The Blessings of Political Competition

In the US, it is frequently demonstrated why political competition is so much better than the 'tax harmonization' and similar centralization plans pursued by the socialist bureaucrats of the EU.

A recent example is provided by the fact that Toyota has just decided to fold its tent in high-tax, high regulation California in order move to the far friendlier business climes of Texas. And it is not the only company that has come to this decision:

“Toyota Motor Corp. is moving substantial parts of its U.S. headquarters in Torrance, California, to suburban Dallasas the world’s largest automaker seeks savings from its U.S. sales unit, people familiar with the matter said.

Employees will be informed of the plan today, said the people, who asked not to be identified disclosing private conversations. Steve Curtis, a Toyota spokesman, didn’t return a call on the matter.

The surprise move is a blow to the Golden State, the biggest U.S. auto market and proponent of the strictest clean-air rules. Toyota’s Prius hybrid has been California’s top-selling model for the past two years and helped secure a leading 22 percent market share. It also represents a victory for Texas Governor Rick Perry, who’s made repeated visits to California to lure businesses to his state with promises of lower taxes and easier regulations.

“It would be very consequential for Southern California,” said Jack Nerad, executive market analyst for vehicle-price data service Kelley Blue Book inIrvine, California. “There might be some brain drain and tumult for employees, though it should be largely seamless to the consumer. This kind of thing can create some disruption of momentum.”

[…]

In February, Occidental Petroleum Corp. said it was splitting its operations, keeping a portion in California and setting up a new unit in Houston. Raytheon Co., a technology company that specializes in defense, last year moved its space and airborne systems unit to McKinney, Texas, from southern California.”

The news from Toyota are especially significant, considering it has been in California since 1957. California runs the risk of running into the very problem Margaret Thatcher famously associated with socialism: sooner or later, you run out of other people's money to pay for it. When said paying bodies can easily remove themselves to a nearby jurisdiction that treats them better, it happens all the more quickly.

Consider that California has introduced such inanities as a unilateral CO2 reduction plan that is absolutely certain not to alter “global warming” by one iota, even if the worst case apocalyptic AGW fantasies were to actually be true (which they are obviously not). Global human CO2 emissions will be reduced by 0.4% in the best case (which is like a pimple on a pimple on a pimple on an elephant's behind, since human CO2 emissions produced globally represent only 5.25% of all CO2 the planet produces every year. So global CO2 output will actually be lowered by 0.0021%, or about a quarter of a middling volcano belch) – at an estimated total cost to the economy of $450 billion by 2020, measured in constant 2012 dollars. California's citizens are going to be accordingly poorer – in service of a complete mirage.

California is also well known for being a state that is – apart from property taxes which have been frozen by a referendum – charging its citizens extremely high sales and income taxes, which when added to the federal tax burden reach truly punitive levels. Just to illustrate the effect  – not for Toyota the company, which will save a small fortune -  consider that some of Toyota's employees who decide to move with Toyota to Texas will save one million dollars in taxes and in many cases even more over their working lives.  A few examples via Forbes:

“Toyota’s move from California to Texas is big news. Considering the high cost of operating in the Golden State, Toyota will save big. Still, many Toyota employees moving from California to Texas stand to reap big tax savings themselves. In fact, the National Center for Policy Analysis says that its State Tax Calculator shows it’s not just thousands.

For some workers, it could be more than a million dollars in tax savings over their lifetimes, says the study. Here are some examples the National Center for Policy Analysis produced: a 30-year old single California renter earning $75,000 annually and could gain an additional $14,909 in discretionary income by moving to Texas; if saved and invested this would amount to $1,513,727 over her lifetime.

That’s a pretty impressive tally, pumped up by the assumed savings. Another example: a 30-year old single earning $100,000 a year in California could gain an additional $14,653 a year in discretionary income, and $1,487,723 over her lifetime. Finally, the figures say 40-year old married California homeowners earning $150,000 a year could gain an additional $2,535 a year in discretionary income, and more than $209,000 over their lifetime.

The State Tax Calculator is free from the National Center for Policy Analysis. The NCPA notes that it computes the difference in the federal and state income taxes, property taxes and sales taxes one can expect to pay over the rest of your life when you move from one state to another.”

So why is this a good thing? It is very simple really – although initially, the burden on those remaining in California will increase even further, Texas (and other low tax/low regulation states) are setting an example and putting ever greater pressure on high tax states like California. High tax states will eventually be forced to follow this example if they want to avoid terminal economic decline. This type of tax and regulatory competition is definitely of great long term advantage to all citizens, who will in the end get to keep far more of their hard-earned money, while less is left for the political and bureaucratic classes to waste. What's not to like?

Toyota's HQ in Torrance, California is about to dematerialize and will shortly thereafter  rematerialize in Texas, where the company and its employees both stand to save a pretty bundle.

(Photo via motortrend.com / Author unknown)