Let's Start A Pool On How California Will Do Over The Next Five Years

Froma  Harrop, writing today at RealClearPolitics, issues a confident prediction that California will succeed with its latest round of progressive policies.  Well, anything is possible.  Ms Harrop's article has a good list of several of the latest initiatives.  They include:

• The tax-raising Proposition 30, passed last November by the voters, that raised the sales tax by a quarter point and also created new income tax brackets of 10.3%, 11.3%, 12.3% and 13.3% on income over $250,000, $300,000, $500,000 and $1,000,000 respectively.
  
• Intentional efforts to increase the price of electricity through a California-only cap and trade system and also though a so-called "renewables mandate," passed in 2011, that requires California utilities to get 33% of their electricity from renewable sources by 2020.
  
• The high speed rail project, backed again by California voters who approved a referendum in 2008 to issue close to $10 billion in bonds.
  

All I would advise is, don't let yourself be taken in when the results over the next year or so from these policies don't appear to be all that negative.  First of all, the tax increases were retroactive back to January 1, 2012.  So the entire first year's revenue increase will come without an opportunity for anyone to avoid it by restructuring income or moving away.   But in the meantime, nearby states like Nevada and Washington, not to mention major competitors like Texas and Florida, have no income tax at all.  My bet is that people will notice, but the migration will be very gradual.

On the renewable energy front, California issued a report in August 2012 claiming to have already reached a milestone of 20% of electricity from non-nuclear renewables.  I admit that I am extremely skeptical of this assertion, but I'll assume it's true for the moment.  What is also true is that other than hydro, the main renewables (wind, solar) suffer from intermittency (solar doesn't work at night, or wind when it's calm).  Because of that, renewables become more and more costly as they provide a higher and higher percentage of the electricity.  Getting to higher levels requires more and more duplicate back-up generation capacity.  But it will be a while before we see how far they can push this.

Over in the high speed rail department, the $10 billion bond issue came at a time when the total cost was projected at about $35 billion.  In 2011 the projection suddenly went to $65 billion.  They seem to expecting that the Federal taxpayers will pick up most of that.

They do have very nice weather in most of California.  They also have a massive amount of oil and gas in "frackable" formations within their boundaries, but my bet is that the greens will prevent that from being developed.

I'm certainly not predicting an imminent collapse for California.  The consequence of making yourself way out of line in taxes and costs is not rapid collapse, but slow relative decline.  As I have pointed out many times, when New York got itself almost 20% out of line in top income tax rate with its immediate neighbors New Jersey and Connecticut from the late 60s to the late 70s, the relative decline speeded up dramatically, and New York City lost some 12% of its population in the 70s.  California is not that out of line, and Nevada is not nearly as close to the major California cities as northern New Jersey and southwestern Connecticut are to New York.  It will take quite a while for the decline to become significant.  But over five years, and even more so over ten, I don't see how they avoid it.