Arthur B. Laffer: Making excuses for companies’ flight

BY ARTHUR B. LAFFER / Staff Columnist

Published: May 23, 2014 Updated: 4:46 p.m.
The national headquarters of Toyota Motor Sales in Torrance will be vacant after Toyota relocates employees to Texas. Several businesses might move onto campus.
The Los Angeles Times long has been an apologist for California’s welfare state, which may be OK when the consequences are benign. But those consequences are no longer benign, and the evidence is no longer even slightly ambiguous.

In “Was Toyota driven out of California? Not so fast,” theTimes pooh-poohs the “new round of hand-wringing” following the U.S. headquarters of Toyota’s highly publicized departure from Torrance to Plano, Texas.

The authors claim that Toyota’s move appears to have had nothing to do with Texas’ favorable tax and regulatory policies and everything to do with Texas’ geographical location. To accept that argument is to accept as fact that Texas being a right-to-work state, Texas having zero personal income and capital gains tax, Texas having far more favorable workers’ compensation costs and Texas having a far lower minimum wage are all meaningless considerations to Toyota employees and executives. If you believe that, I’ve got a bridge to sell you.

And what are the consequences of all these policy differences? As of March 2014, 62.4 percent of California’s population was in the labor force, versus 65.2 percent of Texas’ population. Texas’ unemployment rate is 5.5 percent and California’s unemployment rate is 8.1 percent. According to the U.S. Department of Education, California’s schools are the worst performers of the five megastates (which include Florida, Illinois and New York), and Texas’ schools are the best performers, in spite of the fact that California teachers are the highest-paid in the nation, earning salaries 40 percent higher than those of Texas teachers.

Finally, California has the highest poverty rate in the nation.

I left California eight years ago for tax reasons and for tax reasons alone. I love California; I just don’t love the policies politicians impose on Californians. And I’m probably not alone in my feeling of alienation from the Sacramento political elite. As of last week, U-Haul listed the cost to rent a 26-foot-long truck, one way from Torrance to Plano, as $2,626, while the Plano-to-Torrance rental for the same truck was $1,264.

My advice to the Times is that self-delusion does no one any good.

In this day and age of megadata, there are lots and lots of “facts” floating around that can be marshaled for and against various positions. Specific anecdotes can serve a useful purpose to illustrate a correct general principle, but they should never be used as evidence of correctness. While facts may be facts, they don’t all have equal standing when it comes to assessing the overall benefits and costs of public policies. And journalists should know which do, and which don’t, have probative value. It’s their job.

But to cite articles that make silly claims, as if to justify even sillier policies, misrepresents the facts too much for good journalism. For example, one study held out by the Times as expert opinion actually posited that recently released IRS data on taxpayer migration showed net outmigration so small as to be inconsequential to public discourse – something that “governors should just tune out.”

It’s true that, in any one year, the outmigration number by itself may not be a make-or-break issue. But, just like cigarette smoking, the effects are cumulative. And what seems like a small annual difference morphs into a matter of survival. Over the past 19 years, California has seen net outmigration of taxpayers and taxable income in every year, save 1999. Texas, on the other hand, has not had even one negative year.

For the 1992-2010 tax years, the IRS data compiled by the state of the tax filer show California is second from the bottom of state inmigrants as a share of outmigrants (73.2 percent). People are leaving California, and they are taking their taxable incomes with them.

Remember that, once taxpayers are gone, they stay gone. While their departure is noted only in the year they leave, the loss of taxable income to their former state goes on for years. The cumulative effect from 1992-2010 of taxpayer inmigration and outmigration on California’s total adjusted gross income in 2010 was a loss of 7.2 percent, or $46.3 billion. That doesn’t seem like something that “governors should just tune out.”

And if all of this weren’t enough, the Times article noted that Occidental Petroleum was moving its headquarters from Los Angeles to Houston “to be closer to the profitable Texas oil patch.”

What the Times did not say speaks volumes about bias. The reason why Occidental was headquartered in California in the first place was to be near its profitable California oil patch. California has vast quantities of oil and natural gas reserves, as does Texas. The only difference is that Texas encourages the extraction of oil and gas, while California has turned its back on this industry.

This just says it all, doesn’t it?

Arthur B. Laffer, a former economic adviser to President Ronald Reagan, is founder and chairman of Laffer Associates, an economic research firm, and a member of the Register’s Editorial Board.