Why California's Distressed Economy Is The Nation's Canary In Our Economic Coal Mine

Given that it is election season, the topic of how much and who to tax is always going to be a hot topic. But it is often difficult to cut through the false political rhetoric to find out what the real impact of excessive taxation is…unless you look at California. We have already reviewed the oppressive taxation and regulation situation that exists in California, a situation that could get far worse if the proposed taxes included on the ballot in November get passed.

What trends and situation have developed within the state’s borders as a result of this high level of taxation and regulation? Is there anything we can learn as a nation and human behavior of what happens when taxes and regulations get out of control, like they apparently have in California?

Well, a new study by the Manahattan Institute that was released in late September, “The Great California Exodus: A Closer Look," Tom Gray and Robert Scardamalia, took a detailed and comprehensive look at these questions. Their analysis of standard government data, data from the Census, the Internal Revenue Service, the state’s Department of Finance, the Bureau of Labor Statistics, the Federal Housing Finance Agency, and other government sources, concluded that “hundreds of thousands fled Democrat-run California” over the past few years. The primary reasons for the mass exodus, no surprise, include the following overall factors:

1. High taxes
2. Burdensome regulations
3. Lack of public sector reforms
4. Lackluster job climate

Further fascinating detailed study findings and conclusions include the following:

• More people have left California than came to the state since 2005.
• Californians are most likely to have fled to Texas, Arizona, Nevada, Colorado, Idaho, South Carolina, and Georgia because those states have a better economic climate with less taxes and regulations.
• Between 1960 and 1990, 4.2 million Americans moved to California and helped accelerate California’s growth economy. Since 1990, though, California has lost nearly all of that gain, with net domestic out-migration averaging 225,00 residents a year.
• Between 2000 and 2010, out-migration has resulted in lost income of $5.67 billion to Nevada, $4.96 billion to Arizona, $4.07 to Texas, and $3.85 billion to Oregon.
• The study concluded that “if all these trends continue, California may find itself in a situation similar to that of New York and the states of the Rust Belt in the late 1900s, which have seen populations stagnate or decrease.
• The report states that “more often than not, people move because there is a better opportunity elsewhere” and “families looking for economic opportunity travel to Texas now,” where the economy, unlike California’s, has been “booming.”
• Long ago, these families migrated to California for opportunities. However, that is no longer the case since many companies “set up shop where conditions are more conducive to making a profit.”
• This family trend to follow the jobs and companies also impacts retirees, who may move to “migrate to be near children who have taken jobs in another state.”
• To get an idea of how bad economic decisions are affecting California, consider Oklahoma. Net migration from California to Oklahoma totaled only 775 residents from 1991 to 2000, or less than 80 per year. Ten years later, Oklahoma’s job market was stronger than California’s, and 2,125 Californians moved to Oklahoma from 2001-2010.
• The analysis found most of the states Californians are fleeing to are right-to-work states, states where companies probably find it easier and less burdensome to operate. Of the ten top states Californians have fled to, "seven (Texas, Arizona, Utah, Idaho, Nevada, Georgia, and North Carolina) have right-to-work laws that explicitly ban the compulsory union shop."
• The study found most of the “destination states favored by Californians have lower taxes,” and, as a general rule, “Californians have tended to flee high taxes for low ones.” No brainer in that conclusion.
• Something I did not know is that even before the recent wave of California municipalities bankruptcy declarations, California’s Standard & Poor’s bond credit rating had already been downgraded to “BBB,” the worst in the nation. Thus, as always with politicians, the problem has been staring California politicians in the face for a long time but they did nothing to resolve the issues of out migration, excessive taxation, a faltering economy, etc.
• According to the analysis, California back then was “patching together budgets through short-term borrowing and accounting tricks,” and, as a result, “when recovery arrived in the middle of the decade, it did not resolve the structural imbalances between revenues and spending,” which is the cause of California’s troubles today. As of 2012, California has the lowest S&P credit rating in the nation.
• Poor management of the economy and the resultant bad credit rating, the “fiscal distress in government sends at least two discouraging messages to businesses and individuals.” First, they “cannot count on state and local governments to provide essential services—much less, tax breaks or other incentives.” Second, “chronically out-of-balance budgets can be seen as tax hikes waiting to happen, with businesses and their owners the likeliest targets to tap for new revenue.”
• In contrast, "a fiscally competent state inspires confidence that it can sustain its services without unpleasant tax surprises.”
• Of the ten states that sent the most people to California in the last ten years or so, eight are considered high-tax jurisdictions.
• The only two that are not, Illinois and Michigan, had low credit ratings. And that high-tax statement might now apply to Illinois since it significantly raised personal and business income tax rates in the past year or so.
• The analyses found that California’s regulations make it more difficult for employers to stay within state or come into the state.
• A 2005 study by the Milken Institute concluded California was the fourth worst state in which to conduct business.
• The Milken study excluded the impact of regulations, which the report concluded was hard to quantify since it was difficult to quantify “the cost of delays, paperwork, and uncertainty due to unfriendly laws and bureaucrats.” However, the Milken work mentioned other “business climate” surveys that gave California very low ranks when it came to business regulations.
• Population and migration pattern studies are reflective because they are important indicators of a state's political and fiscal health.
• The Manhattan study concluded: “Migration choices reveal an important truth: some states understand how to get richer, while others seem to have lost the touch. People will follow economic opportunity. The theme is clear in the data: states that provide the most opportunity draw the most people.”

