After a century-long explosion to become the biggest economy and population in the union, California has begun a piecemeal but precipitous decline.
Despite the nation's overall population increasing by nearly 2% since 2020, in the Golden State, it's shrunk by 1.4%, a staggering reversal from its annual 2% growth at the turn of the 21st century. The American Redistricting Project projects that this population trend would result in California losing four of its 52 seats in the House of Representatives, more than any other state in its forecast. California already lost one House seat after the 2020 census, when the population was just under 40 million people, the first time the state's Washington, D.C., contingent didn't increase or stay the same.
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Even as it baits illegal immigrants with the promise of health coverage from Medi-Cal, the state's taxpayer-funded healthcare program, California has lost more than a million people since the COVID-19 pandemic. As the saying goes, everything is bigger in Texas, and by the 2040s, the Economist predicts the Lone Star State's population will surpass that of California.
As with all great political crises, California's current conundrum is a product of poor public policies, especially as they pertain to economics.
California's greatest financial crime can be explained by the destinations where its residents are finding new refuge. Census data indicate that former Californians are fleeing in the greatest numbers to Arizona, Florida, Nevada, and Texas. IRS data show that Florida and Texas are receiving the youngest and wealthiest Californians on both sides of the political aisle.
The obvious culprit is California's punitive income taxation, which tops out at 13.3%, the highest in the nation, and can no longer be passed off onto fiscally responsible states thanks to the $10,000 cap on the state-and-local tax deduction. It has an 8.84% corporate tax rate and an average state and local sales tax rate of 8.82%, ranking 48th out of 50 states in the Tax Foundation's State Business Tax Climate Index.
And yet, California's rigorous taxation regime still can't pay its bills. In just two years, Gov. Gavin Newsom's (D-CA) $98 billion budget surplus has transformed into a record $68 billion deficit. While the state mandates that toy stores feature gender-neutral aisles and provide taxpayer-subsidized healthcare to illegal immigrants, the cost of living has predictably exploded.
After Hawaii and Massachusetts, California has the third-highest cost of living of any state, driven not just by the upward wage pressures of onerous taxation but also by the regulatory stranglehold over housing development. While the state has long been ground zero for "not in my backyard" zoning laws, the housing affordability crisis has never been worse, nor has it stoked more destructive consequences.
Of the 10 most expensive metropolises in the country, the Council for Community and Economic Research estimates that four are in California. The cost of living index calculated by the CCER for San Jose is 174.9%. For San Francisco, it's 169.6%; for the Los Angeles and Long Beach metro, another 148.8%; and for Orange County, it's 147%. The $100-plus billion bullet train that was supposed to connect San Francisco to Los Angeles will now only connect the national unknowns of Bakersfield to Merced. The former, which few outside of the state could point to on a map, has a cost of living 111.5% of the national average!
And it all comes down to housing, which is an average of twice as expensive as the national average. Whereas the booming populations of Utah and Idaho are building more than 11 new units of housing per 1,000 residents, California authorizes just three new units of housing to be built per 1,000 units. While the state government has finally begun to attempt brute force against local zoning laws to allow accessory dwelling units and eliminate the scourge of single-family zoning, my hometown in south Orange County has maintained a two-story maximum citywide. (There are many reasons, dear reader, why this writer no longer lives in California, and dollars and common sense comprise many of them.)
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The state has bled so much talent that Newsom had to head to Maryland to find now-Sen. Laphonza Butler (D-CA), his appointment to replace the late Sen. Dianne Feinstein, and Hollywood no longer holds the monopoly on the nation's film production. The Los Angeles County Economic Development Corporation estimates that the state lost $8 billion in film and television projects that emigrated to states such as Texas and Georgia.
How could California reverse course? For starters, it could perhaps stop robbing Peter to provide Medi-Cal to illegal immigrants. But more importantly, it must liberate the housing industry from zoning restrictions to make it a free market. If the state builds supply to meet demand, prices can fall, as we see across red America, and consumers will come back once more.