Why Rich California Is a Poor State

Smoke from a fire at a homeless encampment is seen near railroad tracks littered with boxes left behind from stolen items in Los Angeles on Jan. 2, 2022. John Fredricks/The Epoch Times

Commentary

California is a state of contradictions. Silicon Valley-San Francisco is the epicenter of global digital production and wealth. Yet the streets of San Francisco are cluttered with the homeless and their ordure and discarded needles. The middle class long has departed the Bay Area, or been reduced from that status to lower-class existence just by the vastly rising cost of living. As with the rest of the state, when the cost of living is taken into account, the poverty level is the highest in the nation.

The reasons and data are provided by the 15th edition of “Rich States, Poor States,” a report on all 50 of America’s states by the American Legislative Exchange Council (ALEC), a research think tank that helps state legislators. From its beginnings more than a decade ago, I’ve used this report as a useful barometer of what’s going on.

The report looks at two sets of variables across the years 2011-20. The Economic Outlook Ranking, which looks toward future performance, ranks this state 19th. And the Economic Performance Ranking, which looks backward at what has been achieved, puts us at a dismal 49th.

Decent, Not Great, Economic Performance

When some folks from Illinois came out here this past week, they told me they enjoyed seeing all the luxury cars on the road in Newport Beach and its vicinity: Bentleys, Rolls Royces, McLarens, Ferraris, Mercedes, and numerous Teslas. Not too many of those back home.

The ALEC report ranked California 19th among the states for economic performance on three indicators. It ranked third for economic growth, up 54 percent; and 14th for non-farm economic growth, up 11 percent. So far so good.

But it scored a horrible 49th for Cumulative Domestic Migration over the previous decade, losing 1.1 million people to other states. Only New York was worse, exiling 1.5 million residents.

We all know this personally. Some good friends of mine just decamped for Alabama. Others are considering Tennessee and Texas.

A critical inflection year was 2015. For the first four years of the decade, the Golden State lost 50,000 people a year. Then in 2015, it jumped to 80,000. It then reached 242,000 in 2020. Although outside the years of their report, the year 2021 saw another 277,000 migrating out.

Here’s the ALEC chart:

For the rank of 19th combining these three factors—two good and one really bad—California scored middling for a state that likes to pride itself as a national leader. Indeed, it’s portrayed as so powerful and influential Gov. Gavin Newsom and others brand California “a nation state.”

Tomorrowland Looks Bleak

The Current Economic Outlook section is the most disturbing because it looks at the future in which we’ll be living. It’s an economic version of Disneyland’s “Tomorrowland.”

The ranking combines 15 variables, including:

• Top marginal personal income tax rate, at 13.3 percent, is the 48th highest.
• Personal income tax progressivity, 50th highest. This is crucial because it means the middle class, which pays an incredible 9.3 percent state income tax rate, is punished because it has to earn more than in other states because of high expenses just to make ends meet—then faces the punishing higher taxes.
• Recently legislated tax changes put California in 48th place. These include the $5 billion annual gas tax increase from 2017.
• State liability system survey—basically, how litigious the state is. It’s ranked 48th.
• State minimum wage, at $15 per hour, is ranked 50th.
• Average workers compensation costs are ranked 47th. The 2004 reforms, a friend in the business tells me, largely have been dissolved by recent legislation and court cases. No new reform seems to be on the horizon.
• Estate and inheritances taxes are not levied, so that’s a positive, ranking California 1st among the states.
• Also positive is tax limitation, the 3rd strongest in the land, largely due to Proposition 13 from 1978. Leftists like to decry Prop. 13 as supposedly denying revenue to needed state projects. But without it, the state’s punitive tax structure would be even worse.

Bottoming Out

As recently as the 2012 “Rich States, Poor States” report, California ranked 38th. Not great, but not near the bottom, as now. In 2012, Gov. Jerry Brown got voters to pass Proposition 30, which increased income and sales taxes $6 billion a year. It was a fatal mistake, confirming the state’s reputation as “Taxifornia.”

From 2013-2019, the state averaged a 47th place ranking on the ALEC survey for Current Economic Outlook, before dropping to 48th place in 2020. Only New Jersey and New York ranked worse. And they have many months of cold weather.

This being election season, we’ll be hearing a lot about how “California is back” and these are the best times ever. Maybe for those at the top. For the rest of us, not so much.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.