California’s high tax, generous welfare state policies, and the dominance of progressive politics have combined to create an environment causing voters to leave the state at can only be described as an alarming rate. For the first time since statehood in 1850, California is losing rather than gaining a congressional seat as a result of the decennial census and the ensuing reapportionment of the 435 districts in the U.S. House of Representatives among the 50 states. It’s an alarming reality for the state Ronald Reagan and his sunny optimistic brand of growth-oriented conservatism once called home.The economy is in the doldrums, and not just because of the strict lockdowns instituted by Democratic Gov. Gavin Newsom in the face of the coronavirus pandemic. Even with that, the state budget surplus for 2021 is projected to exceed $75 billion which, instead of being returned to the taxpayers through tax relief, is likely being socked away for the day when it’s needed to bail out the generous social welfare programs and government employee pensions the Democrats trade in exchange for votes to keep them in power.“California used to be a place where everyone wanted to live, but now California has become a place where people want to leave,” Brandon Ristoff, a policy analyst with the California Policy Center told Center Square driven out by “bad policies on the economy, education and more.” State-to-state migration data recently released by the U.S. Department of Internal Revenue (IRS) shows a net loss of nearly 70,000 households plus – which works out to about 165,000 taxpayers and their dependents – between 2017 and 2018.If that’s not bad enough, lawmakers in Sacramento now must worry about the impact of their departure on future budgets since they took nearly $9 billion in adjusted gross income with them when they left, The Epoch Times reported.Like New York City, California working hard to drive its tax base out of the state. Longtime residents are retiring elsewhere. Younger voters are leaving to pursue job opportunities in other states. Major businesses are relocating. Too many people, especially those who make up the middle class, are adversely affected by the high cost of living there – especially the housing market which is soaring to unaffordability for so many people – are now finding the Golden State an impossible place to live.Where are they going? Texas and Nevada – which have no state personal income tax, and Arizona – where the governor and members of the GOP-controlled state legislature are exploring ways to get rid of it.
-Texas experienced a net inflow of 72,306 taxpayers and their dependents, and a gross income boost of some $3.4 billion.
-Nevada welcomed 49,745 California taxpayers and their dependents, along with a gross income of $2.3 billion.
-Arizona saw an estimated 53,476 Californians relocated to Arizona, bringing with them around $2.2 billion in gross income.
Some policymakers still refuse to believe tax rates matter, that they have no incentive effect. Economist Arthur Laffer – developer of the famous “curve” that bears his name – proved they do. California has a state-local effective tax rate of 11.5 percent, the 8th highest in the nation in 2019 according to a recent Tax Foundation study. The effective state-local tax rate in Texas is 8 percent, in Nevada, it’s 9.7 percent, and in Arizona it’s 8.7 percent, making them (in order) 47th, 45th, and 29thout of 50.A 2018 Cato Institute report also showed the relationship between state-local tax effective rates on out-of-state migration. Tax-related motivations could be inferred from the Census Bureau data, The Epoch Times reported, citing the think tanks’ observation that some of the questions asked of people choosing to relocate show the incentive effect at work.“The Census Bureau does not ask movers about taxes. But some of the 19 choices may reflect the influence of taxes. For example, people moving for housing reasons may consider the level of property taxes since those taxes are a standard item listed on housing sale notices. Similarly, people moving for new jobs may consider the effect of income taxes if they are, for example, moving between a high-tax state such as California and a state with no income tax such as Nevada,” CATO said.If California doesn’t change its ways soon, it may find it has taxed its way into default. Illinois and New Jersey are in similar straights. There’s a lesson here for Democrats and Republicans in Washington who, despite the apparent end of the pandemic, still spend like there’s no tomorrow. If they continue to do that, there won’t be.
Last year, 621 people died of drug overdoses in San Francisco. To put this in perspective, 173 people died from COVID-19, which is identified as the primary public health crisis in the Bay Area.
For years, San Francisco has tacitly encouraged drug abuse with remarkably lenient policies, and those policies are now inadvertently killing hundreds of people annually. San Francisco uses a policy approach called “harm reduction,” which stresses “culturally competent, non-judgmental treatment that demonstrates respect and dignity for the individual.”
But this approach, as it is practiced within San Francisco, is inhumane and cruel. It is destroying the dignity of the lives that some could have with more sensible policies. In addition to overdose deaths skyrocketing, drug abuse has increased in San Francisco, and it is becoming more difficult for addicts to affect positive change.
