I Totally Get California, But the Golden State's Nightmare Confuses Me

Dude, I totally get California. The weather rocks, and I love the beaches and varied coastline. Heck, I’m even a San Jose Sharks fan and I live in New York! In fact, if several million dollars suddenly dropped in my lap, a home on the Monterey Peninsula – one of the most beautiful locales I’ve ever visited – would make me quite happy. That’s the California dream.

But then there’s the California I don’t get at all. Call it the California nightmare.

That nightmare is about politicians punishing entrepreneurs, investors, businesses and workers. And when it comes to dishing out such punishment, California serves up the most sadistic elected officials among the 50 states.

Each year, I author the “Small Business Policy Index” for the Small Business & Entrepreneurship Council. The index ranks the states according to assorted policy and policy-related indicators, including taxes, regulations, government spending and debt, as well as a few measures of governmental performance. But make no mistake, the big governmental burdens for entrepreneurs and businesses are taxes and regulations, and of the Index’s 55 measures, 27 are about taxes and 20 about rules and regulations.

The California nightmare becomes clear when seeing that the Golden State came in dead last on the 2018 edition of the Index. As much as number 49 New Jersey has worked hard to inflict harm on the entrepreneurial sector, the Garden State was a rather distant second worst among the 50 states.

California’s elected officials batter the state’s economy with the highest state personal income and individual capital gains tax rates, along with high corporate income taxes. For good measure, California punches individuals and businesses at the pump by imposing the highest state diesel tax and second highest gas tax. As for regulations, the state inflicts burdensome costs on the energy front, and claims the highest state workers’ compensation costs. Oh yeah, and state and local government spend and borrow far too much. The list, unfortunately, goes on.

Luckily for California’s barbarous elected officials, there are other reasons to live, do business, work and play in California. Indeed, if it were only about the costs of public policy, then no one would live in California.

But the costs imposed by government do matter, and they take a real toll. Consider, for example, that in terms of net domestic migration – that is, people moving among the states – California lost 556,710 people net to other states from 2010 to 2017. That came after net losses of 1.5 million from 2000 to 2009, and 2.2 million from 1990 to 1999. In terms of people voting with their feet, California excels at sending people elsewhere – and that’s quite a dubious accomplishment again given how much the state has to offer.

Now, having said all of this, imagine if California’s elected officials wised up and simply made the policy nightmare go away by making smart policy decisions, such as welcoming entrepreneurs, investors and businesses by providing substantial tax and regulatory relief. Think about how much better the state’s economy would be, and imagine California once again being a net importer of people from other states. Ah, one can dream. Too bad, though, that this seems to be the most elusive part of the California dream.