Are We Now the World's California?

I'm returning to Waco this week. Next Monday marks the beginning of the fall quarter at Baylor Law School, and needless to say, I won't be blogging nearly as much after then. Right now, I'm visiting my folks in Arlington, and later this week, I'll head back to my apartment.

On Sunday, I was watching 60 Minutes with my parents. Leslie Stahl was doing this segment on American corporations moving their headquarters overseas to avoid paying high U.S. taxes. While we were preparing supper, my Mom asked, rather disdainfully, "Why would anybody want to run a business in the United States?" My immediate answer was, "Good quality of life, I guess." That's when it hit me: the U.S. has become the California of the world.

It's no secret that California has one of the worst business climates in America. Its tax burden is also now on par with infamously high-taxing New York and New Jersey, and it has a lower bond rating than any other state. The Golden State has long believed that it can maintain this hostile atmosphere without discouraging people from living there because of what are known as "exploitable amentity asymmetries," which basically means that people will pay more to live in such a nice place. When you're in close proximity to some of the greatest natural splendor this country has to offer (not to mention the cultural meccas of San Francisco and Los Angeles), shouldn't there be some sort of premium on the cost of living?

For decades, the overwhelming answer was "yes." Ever since the Dust Bowl of the 1930s, California has been somewhat of an American "promised land," the last, best hope down-on-their-luck citizens have of finding the American dream. (You could go back even farther to the Comstock Lode and ensuing Gold Rush of the 19th Century.) Recently, though, it's become increasingly apparent that California's zenith may be behind her. I just mentioned its current financial woes, and population trends are reflecting it. For the first time since the 1920s, the Great Bear failed to gain a single congressional district following the U.S. Census, a result of slowing population growth.

Back to the analogy: I remember when Gov. Rick Perry appeared on The Daily Show last year. Eventually, the discussion came around to Texas's relatively pro-business climate and why businesses (and jobs) were migrating from the Midwest and Northeast to the Sun Belt. When Perry rattled off statistics indicating just how big the jobs boom has been in Texas over the past decade, Jon asked hmi, "Why do you think that is?" Perry mentioned our low taxes, "fair and predictable" regulatory climate, "a legal system that's fair and doesn't allow for over-suing," and "accountable" school system that produces skilled workers. This exchange followed:

STEWART: Couldn't you make the same argument, though, in terms of globalization, for companies going to India and China? If you are the pressure-valve release for companies in California, [then] who's t'say, would you criticize Texas companies --

[CROSSTALK]

PERRY: Seriously, you wanna live in India, or you wanna live in Texas?

STEWART: Are you -- For real?

[LAUGHTER/APPLAUSE]

It's an excellent point. The U.S. may not have the most favorable business climate, but we have a better quality of life than any other country. That has been our trump card against the growing number of business-friendly states on the global stage. Years ago, John Stossel did a 20/20 episode in which he visited India and Singapore and compared the ease/difficulty of opening a business in each country. In the latter, it took a few hours, much less than it would in the U.S. (and a lot less than in India). He was even able to set up a booth or something in a mall before the end of the day. Singapore also has no capital-gains tax, but on the other hand, you won't get caned for chewing gum in the United States (not by the government, anyway; I can't speak for all parents and boarding schools).

In this age of globalization, it's important for policymakers in D.C. to remain constantly aware that we are competing with countries all over the world, not just for investment, but for human capital as well. A tax code that, as Leslie Stahl put it, "all but forces companies to keep their money out of the country indefinitely" needs to be reformed. This Congress should act on pending free trade agreements that the past two Congresses have pushed aside. We'll lose out on a small amount of revenue that would have come from tariffs, but it will pale in comparison to the capital that will flow into this country when we expand the market for U.S. goods. It may be too late to save California, but the entire U.S. does not have to suffer the same fate.