Is There a Way Out of Taxifornia?

Is There a Way Out of Taxifornia?

Considering that James V. Lacy titled his critique of California's fiscal policies "Taxifornia: Liberals' Laboratory to Bankrupt America," it's no mystery what he thinks of the state's economic situation and whom he blames for it. Lacy doesn't mince words in targeting California's liberal officials and special-interest groups, or in painting a bleak picture of the state's affairs.

Lacy, a former California delegate to the Republican National Convention and member of the Reagan administration, is nothing if not detailed as he reveals the various flaws in California's approach to governance. Although there are many issues, each with its own distinct qualities, they all have something in common, as he sees it: liberal dysfunction.

According to Lacy, overregulation, overtaxation, mismanagement of state funds, favoritism, and perversion of democratic functions have left California with high rates of poverty, high unemployment, an exodus of both small businesses and the television and movie industries, a floundering public-education system, and a stifled energy industry. Businesses find it too difficult and too expensive to operate within California, which is bad news for a state grappling with an 8 percent unemployment rate (trumped only by Nevada, Illinois, and Rhode Island) and facing uninspiring job-growth figures.

The book's first chapter is a powerful condemnation of the state's tax policies; Lacy goes so far as to say that heavy taxation is destroying California's economy. Relative to other states, California has high income-tax rates, corporate tax rates, and state and local tax rates. (Lacy writes that California's sales-tax rate is the highest in the country, but that's before adjusting for local rates; after adjusting, it's the eighth-highest.)

Lacy characterizes California's liberalism as "kooky," radical, and out of touch -- the state is a place where liberals react reflexively to perceived problems without allowing for markets to self-regulate or impressing upon individuals the importance of personal responsibility. Though he gets a little too aggressive at times -- he refers to the "obvious" job-killing effects of minimum-wage hikes, but the evidence is certainly not cut-and-dried -- Lacy makes a broader point about how California has gotten itself into economic trouble.

The most pressing and important problem facing California, Lacy argues, is the state's underfunded and overly generous public-pension system. The fact that Lacy sees this is as an urgent issue is no surprise, given the widespread attention public pensions have received in the media and local government (in fact, I covered a forum on this issue back in October). Most notable, of course, is San Jose mayor Chuck Reed's Pension Reform Act, which happened to lose a major court battle last month. The author points to the bankruptcy of Stockton as proof of the failure of liberalism in California, with the city's gradual decline caused by "liberal spending policies and catering to public employee unions."

That, though, brings up an even bigger problem -- the power of public-sector unions -- and the California Teachers Association is the major player, according to Lacy. The CTA is a dominant force in political spending, and the biggest-spending interest group in California: According to Lacy's calculations, the group spent $290,000,000 between 2000 and 2013 on "influencing California elections and legislation," which is more than double the total of the next highest special interest spender, the California State Council of Service Employees.

The money goes, of course, overwhelmingly to Democrats, who wield immense power in California. The CTA uses its influence to push the state's compensation policies far to the left, often under the guise of education spending. Liberals and their "teachers' union allies," Lacy writes, push for more money by pointing to the state's troubling student-teacher ratios, lack of computers in classrooms, etc. But these problems occur, he says, because the money California is already spending never reaches the classrooms, but rather goes toward lining the pockets of California's well-compensated teachers. Even as spending rises, Lacy writes, test scores continue to spiral downward.

But union money isn't the only thing that works to the Democrats' advantage; in addition, the party's political dominance seems to be self-sustaining. Lacy quotes Howard Jarvis Taxpayers Association president Jon Coupal, who wrote that, because Democrats control the government, they can press "politically vulnerable industries for campaign contributions." Lacy says the Democratic party is so entrenched "that today a Republican has practically no chance at winning any statewide elective office."

As a result, California Democrats' resistance to reform extends beyond pensions and education; the energy sector, for example, experiences complex, duplicative, and anti-growth regulations. Lacy argues that the most important step that California can take to improve its economy is to "throw off [the] liberal clock of inaction" and allow for more oil and natural-gas extraction.

That kind of suggestion is typical of Lacy's approach: He provides much more detail when describing problems than when offering solutions. He does encourage certain relatively direct courses of action, such as implementing Common Core, but otherwise he keeps to general recommendations such as lowering taxes, bringing spending under control, and encouraging Democratic officeholders to embrace more moderate positions.

So, then, what does the path to improving California's economic situation look like? The state is in the unenviable position of needing a number of different answers to a number of different problems, and it's going to have to start with a top-down approach targeting its systemic issues. Given how Lacy portrays California's governmental machinations, that seems unlikely without greater political competition.

Joseph Fleming is a RealClearPolicy intern.

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