Last week’s precipitous fall in the stock market had many Californians nervous about whether the drop was a sign that a recession is imminent. Like anticipating the next earthquake, we were wondering, “is this the big one?” Thankfully, the market has recovered a bit – for now – but most economists still believe that a recession is overdue. If it weren’t for massive deficit spending by the federal government, we would probably be in one now.
For California, the “big one” would be especially painful. Because California is overly reliant on high-wealth individuals paying the lion’s share of income tax revenue in the form of stock options and capital gains, even a modest national recession would inflict disproportionate pain here.
A vigorous pursuit of pro-taxpayer and pro-business policies now could lessen the pain of the inevitable recession later. Regrettably, California politicians reject the policies that would protect the state from the vagaries of the national economy.
For example, the reputation that California has a high cost of living is more than an opinion. It’s a fact. According to a recent report from Forbes based on publicly available data, California ranks third among all states in cost of living. The report considered broad categories of essential expenditures, including housing costs, transportation, health care, food and income taxes.
Among all those categories, California seems to be in a league of its own. Consider energy costs. The July Energy Price Data from the California Center for Jobs and the Economy reveals California’s absurd energy costs: Number 1 in residential electricity rates, Number 1 in commercial electricity rates, Number 1 in cost of gasoline, and Number 1 in the cost of diesel. Even worse is how much higher we are than the average cost of gasoline in other states: a whopping 37.8% differential.
California’s high energy costs have garnered the attention of national media. The Wall Street Journal just reported that “California has seen some of the sharpest increases in the country—electricity prices in the state have nearly doubled during the past decade and are now higher than those of anywhere but Hawaii.” The article attributes the high cost to the nearly blind adherence to the green agenda. “Price rises are particularly drastic in California as the state pushes to electrify everything from homes to cars faster than many other parts of the country.”
High energy costs, high cost of living and high taxes have combined to slam the brakes on economic growth. Final figures for the first quarter of 2024 reveal that California’s economy grew at a 1.2% annual rate to start 2024, the lowest since 2022’s fourth quarter. How did California’s most notable competitors rank? Idaho at 5%, Nevada at 4.4%, Texas up 2.5%, and Florida up 3%.
As if the dismal GDP numbers weren’t enough, another report from the California Legislative Analyst on outmigration is more evidence that the state might soon be stripped of the word “Golden.” Just two weeks ago, the LAO reported that “the number of taxpayers who move out of California each year ticked up in 2020 with the beginning of the pandemic [and that] recently released IRS taxpayer data from 2021 and 2022 shows this trend has continued. As a result, annual net outmigration to other states nearly doubled—from about 170,000 people (taxpayers and their dependents) in 2019 to closer to 300,000 people—since the pandemic began.”
California’s political elites, especially Gov. Gavin Newsom, believe they can continue to gaslight California voters into believing that everything is fine. But as John Adams famously said, “facts are stubborn things.” If politicians don’t deal with facts now and start recognizing that the state is on an unsustainable path, the inevitable downturn will drive even more people and businesses out of state.
Jon Coupal is president of the Howard Jarvis Taxpayers Association.