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High Taxes Mean It's Lights Out For California

Would the last person leaving California please turn out the lights…

Whether by coincidence or design there is a mass exodus of business and upper management from the golden state.

Here's a guess why: California is the highest taxed state in the nation.

Its top income tax rate is 13.3%, and its property tax per capita is $1,450. California also has the highest sales tax at 7.5% and is the proud bearer of the country's highest gas tax according to the Petroleum Institute.

According to The New York Times columnist Paul Krugman that's a winning formula. 

The liberal-leaning economist recently wrote, "California is on the road to recovery due to tax and spend liberals, Republicans and conservatives are the problem, tax and spend is the way to go."

Yet, since the beginning of 2013 a total of 158 companies have left the golden state and more are lining up to make their own great escape.  That's up from just 51 in in 2009.

If this trend continues Silicon Valley may soon become nothing more than the northern extension of Death Valley as search for more profits creates a mass migration states like Oregon, Texas, Nevada, Utah and Arizona.

With considerably lower taxes, these states are welcoming California businesses with welcome arms.

One of them is Intel which recently announced that it will be investing billions to upgrade factories in Arizona, in addition to building a new factory in Oregon.

This move will create between 6,000 and 8,000 construction jobs and up to 1,000 high tech factory jobs outside the Golden State. With an unemployment rate of 9.4% that's the thing California needs. But the truth is each employee hired by Intel in these states will cost. 30% to 40% less than the same employee would in California.

In fact, even the utility bills are welcoming in Oregon. The savings in electricity alone is as much as 80% to 90% compared to California.

Then there's California's polar opposite: Texas.

A "no tax state", Texas takes it a step further by touting itself as the last bastion of freedom in this country.  To its credit, four million people have migrated to Texas in the last 10 years. 

Admittedly, it is due to a multitude of reasons but foremost is the economic opportunity Texas offers.

So how does California compare to Texas?  Here's the breakdown:

  • California has the 4th highest Cost Of Living Index in the country. Texas has 2nd lowest. 
  • Minimum wage is $8.00 in California. It's $7.25 in Texas.                                          
  • Including taxes, $8.00 buys $6.05 in goods and services in California. In Texas the same $8.00 buys $7.25                 
  • Proportionately, there are 42% more poor people in California than Texas.
  • In California it is hard to start business requiring 4 to 5 years to break ground and start construction. In Texas it is 4 to 5 months.
  • The gas tax is $0.49 a gallon in Cali. In Texas it's $0.20
  • Median rent is $801 in Texas….$1,163 in California.
  • And the median home price is $128,100 in Texas vs $370,000 in California.

But those aren't the only reasons to like Texas….

Here's another: One state is poster child for big government while is representative of free enterprise.

Here's why.  Just take a look at how each state went about building a bullet train.

It's a tale of two states: 

In Texas:  A bullet train was suggested and approved for construction from Houston to Dallas, financed totally through private business. Total cost for this venture is $10 billion with a completion date as scheduled.  No increase in fees, overages or extensions are expected.  In this case, no government funding is either anticipated or needed.

In California:  The project is government funded. The original cost for the link from Los Angeles to The Bay Area was estimated to cost $45 billion but is now projected to cost $68.4 billion. The Bullet train's original 220 mph speed has been cut to a more conventional speed due to the local environment and the agency overseeing the project is $54 billion short for completion of the project. An additional $38 billion is needed in federal tax dollars over the next 15 years. At present, The rail agency can build the track from Bakersfield to Merced since it has the $5.9 billion to complete this phase.  But after that funding is questionable at best.

At the end of the day, it appears the result could be, a high-speed bullet train that travels slowly on a lonely track thru a modestly traveled Central Valley where it wasn't really needed at all, at a potential completion cost of $68.4 billion dollars.

It is no secret, free enterprise is more efficient than big government.

So with all of California's wonders and beauty maybe it's time for the Golden State to heed the advice of the late great Margret Thatcher.
As the iron lady once said,  "The problem with socialism is, after a while you run out of other people's money!"

Unless California comes to the same conclusion, you can expect this exodus to continue.

