Economics 101: When a state continually increases the costs of doing business, less business gets done.

From Ed Morrissey of Hot Air:


California politicians visit California jobs … in Texas

Posted at 3:35 PM on April 22, 2011 by Ed Morrissey

When California politicians want to visit California jobs, they increasingly have to leave California to do so.  That’s why Lt. Governor Gavin Newsom traveled with a small entourage of other Golden State politicians to Texas, the biggest beneficiary of California’s economic policies.  So many jobs have fled California to Texas, John Fund writes for the Wall Street Journal, that the governing class needed lessons from Texas Governor Rick Perry on how not to repel business:

“We came to learn why they would pick up their roots and move in order to grow their businesses,” says GOP Assemblyman Dan Logue, who organized the trip. “Why does Chief Executive magazine rate California the worst state for job and business growth and Texas the best state?”

The contrast is undeniable. Texas has added 165,000 jobs during the last three years while California has lost 1.2 million. California’s jobless rate is 12% compared to 8% in Texas.

“I don’t see this as a partisan issue,” Mr. Newsom told reporters before the group met with Texas Republican Gov. Rick Perry. The former San Francisco mayor has many philosophical disagreements with Mr. Perry, but he admitted he was “sick and tired” of hearing about the governor’s success luring businesses to Texas.

In fact, those jobs are moving so quickly that the politicians can’t keep up with them.  While California’s delegation visited Texas, another major business announced its intention to move.  Fujitsu Frontech, a major high-tech company, will move its manufacturing facilities from Foothill Ranch, California to New York. The announcements of the move didn’t indicate how many jobs this entails, but it’s probably not minimal, and California can hardly stand to lose any at the moment.

Much more at the link. But I’ve noted the California business exodus before, and it’s hardly an unforeseeable problem:

  • Profit = Revenue – Expenses
  • Taxes and Regulations are part of Expenses
  • If Taxes and/or Regulations can be reduced by moving, such savings must be calculated against the costs of moving
  • If it costs less to move than the amount saved in Taxes and/or Regulations, it makes good business sense, all else being equal, to move.

Now, not every company can move: some companies produce things which must be consumed locally. Some would have serious workforce problems associated with a move. And business decisions are not taken in an emotional vacuum: there are emotional reasons not to pick up and leave home. But, given the four points I listed, at least some companies which meet the criteria will take the decision to move.

But the companies which the former Mayor of San Francisco, Lieutenant Governor Gavin Newsom (D-CA), visited are the ones which he knows moved from the Pyrite State. What he doesn’t know, what no one really knows, is how many companies were formed outside of California which would have been created in that state, and how many businesses were simply never started which otherwise might have been, due to the higher taxes and more onerous regulations that the good, well-meaning progressives imposed, but the answer is virtually certainly greater than zero.

John Fund reported in :

Andy Puzder, the CEO of Hardee’s Restaurants, was one of many witnesses to bemoan California’s hostile regulatory climate. He said it takes six months to two years to secure permits to build a new Carl’s Jr. restaurant in the Golden State, versus the six weeks it takes in Texas. California is also one of only three states that demands overtime pay after an eight-hour day, rather than after a 40-hour week. Such rules wreak havoc on flexible work schedules based on actual need. If there’s a line out the door at a Carl’s Jr. while employees are seen resting, it’s because they aren’t allowed to help: Break time is mandatory.

“You can’t build in California, you can’t manage in California and you have to pay a big tax,” Mr. Puzder told the legislators. “In Texas, it’s the opposite—which is why we’re building 300 new stores there this year.”

Hat tip to Jerome of Cabinet Meeting. And while Mr Newsom and Governor Jerry Brown both say that they are very much pro-business, Mr Fund continued:

California, by contrast, seems to constantly lose focus. Several Democrats who agreed to go on the Texas trip were pressured by public-employee unions to drop out—and many did. And just as Texas business leaders were testifying about how the state’s tort reforms had improved job creation, word came of California’s latest priority: On April 14, the state senate passed a bill mandating that all public school children learn the history of disabled and gay Americans.

