Tags: Trend Watch

High Taxes Mean It's Lights Out For California

By , Money Morning •

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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