If you spend much time in San Francisco, you know this, as several areas of the city have become de facto open-air drug bazaars, with drug abuse and drug sales taking place for all to see. Harm-reduction policies are expanding drug use among youths through the dispensation to homeless adolescents of “safe snorting kits” and “safe smoking kits” for crack use. As if any crack use could be considered “safe.”
There are an estimated 25,000 drug users in San Francisco, which if anything is too low of a count since that estimate is nearly two years old. This exceeds San Francisco’s high school population by more than 50 percent and works out to about 522 drug users per city block. Sadly, thousands of human tragedies unfold every day, eviscerating those who use drugs, and forever affecting the lives of those who see it daily, including many children.
Drug abuse is challenging to treat, but a recent handbook of best practices for substance abuse treatment by the Department of Health and Human Services shows that targeted treatment can be very effective, particularly when intervention occurs early.
But a drawback to San Francisco’s acceptance and facilitation of drug use is that it prevents early intervention. Unless San Francisco completely changes how it views drug abuse, these numbers will become even worse. The country’s most progressive city needs to understand that their policies are creating implicit death sentences for many who could be helped with a different policy approach.
Understanding this begins with the simple economics about drug use, which highlights why harm reduction has failed. On the demand side, drug users come to San Francisco from elsewhere because they know the city tolerates and facilitates drug use, which includes providing free hypodermic needles. While giving away nearly 5 million clean needles annually (which boils down to nearly 6 needles for every San Franciscan) admirably reduces communicable diseases, it has created a public health hazard, because about two million used needles are disposed of on city sidewalks. Over $30 million has been spent on dealing with drug abuse within the public transit system, but one could hardly tell this by viewing transit stations that anything has been done to deal with this issue.
On the supply side, selling drugs in San Francisco has become extremely profitable, given a demand side of 25,000 consumers and the city’s tolerant policies. In contrast to most other cities, the drug trade in San Francisco operates within what is almost a normal marketplace setting, where buyers and sellers can find each other easily, and with a relatively small chance of being arrested. Both of these factors promote relatively low prices, which stimulate demand, and high profits, which stimulate supply.
By normalizing drug abuse, San Francisco has created a perfect storm of a vibrant, well-functioning market of buyers and sellers who trade drugs much like a basket of fruit is traded at a farmer’s market. Unfortunately, the basket that is being traded in San Francisco’s drug bazaar is increasingly becoming the opioid Fentanyl, which can be 100 times more powerful than morphine.
Fentanyl is sufficiently strong that much less than one milligram is used as general anesthesia during major surgery. Just two milligrams—the equivalent of about 25 grains of sand—can be lethal. Emergency personnel responding to a Fentanyl overdose must take precautions so that they do not accidentally inhale Fentanyl. And yet Fentanyl is now being widely traded every day in San Francisco, driving up overdose deaths to about two daily.
What to do? Drug addiction can be treated medically and compassionately without viewing it as part of normal, everyday life, which is what is being practiced today in San Francisco. The city currently allocates over $5 billion to community health and human welfare.
Surely those budgets can be repurposed to treat drug abuse using best practices as outlined by the Department of Health and Human Services in conjunction with greater efforts to identify family members who can assist with treatment and support. At the same time, the city must reduce the amount of Fentanyl and other lethal drugs that are being sold routinely in open-air markets.
Many of San Francisco’s drug users have lost control over their lives. The last thing that drug addicts need is another drug pusher, but this is what San Francisco’s policies have created. Lives can be saved, but not unless policies are changed.
California businesses are leaving the state in droves. In just 2018 and 2019—economic boom years—765 commercial facilities left California. This exodus doesn’t count Charles Schwab’s announcement to leave San Francisco next year. Nor does it include the 13,000 estimated businesses to have left between 2009 and 2016.
The reason? Economics, plain and simple. California is too expensive, and its taxes and regulations are too high. The Tax Foundation ranks California 48th in terms of business climate. California is also ranked 48th in terms of regulatory burdens. And California’s cost of living is 50 percent higher than the national average.
These statistics show why California’s business and living climate have become so challenging. But the frustrations that California entrepreneurs face every day present a different way of understanding their relocation decisions.
Erica Douglas, a young tech entrepreneur, moved her company, Whoosh Traffic, from San Diego to Austin, Texas, a few years ago. Here is what she had to say:
“I’m leaving you. I’ve struggled with a government that is notoriously business-unfriendly—with everything from high taxes on earning to badgering businesses to work more to comply with bureaucracy. I paid enough in California income tax in one year alone to hire another worker for my business. And you charge me $800 annually as a corporation fee, when most states charge just a few dollars.”