One speaker from California shook his head in wonder: “You can have the most liberated lifestyle on the planet, but if you can’t afford to put gas in your car or a roof over your head it’s somewhat limited.

At some point, the elected officials and the people of California have to learn a very basic truth: the best friend that the working man has is the business which employs him. Perhaps, in their heads, they actually do realize this, but it seems that, in their hearts, they don’t. Until that changes, the state of my birth will continue to lose businesses, and continue to lose jobs.

13 Comments

  1. The Left live in a world of “how it should be”, providing their own definition for that world. They are continuously shocked at the wholly “unexpected” world of “how it is.” I wholly expect the Left to never understand “how it is” and to always live in “how it should be” since it is the exceedingly rare Leftist who even shows the slightest inkling of understanding that — usually resulting in that Leftist becoming neo-Conservative.

  2. 10. I voted Democrat because I believe oil companies’ profits of 4% on a gallon of gas are obscene but the government taxing the same gallon of gas at 15% isn’t.

    9. I voted Democrat because I believe the government will do a better job of spending the money I earn than I would.

    8. I voted Democrat because Freedom of speech is fine as long as nobody is offended by it.

    7. I voted Democrat because I’m way too irresponsible to own a gun, and I know that my local police are all I need to protect me from murderers and thieves.

    6. I voted Democrat because I believe that people who can’t tell us if it will rain on Friday can tell us that the polar ice caps will melt away in ten years if I don’t start driving a Prius.

    5. I voted Democrat because I’m not concerned about the slaughter of millions of babies through abortion so long as we keep all death row inmates alive.

    4. I voted Democrat because I think illegal aliens have a right to free health care, education, and Social Security benefits.

    3. I voted Democrat because I believe that business should not be allowed to make profits for themselves. They need to break even and give the rest away to the government for redistribution as the democrats see fit.

    2. I voted Democrat because I believe liberal judges need to rewrite the Constitution every few days to suit some fringe kooks who would never get their agendas past the voters.

    1. I voted Democrat because my head is so firmly planted up my @$$ it’s unlikely that I’ll ever have another point of view.

    – Strider7652 in the comments section.

  3. Excessively high taxes not only drive out business and industry, they also drive out taxpayers who have the option to leave California to protect themselves from exploitation. Additionally, any employees dependent on those migrating taxpayers also see their jobs evaporate, along with their previous tax payments. The unemployed then become an additional burden on the State’s declining resources.

    It’s not a pretty picture, however it is foreseeable and preventable. All that’s needed is the will to cut taxes, reduce spending, ban public worker unions, and eliminate burdensome and counterproductive regulations. In other words, kick Commies, Pinkos, Socialists, and Democrats the hell out of office.

    I left California 2 1/2 years ago and moved to sunny SW Florida. The weather isn’t as good, but I’m not being pillaged by strong-arm robbers either.

  4. Apparently, many Californios hold views similar to mine. The following excerpt is from JammieWearingFool, April 25, 2011.

    “Shock Poll: Extremist Teabagger Californians Want Givebacks From Public Employees”

    As the state of California crumbles under the weight of massive deficits and uncontrolled spending, a stunning poll reveals these wild-eyed extremists actually think it’s time for public employee unions to start giving up some of their lavish benefits. To use Democrat-speak, it’s time for them to give their fair share.
    California voters want government employees to give up some retirement benefits to help ease the state’s financial problems, favoring a cap on pensions and a later age for collecting them, according to a new poll.

    Voter support for rolling back benefits available to few outside the public sector comes as Gov. Jerry Brown and Republicans in the Legislature haggle over changes to the pension system as part of state budget negotiations. Such benefits have been a flashpoint of national debate this year, and the poll shows that Californians are among those who perceive public retirement plans to be too costly.

