A Milestone on the Road to Becoming a Third-World Economy

Northrop Grumman Corp started California’s New Year by announcing it is moving its headquarters to the Washington D.C. area. Unfortunately, they are neither the first nor the last major corporation to leave Southern California. It is a trend, one that may not last much longer, though since aren’t that many major corporations still headquartered in greater Los Angeles.

For decades, Southern California was the center of the aerospace world, a basic part of the Southern California’s DNA. Now, once Northrop leaves, there will be no major aerospace companies still headquartered in Southern California.

Aerospace is not the only industry abandoning Southern California. The region was once host to financial giants, like Bank of America, Security Pacific Bank, Countrywide, and First Interstate. Today, there are none. California was once a major automobile manufacturing state, with a dozen plants. Even the entertainment industry is slowly shifting away from its Hollywood roots.

When you lose corporate headquarters, you lose more than jobs. You lose the tax base, the leadership, the philanthropic giving, and the intangibles. Corporate headquarters are usually very good citizens.

Many local political leaders ignore this business’ exodus, or make excuses. The decline of the U.S. defense spending, aerospace spending in particular, is often given as a reason for the decline. But the last decade was not a bad one for defense; the industry thrived, just not in Southern California.

The reasons for this exodus are both simpler and less flattering than those usually given. One big reason is selfishness. California’s decline chose to consume, and not to produce. Wealthy, aging, Baby Boomers control the state. In the cause of “quality of life,” or “the environment,” they have succeeded in limiting opportunity for everyone else.

The other big reason for decline lies with governments, state and local, that now exist to serve themselves and not their citizens. The level of government goods and services, even infrastructure and basics, has declined, but state spending, adjusted for inflation and population, has continued to soar. The difference has been going into public employee’s pockets, through higher salaries, benefits, and generous retirement programs.

Remarkably, no Southern California economic sector is in ascendancy. Unemployment remains well above the national average, particularly in the middle class Inland Empire. The growth in bankruptcies has been about twice that of the United States. The state is becoming less equitable, the divide between those who have and those who do not have constantly growing, the middle class declining.

Southern California is starting to look a lot like a third-world economy, service based, inequitable, serving a wealthy, mostly aging few, with little opportunity for younger workers and a large underclass. Changing the region’s prospects will be very difficult. Nothing short of a major generational change in leadership is likely to change the current sad trajectory.

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Breaking Bad: California vs. the Other States

BLOG: www.open.salon.com/blog/Richard_Rider (beta)

Breaking Bad: California vs. the Other States
by Richard Rider, Chairman, San Diego Tax Fighters
Version 1.52 Revised 20 December, 2009

Here’s a depressing comparison of California taxes and economic climate with the rest of the states. The news is breaking bad, and getting worse (I keep updating this article):

California has the 2nd worst state income tax in the nation. 9.55% tax bracket at $47,055. 10.55% at $1,000,000

By far the highest state sales tax rate in the nation. 8.25%. 7% is next highest (does not include local sales taxes)
http://www.taxfoundation.org/files/bp59.pdf Table #15

California corporate income tax rate is the highest in the West (our economic competitors). 8.84%
http://www.taxfoundation.org/files/bp59.pdf Table #8

2010 Business Tax Climate ranks 48th in the nation.

Fourth highest capital gains tax 9.55%

Highest gasoline tax (averaging 65.8 cents/gallon) in the nation (October, 2009). When gas hits $3.00/gallon, we are numero uno – because unlike many states, we charge sales tax on gasoline purchases (built into the price).

Third highest unemployment rate in the nation. (November, 2009) 12.3%. National rate 10.0%.

One of the highest state vehicle license car taxes. 1.15% per year on value of vehicle, up from 0.65% in 2008.

California’s 2009 “Tax Freedom Day” (the day the average taxpayer stops working for government and start working for oneself) is again the 4th worst date in the nation – up from 28th worst in 1994.

To offset lower state revenues, 29 states are proposing 2009 state tax and fee increases totaling $24 billion. California, with 12% of the nation’s population, is proposing 47% of that increase (6/5/09).

1 in 5 in LA County receiving public aid.

California has 12% of the nation’s population, but 36% of the country’s TANF (“Temporary” Assistance for Needy Families) welfare recipients – more than the next 7 states combined. Unlike other states, this “temporary” assistance becomes much more permanent in CA.