Not surprisingly, California businesses tend to relocate from the counties with the highest taxes, highest regulatory burdens, and most expensive real estate, such as San Francisco, and they tend to relocate to states where it is easier to prosper. Texas imposes just a 0.75% franchise tax on business margins, compared to California’s 8.85% corporate tax. As if this large difference weren’t enough of an incentive to leave, the city of San Francisco imposes a 0.38% payroll tax, and a 0.6% gross-receipts tax on financial service companies. Yes, if your business is in San Francisco, not only are your profits taxed by the state, but your payroll and your output are taxed as well. Not to mention that Texas has no individual income tax, compared to California’s current top rate of 13.3%, which may rise to 16.3% soon, and which would apply retroactively.
Speaking of California entrepreneurs leaving the state, there is Paul Petrovich. If you live near Sacramento, chances are your life has been made easier by Paul. He is a major commercial real estate developer whose projects include facilities involving Costco, Target, Walmart, McDonalds, Wells Fargo, and Verizon, among other major firms. But Petrovich has announced he will soon be leaving. For . . . drumroll please . . . Texas.
You see, California is discussing a wealth tax that may hit Petrovich. Known as AB 2088, lawmakers are so proud of this 0.4% tax on wealth that they proudly market it as “establishing a first-in-nation net-worth tax” that “will generate $7.5 billion in revenue.” Complicated as all get-out, it involves not just financial assets but real estate, farmland, offshore holdings, pensions, art, antiques, and other collectibles. Europe tried taxing wealth, and it has failed, leading almost all countries to abandon it. And the idea that it will generate $7.5 billion in revenue is laughable, though it will create additional income for tax attorneys and CPAs. The state also intends to make this law follow you for up to a decade should you leave. Clever politicians? Maybe, but just how will they convince other states to cooperate once you relocate? Not to mention whether this future provision is constitutional.
I am surprised that Petrovich stayed in California so long. As a developer specializing in developing infill projects, meaning developing unutilized or underutilized land, he has been involved in many lawsuits challenging his right to develop.
One has involved a mixed-use development project that includes a Safeway supermarket, senior living, shopping, and a gas station on a site of a former railway station, polluted and abandoned. What is not to like? For the city council, it is the gas station.
Petrovich has been involved in a legal battle over this project since 2003. All over a gas station. Twenty lawsuits and over $2 million in legal fees later, Petrovich appears to be winning, and winning against a city council that broke the law.
A state appeals court recently ruled that the Sacramento City Council denied Petrovich a fair hearing several years ago by acting in a biased manner. Sacramento Superior Court judge Michael Kenny wrote that one councilman demonstrated “an unacceptable probability of actual bias” and failed to have an open mind. The court found that the councilman was trying to round up votes against the gas station before it came before a hearing. Rather than accepting this ruling, the city council will appeal. They appear to be doubling down not only on bad behavior but on wasting resources as well .
Readers often ask me how California politicians have changed over time. An important and often overlooked factor is that politicians now have personal agendas that they aim to impose on other Californians, often without transparency or accountability. This is what is going on now with Petrovich, and is what is going on with AB 5, the new law that prevents many Californians from working as independent contractors that began on January 1. Voters must begin to hold politicians accountable for this if California is ever able to reform.
Mr. Petrovich, if you leave, I will be sorry to see you go. Your developments made life much easier and more prosperous for thousands. Thanks for your service. Your potential departure will be a loss for all of us.
As of Sunday, most Californians are under strict stay-at-home orders. Gov. Gavin Newsom’s (D) lockdown shutters businesses, bars and cultural centers; makes restaurants takeout-only; and sends religious services outdoors. Gatherings with people in other households are banned — through Christmas.
That’s a lot for authorities to ask — especially when they appear so out of touch with the people they’re trying to govern.
Many residents are furious over being asked to make sacrifices that state and local officials themselves won’t. Newsom is by now notorious for his minimum $350-a-plate meal at the ultra-elite French Laundry in violation of his own guidance to Californians, exacerbated by his lieclaiming the meal followed outdoor distancing policies.
The mayor of San Francisco, London Breed, had her own coronavirus-noncompliant dinner at the same tony venue. Los Angeles County Supervisor Sheila Kuehl was spotted dining alfresco at an Italian restaurant in Santa Monica not long after voting to ban outdoor dining for her 12 million fellow Angelenos. San Jose’s mayor had to apologize after traveling to his parents’ house for a Thanksgiving dinner in violation of state requirements. When five state lawmakers were busteddining out in Sacramento this week by a reporter, one asked, “Can we not have dinner?” before pulling his mask out of his pocket.
