THE LIBERTARIAN PERSPECTIVE
A WEEKLY OP-ED COLUMN BROUGHT TO YOU BY THE LIBERTARIAN PARTY OF CALIFORNIA

www.ca.lp.org

Where Will the New Jobs Go?

by Joe Cobb

The U.S. Bureau of Labor Statistics reported last week that only 51,000 new jobs were created in the United States during September. Labor statistics are always being revised, but this preliminary report is not good news for California. Without a lot more jobs in the future, tax revenue won't grow.

The budget and debt crisis facing the Golden State is getting worse, even after several years of good economic recovery. In the next few months, billions of dollars more in public debt will be disclosed, resulting from retired government-employee health and pension liabilities.

If California doesn't turn its economy into one of the strongest growth sectors in the country, it is doomed. The state needs a lot more tax revenue to sustain all its legal commitments for future spending.

Paradoxically, California's government seems to be trying hard to reduce economic growth. With gasoline and electricity prices already well above those in neighboring states, and the new regulations on carbon dioxide emissions, which no neighboring states have, California appears headed for an economic decline.

California's economy is exposed to competition from the worldwide economic system, which can produce goods and services where they are least costly and sell them everywhere with cheap transportation. Even before it was global, free trade inside the United States promoted the movement of jobs from the industrialized East Coast to the South and West.

For most of the 20th century, California's economic growth was driven by its favorable climate. John Steinbeck documented the migration to California in the 1930s in The Grapes of Wrath, and the Pacific war theater brought millions of Americans to the West Coast for the first time; after World War II, California became their home.

California's economic growth happened because immigrants arrived and found jobs and started new businesses. California's real estate boom was driven by its population increase over the years, but that may be coming to an end. The prospect of continued immigration is bleak (except, of course, for impoverished refugees from Mexico) if the state government's tax and regulatory policies don't change.

Consider what our neighboring states are doing to take jobs and economic growth away from California. Since becoming New Mexico's governor in 2002, Bill Richardson has reduced income tax rates 35 percent. When he signed the tax cut bill, Richardson declared New Mexico "open for business." He said he was tired of losing business to lower-tax states like Arizona.

Meanwhile, Arizona has just cut its income tax rates 10 percent across the board, and Phoenix is one of the fastest growing cities in America. Candidates for governor in Arizona are debating each other over who will cut taxes the most when elected.

Last month, Utah also cut income tax rates and became the first state in the country to offer taxpayers the choice between filing taxes under a new flat tax or remaining in the current graduated system. Moreover, Utah lawmakers say it is only the first step in what promises to be comprehensive tax reform.

Nevada has no income taxes, and Las Vegas is the fastest growing city in America.

Compare the prospects for California with the rapid economic growth in Nevada, Arizona, Utah, and New Mexico-all of which have government budgets in surplus. California's 10.3 percent top income tax rate would have been pushed even higher, to 12 percent, if Proposition 82 had passed in June. Arizona's top income tax rate is 4.8 percent (next year 4.3 percent), and New Mexico and Utah's top rates are each 5.3 percent.

California has the highest workers' compensation costs and the highest health care premiums of any of the western states. An employer with such nearby options to expand in lower-tax, lower-cost states would be foolish to expand in California. The increases in employment in California in recent years have been primarily in government jobs, which are counted as positive statistics for economic growth; but since those jobs depend on tax revenues, they are really parasitical.

California has always been recognized as a trend-setting state, with many economic and cultural innovations beginning here and sweeping the world. Unfortunately California may now be at the forefront of a new trend: downward.

Let's hope the voters understand what is at stake and elect new leaders who can change California's future before it is too late.

About Joe Cobb:

Joe Cobb was chief economist for the United States Senate, prior to holding the prestigious John M. Olin Senior Fellowship at the Heritage Foundation (1993-96). Cobb is a past president of the National Association of Business Economists, National Capital Chapter.

A more complete biography and a photograph of the author suitable for printing may be found at: The Libertarian Perspective -
Biographies and Photographs.