California’s Blue Utopia

The Progressive wing of the Democrat Party sits at the left end of their spectrum. JFK’s liberal positions would be regarded as moderate today. Progressives have a unique vision of what a blue state utopia would look like that begins with clean air, clean water, and green energy. Over the last twenty years, with the backing of the public employee unions that control the political process in California, the Progressives have managed to neuter the Republican Party and turn California Blue, owning every elective office in the state. They did not need much help according to Dan Walters, who stated, “Even the most anti-immigrant, anti-gay marriage, anti-tax, anti-abortion Republican activist must now recognize that with the party's wipeout in last month's elections, continuing down its recent path is a plunge into complete irrelevance”.

In 2012, the progressive Democrats captured a super majority in both houses so that with their Progressive governor, they no longer require a single Republican vote to pass any form of legislation, leaving conservatives an “irrelevant” minority.  As an independent businessman, I have created many jobs and opportunities. But despite my contributions to society, and the taxes I have paid over the last thirty plus years, the Progressives believe I need to pay more so that I pay “my fair share.” Only when I pay my fair share can their blue vision of utopia be fulfilled.

What is my fair share? Under existing Federal and State income tax rates, I will pay 50% of my income in taxes. In California alone, my “fair share” on a million dollars of income is $133,000 each year. In exchange for my taxes, I receive little from the state. In addition, I pay gasoline taxes that pay for the upkeep of the highways. I pay airline taxes that maintain the airports I use. I pay among the highest in the nation sales tax on what I consume. I pay property taxes for the schools my grown children no longer use (they have already left California). I pay utility taxes for the upgrade of infrastructure. I pay higher health insurance rates. I already pay more than my own way.

I used to develop new homes in California and paid development fees, school fees, park fees, bridge & thoroughfare fees, endangered species fees, utility hook up fees, and processing fees to employ the city workers who reviewed my plans. Such fees totaled $40,000 to $75,000 for each new home built in California. I more than paid my own way. Such new homes are no longer feasible in California considering that home prices have fallen between 20-40% since 2008. And with the new regulations to be imposed in 2013 with the passage of the Global Warming Solutions Act of 2006, housing and energy will cost even more making new houses even less attractive than they are now.

A problem in Blue Utopia

The number 1 topic of conversation amongst the despised 1% in California today is when you are leaving California or whether you can leave. Property owners who cannot move their apartment building or office complexes can move their homes and change their residency. On a flight from Austin, Texas to Orange County last week, I sat next to the owner of a substantial manufacturing business whose plant is in the inland southern California community of Ontario. He lives in Austin, flies in on Monday and home on Thursday. He spends less than 180 days a year in California. His savings in state income taxes more than pays for his airfare, hotel and rental car expenses. His home and gas and energy all cost less in Texas. More significantly, he will not expand his plant in California and intends to move his plant and people to Texas over the next five years.

What do the progressives have to say about a successful businessman wanting to move out of the state? Some like Paul McCloskey who recently attempted to pass a ballot measure for a Wealth Tax imposed on those leaving the state, would like to follow the French. France imposed a 75% tax rate on anyone making more than one million Euros per year. France’s Prime Minister Jean-Marc Ayrault said about people leaving France for lower rates, “We cannot fight poverty if those with the most, and sometimes with a lot, do not show solidarity and a bit of generosity," McCloskey’s proposal would impose an additional 17.5% tax on those with incomes exceeding $150,000 ($250,000 joint) and 35% on incomes exceeding $350,000/year. He would use the extra income to purchase shares of California public companies to “influence their environmental policies and practices”. While his ballot measure did not succeed, it is sobering to think the Democrats do not need a single Republican vote to pass legislation such as this.

So many of the 1% are quietly leaving. The exodus has already begun. Spectrum Location Solutions reported that 254 companies left California in 2011. Despite claims of an upturn, a press release by the State Controller’s office last week revealed tax revenues from both personal income taxes and corporate taxes fell during the month of this November. Revenue from personal income dropped 19 percent below projections while corporate tax revenue was down a whopping 213.4 percent. Such declines will continue unabated for years to come as the California brain drain proceeds.

When a government becomes a one-party state, nothing can stop the utopians and zealots of either party. In California, there’s no brake on progressives imposing its vision of Blue Utopia on its people.   California may have clean water, clean air and green energy but at the expense of its people, prosperity and fiscal health.

The problems in Blue Utopian society will be similar to the unintended consequence of protecting the Delta Smelt in the Central Valley. The Blues labeled this tiny fish, previously known as “bait,” as an endangered species. The Endangered Species Act was created to protect the American Bald Eagle but now extends protection for the Delta Smelt, forcing water to be diverted from the farms of the Central Valley to the Pacific Ocean. The Delta Stewardship Council shows the water cutoffs had no effect on the smelt population. But it did a devastating effect on another endangered species: the California family. When 300,000 acres went fallow, 37,000 jobs were lost. Unemployment has reached 40% in some areas of the Central Valley. Food lines have appeared in the world's most fertile agricultural valley. Farmworkers were forced to accept bags of carrots grown in China. Orchards that existed for decades died without water. The Central Valley now needs food stamps to feed its residents.  

The Blues are excited to impose their vision of Utopia on California. I, for one, will not be here to see it. My home goes on the market next month. My company has already re-located to another state. My children have already moved away seeking a future more promising than anticipated here in California. It is ironic because that is why I left my parents in Cleveland, Ohio to come to California four decades ago. I will be sad to leave my home and friendships acquired over decades. But I realize our leaders will neither notice, and if they did, they would not care. 

As the tax revenues continue to fall (as they always do when rates increase), the Blues will rail against the remaining 1%, claiming that if only “they” would pay their fair share, things would be perfect. They will raise rates, fees, costs, and penalties again on the business class, and will do so as long as they hold power.

But there is a problem in Blue Utopia. Short term, the state may be supported by the occasional Internet or Housing Bubble, but the money will finally run out.  When it does, maybe they will ask us to come back to the Golden State. They will promise to lower rates and turn the water back on. But it is already too late for the dead orchards of the Central Valley. And it will soon be too late for all but a handful of entrepreneurs of California.

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Robert J Cristiano PhD is the Real Estate Professional in Residence at Chapman University in Orange, CA, a Senior Fellow at the Pacific Research Institute in San Francisco, CA and President of the international investment firm, L88 Companies LLC in Washington DC – Newport Beach – Denver - Prague. He has been a successful real estate developer in California for more than thirty years and now makes his home in Austin, Texas.

California coast photo by BigStockPhoto.com.