We hear again and again how the over-taxed, over-regulated business climate of California drives away employers, yet we see businesses succeeding every day across the state and right here in San Diego. It’s easy to presume businesses somehow make do. It’s easy to conclude that businesses are here because of the weather and that there’s something called a “sunshine tax” that businesses and residents must find a way to afford. It’s easy to be wrong.
Recently released preliminary data show California’s average unemployment rate was 8.8 percent in 2013. That’s substantially higher than the nation’s corresponding rate of 7.4 percent. It’s a difference that translates to 266,000 jobs. It shouldn’t be surprising. The difference between national and California unemployment rates over the past 20 years accounted for an average of more than 250,000 jobs.
The reason most establishments we frequent are able to withstand excessive taxation and regulation is because they serve primarily local residents. These businesses exist in highly competitive markets that are essentially forced to pass the higher cost of business to geographically captive consumers who will either accept the higher price or buy less. Even worse, consumers’ diminished purchasing power results in less need for businesses and jobs.
What really helps local-serving businesses is a population that can afford to buy goods and services. For that, we need industries that support local jobs by selling outside the region. In San Diego, these “traded economies” include innovation, the military and tourism.
To support local businesses, we need to focus on supporting the traded economies that play on a larger-than-local scale. We can attract many of the companies that make up these sectors because they are not inherently tied to a location. It is for the same reason that we can lose them.
The traded economies are here in San Diego because of our world-class universities, strategic ports and, yes, the weather, but our burdensome business climate limits their success and with it, jobs.
The network of suppliers and talent established to support the traded economies will limit the pace of their exit from California, but cannot keep unemployment indefinitely at current levels. These businesses are concluding that technology is making proximity to supporting industries less important. They know that Austin and Denver also attract top talent.
The over-burdened business climate of California, paired with the high personal tax burden across the state, unnecessarily results in fewer jobs, higher prices and a diminished quality of life. California has the third-highest personal income tax rate and the highest sales tax rate in the nation. The California Environmental Quality Act is routinely exploited as a legal bargaining chip with developers. Additional local sales taxes and development fees have impacts as well.
The city of San Diego has taken action by producing an Economic Development Strategy that outlines how city officials think we can thrive despite statewide hurdles. The San Diego County Taxpayers Association is working hard to ensure this strategy is dynamic, successful and works for our neighborhoods.
As a state, we should not confuse our assets with an assurance that we will always have a high quality of life, especially with unemployment at 8.8 percent and the highest poverty rate in the nation. It doesn’t have to be more expensive and more difficult to do business in California.
We should stop relying on our good weather and top universities to offset a bad business climate. We should instead build on those assets by rolling back the “sunshine tax.”
Karafin is San Diego County Taxpayers Association’s economic policy analyst.