Quite a damning analysis of how California politicians have screwed up what used to be one of the most dynamic, exciting, and wealthy states and economies in the union. And we are well on our way toward the same dire economic conditions permeating through the entire country as the Washington political class stymies business growth and economic development with high levels of unfair taxation, wasteful government spending, excessive and useless regulations, and creating a downgrade in our credit rating.

The advice that the Manhattan Institute offered to California can also be offered to the Federal government:

• “Do something about the instability of public-sector finances.” In other words, get your excessive and wasteful spending and debt under control.
• “Rethink regulations that hold back business expansion and cost employers time and money.” In other words, let the free market operate as it has for over two centuries in this country, a free market that made America the most prosperous country in the history of mankind.
• “Enact policies that enable more development of land instead of allowing environmentalists to have a veto over any land-use decisions.” In other words, reduce the over regulation of the country and its resources by the EPA and other government agencies which stymie energy development, reduce the use of available land, a valuable asset, and which hinder natural economic development.

California is already where the rest of the country is going. They are the canary in the coal mine. Unless we take the advice of the Manhattan analysts, we will surely be the same dire economic straits California finds itself in today with overwhelming debt, a dwindling tax base, high taxes and high levels of regulations that stifle economic growth, a declining credit rating that makes the national debt even more burdensome, and citizens looking for ways to save themselves and protect their dwindling assets rather than out spending, innovating, and growing the economy to everyone’s benefit.

Several steps from “Love My Country, Loathe My Government,” would go a long way to taking this advice:

• Step 1 would reduce Federal government spending by 10% a year for five years to finally get government spending in line with government tax revenue. You cannot repair our credit rating via the reduction in your outstanding debt before you balance your budget.
• Step 44 would eliminate all Federal spending unless the spending item affected a substantial number of residents in at least five states. This would help keep government spending under control and focused on national spending priorities, not state and local priorities.
• Step 46 would implement strict accounting and accountability on all Federal government entities in order to finally enforce fiscal integrity.

Other necessary steps to avoid becoming a dead canary include:

• Reduce the amount of Federal regulations by 10% a year over five years. There is no way the tens of thousands of current Federal government regulations are necessary and essential to citizen safety, the only reason a regulation should exist. The only reason many of these regulations exist is to protect the unneeded Federal bureaucracies that enforce them.
• Reduce taxes for citizens and businesses alike by streamlining the tax code so that it is compatible with economic growth, not subject to easy tax evasion, and not used for political manipulation for politics sake.
• Develop and implement innovative and strong programs to shut down the criminal fraud and waste in government programs (e.g. Medicare, Medicaid, Social Security, etc.) that destroy hundreds of billions of taxpayer wealth every year.

These steps would reduce taxes, encourage business and economic growth, repair our nation's credit rating, and most importantly, restore freedom by putting Americans more in charge of their lives again vs. having our liberties trampled by  an overbearing government, ala California.

Let's not be a dead canary, let's learn from California and finally operate a fiscally responsible government in Washington.

We invite all readers of this blog to visit our new website, "The United States Of Purple," at:

http://www.unitedstatesofpurple.com/

The United States of Purple is a new grass roots approach to filling the office of President of The United States by focusing on the restoration of freedom in the United States, focusing on problem solving skills and results vs. personal political enrichment, and imposing term limits on all future Federal politicians. No more red states, no more blue states, just one United States Of America under the banner of Purple.

The United States Of Purple's website also provides you the formal opportunity to sign a petition to begin the process of implementing a Constitutional amendment to impose fixed term limits on all Federally elected politicians. Only by turning out the existing political class can we have a chance of addressing and finally resolving the major issues of our times.

Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at www.loathemygovernment.com. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedomfor both yourselves and others everyday.

Please visit the following sites for freedom:

http://www.cato.org/
http://www.robertringer.com/
http://realpolichick.blogspot.com/
http://www.flipcongress2010.com/
http://www.reason.com/
http://www.repealamendment