news story / By Ron Ross

Don’t Blame Reagan

It apparently doesn’t occur to the authors that the kinds of liberal and progressive policies they advocate might have played in California’s decline. Because they refuse to look inward or take any accountability, they can only conjure up strained explanations as to why someone else must be to blame. All the state’s problems are caused by the ghosts of three dead white guys (Reagan, Jarvis and Friedman).

California’s fundamental problem is its anemic economic growth rate. Our state has the fourth highest unemployment rate (12.2 percent) and the second highest home foreclosure rate. Is California in such relatively bad shape because its citizens are not taxed enough? That doesn’t make sense.

The opposite is much closer to the truth. Because of high taxes and irrationally burdensome regulations, California is near the top of the list in regard to hostility toward business. According to a ranking by the Small Business and Entrepreneurship Council, only New Jersey has a more business-unfriendly environment. Californians can, if they choose, burden businesses with ever more demands and regulations. They pay a high price, however. Choices have consequences. Intel Corporation, the chip manufacturer that started in California, announced earlier this year that it would be investing $7 billion in new manufacturing facilities over the next two years — in Oregon, Arizona and New Mexico. There’s a pattern there. Are they avoiding California because our taxes are too low?

Jones and Redmond recognize the negative effects of the kinds of policies they espouse. “Certainly, turning over more public resources to free market capitalists, cutting taxes and slashing government regulation will spur private sector economic growth, just as advocates claim. But that growth has a cost. The wealth won’t be shared by everyone.” Their argument essentially says there’s no point in creating wealth if it’s not equally distributed.

In other words, if the beneficial impacts of some policy are not equally shared by everyone, they must be rejected. Such a standard creates an absolutely impossible hurdle for any human action. For Redmond and Jones, income equality is more important than economic growth. I have never understood those kinds of priorities. The damage done by unemployment is a real and unrecoverable loss. Ironically, it also hurts government revenues and, in the end, those citizens who depend on government-funded programs. If Redmond and Jones really want more money flowing into state coffers they should be welcoming policies that encourage economic vitality.

Jones and Redmond regret that corporations don’t pay as much taxes as they should, partly because of Prop 13. The fantasy that corporations are capable of paying taxes is one of the most naïve beliefs of the left. In the real world, the world all of us actually live in, only humans are capable of paying taxes. Corporations are only intermediaries. They can write the checks to the IRS or the Franchise Tax Board, but they can’t bear the “burden” of taxes any more than cows or real estate can.

Corporations connect with humans in three ways — owners, employees and customers. The burden of corporate taxes falls on some combination of those three groups. Corporate taxes result in some combination of reduced profits for shareholders, higher prices for customers and lower wages for employees. The actual distribution of the effects varies from industry to industry, case to case. The conclusion of most recent research indicates that the principal burden falls on the employees of corporations. If your objective is to soak the rich, the corporate tax is an extremely crude and counterproductive means for doing so. Many on the left despise corporations and have no interest in actually analyzing their policies, so the corporate tax is one of their favorite weapons of choice.

California will survive and we will muddle through somehow. Unfortunately, we are squandering our vast potential by misreading the fundamental sources of our chronic problems.

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