Create jobs in California

By Matthew Gilbert "Matt" Williams

We need to alter the status quo by: repealing regulations that penalize businesses and inspire them to leave; impose a moratorium on new regulations; institute a flat income tax or significantly revise the current progressive tax; freeze the minimum wage; greatly reduce the costs imposed by the state for doing business; provide more energy options for businesses in order to decrease their operational costs; and improve our schools.

Between 1990 and 2007, California lost 26% of its factory jobs and 35% of its high-tech manufacturing jobs (Will). From 1999 to 2002, we lost 261,000 manufacturing jobs, with 60% of those losses to other states; in fact, more California jobs went to Texas than China and India combined (Kosmont).

Why? It has become much too expensive to run a business here. In fact, the cost of doing business in California is 30% above the Western state average and 32% above the national average (Kosmont). That's why America's top 600 CEOs ranked CA "the worst place in which to do business" in the entire U.S. -- for the fifth straight year! (Chief Executive). Our technological base, which once was preeminent in this nation and the world and helped expand the state's middle class, is dwindling: California now ranks 9th from the bottom in creating scientific, technical, engineering, and math jobs in the U.S. (Watkins). This helps explain why more Californians left our state for Texas and Oklahoma between 2004 and 2007 than came from those states to California during the Dust Bowl in the Great Depression (Senik), with 3.6 million more Californians leaving since 1990 than arriving (Watkins).

We must identify and repeal laws and regulations that penalize businesses.

A "regulatory hassle index" created by Bain & Associates has found California is far worse than any other state by a very significant margin. Regulatory costs are 105% higher in California than other Western states, and between 1992 and 2002, California enacted 15 statutory changes each year to labor laws, which was four times the national average (Kosmont). Professors Varshney and Tootelian from CSU Sacramento have calculated that the total cost of regulation to California is $493 billion, which has resulted in a loss of 3.8 million jobs (Varshney). Small businesses make up 99.2% of all employer businesses in our state, and our regulations have resulted in tax losses of $57,260 per small business (Varshney). The state's Global Warming Solutions Act (to force new development to meet standards for being carbon-neutral and to reduce carbon emissions by 30 percent by 2020), will cut gross state product by $182 billion over the next ten years and cost 1.1 million jobs (Varshney). It's time to take a much more reasonable, measured, and prudent approach to how we regulate society. The Legislature must act by receiving input from an independent commission as well as taxpayers, business-school professors and other academics, business owners, and agency officials throughout the state on how best to repeal onerous, burdensome, and costly laws and regulations that do little to protect us but do much to eliminate jobs.

Institute a flat income tax or significantly revise the current progressive tax; eliminate the annual $800 franchise tax; eliminate the corporate income tax.

California has one of the highest income tax rates in the U.S. (Senik). A very small percentage of California's pay the bulk of state income taxes: 144,000 out of a state population of 38 million pay 50% of the income taxes (Murphy). Families earning over $100,000 annually pay 75% of the personal income taxes (Hodge). Yet, nearly 40% pay very little or nothing at all (Hodge). Our per-capita taxes exceed the national average and that of all states except for New York (Voegeli). Our corporate income tax is the highest west of the Mississippi, except for Alaska (Rider). The problem with our current tax structure is that it's unfair, makes California highly vulnerable to a relatively small percentage of high-income citizens who could decide to move to a state such as Florida or Nevada where no state income tax exists, and instills the wrong values in our citizens.

A flat income tax, or alternatively a major revision of the progressive tax rates now in effect, would be more equitable, give all Californians a "stake in the game," promote responsible citizenship rather than an attitude of shirking, and produce a steadier, more consistent flow of revenues to the state so that more effective budgetary planning could be done. According to the information I have gathered, a flat tax rate of approximately 8.5% would provide us with the revenues currently needed to produce a balanced budget. If a flat tax were politically not feasible, then we could adopt a gradual progressive income tax from 4% to a top rate of 9%.

Freeze the minimum wage that deters small business owners from hiring entry-level workers.

We want Californians to have a living wage, but the minimum wage is not the answer. Instead, we should focus on employment opportunity and upward mobility which comes with the creation of more jobs. California's minimum-wage laws are among the highest in the nation (Sorman). This discourages business owners from hiring people, especially young adults who need a place to start, and reduces the number of entry-level positions available. According to the Institute for Research on Poverty, a higher minimum wage has the unintended consequences of prolonging the time that welfare recipients remain on public assistance and increasing the high school drop-out rate. We should freeze the minimum wage so that business owners can realistically consider the hiring of inexperienced and relatively unskilled labor.

Give more money to universities for business-creation.

More could be done in California to enlist the support of academia in expanding employment opportunities and creating jobs. We could do as Brazil has done by providing state funding for university-based incubator programs for start-up companies. Singapore and China have done this as well, with investments in the promotion of start-ups and in research universities, respectively.

Provide energy alternatives to help reduce cost of operations.

The cost to businesses for energy is high in California. In fact, electric bills are 20% higher than the average when compared to other Western states (Kosmont), and nearly twice the national average for all forms of energy (Schulz). We currently import about 20% of our energy from other states, and a few years ago enacted legislation barring California utility companies from entering into long-term contracts to buy electricity from out-of-state providers that use coal (Schulz). This is patently absurd in light of our state's inability to meet our energy needs! We should evaluate every potential and currently-used energy source to promote maximum energy production in an effort to drive down prices through competition. We should allow more inland drilling for petroleum, where spills are more easily prevented and controlled. Moreover, the time is ripe to re-evaluate our state policy on the operation of nuclear power plants (France successfully provides 80% of its nation's energy needs with nuclear plants, and uses American technology to recycle 95% of nuclear waste) (Spencer). Lower energy costs would also help preserve the industrial facilities that now exist in our state.

References:

Chief Executive, "Best and Worst States for 2010." http://www.chiefexecutive.net.

"Comprehensive Economic Growth Strategy Must Be Job One for State Policymakers," California Foundation for Commerce and Education, 2010.

Hodge, Scott. "Tyranny of California's Nonpayers," The Tax Foundation, June 6, 2006.

Kosmont, Larry. "Valley Economic Forecast: Trends and Opportunities" presentation made on October 28, 2005 based on 2005 study conducted by Kosmont Companies.

Murphy, Robert. "The Golden State's Golden Tax Opportunity," City Journal, August 11, 2009.

Rider, Richard. San Diego Tax Fighters, July 13, 2010.

Schulz, Max. "California's Potemkin Environmentalism," City Journal, Spring 2008.

Senik, Troy. "Who Killed California?" National Affairs Fall 2009

Sorman, Guy. "The Silicon Lining," City Journal, Spring 2010.

Spencer, Jack. "Recycling Nuclear Fuel: The French Do It, Why Can't Oui?"The Heritage Foundation, December 28, 2007.

Varshney, Sanjay & Dennis Tootelian. "Cost of State Regulations on California Small Businesses Study," Sept 2009.

Voegeli, William. "Don't Blame Proposition 13," City Journal, Spring 2010.

Watkins, Bill. "If California is Doing So Great, Why are so Many Leaving?" Newgeography.com, December, 13, 2010.

Will, George. "The State of California + Golden No Longer," Pittsburg Post_Gazette, January 10, 2010