California voters approved a $50 billion tax hike in November, bestowing the highest marginal income tax rate in the nation on California taxpayers — 13.3 percent.
Now professional golfer Phil Mickelson is thinking of leaving the state. He’s fortunate. He can practice his chosen profession in any region where snow doesn’t cover the ground for too long, and if he moves to Texas or Florida, his state income tax will drop to zero.
Mickelson won’t be the first pro golfer to leave California. Tiger Woods, who used to live in my old Orange County legislative district, moved to Florida in 1996.
California’s ruling Democrats will, of course, scoff at Mickelson. Vice President Joe Biden might even intimate that Michelson is unpatriotic for not wanting to pay a higher tax rate.
And the members of California’s ruling class will comfort themselves by saying they still have Hollywood and Silicon Valley, and they seem willing to pay the price to live in paradise. (Never mind that Hollywood has sought, and won, tax subsidies in exchange for keeping business in the Golden State.)
But what about the average Californians hit by the recent sales tax, income tax and vehicle tax boosts? How are they faring?
California’s official unemployment rate, 9.8 percent, is the third highest in the nation. In comparison, Texas’ official rate stands at 6.1 percent. For 72 consecutive months, the Lone Star State’s unemployment rate has been below the national average.
California Gov. Jerry Brown gets understandably defensive about California’s jobs picture. In a recent radio interview, Brown sought to downplay Texas’ employment success by claiming that “ten or eleven” percent of all Texas workers earn at or below the minimum wage. This stale meme, first offered by New York Times columnist Paul Krugman, is false. Krugman himself admitted as much in a correction issued about a week after he wrote a column attacking Texas.
Once Texas’ much lower cost-of-living is accounted for, the picture becomes even clearer. California has the third-highest cost-of-living in the nation, after Hawaii and New York. The cost-of-living is 42 percent higher in California than it is in Texas, most of that due to hyper-restrictive land use policies and fees that artificially drive up California’s housing costs. This means California’s hourly minimum wage of $8.00 effectively buys $6.06 of goods and services while Texas’ lower minimum wage of $7.25 can buy $8.04 of goods and services. (My book, “The Texas Model: Prosperity in the Lone Star State and Lessons for America,” details this and many other points.)
Cost-of-living is also an important variable in the U.S. Census Bureau’s new method of measuring poverty. The Census’ Supplemental Poverty Index, released a week after the election, pegs California’s poverty rate at an astounding and nation-leading 23.5 percent, higher than even the District of Columbia and far higher than Texas’ 16.5 percent, even though California and Texas have very similar demographic profiles.
U-Haul offers a free-market measure of the relative success of state public policies. Renting a 20-foot moving van from Altadena, California to Austin, Texas costs $1,768. Going from Texas to California costs $656. U-Haul has to pay people to “dead head” empty trucks from Texas back to California to meet demand. In fact, some two million more Americans left California in the past 10 years than moved into the state. That’s a lot of empty-moving-van trips.
One last illustration brings home California’s coming pain. Most people know that California enacted the largest state tax increase in history last November. What few know is that California enacted a two-year tax hike in February 2009 at the height of the recession. When that tax hike quietly expired in 2011, it was likely the biggest tax cut at the state level in history.
Here’s where things get really interesting.
Starting with the end of the recession in June 2009, there were 19 months where California had higher taxes followed by 23 months of lower taxes. Then, last December, small business owners’ taxes spiked back up. The employment data for this period speaks volumes. During the low-tax months, the number of jobs in California increased by 2.7 percent, the number of jobs in Texas increased by 4.3 percent and the number of jobs in the U.S. as a whole, minus the two biggest states, increased by 2.4 percent. So California did pretty well, slightly outpacing the national average.
But, during the 20 months of higher taxes, California lost about 1.1 percent of its jobs while Texas, which held the line on spending instead of increasing taxes, added 1.2 percent more jobs while the other 48 states lost 0.4 percent of their jobs.
So after the recession’s official end, California lost jobs at almost triple the pace of the rest of the nation when it had higher taxes but it gained jobs faster than the national average during the two years when its taxes were lower.
Will Sacramento pay attention? Probably not. The current crowd in power conflates the health of the state government’s balance sheet with the health of the state’s economy.
They will soon learn that their massive tax increase is shrinking the state’s tax base by driving not only the Phil Mickelsons of the world out of California, but thousands of working people too.
Chuck DeVore served in the California State Assembly from 2004 to 2010 and is now the vice president of communications for the Texas Public Policy Foundation. His new book, “The Texas Model: Prosperity in the Lone Star State and Lessons for America,” is available on Amazon.com.