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Join the conversation. Click here to jump to comments…

  1. kelly | May 23, 2013

    As a native Californian I say good riddance as once the exodus is complete as you predict everything will deflate…wait it is not…looks like there are millions with cash bidding on homes everywhere much of it from Asia.
    I love Texans but don't know how they can live in the oppressive heat and
    Unregulated environment.

  2. David R. | May 23, 2013

    I think another major reason to leave California is the enforced new state pension plan. Run by CALPERS, who are proven to be incompetent, all citizens must pay into it with no guarantee of ever getting anything out. Ex-state employees get their benefits first and everyone else gets what's left.

  3. Greg Sails | May 23, 2013

    I live in Nevada and can say this: If we didn't have the highest electric rate in the west, the state's economy would be infinitely better off. I see the NPUC as disgracefully incompetent, crooked or some combination of the two. I recall hearing the commissioner of Storey County on public radio decrying these bogus rates as anathema to inducing business' to move to Nevada.

    I'd end the tyranny of all public utility commissions by allowing any bona fide utility producer who can deliver services to the utility matrix to be allowed to do so. Let free market competition determine who gets the bulk of the business. This would result in the consumer having a real economic stimulus to bolster our economy, rather than the quackery that plagues us now.

  4. H. Craig Bradley | May 23, 2013

    INCONVENIENT FACTS

    A family friend once lived in Arlington, Texas in the eary 2000's. She said they significantly raised their property taxes while living there. Property taxes in Texas are no longer "cheap", but probably are still less in dollar amounts compared to Calif. due to a lower base price. That does not make California more competitive at all, but it shows the "grass is not always greener on the other side of the fence" either. Another thing, Texans are very provencial and very simpleminded. Locals don't quite fully accept outsiders who immigrate there from another state.

    Many people in my hometown neighborhood are going to stay in Calif., just like their kids are going to stay and "take what they can get". They really don't much care about other states. This is part of the mentality of decline. You can see their attitudes are largely shaped by survival, not growth. Its a hunker-down mentality characterized by suspecion, fear, and inward orientations. More likely, this will be the America of 2023. By then, it won't matter much where you live, if you live in North America.

  5. MajorDrama | May 24, 2013

    The relentless American narrative that espouses the brilliance of Capitalism never fails to amuse me!!

    Not sure whether you've noticed but the USA, as arguably the most capitalist country on earth, has a vastly greater debt than any country on earth has had in the history of the planet – and no longer even affluence to show for it.

    Germany is vastly more socialist, cares for its citizenry much better and operates a surplus that's the envy of the world.

    This distinction illustrates the better way forward far better than the comparison between California and Texas – More brutality is not the answer

    • Robert in Canada | May 26, 2013

      The USA is capitalist in theory only.

      In practice it is a mix of the worst aspects of socialist, statist, and capitalist ideas.

      A prime example is the recent housing crash. It was caused by the federal gov't (under Bill Clinton) changing the rules to allow any person to buy a house regardless of their ability to pay for it. And to make it happen, the gov't forced banks to change their lending standards and give out mortgages to people who could never re-pay them.

      In return for the banks co-operation, the gov't changed more rules to allow banks to re-package and sell doomed mortgages and other worthless paper to unsuspecting buyers.

      That is not capitalism.

      Germany functions much closer to the capitalist model, and that is why it works better.

  6. Alejandro F. Merigo R. | May 26, 2013

    Darn, born in Texas and now living in California, might consider going back to my hometown..El Paso…! so expensive to live here. Bye bye LA, welcome back El Paso.

  7. Aryton Senna | May 28, 2013

    I left San Diego for Dallas in June 1980, and left Dallas in 2004 when our combined property taxes were US$19,000. annually. Sure, no Texas state income taxes, but 3.6% of annual homestead appraisal gets really old.
    Life is sure far better here in San Miguel de Allende, Gto., Mexico. My 6500 sq ft house was taxed at US$541.94 annually in January after the triennial reappraisal and weakening of the USD (US$464.22. in 2012).

  8. jonmorrison | May 29, 2013

    I hear business is booming in Texas!

  9. H. Craig Bradley | June 20, 2013

    One prominent reason why Californian's leave so often: Gov. Jerry Brown

  10. day trading | December 28, 2013

    Thanks for sharing your thoughts on taxes. Regards

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