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California Sings the Economy Blues

People and businesses flee the Golden State in search of lower taxes and less crime.

The struggle is real in the Golden State. In February, the unemployment rate was 5.3%, the highest in the nation, according to the Bureau of Labor Statistics. California — the third biggest state after Alaska and Texas — has beaches, mountains, Silicon Valley, and Hollywood. So why is it suffering financially? The reasons are many — from taxes to crime.

California Economy Woes

“California job growth is struggling because of the state’s regulatory and tax policy,” Wayne Winegarden, senior fellow in business and economics at the Pacific Research Institute, told The Daily Caller. Will Swain, president of the California Policy Center, was of the same opinion, telling the outlet: “You can look at the unemployment numbers, and those really flag some severe underlying problems.” In the last year, jobs increased by only 82,000, most of which were government positions, according to the California Employment Development Department.

Winegarden added, “California overregulates business and underregulates public safety. And those two things may seem unrelated, but when you allow people to engage in organized theft from stores or break into cars, for instance, it reduces the ability of markets to function.”

In 2011, the state’s supreme court found that California prisons were overcrowded, which violated criminals’ Eighth Amendment rights against cruel and unusual punishment, AP explained. To combat this, voters approved Proposition 47 in 2014, which reduced some crimes from felonies to misdemeanors. This has affected businesses since thefts under $950 are only minor crimes instead of serious felonies, as they had been before. Not prosecuting thefts under this amount has emboldened crime rings, according to officials. While having fewer people incarcerated has saved $113 million this fiscal year, law enforcement said it has made it harder to prosecute shoplifters and, therefore, encourages more crime.

As a result, many retail companies have resorted to locking up products behind glass. And we’re not talking about just expensive watches and jewelry; everyday items such as deodorant are now under lock and key. Add the tax burdens and regulations, and it’s no wonder businesses are pulling up stakes and going elsewhere. California ranked fifth in 2020 for highest business taxes, around 13.5%, according to the Tax Foundation. Winegarden opined:

“Policies such as expensive energy mandates, restrictive zoning regulations, high taxes, rent control, and high minimum wages all increase the cost of doing business and decrease families’ purchasing power.

 

“The higher cost of doing business makes California firms less competitive nationally, which harms economic growth. The affordability problems make it harder for families to thrive, encourage families to leave the state, and discourage new families from migrating to California. All of these trends reinforce one another, harming the state’s vitality.”

The Daily Caller reported that the population dropped by around 538,000 from July 2020 to July 2023 as people moved to red states such as Florida and Texas.

When it comes to jobs, some may think it’s great that California has one of the highest minimum wages in the nation at $16 per hour, plus the new $20 per hour for fast food workers that went into effect April 1. But the economic reality hits hard for others – especially business owners. “We have a very finite set of economic conditions that need to be met for us to make money,” said Alex Johnson, owner of five Cinnabon and five Auntie Anne’s locations in San Francisco. “And certainly, this bill has cast doubt [as] to whether we can continue in this state.” He said he’s already started to invest in Nevada, “where there just isn’t so much regulation, there [aren’t] so many different types of people telling you how to run your business.”

As a result, layoffs are happening across the board, including in the tech sector. “The pandemic lockdowns here in California lasted far longer than they did elsewhere,” Swain told The Daily Caller. “And so the hit on retail, and particularly independently owned retail, has been disastrous – you know, small restaurants, independent stores. A lot of these have really struggled to come back. And the tech industry is now continuing to shed jobs.” In the Bay Area, tech companies cut more than 36,000 jobs from 2022 to 2024.

And then there’s the budget. California is looking at an estimated (and record) $73 billion deficit for fiscal year 2024, according to the state’s Legislative Analyst’s Office. This is partially due to a drop in income as people leave the Golden State, “with 27,000 tax filers with adjusted gross incomes of over $200,000 having moved out between 2020 and 2021,” The Caller enlightened.

Homelessness is aother big problem, especially in San Francisco and Los Angeles, the latter reporting more than 65,000 people on the streets in December last year. The state has already spent around $30 billion on the problem since Democrat Gov. Gavin Newsom took office in 2019. The US Department of Housing and Urban Development released a report showing there has been more than a 30% hike in homeless people in California since 2007.

With businesses leaving, homelessness out of control, a record-high budget deficit, and crime escalating, it’s no wonder Californians are fleeing in search of greener pastures.

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