The California recall illustrated that voters no longer will fall for politicians professing to love workers while crushing employers with taxes and regulations. It also puts to rest any notion Democrats may have had of trashing business with the slime of Enron in hopes of riding to power on a populist wave of anti-business sentiment. If Schwarzenegger's and McClintock's votes are added together, 60 percent of voters in California voted center-right.
American voters are beginning to demand the same thing of their political leaders that German voters are demanding of their politicians: klartext, or straight talk. The cumulative weight of California's taxes is stifling, to individuals and to businesses. The top personal income tax rate is 9.3 percent, the fourth highest in the nation; the top corporate income tax rate is 8.84 percent; the state's top capital gains tax rate for both corporations and individuals is 9.3 percent, the second highest in the country; and the California sales tax rate ranges from 7.25 percent to 8.5 percent in some localities.
It's not just the tax policy that is pulling down the California economy and driving businesses out of the state. Government spending is out of control; the regulatory burden has grown to obscene proportions; the court system has been turned into the trial lawyers' personal piggy bank; and the now-lame-duck Davis is adding insult to injury by piling on midnight job-killing regulations and mandates such as forcing small businesses to cover all workers' health care.
I haven't talked to Laffer, Forbes or McClintock lately, but here is what I would recommend for starters, and I'll bet they all would agree. Enact an income tax amnesty for all delinquent taxpayers to generate an immediate influx of revenue. Rescind the car tax and roll back the outsized pay raises for state-government employees. Then repeal California's capital gains tax and cut corporate income tax rates in half.
Reduce the top personal income tax rate to 3 percent. Immediately terminate as much of the recent budget expansion as the governor's authority permits. Likewise, exercise gubernatorial authority to the limit and rescind burdensome health-care mandates where possible. Then appoint a special commission to report back in three months' time recommendations to slash the overall regulatory burden on businesses.
If Arnold flexes his gubernatorial muscles from the first day in office, the way Erhard did in Germany, we will be talking about the California Wirtschaftswunder in a few years. And once again, Adam Smith's observation that "Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes and a tolerable administration of justice" will be vindicated.