Last week, my friend Ethan announced that he is moving to Ohio. Ethan is an extremely bright entrepreneur in his mid-thirties, who grew up in Southern California. He’s civic minded – joined non-profit boards, gave to charities what he could afford, and was even been elected to his local water board.
He’s moving because his business is doing so much better in Ohio than in California, where it began. Honestly, the business climate that Sacramento has created is so bad that the usual emotional ties are no longer strong enough to keep Ethan here.
This was déjà vu for me. Twenty years ago, another friend, Steve, then in his mid-forties, announced that he was moving his successful Tustin-based aerospace company to Texas. His 200-plus employees could keep their jobs if they chose to move with him, but few did.
“Each year, state and local taxes and regulations become harsher for my business,” he explained as he despaired about leaving the state where he grew up. But Harvard had taught him to read a trend line, and the trend showed declining profits in California, expanding profits if he took his business to Texas. Simple to understand really. So he left with his family and his business to a state that was rational about taxes and regulations. There, he and his business thrived.
Steve and Ethan are not isolated cases. According to U.S. Census estimates, our best and brightest continue to leave California despite favorable trends in the economy. Who suffers most? The poor and working class. We count on entrepreneurs like Steve and Ethan to keep our economic engine running. Not only do they create jobs, but they buy houses here, shop in our stores, purchase fast food, and when they have families, their kids attend school. Santa Ana Unified School District recently announced over 300 layoffs of its newest and best teachers. Why? Declining student enrollment – part of a broader statewide birth rate decline driven by the mounting costs of raising a family.
Hon. Ethan Temianka, President, Mesa Water District, Division 3
There are lots of reasons our best and brightest leave. High taxes is one. For the wealthiest taxpayers, the rate is shocking 13.3%. But for those who make the median, $51,530 annually – a low salary in an expensive state –– the rate is 9.3%, higher than the top bracket in most states.
Oblivious to the fact that these corporate and personal earnings [or just “earners”?] can move to other states or even other countries, Sacramento recently increased the gas tax and car tax by over $5 billion annually. The politicians do not spend this money well. Our freeways, once the envy of a great nation, are an embarrassment. Our dams, once an engineering marvel, threaten hundreds of thousands without warning because maintenance is deferred to cover up pension debt. The CalTrans budget was $13 billion in 2010, the year Governor Brown took office; by 2013, it was reduced to $11 billion. So here is the formula Sacramento politicians have dreamed up for sending our shining stars to other states: tax more, then spend less on the things that matter.
Sacramento knows about this problem, but as usual, its solutions are ham-fisted. Here’s an example. Politicians paid Paramount Studios $22 million in tax bribes to film one of the myriad installments of “Transformers” in California instead of taking its business to another state. This is only one of the films in the Transformers “cycle” to be filmed in California; others have been shot in China, Britain and in other states. To keep some of the action in California, Sacramento has created a huge taxpayer-supported fund to help finance films with budgets of $75 million or more “to entice more major motion pictures to choose California and reverse the tide of runaway productions”. According to the LA Times, “California officials hope that more in-state film shoots will help spur local economics through spending and hiring.” Making crony deals with billion-dollar corporations will not stem the flow of our young entrepreneurs from California; it just makes them shake their heads at the pathetic condition of the state they used to love.
Sacramento politicians are like the guy whose wife left him because he would not stop seeing other women. “She told me to stop seeing Shirley,” he complained. “So I dumped Shirley and went out with Ethel instead. Some women are never satisfied.”
Politicians cannot understand that our best and brightest, like Steve and Ethan, leave California because the business climate here sucks. Instead of doing something about the business climate by lowering taxes, intruding on the economy less, and doing the traditional job of government—such as fixing infrastructure—politicians keep raising taxes and making our state inhospitable to business. No wonder businesses leave and our poor and working class suffer. Since today’s Sacramento politicians will never understand that “stop seeing Shirley” means “stop seeing other women,” Californians must leave those politicians right now for better public servants who are dedicated to serving the needs of Californians, or pretty soon all of our best and brightest will be gone and only our worst, dumbest, and bribed will remain.
Robert Loewen is chairman of the board and co-founder of the California Policy Center.