California Dreaming

April 13 2009 by ChiefExecutive.net


PRESIDENT OBAMA’S PROPOSED FEDERAL SPENDING WILL TOP $4 TRILLION this year, about 29 percent of GDP-exceeded only by spending during World War II. Then there are the Administration’s plans to add $1.9 trillion in new taxes. This heady sum can hardly come from just the so-called rich as he claims. In addition, the cap-and-trade carbon tax will demand another $648 billion and will hit anyone who consumes energy, which means everyone. The President tells us that the higher taxes and enormous public spending are necessary to pay for recovery and deficit reduction.

One needn’t look too far to see how a platform of higher taxes, huge budget deficits, and growth of government at the expense of the private sector plays out. California, for the fifth year running in CE’s annual survey of Best and Worst States in which to do business, has taken top honors as the least congenial place to do business.

There are a host of reasons why the Golden State has become toxic to business, ranging from the highest personal income tax rate in the country (small business owners are especially hard hit by PITs), to a regulatory regime that has driven energy costs so high that businesses simply can’t compete. California businesses paid $73.7 billion in state and local taxes in 2008, 28 percent more than businesses in any other state, according to an Ernst & Young report. That is one reason why even California- based businesses are expanding elsewhere, from Google, which built a server farm in Oregon, to Intel, which opened a $3 billion factory for producing microprocessors outside Phoenix.

Under Republican governor Schwarzenegger the state budget actually grew even faster-10 percent annually as opposed to 7 percent-than under his spendthrift Democratic predecessor, Gray Davis. The problem is that there are consequences, as California state senator George Runner recently told a Nevada business group.

“There has been a complete denial of behavior that takes place when you decide to tax somebody differently,” he said. “You’re going to put higher taxes on the folks with the highest income, and the greatest flexibility to deal with where they get their income and where they take their income. As a result, we will not see additional revenue. In fact, we will see decreased revenue.” Let us hope that the lessons from Sacramento are not lost on the solons of D.C.