Sign of the Times: Arthur Laffer Reverses Jed Clampett’s Trek
California legislators were slapping themselves on the back last week for having passed a $35 billion infrastructure bond measure that will go before the voters in November. Predictions filled the air that all the building would spur job creation. Aides to Governor Arnold Schwarzenegger say his success in pushing the bond package may help seal his re-election this year.
But one of the 16 members of Mr. Schwarzenegger’s council of economic advisers isn’t nearly as optimistic. Supply-side economist Arthur Laffer says the biggest threat to the national economy — which he is generally optimistic about — is the failure of California’s political class to tackle the state’s high tax and bloated regulatory cost structure. Given that California represents one-eighth of the nation’s GDP, he views the failure of reform in California as a serious impediment to future growth. "California has done some taxes that really could bring down the housing market in that state," he told CNBC’s Larry Kudlow last month. "And we’ve got a proposition on this year’s ballot that would raise the highest tax rate to 12%."
The normally happy economist is putting his assets where his worries aren’t. A resident of California since 1976, when he came west as a young man to take a teaching position at the University of Southern California, he is now leaving the Golden State. As of last week, he had closed on a house in the tony Belle Meade section of Nashville, Tennessee, and is in the process of moving his family and business there.
Mr. Laffer says he wishes Governor Schwarzenegger well, and regrets the governor was unable to win voter approval last year for his initiatives that would have rolled back the power of public employee unions in the state. But Mr. Laffer told me the state’s long-term fiscal and tax problems need to be addressed before California can be put on a solid growth path. "I’d like to see a pro-growth, flat-rate income tax in California," he says. "That’s not possible now, but I will note that Tennessee has done other states one better — it doesn’t even have an income tax."
— John Fund, Wall Street Journal’s Political Diary
May 9th, 2006 at 12:00 am
I wonder how much revenue he is taking with him. This is exactly what Dan Weintraub is always writing about. High tax brackets costs us millionaires, which in turn costs us revenue.
I’m surprised the Democratic legislature hasn’t found a way to tax millionaires as they leave the state. Drain every last drop from them…
May 10th, 2006 at 12:00 am
Karen,
I helped move a friend (and former conservative activist’s) business out to Las Vegas in late 2003. Those were about 20 white collar jobs and over $1 million each year in pre-tax profits. Not only was the firm’s owner very happy to leave behind CA’s regulatory, litigative, and taxation climate, he promptly volunteered for every media opportunity the Nevada Development Authority sent his way, providing one devastating soundbite after the other to encourage other CA business owners to get out.
My present firm (I’m now a partner in a marketing firm) started in California. It’s coming to full flower here, in the fertile business climate of Nevada. We expect to have a presence in CA again eventually, but the jobs we create here will stay here.
We’re very active in the North Las Vegas Chamber of Commerce here (www.nlvchamber.org), so we keep a special eye on the business doings in that Vegas Valley city. Qualcomm, long the “anchor tenant” of Sorrento Valley (San Diego’s tech district), is building its newest facility … not in Sorrento Valley, but North Las Vegas. If I’m not mistaken, those will be approximately 60 white collar tech jobs QCOM will NOT be creating in California.
Also in NLV, CDW (the big office-electronics online/catalog retailer) just completed and opened its western worldwide distribution center. CDW’s original hub is in Chicago, so there’s no guarantee those jobs would have ended up in CA. With CA’s high cost of doing business, we can safely assume California’s chances of getting that distribution center were dead on arrival.
It’s a shame Mr. Laffer didn’t make his plans known sooner. Nevada would have loved to steal him – he’d have made a great spokesman for the economic-development agencies here.