New Report: Exodus from California Due Partially to High Taxes, Unfriendly Business Environment

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Written By:
LegitSlater

Sep 24, 2012
4:26pm

The Manhattan Institute, a think tank based in New York City whose self-described mission is to is to “develop and disseminate new ideas that foster greater
economic choice and individual responsibility”, released a report today entitled “The Great California Exodus: A Closer Look” which seeks to explain why that state has lost 3.4 million people since 1990, after its population increased by 137 percent since 1960.

Their conclusions were, well as Rob would say, shocking:

o Lack of Jobs

o Taxes

o Other high costs to running a business, to include that state’s regulatory environment (which most likely contributed to a lack of jobs)

This excerpt on taxation was particularly interesting:

“One pattern stands out in these data. With few exceptions, the states that have gained the most at California’s expense (in income as well as people) have decidedly lower tax burdens and better business-tax climates. California’s ranking on both scales is near the high-tax, poor business-climate end, and it scores near the average of the sender states, most of which share its poor marks. The major destination states, on average, do better than California in the rankings, with lower tax burdens and higher business-climate scores.

We have also found another clue suggesting that taxes make a difference in migration: California’s net out-migration to the top destination states was far larger than what it received from the sender states. In other words, with its higher-than-average tax burden, California is competitive only with a few other high-tax states, such as New York and New Jersey. And its burden is too close to the top to leave it any real advantage. The much greater advantage lies with low-tax states such as Texas, which can offer more substantial savings.”

Also telling in the report was how the situation will only seemingly get worse:

California has cut taxes in the past, most dramatically with 1978’s Proposition 13, and when it has done so, prosperity has followed. Ballot propositions this November aim to do the reverse, raising taxes on business owners while the state is still struggling to hold its own against more aggressive, confident rivals. The results will send a strong signal, whichever way they go: the state’s voters will be deciding to continue on the path of high taxes and high costs—or to make a break with the recent trend of decline.

The biggest takeaway of the report was the solutions to these three out-migration problems are within the ability of state and local leaders to fix. As stated above, the state boomed after Proposition 13 cut taxes. It is something they can do again, along with examining why their business environment has become so unfriendly due to over-regulation. A fix to this alongside a taxation fix will create the jobs Californians are leaving to find now.

Last, and most important, California is a microcosm of America. It has a diverse economy just like the US as a whole, and unlike a state like Michigan which depended too long on manufacturing. Important lessons can be learned on a nationwide scale on what California has been screwing up on lately (not just what is highlighted here in this report, but with their public pension crisis as well) which can turn our nation’s economy as a whole around if heeded.