Saturday, May 10, 2014

Laffer on CA's Malaise

Economist Arthur Laffer created the famous Laffer curve which shows higher tax rates result in lower tax revenues. He writes for Investors Business Daily about the history of taxation in CA and its reciprocal relationship with population flows.

When CA's taxes were relatively low, people moved TO the state, Since taxes have been high, people move FROM California to other states, often TX or FL both of which impose no state income taxes. Furthermore, Laffer demonstrates that people moving from CA have higher incomes than people moving to CA, also true for NY and IL.

Apparently, economic rationality overpowers quality of life. CA has the best quality-of-life in the nation, some of the best in the world. Where else can you find warm weather, low humidity, mountains, beaches, world-class skiing, multiple national parks, cool rain forests, the tallest mountain in the contiguous 48 states (Mt. Whitney) and the lowest spot in the nation - Death Valley. And it has some of the nation's most productive agriculture.

As Laffer points out, politics in the state is held in a financing stranglehold by public employee unions which have arranged for CA public employees to be highly paid. As a consequence, the state has fewer of them per 100,000 population than most states, because they cost too much. Fewer highly paid public employees per capita equals poorer public services, the worst of both worlds.