Tuesday, September 21, 2010

California Business Exodus: If You Tax Something...

From Joseph Vranich:

"California is in serious trouble because many people refuse to admit to one of our big problems - the flight of businesses, capital and jobs to other states and nations. Businesses are shrinking their California footprint because high taxes and intense regulation damage their ability to compete.

Good information about the phenomena is hard to come by. Hence, out of frustration, a year ago I began compiling a list of what I call "California Disinvestment Events." The new compilation shows that 144 companies have fully or partially engaged in such events during the first three quarters of 2010, nearly triple the 51 companies discovered for all last year. You can see the list of companies that disinvest along with explanatory context here.

Such events are found in public documents. The real exodus is incalculable because so many are carried out without public notice. I think that for every one that becomes public knowledge, another dozen or more occur. Of course, many are small companies, but as they grow the economic benefits will be reaped elsewhere.

The top states gaining our businesses since January 2009 show Texas in the top spot, followed by Arizona, Colorado, Nevada, Virginia and Utah. Also, companies have moved functions to Taiwan, Mexico, Brazil and Chile. The jobs include R&D, which used to be a California hallmark. Now we're seeing unusual losses."

MP: More evidence of the anti-business, anti-growth effects of high taxes and onerous regulations, and companies voting with their feet.  

U-Haul Update: The cost for a one-way 26-foot truck rental from LA to Houston is $2,279, more than 2.5 times the cost for a truck going in the opposite direction ($892), suggesting that there are a lot more people moving out of California to Texas, than from Texas to California.    

26 Comments:

At 9/21/2010 3:39 PM, Blogger bobble said...

"California Business Exodus: If You Tax Something..."

meh. taxes and regulations were high and rampant in california during the 1990s dot bomb years. that didn't seem to drive away business.

logically, i'm with you on high taxes (15-20% flat tax anyone?). higher rates should inhibit business activity.

but in the real world there seems to be no correlation at all. look at 1933-1937, or the clinton tax increases for reverse correlation.

 
At 9/21/2010 3:51 PM, Blogger Benjamin said...

More people leaving for Texas?...whenever I drive cross-town Los Angeles, I wish even more would move to Texas....
Good luck in the TX heat, humidity and bad food.

 
At 9/21/2010 4:00 PM, Blogger Paul said...

Californians deserve what they get as long as voters like Benji continue to put anti-business, anti-growth Democrats into office.

 
At 9/21/2010 4:08 PM, Blogger Paul said...

Bobble,

"but in the real world there seems to be no correlation at all. look at 1933-1937, or the clinton tax increases for reverse correlation."

There's a correlation, but there are multiple variables to consider that may mask or offset the destructive effects of anti-business policies. Example: Clinton raised taxes, but he also benefited from an uptick in the business cycle that preceded him. He also happened to be in office while the internet and other high tech waves were cresting. He had a GOP Congress that kept his liberal impulses in check. He benefited from a Y2K artificial boom that predictably crashed on Jan 1, 2000. etc..

 
At 9/21/2010 7:13 PM, Blogger bix1951 said...

I would like to see California population shrink.
Since I was born here in 1951 the pop. has gone from 11,130,000 to
about 37,000,000. 330% increase!
It is too many people.

 
At 9/21/2010 7:25 PM, Blogger Craig said...

"in the real world there seems to be no correlation at all. look at 1933-1937, or the clinton tax increases for reverse correlation"

The destruction of an economy takes decades to become apparent. New York State began to raise taxes and government spending in the late fifties and early sixties, yet the economy continued to grow.


When I was in high school, Buffalo was still an industrial powerhouse and the good-time-destination for residents of Toronto looking to escape their stuffy, boring little city for a weekend. By the early seventies that had started to change, though.

California is just starting to see what it has wrought.

 
At 9/21/2010 7:46 PM, Blogger bobble said...

paul:"There's a correlation, but there are multiple variables to consider that may mask or offset the destructive effects of anti-business policies. "

so you're saying the effect of high taxes on business is very weak and easily offset by any number of other economic conditions?

 
At 9/21/2010 8:06 PM, Blogger bobble said...

craig:"The destruction of an economy takes decades to become apparent."

pretty weak. i could use that same argument to prove that tax cuts destroy the economy.

federal income tax rates have been declining since about the mid sixties. now, five decades later, the national economy stinks.

 
At 9/21/2010 9:11 PM, Blogger bobble said...

" . . . more people moving out of California to Texas . . ."

lol, good news for california!

 
At 9/22/2010 8:08 AM, Blogger juandos said...

"Since I was born here in 1951 the pop. has gone from 11,130,000 to about 37,000,000. 330% increase!"...

Hmmm, I wonder what the population would be (in real world terms, NOT politically correct terms) if California deported all the illegal aliens and how much money would that save?

 
At 9/22/2010 9:30 AM, Blogger Paul said...

"so you're saying the effect of high taxes on business is very weak and easily offset by any number of other economic conditions?"

I don't know if Id say "very weak" but it isn't news that there are other variables to consider. And I'd say growth would have been x amount stronger if Clinton hadn't raised taxes in '93.


"federal income tax rates have been declining since about the mid sixties. now, five decades later, the national economy stinks."

The top tax rate when Reagan left office was 28%. I believe it's 35% now and headed up.

 
At 9/22/2010 9:59 AM, Blogger Michael Ward said...

bix1951 said...

"I would like to see California population shrink. Since I was born here in 1951 the pop. has gone from 11,130,000 to about 37,000,000. 330% increase! It is too many people."

I suspect you would not want to move out but that *other people* should.

