California’s Anti-Business Environment Spells Trouble

California’s economy is in major trouble. Even though the state’s budget, after a number of years of multi-billion dollar deficits, is currently in a surplus, there are a number of problems ravaging the state and stifling business. Unfortunately, every problem revolves around the state legislature having an enormous desire to tax their wealthy citizens (as if that will change anything!) and a lack of understanding current business trends.

California’s economy is in major trouble. Even though the state’s budget, after a number of years of multi-billion dollar deficits, is currently in a surplus, there are a number of problems ravaging the state and stifling business. Unfortunately, every problem revolves around the state legislature having an enormous desire to tax their wealthy citizens (as if that will change anything!) and a lack of understanding current business trends.

Budget Surplus but not Financially Sound

California’s recent budget surplus can be attributed to two things: major spending cuts and big tax increases. Although these actions put the state’s fiscal house in order, it did little to help the business in the state.

Instead of cutting spending from unnecessary programs, Governor Jerry Brown slashed the budgets for schools, health services, and higher education. All three of these programs have a direct correlation to general economic success. If there is not a flow of well-educated graduates, then industries will stifle, as they will have difficulty finding impressive talent.

Governor Brown’s tax increases have an enormous impact on whether the wealthy citizens and businesses decide to stay in California. Tiger Woods left for Florida many years ago. Jesse James left for Texas years ago as well. Millionaires have to pay a top rate of 13.3% through the end of the decade, while the state’s sales tax will be a quarter point higher until 2017. On top of that, corporations pay high taxes.

Companies Leaving because of an Oppressive Tax Environment

This stifling tax environment is forcing many companies to move. Doing business in California is expensive – corporate taxes are 6.3% higher than the national average. Companies are moving to places like Texas or Arizona, where corporate taxes are well below the national average. In fact, Toyota recently moved all of their operations out of California because it was just too expensive.

Missing the Shale Revolution

The government of California could benefit greatly by loosening regulations on hydraulic fracturing, the process used to tap shale oil and gas. The U.S. Environmental Information Administration estimates that California’s Monterey Shale formation has as much as 13.7 billion barrels of recoverable oil. States like Pennsylvania and Ohio have helped buoy their budgets and triple business in their state by loosening regulations on hydraulic fracturing.

Illogical Thinking

Unfortunately, California’s legislature is widely opposed to extracting their abundant shale resources. Many bills in the state house and senate ban fracking.  Many local liberal and socialist governments slapped moratoriums on shale development in the November 4 election. This is a major lost opportunity, and forces the state to take ridiculous measures, like raising taxes and cutting school budgets.

Further, the government’s mismanagement of water resources during the recent drought is wreaking havoc among California’s farmers. Because farmers are not able to get the water that they need, lost revenue in 2014 may be as high as $5 billion. It might be higher in 2015. Farmers this year are planting 12% fewer principle crops in California because the state has not built the infrastructure to store water for farmers, as they should. Instead, the state chooses to pay tens of thousands of people not to work since their liberal social welfare platform is beyond generous.  It is destructive, and it is making people dependent on the system.

California has it all mixed up. They should shore up and build their water infrastructure rather than discuss some goofy high-speed rail and pay citizens and even non-citizens not to work.

Do not let California’s recent budget surplus fool you – the state is in serious trouble. The anti-business environment is affecting a wide range of industries, and California is paying the price.