, Tim Arango and Conor Dougherty also acknowledges that the election results were not great for the left.
…the nation’s most populous state put up mammoth numbers for the Democrats. But dig a little deeper into the results and a more complex picture of the Golden State voter emerges, of strong libertarian impulses and resistance to some quintessentially liberal ideas. In a series of referendums, voters in California rejected affirmative action, decisively shot down an expansion of rent control and eviscerated a law that gives greater labor protections for ride-share and delivery drivers, a measure that had the strong backing of labor unions. A measure that would have raised taxes on commercial landlords to raise billions for a state that sorely needs revenue also seemed on track for defeat. …said Bob Shrum, a former Democratic strategist…“California is a very liberal state that is now resistant to higher taxes.” …For all their liberal leanings on issues like the environment, California voters have long been less welcoming to new taxes… Proposition 15, would have removed the Proposition 13 tax limits on commercial properties like office buildings and industrial parks, continuing to shield homeowners while raising an estimated $6.5 billion to $11.5 billion a year for public schools and local governments. The measure was trailing on Thursday.. More than $100 million was also spent on another hot-button measure, rent control. Polls showed that the housing crisis was the No. 1 concern for state voters… And yet voters up and down the state resoundingly rejected efforts to expand tenants’ rights and rent control. …What do voters think about voting for Democrats and at the same time not supporting Democratic-led initiatives? José Legaspi, a Los Angeles resident…voted for Mr. Biden and did not think twice about opposing the measure that would raise taxes on commercial properties. “I truly believe in paying taxes,” he said. “However there is a point at which one should limit how much more in taxes one should personally pay.”
The bottom line is that Joe Biden won the White House (barring some dramatic and unexpected developments), but not because of his statist agenda.
It’s more accurate to say that voters wanted to end the sturm and drang of Trump, but without embracing bigger government.
Back in 2013, I wrote about Phil Mickelson escaping high-tax California and moving to zero-income tax Florida.
The famed golfer grew up in California, but decided that the 2012 decision to boost the top tax rate to 13.3 percent mattered more than beautiful climate and wonderful scenery.
Needless to say, Mickelson’s not the only tax exile. Florida, Texas, Nevada, and other zero-income tax states receive a steady stream of entrepreneurs, investors, business owners, and others who are tired of California’s predatory politicians.
And celebrities as well. Yahoo! Entertainmentreports that a famous rock star is leaving the not-so-Golden State.
Gene Simmons has put his longtime Beverly Hills mansion on the market for $22 million, citing California’s “unacceptable” tax rates as the reason for his move. After 34 years at the home, the KISS rocker and his wife Shannon are heading to Washington state. …In an interview with the Wall Street Journal, Simmons explained, “California and Beverly Hills have been treating folks that create jobs badly and the tax rates are unacceptable. I work hard and pay my taxes and I don’t want to cry the Beverly Hills blues, but enough is enough.”
But I also confess that I’m amused by stories like this.
And so are the folks at America’s top site for satire, the Babylon Bee.
Here are some of their recent articles about California, starting with Governor Newsom’s plan to hinder the exodus of taxpayers.
In a move to prevent Californians from fleeing by the millions, Gavin Newsom announced a ban on gasoline automobiles this week. The law will make it so that Californians can’t drive away and escape the state in a matter of hours… “Now, they’ll have to cross the desert on foot,” Newsom said as he handed down the order. “I’ll show them, trying to flee my progressive utopia! Ha ha ha ha ha!”
The Governor apparently forgot to also ban trucks.
To help meet the demand of millions of people desperately trying to escape the dark, ravaged wasteland of California, U-Haul is introducing a new product in its moving van line-up: the War Rig. These weaponized, armored moving vehicles will ensure you and your belongings stay safe during the long and perilous journey out of the state. …said local U-Haul franchise owner Glax Destroyer, who manages 12 locations in Southern California. “We brought in the War Rig to supplement our completely depleted fleet of moving vans. With everyone leaving in droves, we don’t have much left. We’re pretty much salvaging old trucks from the junkyard and then adding armor plating and mounted weapons.”
One problem, though, is that the people escaping from California bring along their bad political preferences.
Which has convinced Texas officials to impose a ban on their ability to vote.
