Our View: California wasn't competitive even before tax hikes

Here's bad news. A new study of economic competitiveness ranked California 43rd among the 50 states. The study was based on 15 variables "influenced directly by state lawmakers through the legislative process."

The 2009 "Rich States, Poor States" study by the American Legislative Exchange Council measured the effects of Sacramento's taxing and spending policies.

"Generally speaking, states that spend less — especially on income-transfer programs — and states that tax less — particularly on productive activities such as working or investing — experience higher growth rates than states which tax and spend more," concluded the study's three authors, who included Arthur B. Laffer (of Laffer Curve fame).

The study summed up by stating the obvious: "[W]e cannot tax or spend our way into prosperity."

Here's the really bad news. The 10-year study covered 1997-2007. Since then, Sacramento has imposed $12.9 billion more taxes and borrowed billions more to feed its spending habit and placed another $16 billion in taxes on a May 19 special-election ballot.

Worse yet, California's lowly ranking was based partly on a 5.4 percent unemployment rate, which has since nearly doubled to 10.5 percent.

If California was uncompetitive before, Sacramento's tax-and-spend lunacy since 2007 certainly must have made it much worse. The study suggests government's fiscal and economic policies explain why "millions of Americans are moving from high-tax states to low-tax states." The study noted a negative 4 percent "net domestic in-migration, and California's political volatility, citing 1978's Proposition 13 tax revolt and more recent tax-and-spending sprees.

"California," the study's authors write, "can move from Karl Marx to Adam Smith and back again in what seems to be the blink of a political eye." Clearly, we don't currently enjoy an "Adam Smith" phase.

In an unrelated article, Michael Flynn and Adam B. Summers of the Reason Foundation note California took in $38 billion general fund revenue in 1990-91 and $102 billion in 2008-09. If lawmakers had "limited spending increases to the 4.4 percent annual average growth in consumer price index plus population," they write, "the state would be sitting on a $15 billion surplus."

Instead, state Controller John Chiang reported this week, the $1.4 billion cash deficit the state began the fiscal year with has grown to $22.3 billion, which — for now — is "being covered by" borrowing. We might add, short-term borrowing against long-term hoped-for revenue. But Sacramento is better at taxing and spending than predicting revenue. The controller reported this week that revenue for March was down $178 million, or 5.2 percent, from estimates made only weeks earlier.

Nevertheless, Gov. Arnold Schwarzenegger and many legislative leaders are campaigning for May 19's tax increases. Where's Adam Smith when we need him?