NCPA - National Center for Policy Analysis

California: Toxic for Business

November 18, 2011

For years, California could rely on its temperate climate and talented workforce to attract and keep businesses even as taxes and regulations increased.  No more.  In surveys, executives regularly express the view that California has one of the country's most toxic business environments, and they say it is one of the least likely places they would open or expand a company.  Many firms headquartered in the state say they have forsaken expansion in the state, say Wendell Cox, an adjunct scholar with the National Center for Policy Analysis, and Steven Malanga, a senior fellow with the Manhattan Institute.

  • California has an unemployment rate some 2 percentage points over the national average.
  • From 1992 to 2000 California added 777,000 more jobs from start-ups than it lost to closures, but it lost 262,000 more jobs than it gained between 2000 and 2008.
  • Additionally, jobs are migrating out of California faster than they are entering, with a net loss of some 80,000 jobs to migration to states such as Texas and Oregon between 2000 and 2008.
  • Among those jobs that the state has created, 35 percent of them were in construction and real estate -- jobs that the Bureau of Labor Statistics predicts have since disappeared.

California's dismal business environment is due to a multitude of factors, including its burdensome regulatory climate, tax policies and steep litigation costs.  Through labor and environmental regulations, California has scared away a number of businesses that cannot afford to take on the additional expenses associated with abiding by the complex statutes.  Researchers have estimated that regulations cost the state's businesses $493 billion annually, or nearly $135,000 per company, and this has caused numerous businesses to flee to relatively regulation-free states.

Significant corporate tax policies have also made California unattractive to businesses.  According to the Tax Foundation, California imposes the nation's second-heaviest tax burden on businesses.

Lastly, the fear of litigation drives businesses away, especially when dealt in tandem with the complex regulatory climate.

Source: Wendell Cox and Steven Malanga, "California -- Toxic for Business," Los Angeles Times, November 14, 2011.


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