To the relief of Texans across the state, Governor Greg Abbott has signed a law prohibiting escaping Californians from voting after they move to Texas. Experts say this will prevent the happy and prosperous slice of heaven from sliding into the endless despair and crushing poverty of leftist policy. …According to sources, emergency legislation was drafted after it was discovered that 97% of Californians favor destroying every small business on the planet and salting the earth where the businesses once stood. They also favor mandatory gay marriage and banning all country music to avoid hurting the ears of sea turtles. …Californians have marched on the state capital to demand their voting rights back, and have promised they’ll move on to Oklahoma after they finish destroying Texas.
On a serious note, there’s actually some evidence that the folks moving into Texas are more conservative than average.
And with regards to the big-picture issue of California policy, I recommend these columns from 2016 and 2020.
P.S. If you want data comparing Texas and California, click here, here, here, here, and here.
P.P.S. My favorite California-themed jokes (not counting the state’s elected officials) can be found here, here, here, and here.
The Tax Foundation recently shared data on the relative cost of living in various metropolitan areas. Looking at the 12-most expensive places to live, 75 percent of them are in California.
So what do people get in exchange for living in such expensive areas?
Victor Davis Hanson wrote for National Review about his state’s decline.
Might it also have been smarter not to raise income taxes on top tiers to over 13 percent? After 2017, when high earners could no longer write off their property taxes and state income taxes, the real state-income-tax bite doubled. So still more of the most productive residents left the state. Yet if the state gets its way, raising rates to over 16 percent and inaugurating a wealth tax, there will be a stampede. It is not just that the upper middle class can no longer afford coastal living at $1,000 a square foot and $15,000–$20,000 a year in “low” property taxes. The rub is more about what they get in return: terrible roads, crumbling bridges, human-enhanced droughts, power blackouts, dismal schools that rank near the nation’s bottom, half the nation’s homeless, a third of its welfare recipients, one-fifth of the residents living below the poverty level — and more lectures from the likes of privileged Gavin Newsom on the progressive possibilities of manipulating the chaos. California enshrined the idea that the higher taxes become, the worse state services will be.
Even regular journalists have noticed something is wrong.
In an article in the San Francisco Chronicle, Heather Kelly, Reed Albergotti, Brady Dennis and Scott Wilson discuss the growing dissatisfaction with California life.
California has become a warming, burning, epidemic-challenged and expensive state, with many who live in sophisticated cities, idyllic oceanfront towns and windblown mountain communities thinking hard about the viability of a place many have called home forever. For the first time in a decade, more people left California last year for other states than arrived. …for many of California’s 40 million residents, the California Dream has become the California Compromise, one increasingly challenging to justify, with…a thumb-on-the-scales economy, high taxes… California is increasingly a service economy that pays a far larger share of its income in taxes and on housing and food. …Three years ago, state lawmakers approved the nation’s second-highest gasoline tax, adding more than 47 cents to the price of a gallon. …service workers in particular are…paying far more as a share of their income on fuel just to stay employed. …A poll conducted late last year by the University of California at Berkeley found that more than half of California voters had given “serious” or “some” consideration to leaving the state because of the high cost of housing, heavy taxation or its political culture. …Business is booming for Scott Fuller, who runs a real estate relocation business. Called Leaving the Bay Area and Leaving SoCal, the company helps people ready to move away from the state’s two largest metro areas sell their homes and find others.
Niall Ferguson opines for Bloomberg about the Golden State’s outlook.
As my Hoover Institution colleague Victor Davis Hanson put it last month, California is “the progressive model of the future: a once-innovative, rich state that is now a civilization in near ruins.”… It’s not that California politicians don’t know how to spend money. Back in 2007, total state spending was $146 billion. Last year it was $215 billion. …the tax system is one of the most progressive, with a 13.3% top tax rate on incomes above $1 million — and that’s no longer deductible from the federal tax bill as it used to be. …And there’s worse to come. The latest brilliant ideas in Sacramento are to raise the top income rate up to 16.8% and to levy a wealth tax (0.4% on personal fortunes over $30 million) that you couldn’t even avoid paying if you left the state. (The proposal envisages payment for up to 10 years after departure to a lower-tax state.) It is a strange place that seeks to repel the rich while making itself a magnet for illegal immigrants… And the results of all this progressive policy? A poverty boom. California now has 12% of the nation’s population, but over 30% of its welfare recipients. …according to a new Census Bureau report, which takes housing and other costs into account, the real poverty rate in California is 17.2%, the highest of any state. …But that’s not all. The state’s public schools rank 37th in the country… Health care and pension costs are unsustainable. …people eventually vote with their feet. From 2007 until 2016, about five million people moved to California but six million moved out to other states. For years before that, the newcomers were poorer than the leavers. This net exodus is surging in 2020. …Now we know the true meaning of Calexit. It’s not secession. It’s exodus.
