California Offers High Taxes, Poor Business Climate

As Len noted in his great comparison of Texas and California, the Golden State isn’t very appealing to businesses right now. My new column looks at the growing list of reasons why:

California now has the worst credit rating of any state in the nation, making borrowing and bond financing even more expensive than it already was.

Policymakers have taken the easy path by enacting tax increases to cover for their lack of fiscal discipline. The February budget deal increased taxes nearly $13 billion, and Proposition 1A on the May 19 special election ballot would add another $16 billion in taxes. (The measure would impose a spending cap, but would also extend the “temporary” tax increases two more years.)

California is already one of the most heavily taxed states in the nation, and its high tax, high regulation environment is driving many of its most productive people and businesses out of the state. More evidence of this came in the form of two economic indexes of the states issued last week.

The American Legislative Exchange Council released a report entitled, Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index, which analyzes the 50 states based on 16 policy variables, including top marginal personal and corporate income tax rates, property and sales tax burdens, state minimum wage, and the number of public employees per 10,000 residents.

California ranked near the bottom, 41st overall, because it has the worst personal income tax progressivity in the country, the second-worst top marginal personal income tax rate, the second-worst average workers’ compensation costs, and a high minimum wage.

“Despite warm weather, sandy beaches and the Pacific Ocean, Californians are leaving in droves to escape the state’s oppressive tax burden,” the authors of the report concluded. “No state has ever taxed its way out of prosperity.”

Chief Executive magazine’s 2009 “Best and Worst States” survey similarly exposed California’s poor business climate. The survey asked 543 CEOs to assess their states based on issues such as regulation, tax policies, education, infrastructure, quality of living, and proximity to resources, and to grade each state on three criteria: 1) Taxation and Regulation, 2) Workforce Quality, and 3) Living Environment. California ranked dead last for the fourth year in a row.

Full Column Here

Reason Foundation’s Califronia Research and Commentary