Investor’s Business Daily | Dec. 22, 2008
As the financial crisis in California gets worse, it’s pretty clear the real problem isn’t the budget at all, but a political system that has resulted in a dysfunctional one-party state.
California’s $41.8 billion budget deficit expected over the next two years is a record. No other state even comes close. But despite what the state’s politicians say, it’s not because of the recent economic downturn. It’s because of them.
The state has a budget crisis for the second time in a decade largely because the Democratic-held legislature has spent money wildly and without any real purpose.
A reasonable response from a mature group of individuals might be to cut spending — especially since polls show that most Californians don’t believe their taxes should be raised. Instead, they’ve chosen to thumb their noses at the people’s will. It shows the danger of what is in effect California’s one-party rule.
The budget crisis is a case in point. Frustrated with their inability to raise taxes, Democrats got creative: They decided they could declare outright hikes in taxes to be “fee increases.” This would let them pass a massive $9.3 billion in tax hikes without consulting Republicans in the legislature, in direct violation of state law.
We had high hopes that Republican Gov. Arnold Schwarzenegger would put a stop to this madness after he won the state’s highest office in a recall vote against Democrat Gray Davis in 2003.
But spending has actually grown faster under Schwarzenegger. Since 2003, total spending is up $41 billion, or 40%, to $144.8 billion. The governator’s compromise plan to eliminate the massive deficit is only marginally better than the Democrats’ — he would cut the deficit through a 50-50 combo of tax hikes and spending cuts.
Call it Democrat-lite. More disappointing, Schwarzenegger has supported sweeping new greenhouse gas rules that will add billions of dollars in costs and force even more companies to flee the state.
California is already the most costly place in America to do business, according to the Milken Institute’s business cost index. Its business costs in 2006 were 23% higher than the average for the rest of the states, and well above those of its neighboring states.
Worse, energy costs are already 35% higher than the national average. With California’s costly new CO2 mandates about to kick in, the economy could well grind to a halt.
Such business mainstays as Intel, Exxel Outdoors, Toyota and Tesla have already left California. Intel is a particularly alarming example: The world leader in chip technology started in Silicon Valley but no longer makes anything in California.
Since 2001, according to the California Manufacturers and Technology Association, the state has lost 440,000 high-wage jobs. Today, the state’s jobless rate of 8.4% is third-highest in the nation.
Even Hollywood feels the pinch. In 2003, 66% of Hollywood’s feature films were made in-state; today, it’s down to 31%. Increasingly, Hollywood is a state of mind — not a place to do business.
Things are so bad that, just last week, 25 business groups wrote an open letter to the state’s legislature begging it to think about the role businesses play in the economy.
We wish them luck. Unfortunately, instead of aggressively addressing these competitiveness problems, California’s Democrats think they can simply tax their way back to prosperity. They can’t.
California’s tax base is so narrow — 1% of the population pay 50% of income taxes — that you can’t “tax the rich” and get more revenue, a long-held Democratic fantasy. California individuals today bear the sixth-highest tax burden in the nation. Raising taxes won’t do anything but drive off productive workers and kill the economy.
It’s already happening. Tired with having their voices ignored and faced with soaring taxes, high housing costs and state fiscal chaos, Californians are leaving in droves. They’re voting with their feet.
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