Make California an Enterprise Zone

Jack Kemp, who passed away last month at 73, is associated with football, New York state, and Washington DC. He was actually a native Californian and right now the Golden State could use some of his ideas.

The former AFL quarterback proved that the Washington establishment makes a poor teammate for those of free-market inclinations. In the administration of George H.W. Bush, Kemp found himself at the helm of the department of Housing and Urban Development, known as HUD. Kemp used this scandal-ridden agency as a platform for ideas such as enterprise zones.

An enterprise zone is an economically depressed area targeted for revitalization through tax and regulatory relief. Such relief attracts business, provides jobs, reduces poverty and generally improves conditions. California has 42 enterprise zones, recently criticized as “ineffective” by scholars David Neumark and Jed Kolko. That prompted some business owners to fire back.

“The Enterprise Zones scattered throughout the state are like a business-friendly oasis in the desert of high-cost and regulation that is California,” wrote Daniel Morrow in the February 12, 2009, Capitol Weekly. “The tax breaks for buying equipment and hiring people provide exactly the kind of incentive that is necessary to get business to stay in California in the first place and serve as an attraction for new businesses as well, one of the very few California has to offer.”

The California Association of Enterprise Zones (CAEZ) cites a report to the California Department of Housing and Community Development by Nonprofit Management Solutions and Tax Technology Research, stating that “poverty decreased 7.35 percent more in zones than in the rest of California; unemployment rates fell by 1.2 percent more than the rest of the state; household incomes grew 7.1 percent faster in zones; and the wages and salary levels in zones grew 3.5 percent more than the rest of the state.”

CAEZ further cites a 2006 report by UC Davis professor Ted K. Bradshaw, who found that “employment and earnings within EZs have grown much faster than in areas outside of EZs, and that many firms have located or relocated to EZ areas.” A study by USC professors John Ham, Ayse Imrohoroglu and Charles Swenson finds enterprise zones to be bright spots in areas lagging in economic development.

California could also use another idea favored by Jack Kemp, an advocate of the flat tax. This means everybody pays the same rate, instead of a more punitive (what “progressive” really means) rate for high-income workers. During an economic downturn, punitive rates make for revenue instability. In Ending the Revenue Rollercoaster (2008), PRI’s Robert P. Murphy made the case for a flat state income tax of 3 percent. Said Steve Forbes, “A 3 percent flat tax would trigger the biggest boom in California since the Gold Rush!” And a flat income tax would help prevent the boom from being followed by a bust, our current condition.

California faces a deficit of $24.3 billion, an unemployment rate of more than 11 percent, fourth-highest in the nation, and a credit rating lower than Death Valley. In the ability to create jobs, California ranks 48th out of 50 states, ahead of only Michigan and Mississippi. In economic freedom, California ranks 47th, up from 49th in 2004. From 1998-2007, nearly 1.5 Californians departed for greener pastures.

Without economic growth there will be no recovery for California. Our current policies are not working, and on May 19 voters made it clear that they do not want to be taxed more than they already are. In these conditions, it makes sense to transform the entire state of California into an enterprise zone, with lower taxes and regulatory relief.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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