California prison guards highest paid in the nation.

California teachers easily the highest paid in the nation.
www.nea.org/home/29402.htm (CA has the second lowest student test scores)

California now has the lowest bond ratings of any state, edging out Louisiana.

California ranks 44th worst in “2008 lawsuit climate.”

In 2005 (latest figures), for every dollar Californians sent to D.C. in taxes, we got back 78 cents – 43rd worst.

America’s top CEO’s rank California “the worst place in which to do business” for the fourth straight year (3/2009). But here’s the interesting part – they think California is a great state to live (primarily for the great climate) – they just won’t bring their businesses here because of the oppressive tax and regulatory climate.

Consider this quote from the survey (a conclusion reflected in the rankings of the characteristics of the state): “California has huge advantages with its size, quality of work force, particularly in high tech, as well as the quality of life and climate advantages of the state. However, it is an absolute regulatory and tax disaster.”

California, a destitute state, still gives away college education at fire sale prices. Our community college tuition is by far the lowest in the nation. How low? Nationwide, the average community college tuition is 4.5 times higher than California CC’s. This ridiculously low tuition devalues education to students – resulting in a 30+% drop rate for class completion. In addition, 2/3 of California CC students pay no tuition at all – filling out a simple unverified “hardship” form that exempts them from any tuition payment, or receiving grants and tax credits for their full tuition.

On top of that, California offers thousands of absolutely free adult continuing education classes – a sop to the upper middle class. In San Diego, over 1,400 classes for everything from baking pastries to ballroom dancing are offered totally at taxpayer expense.

California residential electricity costs an average of 35.4% more than the national average. For industrial use, CA electricity is 56.2% higher than the national average (2007).

It costs 38% more to build solar panels in California than in Tennessee – which is why European corporations have invested $2.3 billion in two Tennessee manufacturing plants to build solar panels for our state.

Consider California’s net domestic migration (migration between states). From April, 2000 through June, 2008 (8 years, 2 months) California has lost a NET 1.4 million people. The departures slowed in 2008 only because people couldn’t sell their homes.

These are not welfare kings and queens departing. They are the young, the educated, the productive, the ambitious, the wealthy (such as Tiger Woods), and retirees seeking to make their pensions provide more bang for the buck. The irony is that a disproportionate number of these seniors are retired state and local government employees fleeing the state that provides them with their opulent pensions – in order to avoid the high taxes that these same employees pushed so hard through their unions.

As taxes rise and jobs disappear, we lose our tax base, continuing California’s state and local fiscal death spiral. This spiral must stop NOW.

NOTE: If you would like to receive my free periodic “Richard Rider Rant” e-newsletter with more of this type of information and analysis, just drop me an email at RRider@san.rr.com. To see the latest version of this “Breaking Bad” column, plus samples of my free “Richard Rider Rant” e-newsletter, go to my blog at www.open.salon.com/blog/Richard_Rider. This report also is available as a 2 page Word file for printing.

you're only counting the bad news

Everyone complains that their state has the worst taxes. In terms of total average tax burden, Calif. is above average but not overwhelmingly so. You're forgetting that California also has among the lowest average property tax rates of any state, because of Prop 13; low personal income tax for the lower tax brackets; low local sales taxes (an average of <1% compared to an average of over 4% in some states).
California also has one of the highest state per capita GDPs and highest per capita incomes, and grew by 3 million in population over the last decade, so however lousy a place you say it is, the facts seem to suggest otherwise.

Check the calendar...


Your numbers here are from 2007! A lot has changed in the last 2 years here in California. Dramatic increases ($12B) in sales and income taxes were just passed by Sacramento last year - matching the numbers in the original post.

Here's a link to 2008 state tax burdens - http://www.taxfoundation.org/taxdata/show/443.html - where we rank 6th. Obviously this does not include the 2009 increases, nor does it include the high corporate and cap gain taxes that are also cited in the original post.

Is this push or pull? I

Is this push or pull? I might suggest that latter. It seems to fit well with Joel's writing on the increasing centralization of economic decision making in Washington. I saw someone tweet that "This completes Northrup Grumman's transition from a defense contractor to a lobbying firm." There is a certain logic in being close to your customer.