Why are these officials so flagrantly violating rules they expect their own voters to follow? Is it arrogance? Delusion? Indifference? All of the above?
Perhaps. But I have another theory: The tone-deafness is what comes from living in a bubble where political competition is scant. In California, Democratic voters outnumber Republicans nearly 2-1. Only two Republicans have won statewide office since 2000. Newsom, Breed and Kuehl received 62 percent, 71 percent and 76 percent of the vote, respectively, in their last races.
In other words, it is precisely because California is so heavily Democratic that Democratic officials don’t feel the need to be responsive to their constituents. But there is mounting evidence that even in this one-party state, voters are no longer unquestioningly swallowing what their leadership is feeding them.
In the case of the pandemic crackdown, residents are mounting resistance to lawmakers’ hypocrisy. One county plans to challenge Newsom’s covid-19 policies in court. Cities are exploring forming their own public health departments to avoid county-level restrictions. Sheriffs are refusing to enforce state curfews. Business owners are planning open rebellion.
This year’s ballot initiatives, too, should raise alarms, as measures that Democratic tail winds should ordinarily have swept to victory instead went down to surprising defeat. One was Proposition 15, which sought to hike commercial property taxes, ostensibly to fund public schools (the state’s teachers’ union spent $20 million trying to push the measure through). Proposition 16, meanwhile, would have reinstated the use of affirmative action in California public university admissions and public sector hiring.
Both measures enjoyed overwhelming support from progressive activists, state Democratic elected officials and Newsom. And both should have benefited from anti-Trump turnout. But Prop. 15 received nearly 2.9 million fewer votes statewide than President-elect Joe Biden did. Prop. 16 trailed Biden by almost 3.9 million votes.
Newsom and state Democratic leaders were also embarrassed by Proposition 22. In September 2019, Assembly Bill 5 — a law mandating that companies treat “gig workers,” such as Uber and Lyft drivers, like full-time employees — passed easily in the overwhelmingly Democratic state legislature, with a 29-11 vote in the state Senate and a 61-16 vote in the Assembly. The measure was eagerly signed into law by Newsom. Then Prop. 22 took the matter to voters, who decisively rejected their Democratic overlords — 59 percent to 41 percent.
These measures failed, in part, because their Democratic champions were clueless about where voters actually were on the issues. Prop. 15, for example, rested its hopes on an ambitious media blitz featuring teachers railing against corporate loopholes that allegedly deny schools deserved money. But at a time when shuttered schools and substandard virtual learning are shortchanging millions of California kids, was a plea for sympathy for teachers’ unions a wise tactic?
These rebukes point to an unsettling phenomenon. Because relatively little is demanded of them, California’s elected leaders have an easy time getting elected, but haven’t yet mastered the part that comes after — leading.
Newsom, for example, was nurtured, educated and sent up the political ladder in a deep-blue range from Marin County to the southern end of Silicon Valley — coasting from one Democratic-friendly post to another, never having to develop shrewd professional and personal judgment. He and his fellow state and local lawmakers apparently still need to master the arts of convincing and persuading, of finding the right policies that appeal to broad coalitions, of being the role models they expect voters to follow.
In a few months, the embarrassments of failed ballot propositions will probably have faded. But in the case of the covid-19 resistance, Democratic officials’ alienation from their voters could prove deadly. If there’s a silver lining to the crisis, maybe it will be that it finally prompts complacent politicians such as Newsom to look beyond their own whims to what their voters actually want and need.
After seven months, California’s one-hundred-plus-member economic recovery task force has finished its recovery recommendation report. What could have been a game-changing opportunity to reduce the state’s high cost of living, increase efficiency in bureaucracies, and reform tax and regulatory policies never got off the ground.
Just 23 pages long, you will be hard-pressed to find substantive economic recommendations, much less any major new ideas, in a report that somehow took seven months to write. The COVID recovery task force was ingenious political theater to show that the state’s major business leaders, including Apple CEO Tim Cook and Disney CEO Bob Iger, were professing buy-in to Governor Gavin Newsom’s economic shutdown. This was never about reforming state economic policies that are among the worst in the country. It was about providing broad-based political cover.
