President & CEO
Texas Association of Business
Cap & Tax: California's Recipe To Feed The Texas Economy
Larry Bell, Contributor
Seems like that old adage “where California goes, there goes the nation” got it pretty much right, at least with regards to business and job opportunities. Yup, a lot of them are haulin’ off to Texas and other free enterprise-lovin’ states. According to a 2009 “U-Haul Index” tracking study conducted by Mark Perry at the University of Michigan, “The American people and businesses are voting with their feet and their one-way truck rentals to escape California and its forced unionism, high taxes, and unemployment rate for a better life in low-tax, business-friendly, right-to-work states like Texas. High exit demand is reflected by rental rates.” For example, the U-Haul tab for a 20-foot truck one-way from San Francisco to San Antonio costs $1,693, while one going the opposite way can be rented for $983.
California’s latest gift to the nation comes just in time for Christmas in the form of a newly-enacted carbon cap-and-trade (tax) program. That “climate change law” which will be accomplished through a web of new taxes and regulations mandates a 30 percent cut in carbon emissions from cars, trucks, utilities and other businesses by 2020. This legislation will add even higher burdens to businesses that already endure the fourth worst state regulatory burdens and among the highest corporate taxes…a state that consistently ranks at or near the bottom for business-friendliness…one with the nation’s highest state sales tax, and the third highest income tax for citizens.
While the new cap-and-tax law will be a bonanza for alternative energy investors and producers, (wind, solar and other so-called “clean sources”) that can’t otherwise compete with fossils, it won’t be any bargain for already-strapped corporate and private energy users. Californians already pay up to 50 percent more for their electricity than the rest of the country. On top of that, the state has upped its current portfolio mandate to require that renewable fuels supply 33 percent of its electricity by 2020. Meanwhile, as California focuses upon wind turbines, solar panels and electric cars, vast oil and gas resources remain undeveloped.
Incidentally, California’s Monterey rock formation might hold the largest oil reserve in the lower 48 states. While much of the most accessible oil has already been tapped, the U.S. Energy Information Administration estimates that there’s still 15 billion barrels of recoverable oil in “tight” rock that can be harvested through fracking and horizontal drilling.
Disastrous energy policies, a stifling regulatory environment, reliance upon central planning, tax-supported subsidies and social entitlement programs are turning dreams of good lives into nightmares. As a result, companies, large and small, are leaving in hordes, taking much of the state’s tax base along with employment opportunities with them. According to census data, California lost one-half million people to other states between 2007 and 2010, while Texas gained 394,000.
And who can blame them? Take economic opportunity comparisons with Texas for example, a state with one of the lowest tax burdens in the country, far fewer regulations and taxes on businesses, and which has consistently ranked among the top five in various surveys for business friendliness. In sharp contrast to California, according to Govpro.com, Texas also has one of the lowest levels of per-capita spending, with a slower growth rate than California over the past decade.
Despite substantial government spending programs, California has the highest poverty rate in the U.S., with a staggering 23.5% of its population counted as poor. The poverty rate in Texas is 16.5%. And according to a study by McKinsey & Co., “Texas outperforms California in terms of achievement despite similar demographics, lower GDP per capita, and lower per-pupil spending”. This includes math and reading, and also educating Latino, Black and poor students. California now ranks near the nation’s bottom in science skills, with eighth graders performing 47th in terms of test scores.
According to the Bureau of Economic Analysis, last year, Texas recorded a 3.3% state GDP growth (5.2% in 2010), compared with 2% for California in 2011 (1.7% in 2010). And according to Bureau of Labor Statistics, Texas (current jobless rate 6.8%) has created twice as many new jobs since 2009 as California (jobless rate 10.2%). BLS data also show that Texans have seen faster wage growth between 2008 and 2011, with median hourly wages climbing 8% in Texas, compared with a nearly 1% drop in California.
Now, with another four years of Obama policies to look forward to and a Democrat governor and supermajority in the Sacramento legislature, don’t expect the California economic picture to become rosier any time soon. Worse, many of those same policy influences appear to be exactly what the current White House administration has in mind for the rest of the country. Speaking in October, 2009 at the Governor’s Global Climate Summit in Los Angeles, EPA Administrator Lisa Jackson touted the fact that climate change regulations involving national fuel economy and greenhouse gas standards have their “roots” in California, and that the rest of the United States is finally “catching up with what’s happening [there].”
By way of catching up with what’s happening, consider the bullet train fiasco that we taxpayers throughout the country will be bilked for. Back in 2008, California voters approved a rail project by a 53-47% margin that was supposed to link all of the state’s major cities at a projected cost of $33 billion. California raised $9.95 billion in bonds, and then got $3.5 billion from the rest of us in the form of “stimulus money”. Where would the rest come from? That’s a bit fuzzy, since reportedly no private rail investors have jumped at the chance to invest, and the U.S. coffers have run out of free Obama money.
In any case, that original cost projection ballooned to $68 billion, leaving the project about $55 billion short. In addition, that $68 billion rail line plan has now shrunk in length to a stripped-down Los Angeles-to-San Francisco run, with initial construction over 10 years limited to 300 miles extending from the Central Valley, near Merced, to the northern Los Angeles outskirts. A northern link to San Francisco isn’t scheduled for completion until 2028.
But wait, there does seem to be a free way to cover some of the costs of that budgetary train wreck after all. This brings us back to that new carbon cap-and-tax windfall. Yeah, since one of the principal justifications for the rail line is to reduce greenhouse gases, Governor Jerry Brown and the California Air Resources Board seem to be pushing to allocate a big chunk of those revenues for that purpose. The idea is that carbon dioxide emission reductions will result as travelers switch from automobile and airlines use.
Proponents claim that rail services between San Jose and the San Fernando Valley would eliminate between 4.4 and 5.0 million metric tons of CO2 annually. Remarkably, this estimate is 40 to 60% higher than the 3.1 million ton reduction the California High Speed Rail Authority (CHSRA) originally claimed in 2008 for the entire plan, including extensions to Sacramento and San Diego.
Not only that, a study conducted by the Reason Foundation found that the minimum cost per ton of greenhouse gas reductions from the project would be nearly $2,000… between 40 and 100 times the maximum range identified by the U.N.’s Intergovernmental Panel on Climate Change (IPCC). That estimate was based upon cost and revenue projections of the CHRSA, which the study co-author noted that virtually every objective outside analyst found to be overly optimistic. Apparently everything about that plan is experiencing benefit hype inflation.
Incidentally, that cap-and-tax windfall won’t be exactly free for anyone. In addition to the billions of costs that will be passed on to all U.S. taxpayers, it will increase prices of gasoline, electricity, construction and virtually all manufactured and transported commodities for Californian’s, very much including the poorest who can least afford those extra burdens.
Which begs the question… rather than build that expensive bullet train to nowhere for bureaucrats, wouldn’t it be better to finance a wagon train to Texas for entrepreneurs seeking a new gold rush of opportunity?
But then, on second thought, forget it. Free enterprise pioneers are already doing that, without need of any subsidies at all.
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