Higher Taxes Fuel Exodus

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The talk out of Sacramento about the possibility of raising taxes is alarming. Won’t those people ever learn?


The more they raise taxes, the more people leave. Trouble is, it’s often wealthy people and business owners who pack up. So the state ends up with less money.

A recent report by the American Legislative Exchange Council illustrates the problem. The richest 10 percent of income earners in California pay 75 percent of the state’s income tax. California’s marginal tax rate is the second highest in the country. Many of these rich people are small business owners the ones who create jobs.

So when taxes get raised on those folks, they tend to leave. According to the report, about 240,000 more Californians left the state in 2005 than other Americans moved in. Much the same was true in 2003 and 2004. The outflow has become so systemic that it can cost six times more to take a U-Haul from Los Angeles to some non-California towns than it costs to go the other way.

In a recent 10-year period, California has the second-most out migration of native-born residents. They moved to places like Nevada and Arizona. In fact, Arizona had more in-migration than any other state.

The report said that when the state raised its income tax level under Gov. Pete Wilson, “the tax hike incited one of the worst fiscal crises in the state’s history. As tax revenues cratered, the debt exploded, and high-income people fled the state never to return.”

The legislative exchange council is a right-leaning, free-market group. But this is not a left-right issue. In fact, it is crucially important in California that Democrats understand that the greater they make the tax burden, the more likely that businesses will leave and the budget problem will get worse. After all, President Kennedy did. He cut taxes by a huge amount.

Speaking of bad tax policy, I don’t understand why the City Council would choose this time with oil north of $100 a barrel to think about adding a tax on oil that’s extracted from Los Angeles, as reported last week in the Business Journal.

Let’s remember that taxes such as this one are not paid by businesses. They’re passed on directly to the consumer. So the big, bad oil companies don’t really pay. Struggling commuters do.

Now, you could argue correctly that the tax isn’t envisioned to be great, perhaps up to 60 cents a barrel, which would add maybe a penny a gallon to the cost of gasoline. But it’s the thought process that’s at issue here. And the thought process is errant.

And speaking of things I don’t understand, why are congressmen tripping over themselves to question the military’s decision to have aerial tankers built by a joint venture between Northrop Grumman of Los Angeles and EADS of Europe?

One rationale is that EADS is a taxpayer-subsidized enterprise, and that gave it an unfair cost advantage over Boeing.

Let me get this right. Taxpayers in Europe are helping to pay for a military airplane for the United States, and congressmen here want to stop them?

Shouldn’t we thank them?


Charles Crumpley is editor of the Business Journal. He can be reached at

[email protected]

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