The Golden State no more

One more blog on California, my native state. It’s so sad to see a place that I remember fondly from childhood become a warning to other states who are tempted to follow its political path.

Look at a few statistics from The Wall Street Journal. From the mid-1980s to 2005, California's population grew by 10 million, while Medicaid recipients soared by seven million; tax filers paying income taxes rose by just 150,000; and the prison population swelled by 115,000. California's economy, which used to outperform the rest of the country, now substantially underperforms. The unemployment rate, at 10.9%, is higher than every other state except Nevada and Rhode Island. With 12% of America's population, California has one third of the nation's welfare recipients.

What happened? Part of the blame lies with generous union wages and benefits, inflexible work rules and lobbying for more spending. We’ve ended up with a state that spends too much and achieves too little. For example, annual spending on each California prison inmate is equal to an entire middle-income family's after-tax income. Many of California's K-12 public schools rank poorly on standardized tests. The unfunded pension and retiree health-care liabilities of workers in the state-run Calpers system, which includes teachers and university personnel, totals around $250 billion.

Then there’s the legislature, dominated by leftist Democrats. The state lurches from fiscal tragedy to fiscal farce, running deficits in good times as well as bad. The general fund's spending exceeded its tax revenues in nine of the last 10 years (the only exceptions being 2005 at the height of the housing bubble), aided by creative accounting and temporary IOUs.

Now, our beloved governor, Jerry Brown, has come up with a way to get us out of this mess. If you guessed new taxes, you know California and its political leaders. Gov. Jerry Brown's budget increases spending next year by $7 billion and finances the higher spending with income and sales-tax hikes. Specifically, he's proposing a November ballot initiative raising the state's top income tax rate to 12.3%, making it the nation's highest, and raising the basic state sales tax rate, already the nation's highest, to 7.75% from 7.25%. You’d also not be surprised to learn this increase will not be balanced by more cautious spending. He has failed to embrace a bold reform agenda to save money, improve services, and restore confidence among the state's beleaguered taxpayers and bond holders.

What has been the result on our population of these disastrous policies? Pretty obvious--many Silicon Valley CEOs say they won't expand in California because of high taxes and burdensome regulation. And net migration has recently reversed, with hundreds of thousands of workers and their families leaving the state in search of better opportunities. Our state is near the bottom in business and tax climate and state bond ratings. It's a complex picture, but at its core is the high-tax welfare state run amok.

So what’s the take-away we have from pondering this system? Relying on ever-higher taxes to fund payments to an outsized population of benefit recipients is a recipe for exporting prosperity. That is one California trend that other states emulate at their peril.