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Other States Convince CA Businesses to Leave State

Josephine Djuhana
Assistant Editor, California Political Review

This year’s Black Friday and other miscellaneous holiday sales remind us that in order to entice customers and increase sales revenue, the method is simple: cut prices. Eager shoppers will line up in front of their favorite stores at wee hours of the morning just to land a good deal. People will even buy things from the comfort of their own homes: Online sales during this year’s Black Friday surpassed $1 billion for the first time. Consumers are ready to consume—they’re just waiting for an opportune moment to do so.

The approach should be the same for states and their governments trying to attract businesses. By cutting taxes and doing away with strangling regulations, businesses have real incentives to either stay in one state or move to another. The concept is simple: Make the business environment attractive, and companies and their profits will follow.

In response to California’s massive tax hikes and new CARB regulations being enacted come 2013, Arizona’s business leaders aim to prove that their state has more to offer California businesses. The Greater Phoenix Economic Council plans to fly in nearly 100 California CEOs for complimentary stays and tours of the metropolitan area. The Grand Canyon state beats our Golden State in every tax rate: State sales tax rounds off at 5.6 percent, while California’s sits at 7.5 percent. Arizona and California corporate tax rates are at 6.968 percent and 8.84 percent, respectively, and—get this—Arizona’s top income tax rate is 4.54 percent, compared with California’s whopping 12.3 percent, effective this year with the passage of Prop. 30.

Earlier this year, Spectrum Location Solutions reported 254 companies left California in 2011. Also major tech companies, like Twitter, Adobe, eBay, and Oracle, sent jobs to Salt Lake City. In April, Apple announced construction of a $304 million campus in Austin, complete with the addition of 3,600 jobs. The headquarters for chain restaurants Claim Jumper and Bubba Gump Shrimp Co. were both moved to Austin as well. It’s had a huge effect on California’s tax revenues. Add to that our unfunded pension liability, bankrupt cities, poorly performing municipal bonds, and you have a recipe for disaster for any state.

It’s also impacted our unemployment rates. With so many businesses high-tailing it out of the state, there are fewer opportunities for able-bodied individuals to find work. One in two new graduates are either jobless or underemployed. California’s unemployment rate of 10.1 percent is above the 7.9 percent national average, and well above low tax rate states like North Dakota (3.1 percent) and Utah (5.5 percent). Even Arizona boasts a lower unemployment rate at 7.1 percent.

Governor Brown should take a cue from major retailers and start making California a more attractive location for businesses to grow and thrive. He’s promised not to raise taxes without constituent consent, but he’s proven a willingness to influence voters by holding public services hostage, as he did with Prop. 30. It’s obvious that the state’s problem is in expenditures, not revenue. But the concept behind raising revenue is just as simple. Just like the whopping revenues that Black Friday sales bring in, a lower tax rate and fewer regulations will bring more businesses, and in the aggregate, more revenue.

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