Californians did not solve all our state problems at the ballot box Tuesday. Far from it. They did, however, send a signal that could help end our economic nightmare if politicians take heed. On Tuesday, Californians made it clear they reject higher taxes, with good reason.
We are already one of the highest taxed states in the country. California’s corporate tax rate, for instance, is the ninth-highest in the country. Our corporate tax rate is more than 75 percent higher than Utah’s, and Nevada has no corporate income tax.
California’s top personal income tax rate is the second-highest in the country, and it gets worse. Even our second-highest rate of personal income tax ranks fifth highest in the country. Nevada has no personal income taxes, and our rate is more than double that of both Arizona and Utah.
The state sales tax in California is already one of the highest in the country and, when local sales taxes are added, many cities’ combined sales tax rate approaches 9.5 percent.
The list goes on and on. Simply put, Californians are overtaxed, they know they are overtaxed, and they resoundingly reject taxes even higher than those they now pay.
Taxes are largely a function of spending, and California has simply not been able control spending in good times nor reform the way it spends to ensure value for money. Currently, California’s state and local governments represent more than one-fifth of the state’s economy, which is more than most of our neighbors. In addition, California’s per-capita combined state and local spending is the fourth-highest in the country.
The lesson should be clear. California’s problems do not proceed from a lack of government spending. This tax-and-spend approach weakened the state economy well before the current national recession. The state has the fourth-highest unemployment rate in the country, and those unemployed tend to remain so for longer than in most other states. Our record of private-sector job creation over the past three years is the seventh-worst in the country.
Even our rate of entrepreneurship, which many still cling to for hope, is not stellar. We rank 16th over the past five years in entrepreneurship. More illustrative of the state’s economic problems are the million-plus residents who have left the state over the past five years, which represents the seventh-worst record of migration in the country.
This is truly an economic nightmare given our economic potential, our natural advantages of climate and geography, and the benefits of our skilled work force and world-class university system. With all this, California should be leading the world, let alone the country, in economic prosperity, and yet by almost any measure, we lag far behind. Tuesday’s election, with its rejection of higher taxes, provides an opportunity to improve.
Politicians in Sacramento, and even at the county and city level, can use this moment to reduce and reform government spending. There are lessons to be learned from other states and countries that have successfully reformed their spending in order to deliver better services at lower costs. Now is the time for California to do the same.
The economic benefits of such reforms would be enormous and lasting. Reducing government spending while improving services through reform can improve the economy by leaving more resources to the private sector to allocate and consume. In addition, reducing government spending allows for immediate tax relief, vital to the recovery of the state economy. Indeed, we need large-scale personal and business tax relief immediately to attract investment and encourage entrepreneurship.
Californians want a brighter future characterized by lower unemployment and higher job creation, more business startups and investment, and heightened entrepreneurship. To achieve that brighter future, we must reject the failed policies of taxing and spending and return to policies of focused and limited government spending coupled with competitive taxes.