    Voters appear ready to embrace changes not just for future hires but also for current employees who have been promised the benefits under contract…”

  5. Speaking of Economics 101:

    Indeed, looking at mortgages, consumer credit, everything in that table, it looks like we’re on the precipice of a massive *deflationary* event. Well, except for the fact that the U.S. government’s massive borrowing largely offset this massive decline in bank lending. Indeed, banks are no longer increasing the amount they have on reserve at the Federal Reserve, instead the data shows they’re buying Treasuries instead.

    So the conclusions I can draw from the flow of funds data regarding the possibility of inflation are:

    1. The economy still sucks, and it sucked more in 2010 than people are willing to admit. If the economy didn’t suck, banks would be lending, not contracting their lending.

    2. We are at the precipice of a massive deflationary event. The only thing preventing that right now is massive borrowing and spending by the Federal government. Take that prop away, and we’re in Great Depression 2.0.

    3. People harping on about inflation are full of shit. This money they claim is being printed willy-nilly, the flow of funds data shows is ending up un-printed as the monetary multiplier continues its free fall to unity as bank lending continues its precipitous decline. The asset price bubbles we’re seeing today are the same ones we saw *before* the Great Recession, and are a result of tax policy that encourages asset bubbles, not inflation.

  6. Badtux the Snarky Penguin is NZT’s idea of a qualified macroeconomic expert? Well, that settles it! Time to hire Schlomo the Three-Toed Sloth to be our energy expert while we’re at it!

  7. Badtux the Snarky Penguin is NZT’s idea of a qualified macroeconomic expert?

    As opposed to a lying parasite who doesn’t know jackshit about anything?

  8. The light at the end of his rope wrote:

    I left California 2½ years ago and moved to sunny SW Florida. The weather isn’t as good, but I’m not being pillaged by strong-arm robbers either.

    The states in red have no state individual income taxes.

    It’s pretty simple: California has a significant state income tax, and Florida has none. I don’t know how much income rope has — it’s none of my business — but California’s state income tax rates are not based on the marginal dollar, but the rate specified for the amount of California taxable income applies to every dollar of income. For example, if a single Californian has a taxable income of $45,000, he’s in the 8% bracket, and his state income tax would be $3,600; if a single Californian has a taxable income of $50,000, he’s in the 10% bracket, and his state income tax would be $5,000.

    Let’s assume, for the sake of argument, that rope has an income which would be at $45,000 taxable; by moving to Florida (and assuming everything else is equal), he would have saved $3,600 in state income taxes, or $300 a month. In Florida, that might be all of his utility bills for the month.

    But there’s more:

    The California sales tax rate is 9.25%, and the maximum CA sales tax after local surtaxes is 10.75%. California has the highest sales tax of all 50 states, and cities/municipalities can charge an additional local sales tax (known as a “District Tax” on top of the California state sales tax.

    One reason California’s income and sales tax rates are so high is that local property taxes are low, thanks to Proposition 13.

    In Florida?

    The Florida sales tax rate is 6%, and the maximum FL sales tax after local surtaxes is 7.5%.

    If we assume that rope was living in the minimum sales tax area in the Pyrite State, and the maximum rate area in the Sunshine State, he still saved 1.75% of his income from state and local sales taxes; reverse the assumptions, and it could be 4.75%!

    There would probably be differences in property tax rates and other government assessments, but, generally speaking, the retiree who moves from California to Florida gets to keep more of his income for himself.

  9. So ya know, Killeen, TX, which is the red part of the map, has 8 percent sales tax, no State income tax, no City income tax. Mt Vernon, OH, which is not red, has 7 percent sales tax, 1.5 percent City income tax, and a State income tax.

    [Edited for a minor correction. MtV has 1.5 percent income tax while Cols has 2.0 percent income tax. MtV has lower sales tax than Cols.]

  10. Oh, and various school districts also suck income tax dollars in Ohio, MtV not being one of them but at least one Knox County, Ohio school district does suck income tax directly.

  11. Pingback: Unequal treatment? « Common Sense Political Thought

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