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    Californians who vote with their feet
    • October 21, 2023

    Between 2020 and 2022, Los Angeles lost nearly 2% of its population. While San Francisco’s exodus of 7.5% was even worse, these cities are not alone. People have also been fleeing San Jose, Long Beach and Oakland. It is not just that people are leaving the state; where they are fleeing to is also of note.

    Based on IRS data, about one-half of the Californians migrating to other states moved to just five – Texas, Arizona, Nevada, Washington and Florida.

    What do these states have in common?  Four of these states do not levy an income tax at all. The other, Arizona, levies a 2.5% flat income tax. Compared to our 13.3% top rate, these ex-Californians, who earned nearly 40% more than the average Golden State household, are saving lots of money.

    People are clearly leaving California because of bad public policy choices.  The state’s roads are poorly maintained. The cost of living is unaffordable. The streets are unsafe, the homelessness problem continues to fester, and economic opportunities are becoming scarcer.

    These results are consistent with the new Pacific Research Institute Free Cities index that I authored ranking the 50 largest cities, whether a city promotes pro-growth policies has a huge impact on where people decide to live and where businesses decide to invest.

    Los Angeles ranked second-worst on the list for pro-growth cities, while Long Beach ranked fifth-worst in the country.  California had three of the worst five cities on the list, with Oakland ranking last.

    The study groups the 50 largest cities based on the latest population trends.  There are 17 cities whose populations have declined by more than 1% between 2020 and 2022 (which we call declining cities), 19 cities whose population change was between a 1% decline and a 1% increase (called stagnant cities) and 14 cities whose population grew by more than 1% (called growth cities).

    There are important lessons in these three categories for California policymakers.

    First, consistent with California’s exodus, declining cities impose high state and local marginal income tax rates (averaging 9%), while growth cities levy a more affordable tax burden (averaging 3%). The tax burden in the stagnant cities averaged 5.5%. Cities and states with high income tax rates discourage individual entrepreneurs from starting a new small business and they deter larger employers from expanding existing businesses and creating jobs compared to the lower-taxed cities.

    Declining cities also overburden average families with a higher combined sales, income and property tax burden. The average burden from these taxes is over 22% higher in the declining cities compared to the growth cities. Not surprisingly, the tax burden in California’s cities was among the highest.

    Many Californians would be willing to pay a higher tax burden if it meant having a higher quality of life, great schools, and superior public services. But the opposite is true. On a host of issues ranging from affordability to regulations, declining cities have the most anti-growth policy environments while growth cities have policy environments that encourage growth and quality of life.

    California’s elected officials should learn from these troubling trends.  If they paid attention, they’d see that high taxes, poor services, and anti-growth policies drive businesses, jobs, and people away.  By adopting policies that make cities more affordable and attractive, they will actually encourage businesses to locate there and expand, and create jobs and tax revenue.

    Historically, California’s cities have been important drivers of nationwide economic prosperity and technological innovation. They have fostered cutting edge scientific breakthroughs and invigorated artistic expression. Without healthy population trends, California’s cities will fail in their efforts to serve these vital roles.

    Between 2020 and 2022, Los Angeles lost nearly 2% of its population. While San Francisco’s exodus of 7.5% was even worse, these cities are not alone. People have also been fleeing San Jose, Long Beach and Oakland. It is not just that people are leaving the state; where they are fleeing to is also of note.

    Based on IRS data, about one-half of the Californians migrating to other states moved to just five – Texas, Arizona, Nevada, Washington and Florida.

    What do these states have in common?  Four of these states do not levy an income tax at all. The other, Arizona, levies a 2.5% flat income tax. Compared to our 13.3% top rate, these ex-Californians, who earned nearly 40% more than the average Golden State household, are saving lots of money.

    People are clearly leaving California because of bad public policy choices.  The state’s roads are poorly maintained. The cost of living is unaffordable. The streets are unsafe, the homelessness problem continues to fester, and economic opportunities are becoming scarcer.

    These results are consistent with the new Pacific Research Institute Free Cities index that I authored ranking the 50 largest cities, whether a city promotes pro-growth policies has a huge impact on where people decide to live and where businesses decide to invest.

    Los Angeles ranked second-worst on the list for pro-growth cities, while Long Beach ranked fifth-worst in the country.  California had three of the worst five cities on the list, with Oakland ranking last.

    The study groups the 50 largest cities based on the latest population trends.  There are 17 cities whose populations have declined by more than 1% between 2020 and 2022 (which we call declining cities), 19 cities whose population change was between a 1% decline and a 1% increase (called stagnant cities) and 14 cities whose population grew by more than 1% (called growth cities).

    There are important lessons in these three categories for California policymakers.

    First, consistent with California’s exodus, declining cities impose high state and local marginal income tax rates (averaging 9%), while growth cities levy a more affordable tax burden (averaging 3%). The tax burden in the stagnant cities averaged 5.5%. Cities and states with high income tax rates discourage individual entrepreneurs from starting a new small business and they deter larger employers from expanding existing businesses and creating jobs compared to the lower-taxed cities.

    Declining cities also overburden average families with a higher combined sales, income and property tax burden. The average burden from these taxes is over 22% higher in the declining cities compared to the growth cities. Not surprisingly, the tax burden in California’s cities was among the highest.

    Many Californians would be willing to pay a higher tax burden if it meant having a higher quality of life, great schools, and superior public services. But the opposite is true. On a host of issues ranging from affordability to regulations, declining cities have the most anti-growth policy environments while growth cities have policy environments that encourage growth and quality of life.

    California’s elected officials should learn from these troubling trends.  If they paid attention, they’d see that high taxes, poor services, and anti-growth policies drive businesses, jobs, and people away.  By adopting policies that make cities more affordable and attractive, they will actually encourage businesses to locate there and expand, and create jobs and tax revenue.

    Historically, California’s cities have been important drivers of nationwide economic prosperity and technological innovation. They have fostered cutting edge scientific breakthroughs and invigorated artistic expression. Without healthy population trends, California’s cities will fail in their efforts to serve these vital roles.

    Reversing California’s troubling outmigration trend requires local policy leaders to establish policy environments that reward entrepreneurship, keep taxes low, make it easy to start or expand a business and create jobs, and provide core public services at efficient costs.

    Wayne Winegarden, Ph.D. is a senior fellow in Business and Economics at the Pacific Research Institute. His latest study, The Free Cities Index, is available at www.pacificresearch.org 

    ​ Orange County Register 

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