15 Mar

Exodus: California Tax Revenue Plunges by 22%

State Controller John Chaing continues to uphold the California Great Seal Motto of “Eureka”, i.e., ‘I have found it’. But what Chaing is finding as Controller is that California’s economy as measured by tax revenues is still tanking. Compared to last year, State tax collections for February shriveled by $1.2 billion or 22%. The deterioration is more than double the shocking $535 million reported decline for last month. The cumulative fiscal year decline is $6.1 billion or down 11% versus this period in 2011.

While California Governor Brown promises strong economic growth is just around the corner, Chaing proves that the best way for Sacramento politicians to hurt the economy and thereby generate lower tax revenue, is to have the highest tax rates in the nation.

California politicians seem delusional in their continued delusion that high taxes have not savaged the State’s economy. Each month’s disappointment is written off as due to some one-time event.

The State Controller’s office did acknowledge that higher than normal tax refunds for February might have reduced the collection of some personal income taxes. Given that 2012 has an extra day in February for leap year, there might have been one day more of tax refunds sent out. But the Controller’s report shows personal income tax collections fell by $325 million, or 16% versus last year. Furthermore, leap year would have added another day for retail sales and use tax collection, but those revenues also fell during February-by an even larger $813 million, 25% decline from 2011.

The more likely reason tax collections continue falling is that businesses and successful people are leaving California for the better tax rates available in more pro-business states.

Derisively referred to as “Taxifornia” by the independent Pacific Research Institute, California wins the booby prize for the highest personal income taxes in the nation and higher sales tax rates than all but four other states. Though Californians benefit from Proposition 13 restrictions on how much their property tax can increase in one year, the state still has the worst state tax burden in the U.S.

Spectrum Locations Consultants recorded 254 California companies moved some or all of their work and jobs out of state in 2011, 26% more than in 2010 and five times as many as in 2009. According SLC President, Joe Vranich: the “top ten reasons companies are leaving California: 1) Poor rankings in surveys 2) More adversarial toward business 3) Uncontrollable public spending 4) Unfriendly business climate 5) Provable savings elsewhere 6) Most expensive business locations 7) Unfriendly legal environment for business 8) Worst regulatory burden 9) Severe tax treatment 10) Unprecedented energy costs.

Vranich considers California the worst state in the nation to locate a business and Los Angeles is considered the worst city to start a business. Leaving Los Angeles for another surrounding county can save businesses 20% of costs. Leaving the state for Texas can save up to 40% of costs. This probably explains why California lost 120,000 jobs last year and Texas gained 130,000 jobs.

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About Curt

Curt served in the Marine Corps for four years and has been a law enforcement officer in Los Angeles for the last 20 years.

9 Responses to Exodus: California Tax Revenue Plunges by 22%

  1. Nan G says: 1

    Hubby came home after listening to talk radio for an hour in traffic.
    One thing caught his attention.
    There are ~ 220,000 Californians whose taxes account for 80% of ALL of California’s income tax!
    If those few leave the state breaks real fast.
    And, one-by-one they ARE leaving.
    When the rich sneeze, the rest of the people catch cold in California.

    ReplyReply
  2. Keyser Söze says: 2

    This shows how easy it is to shut down socialism…”starve the beast”.

    ReplyReply
  3. bbartlog says: 3

    @Keyser Söze: It doesn’t show any such thing. Jerry Brown just added $7 billion to the budget – so the beast isn’t starved yet, is it? And when everything finally does come crashing down (via CA muni bond default, say) I don’t think anyone will say that the route was ‘easy’. ‘Starve the beast’ sounds like some sort of badass strategy but really has all the charm of chemotherapy, with no guarantee that the tumor dies before you do. A stupid idea that’s (sometimes) popular just because it’s a working excuse for spending lots of money while pretending to be for responsible government.

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  4. johngalt says: 4

    @bbartlog:

    “Starve the beast” as a strategy would only be easy if there were responsible people in government who understand not spending more than you bring in. Of course, if there were such responsible people in government, the situation would not be what it is, correct?

    Now, I agree with Keyser Soze though, that the strategy is “easy”. However, the term “easy” in this case is only in the implementation of it, not the resultant hardships endured by the people. Would the exodus of the producers from California result in extreme economic hardships for the people in general? Absolutely it will. But, considering that many of those people are the ones voting in the politicians who are leading California to ruin, who cares how hard it will be on them. Their ignorance on economics is their own fault, and if they end up reaping what they have sown, it is only because they deserve it. Harsh? Yes. Reality? Yes again.

    And the rest of the country needs to refrain from bailing out California, otherwise the situation just continues to propagate, becoming worse than it is now, especially considering the federal government’s own economic problems. Let California be the object lesson on how not to run a government. Painful failure sometimes is the only way of getting people to learn what not to do.

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  5. bbartlog says: 5

    @johngalt: Maybe we’re misunderstanding each other. You’re talking about balancing the budget (which is an excellent idea) and the possibility of the (small by population numbers) tax base leaving CA. But ‘starve the beast’, as a phrase and as a budget strategy (coined by Grover Norquist I believe, at any rate promoted by him) say that the strategy is to run large deficits until you can’t borrow any more, at which point the beast starves because no further deficit spending is possible. There are problems with this, to put it mildly – both moral and practical.

    ‘And the rest of the country needs to refrain from bailing out California’

    I have a hard time believing that they aren’t already being bailed out (via Fed purchases of their bonds). Might do some internet searching later to see if I can turn anything up, but right now I have ducklings to feed.

    ReplyReply
  6. Keyser Söze says: 6

    @bbartlog:

    The sooner the Libs learn money is portable, the better they will understand finance…”can’t tax what is not there”. Brown can add whatever he feels is necessary, up until the bond raiders demand punishing interest rates.

    The 11 year Greek bond on Monday fetched 18.6%…and California is headed in this direction.

    “Yields on the new Greek bonds are the highest in the euro zone; the shortest-dated Greek bond, which matures in 11 years, was yielding 18.6% on Monday, according to Tradeweb.”

    http://online.wsj.com/article/SB10001424052702304537904577276923038574852.html

    ReplyReply
  7. johngalt says: 7

    @bbartlog:

    Yes, it is a misunderstanding.

    ReplyReply
  8. Aqua says: 8

    Larry said it isn’t true………so there’s that.

    ReplyReply
  9. Doug says: 9

    Not to worry, Brown’s got a big tax increase on the ballot for November, raising our top tax rate to 12.3% (I think). And…it’s retroactive! Ka-ching!

    The tax increase, originally expected to bring in single-digit $billions, is already seeing those estimates revised downward. It pretty obviously won’t work, but it will be tried, with uncertain effects. I’d guess anyone who might actually be subject to it will be highly motivated to leave the state – or at least, more motivated than they already are at 10.3%.

    But hey, we’ve got Facebook – the state expects to get around $5 billion in swag from taxing those who benefit from the IPO.

    ReplyReply

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