To heal itself, California must stop spending – Pacific Research Institute

To heal itself, California must stop spending

Last week, the Central Solano Citizen/Taxpayer Group joined a score of local California tax groups and the Howard Jarvis Taxpayers Association in telling our governor and Legislature in no uncertain terms that they need to cut state spending, not raise taxes.

We urge all area residents to deliver the same message.

The state’s current fiscal crisis has come about through many years of reckless spending, not because of a sudden drop in tax revenues that only began in earnest this year.

The state has long kept the same high tax rates on goods and income, yet now revenues are falling. What causes that? Well, when tax rates remain the same and revenues fall, that can only mean that there’s a shortage of what you’re taxing, i.e., income and sales. And that’s exactly what’s happening here.

The Reporter recently reported that California’s unemployment rate jumped to 8.2 percent in October. It’s higher than that in some parts of Solano County (8.5 percent in Fairfield) and lower in others (5.7 percent in Vacaville). Why is employment falling? You might guess it’s because the U.S. economy is bad. That’s true, but unemployment nationwide is only 6.5 percent — considerably lower than the Golden State’s 8.2 percent. Why might that be?

One possible answer was revealed this week by the Pacific Research Institute (PRI), a free-market think-tank based in California. PRI collaborated with Forbes magazine to publish the U.S. Economic Freedom Index: 2008 Report, which ranks economic freedom in the 50 states.

Issued only once every four years, the report shows that California declined from a dismal 44th place in 2004 to a truly awful rank of 47th this year. Rankings are based on the regulatory and fiscal obstacles states impose on both businesses and individuals.

The only states that treat their residents and businesses worse than California are New York, New Jersey and Rhode Island. California sits by itself on the West Coast as a little island of hostility toward freedom and enterprise.

Our state is literally driving away citizens and businesses. Net out-migration of adult citizens reached a quarter million last year and is accelerating. Heck, this state is in such bad shape that this year even illegal immigration started falling.

Yet all around us sit oases for beleaguered taxpayers: Idaho in second place, Nevada in fourth, Utah sixth, and Arizona 21st. Even liberal Oregon is only at No. 30.

Also, it’s not just nearby states that are gaining from California’s oppressiveness: Last year one Fairfield business that had factories in both Connecticut and California decided to consolidate into a single manufacturing facility — it chose Connecticut.

As California’s population and business activity decline, it begins to feed on itself: In Fairfield, for instance, Mervyn’s, Linens & Things and Circuit City have all recently announced store closings. Three auto dealerships and the Hungry Hunter restaurant have been shuttered.

These closings represent hundreds of lost jobs, plus the loss of the income taxes those employees once paid. It also means state and local governments will lose sales tax revenues on tens of millions of dollars in vanished sales.

Circuit City gives evidence of the relationships among employment, economic activity and taxes. The chain is still in business and trying to stay alive by closing unprofitable stores. Despite closing the Fairfield store, it’s reportedly keeping the Vacaville store open. Is it just coincidental that Vacaville’s unemployment rate is one-third lower than Fairfield’s and that store is staying open?

So we have to ask ourselves — but mainly our elected representatives — how will raising the sales-tax rate in California by 1.5 percent increase revenues from closed stores? How will raising the petroleum-severance-tax increase income from wells that have been plugged because they’re no longer economically viable? How will raising income-tax rates get more revenue from the unemployed?

And for the dwindling pool of people who are still working and the stores that are still in business, will moving another several percent of their money from their wallets and cash registers to the state’s coffers help their standard of living?

There’s an old saying: “If you want less of something, tax it.” California officials often cite that when they raise alcohol or tobacco taxes, but they never bring it up when they’re discussing taxes on sales or jobs or oil.

No, California is not suffering economic difficulties because its taxes are too low.

California is in deep distress because its taxes are too high and state spending is even higher, and both have been that way for far too long.

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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