“Californians are fleeing in droves to live in better-managed states, according to a conservative research group,” Fox News reports. “The long-running exodus from the cash-strapped Golden State is an old story, but a new study by The Manhattan Institute finds that the biggest beneficiaries of the population drain are Texas, Nevada, Arizona, Oregon, Washington, Colorado, Idaho, Utah, Georgia and South Carolina. Lower cost of living, less government debt and a more business-friendly culture are the main drivers, according to the study.”
The study itself concluded, “States that have gained the most at California’s expense are rated as having better business climates. The data suggest that many cost drivers — taxes, regulations, the high price of housing and commercial real estate, costly electricity, union power, and high labor costs — are prompting businesses to locate outside California, thus helping to drive the exodus.”
That’s a principle noted by economist Arthur Laffer.
Laffer’s famous “curve” theory includes the idea that capital and people are inherently mobile. His theory says that if taxes are raised to levels considered unreasonable, then people will move to avoid them. Thus, revenues will decline even as rates increase (that’s the curve).
History is on Laffer’s side. Even very recent history shows this. France’s president wants to raise the tax rate on top earners to 75 percent. Tax lawyers there are finding themselves fielding questions about immigration.
The exodus from France has begun; the Times reports that in recent months, “the former Victoria’s Secret model Laetetia Casta, the restaurateur Alain Ducasse and the singer Johnny Hallyday caused a stir by moving to countries just across the border to escape the French treasury’s heavy hand.”
And these facts should emphasize the importance of the second thing we learn from California: Texas had better not blow it.
The Legislature will face significant problems. State Sen. Kevin Eltife, R-Tyler, bluntly says Texas officials “haven’t worked together to solve anything. There are a lot of statewides that are working on their next office. I want to solve problems.”
The business franchise tax will have to be reworked. School funding took a $4 billion hit in the last legislative session; it can’t take another such blow.
But neither can the state’s rainy day fund be expected to cover shortfalls, particularly in Medicaid, as it did in the last session.
That well’s running dry
Let’s take the good news for what it is: praise, and a warning.