California has long captured America’s imagination. Home to nearly 1 in 8 Americans and 1 of the world’s 10 largest economies, the Golden State is where the rest of the nation looked to get a glimpse of the future.
That’s still true today, but for a much different reason. The California of years past — a dynamic mix of innovation, growth and opportunity — has faded. In its place is a state that soon could look more like Greece.
The July unemployment rate in California was 12.3 percent — higher than every other state except Michigan and Nevada. The budget deficit is a staggering $19.1 billion. Tax rates are among the highest in the nation, and the regulatory burden is acknowledged as among the heaviest. Taken together, these factors have put the state on the edge of economic free-fall.
Even if you don’t live in California, what happens there will matter to you. This is because our nation cannot fully recover unless and until California does. Fortunately, the best solution to California’s economic woes is simple — economic growth. To help Californians achieve this goal, the U.S. Chamber has issued the Golden State Action Plan, a series of policy recommendations to improve the business climate, spur growth and create desperately needed jobs.
While the report focuses on a broad range of federal and state issues, allow me to focus on two specific areas: spending and taxes.
California has a spending problem. Government expenditures account for 18.3 percent of gross state product, according to the Pacific Research Institute. Only three other states spend more.
To get bulging deficits under control for good — and to ensure funding for core functions such as education — legislators must make genuine spending reductions. Failure to do so means higher taxes, less economic activity and the threat of bankruptcy.
Some argue that higher taxes will solve the Golden State’s woes, but they should think again. California already has the nation’s highest general sales tax, the fourth-highest income tax and the ninth-highest corporate tax. These rates have pushed businesses — and good-paying jobs — out of the state. This burden also makes it harder for families to buy a home, send a child to college or invest for retirement. To drive economic activity, legislators need to change course and reduce taxes.
What’s happening in California is a cautionary tale for the rest of America. If other states follow California’s path — as they have in the past — they, too, will face tremendous economic challenges. But if the Golden State and the rest of the nation embrace free enterprise, we could be California Dreamin’ once again.
— Tom Donohue is president and CEO of the U.S. Chamber of Commerce.