Californian Governor Jerry Brown seems to have taken over the mantle of throw away lines which belong in his predecessors movies. His remark that ‘California would be an independent country if it had the Irish tax regime‘ belies the fact that California could probably be an independent country anyway.
California is a wonderful state, you can be in the hottest place in the world, ski and surf all in the same day, it’s home to all sorts of wonders be they urban or natural, the continental US’s highest mountain and the likes of the redwood forests (disclosure: it’s also my home state!).
But we’ll stay on track, how can Jerry Brown say tax competition is unfair internationally is interesting given that on a state level there are tax decisions made which have a similar effect?
States like Delaware have been doing this for years, or Florida with their preferential treatment of Floridian residents versus everybody else (right down to how much a ticket to Disneyland costs). Take a look at a state tax table and you’ll see that some states have zero income tax, Texas, Wyoming, Nevada and Washington (although if memory serves Alaska and South Dakota don’t have a state income tax).
Wouldn’t that distort the labour market and make all the rich high earners move there? If you said ‘yes’ then you clearly never experienced a Texan summer.
There are other taxes which have wide variances too such as Sales Tax (similar to our VAT), and differing property tax or user taxes. And when it comes to incentives to locate in a certain place California has a special draw others can’t match and they like to keep it that way (Silicon Valley being a good example of human capital that they aim to protect).
On the subject of independence, there is the obvious issue that California cannot secede, but we’ll overlook that constitutional inconvenience and consider some numbers.
How big is the Californian economy? Massive. In fact it is the largest GDP state in America and it has been that way for years, it’s bigger than Texas, which is a strong oil producer by about 54%. It’s head and shoulders above every other state, and apart dwarfs the lowest GDP state of Vermont 75 times over.
We won’t stop there though, look at California versus the world, if it was an independent nation it would be the 8th biggest in the world, larger than Russia. On it’s own it’s bigger than Canada, Italy, Australia or Spain. So no, they don’t need the Irish system to be a monolith, they already are.
Granted it has a large population and costs that go with that, and the ability for Californian mismanagement is second to none, only a few years back they were giving out tax refunds and considering offering workers pay in IOU‘s… seriously, actual IOU’s. Oh, and that wasn’t the first time it happened either, it was the same craic in the 90’s, California is unique in having done this (ever that is).
So remember to spare a thought for sabre rattling spoofers, their lines can be memorable such as Brown’s predecessor when he said ‘I’ll be back’ (clearly he wasn’t talking about state balance sheets being back in the black), but it doesn’t make the comments true.
(disclosure: some of the figures are dated and may not be the most current, but the general thesis remains broadly accurate)