At least California didn’t place last among the 50 states. It scored only 47th in the new Economic Outlook Ranking of the 17th Edition of Rich States, Poor States: The ALEC-Laffer State Economic Competitiveness Index. In 50th and worst place was New York, followed by Vermont and Illinois. Although this year California dropped from 45th place in 2023.
The index is produced by economists Arthur B. Laffer, Stephen Moore and Jonathan Williams of the American Legislative Exchange Council. Laffer is the well-known co-author of California’s Proposition 13 tax cuts in 1978 and President Reagan’s tax cuts of the 1980s. Laffer and Moore are advising former President Trump on tax cuts should voters grant him a second term.
The Prop. 13 and Reagan tax cuts undergirded California’s phenomenal economic growth through the 1990s. Since then we’ve suffered a spate of anti-growth actions, such increasing the minimum wage for fast food workers from $16 to $20 on April 1. And boosting the state top income tax rate from 9.3% as recently as 2004 to 14.4% today. Indeed, the state income tax rate for the middle class now staggers at 10.4%, higher than for billionaires 20 years ago.
Including income tax rates, the index looked at 15 factors for its rankings, which for California are: 48th rank for that 14.4% tax rate; 41st for the top corporate income tax rate of 8.84%; 48th for recently legislated tax changes, such as boosting the income tax rate for the middle class to 10.4% this year from 9.3%; 48th for tort litigation and judicial impartiality; 49th for the minimum wage, $16 overall; and 50th for not being a right-to-work state, meaning union compulsion.
On the positive side, we’re in 1st place for no death tax, so your heirs will thank you for staying in the surf and sun; 3rd place for the number of tax expenditure limits, such as Prop. 13; and 12th place for having 483.3 public employees per 10,000 of population.
A middling rank of 28th was given for property tax burden, at $27.97 per $1,000 of personal income. Thank Prop. 13 again for that. It limits property taxes to 1% of assessed value, plus a maximum increase of 2% per year.
The problem is property here has soared so much in value in recent years. Zillow.com pegs the average Orange County home value at $1,138,455. That’s up 11.6% in one year. Someone who has owned such a home for decades might pay just $1,000 in property tax. But someone buying the exact same home at that price would pay $11,385 a year.
To be fair, the ALEC study also provided an Economic Performance Rank, which instead of looking to the future, looks backward at the decade 2012-22. On that, California ranked much better, 21st.
It takes into account three variables: The Golden State’s economic growth rate over that decade was 7th best, at 70.28%. Thank you, Silicon Valley. Non-farm payroll employment rose 19.93%, ranking 12th.
But all those Beach Boy good economic vibrations were weighted down by cumulative domestic net out-migration of 1.8 million (meaning it didn’t include migration from other countries). That ranked 49th, after 50th-ranked New York’s 1.97 million heading out.
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On April 15, Tax Day, columnist George Skelton celebrated, “California’s population is on the rise. So much for the claims of the state’s demise.” California state demographer Walter Schwarm told him our population, 38,965,000 last July, as of Jan. 1 again had risen above 39 million.
But that’s overall, including immigration from other countries, and for six months. The Laffer-ALEC study instead looked at migration among the 50 states and only had data through 2022. And the comparison was with other states.
In the index’s forward-looking outlook rankings, tops among the 50 states were our directly competitive neighbors: Utah ranked 1st, Idaho 2nd and Arizona 3rd. Among big-state competitors with no state income taxes, Texas ranked 6th, Tennessee 12th and Florida 14th.
That means, for far too many Californians, the future still will be packing up the U-Haul and heading to a state with cheaper housing and lower taxes.
John Seiler is on the SCNG Editorial Board and blogs at: johnseiler.substack.com