With more than one hundred members appointed by Newsom, you knew that nothing important would ever be accomplished. Granted, the unique problems of COVID meant the task force would include representation from several economic sectors, but creating a committee of over one hundred could have been straight out of the CIA’s 1944 “Simple Sabotage Field Manual,”which recommends creating as large of a committee as possible to ensure that nothing happens.
Labor unions garnered the most task force representation, with 14 members, including two from the politically important Service Employees International Union. And even though the pandemic is a public health problem, the task force included only a handful of members from the health care industry, broadly defined.
The report opens with a discussion of the importance of viral testing and the state’s new, expensive purchases of protective equipment and medical supplies. I wonder how task force member Arnold Schwarzenegger felt, as the substantial investments he made in these important supplies several years ago when he was governor—for just such a pandemic—were given away by the state because they were considered to be too expensive to maintain. Oh well.
After reading the report, you get the uneasy feeling that you were indeed snookered. It reads like a “what I did this summer” back-to-school report. There was much listening to others. Hand-wringing about the impact of COVID, but not too much, lest there be any hint that the report is at all critical of state policies. There are roughly 30 references to diversity, equity, and racism in the report, but only one reference to efficiency. There is much admiration for the governor’s leadership, and considerable self-congratulation, including advocating for the use of electronic signatures on government documents and refurbishing used school computers. Tim Cook and Bob Iger were needed for this?
Not surprisingly, you get the feeling that the task force members ultimately hit their breaking points as they tried to navigate what amounted to a ship without a sail. With California COVID cases rising rapidly, it is strange the task force would disband now, when presumably their input is more important than ever. But after seven months of accomplishing little, task force members probably were done in. Iger resigned even earlier, when the state would not come up with a plan for theme park reopenings.
If something important were to have been accomplished, then problems would first have to be identified and prioritized. But this was never going to happen, because Newsom appointed his chief of staff, Ann O’Leary, as one co-chair, who could be the de facto gatekeeper. The other co-chair was Tom Steyer, the former Democratic presidential candidate who spent $250 million to run for president earlier this year, and who failed to receive any delegates.
Steyer previously made a fortune investing in coal, one of the dirtiest of energy sources. Now a born-again activist for climate and progressive causes, Steyer is willing to spend his and other people’s money to create a carbon-free California as soon as possible, even if the most optimistic assessments of its benefits do not come close to offsetting the costs.
Newsom got what he wanted in Steyer as a well-heeled partner who would support all climate initiatives, including Newsom’s executive order banning the sale of gasoline-powered cars by 2035. Because California accounts for less than one percent of global carbon emissions, the state could probably move the climate needle more by paying China to stop using soft coal than by mandating that all new California homes require solar panels, extra insulation, and highly energy-efficient windows and appliances, all of which increase new home construction costs by $30,000 or more.
The O’Leary-Steyer task force report is about as different as it possibly could be from a recovery task force report written in 1992 for then governor Pete Wilson. Chaired by Peter Uberroth, a 17-person committee took just four months to write “California’s Jobs and Future.” This was produced when the California economy had lost 500,000 jobs, about four percent of the state’s employment.
The Uberroth report pulled no punches in identifying the state’s key economic policy shortcomings. In 128 densely written pages, the report described a “government that is no longer working” and a state on “its way to fiscal disaster.” The report describes unaffordable housing. An underperforming school system. A shift to low-wage service-sector jobs. Losing businesses to states and countries with lower costs. Inadequate entrepreneurship. Environmental restrictions that do not pass a sensible cost-benefit assessment. All of this written in 1992.
The report provided plenty of sensible solutions, built around the ideas of redesigning government so that it was no longer in an adversarial position with businesses and taxpayers, an overhaul of the workers’ compensation system to root out widespread fraud, incentivizing school performance, and streamlining regulations and implementing tax incentives for business investment.
For schools, recommendations included stricter cost accountability; a statewide open-enrollment plan, meaning school choice; an extra hour per school day and a two-hundred-day school year; English comprehension requirements for third graders; and expanded career training for 11th and 12th graders. This would have made a significant difference in the effectiveness of California schools, but little was implemented, largely for political reasons.
Perhaps the most striking difference between the two reports, written nearly 30 years apart, is the tenor of the conclusions. Steyer stated, “We will come back stronger and better than we have ever been.” In sharp contrast, the Uberroth report warned that the state was risking bankruptcy if their policy recommendations were not implemented. For the most part, the recommendations weren’t adopted, and bankruptcy has been averted only by a series of large tax increases that place California among the highest-taxing states in the country.
Viewed over the last 28 years, the Uberroth report has been chillingly accurate. Sadly, its prescience will continue.