It’s not just high taxes and poor services.
George Will indicts California’s politicians for fomenting racial discord in his Washington Postcolumn.
California…progressives…have placed on November ballots Proposition 16 to repeal the state constitution’s provision…forbidding racial preferences in public education, employment and contracting. Repeal, which would repudiate individual rights in favor of group entitlements, is part of a comprehensive California agenda to make everything about race, ethnicity and gender. …Proposition 16 should be seen primarily as an act of ideological aggression, a bold assertion that racial and gender quotas — identity politics translated into a spoils system — should be forthrightly proclaimed and permanently practiced… California already requires that by the end of 2021 some publicly traded companies based in the state must have at least three women on their boards of directors… And by 2022, boards with nine or more directors must include at least three government-favored minorities. …Gov. Gavin Newsom (D) signed legislation requiring all 430,000 undergraduates in the California State University system to take an “ethnic studies” course, and there may soon be a similar mandate for all high school students. “Ethnic studies” is an anodyne description for what surely will be, in the hands of woke “educators,” grievance studies.
P.S. Many Californians are moving to the Lone Star State, and if you want data comparing Texas and California, click here, here, here, here, and here.
P.P.S. Some folks in California started talking about secession after Trump’s election. Now that the state’s politicians are seeking a bailout, I expect that talk has disappeared.
P.P.S. My favorite California-themed jokes can be found here, here, and here.
Today, let’s specifically focus on California, a beautiful state that – as explained in this video – is beingruined by an even-worse-than-average collection of politicians.
This video was produced in 2018, so it goes without saying that California is in even worse shape today, in part because of a coronavirus-caused economic downturn.
And when you consider other policies, the net result is that the Golden State is ranked only #48 out of 50 for overall economic freedom.
Should this bad track record be rewarded?
Writing yesterday in the Wall Street Journal, Gerald Parsky is willing to give a bailout if strings are attached.
California is facing a $54 billion budget deficit… To help address the shortfall, Gov. Gavin Newsom wants billions of federal dollars. Not so fast. Any bailout should come with strings attached. Washington should tie assistance to tax reform… California’s finances are too dependent on the personal income tax, which is the most volatile form of taxation. California’s revenues from personal income taxes amount to about 67% of all state revenues (up from 11% in 1950). Moreover, less than 1% of taxpayers contribute more than 50% of the tax revenue. The result is that when the economy softens and people earn less—or move out of the state—tax revenue plunges. …A survey of California residents showed that 53% of them are considering leaving.
Here’s Mr. Parsky’s specific proposal.
…these developments underscore the need for dramatic tax reform. …the California Legislature created a bipartisan commission, which I chaired… The commission recommended that California reduce its dependence on the personal income tax by…dropping the top rate from 9.3% to 6.5% and reducing or eliminating many deductions. The commission also recommended eliminating the corporate and sales-and-use taxes, replacing them with a broad new “business net receipts tax.” …A few years later, Gov. Jerry Brown and state policy makers did the opposite…they put forward a statewide initiative that raised the top marginal rate to 13.3%, thus making state revenues even more dependent on a volatile tax and California’s income-tax rate the highest in the nation. …there is an opportunity for the Trump administration to link any federal assistance to an overhaul of the way California taxes its residents.
For all intents and purposes, the author wants to extort California into adopting better (or less-worse) tax policy.
And if Trump (being a big spender) decided to bail out the states, it would be good to attach requirements so that there would be a silver lining to that dark cloud.
But here’s a better approach: Tell the politicians in Sacramento that they caused the mess and it’s their responsibility to fix it. Taxpayers elsewhere in America shouldn’t have to cough up cash to keep California from committing suicide.
Especially since it would simply be a matter of time before the Golden State’s politicians reneged on the deal and re-imposed class-warfare tax policy.
The bottom line, as illustrated by this cartoon from Michael Ramirez, is that California is on a downward trajectory and I don’t see any feasible way of reversing the trend.