 
At 9/22/2010 10:55 AM, Blogger Jet Beagle said...

bobble: "federal income tax rates have been declining since about the mid sixties. now, five decades later, the national economy stinks."

The national economy does not stink. In the first ten years of the 21st century, the U.S. has recorded the ten highest levels of real, inflation-adjusted GDP. GDP in 2009 was down slightly from the levels of 2006-2008. But in 2009 the U.S. economy still achieved the fourth-highest level of real GDP in this nation's history.

U.S. unemployment remains high, of course. That is not surprising, given the huge incentives the government provides for workers to not work.

 
At 9/22/2010 2:18 PM, Blogger bobble said...

jet beagle:"The national economy does not stink. In the first ten years of the 21st century, the U.S. has recorded the ten highest levels of real, inflation-adjusted GDP."

stats and opinions will certainly vary. i stand by "economy stinks" opinion. The Economist describes the years 2000-2009 as: "Perhaps not quite a lost decade, but the worst, . . [for %GDP growth,%income/consumption increase, and %change of non-farm payrolls] . . since the 1930s" charts and text here

 
At 9/22/2010 5:27 PM, Blogger Jet Beagle said...

bobble,

During the 1940s, 1950s, and 1960s the world learned to automate labor-intensive tasks, and thus realized enormous productivity gains. Comparing that special period to today's growth is not really valid. It makes much more sense to compare recent U.S. economic performance to that of its peers - the largest economies on the planet. Here's the real GDP annual growth rates for the largest economies over the past decade:

China 9.9%
US 1.9%
UK 1.7%
France 1.5%
Germany 0.8%
Japan 0.7%
Italy 0.5%

Source: IMF data

China is not really a peer, as it is still making the transition from a third world economy. The U.S. continues to outperform all other large nations.

 
At 9/22/2010 8:23 PM, Blogger bobble said...

jet b:"Comparing that special period to today's growth is not really valid."

lol, ok. the economy stinks here in the U.S., but the economies stink even more in the rest of the world :o]

 
At 9/22/2010 9:09 PM, Blogger bobble said...

paul: ". . . it isn't news that there are other variables to consider. And I'd say growth would have been x amount stronger if Clinton hadn't raised taxes in '93."

sure, that could be true, and i suspect your faith in it is pretty unshakable. it's so logical it just has to be true.

but its really just speculation.

here's what i'm hearing:

effect uptick business cycle + effect high tech waves + effect GOP Congress + effect Y2K boom > effect tax hike

A + B + C + D > E

the problem is no values are available for A, B, C, D, or E.

i'd be very surprised if they could be reliably computed. what's the quantitative effect of GOP congress? uptick in business cycles?

so what this ends up as, is a cocktail party conversation, not convincing support for tax rate/business activity correlation.

to me, the faithless, its still uncorrelated. possibly even negatively correlated.

 
At 9/22/2010 10:18 PM, Blogger Cliff said...

Over the last 10 years, net emigration from California to other states has been over 500,000. Of course immigration from overseas was over 1,000,000 and births were high as well. But, that in itself is a recipe for disaster.

 
At 9/22/2010 10:20 PM, Blogger Cliff said...

Bobble,

I am sure there is academic literature on the topic. I believe the field of econometrics exists to tease out the effect of a given policy change from the numerous other changes happening at the same time. Since there is no logical reason why higher tax rates would stimulate the economy, I think the burden is on you to produce some literature. Just eyeballing trends with no analysis or calculation is meaningless.

 
At 9/22/2010 10:44 PM, Blogger bobble said...

Cliff:"I am sure there is academic literature on the topic. . . . I think the burden is on you to produce some literature. "

uh, no. since i asserted there was no literature on the topic and you are now asserting there is, the burden to produce said literature would appear to be on you.

 
At 9/22/2010 11:45 PM, Blogger bobble said...

you guys really should read Northern Trust's piece on the Great Depression.

its an eye opener. especially the massive 1933 income tax hike followed by the massive three year GDP surge, 1934-1937.

its a quick read, only seven pages. yet chock full o' data and charts.

link

 
At 9/23/2010 7:03 AM, Blogger juandos said...

Hey bobble, thanks for the link and you're right, its some very interesting reading...

Consider the following: Five Myths About the Great Depression

 
At 9/23/2010 3:19 PM, Blogger Irrippi said...

Incomes in Los Angeles are probably at least 40% higher in L.A. than Houston. People selling their houses in California are probably getting four or five times as much as a comparable house in Houston.

Higher income and wealth results in higher prices. You need to do a lot more demand analysis than just comparing one wa rental rates. You also need to consider supply differences.

 
At 9/23/2010 4:47 PM, Blogger bobble said...

juandos, thanks for the link. i learned a few things!

 
At 9/24/2010 9:55 PM, Blogger Sam Grove said...

Why would anybody cite federal tax policies when discussing an intrastate phenomenon.

American business can leave California, and should, if they think they can do business more profitably elsewhere.

 
At 2/28/2011 12:37 PM, OpenID epeon said...

First, the federal tax burden really has not changed in decades (see Hausler's law). The tax rate may change but the deductions do as well. So, the effective tax rate remains about the same. The argument that Clinton raised tax rates is really not correct because, at the same time, he cut capital gains, etc. Secondly, we have plenty of real world experience that changing tax rates do erode an economy over time. Detroit is a good example, they raised their city income tax rate and property taxes in the 60s. Over time, people who paid taxes chose not to live there. Those who did not pay taxes were unaffected and, therefore, moved there. California is doing the samething. And, if you look at California with the eyes of someone who had been there decades ago you see the changes. More low income, more people who don't pay taxes are moving in. People who pay taxes leave. Just the way it is.

 

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