A zero state income tax on the first $100,000 of income and a 7.5% flat tax above that is fiscally achievable by rolling the budget back to pre-pandemic levels and cutting fraud, waste, and abuse.

(00:00:00) All right, everybody. (00:00:01) Welcome back to the All-In Interview Show. (00:00:03) We're very lucky today to have a candidate for the governor of California, who is extremely unique in a number of ways. (00:00:12) First of all, he's a Republican. (00:00:14) And second, he's a Brit. (00:00:16) Welcome to the program, Steve Pelton. (00:00:19) You've decided to increase the degree of difficulty in two ways, but you're polling fantastic. (00:00:27) You've got five or six people in the poll. (00:00:29) He's leading the field. (00:00:30) You're leading the field. (00:00:32) Obviously, it's going to get narrowed a bit when the Democrats (00:00:35) shiv a couple more people and get them out of the race and then pick their eventual winner in their cobble, whenever that happens, when Nancy Pelosi picks who's running. (00:00:44) But Steve, maybe you could start by... (00:00:48) Sorry, guys. (00:00:48) I got jokes. (00:00:49) But Steve, maybe you could introduce yourself a bit and tell us why you're running. (00:00:53) Well, hang on. (00:00:54) Can I just say, just after that great intro where you just tried to kill my chances in just a couple of words, thanks a lot, Jason. (00:01:00) Really appreciate it. (00:01:01) Let me ask you to this up. (00:01:02) I've known Steve since. (00:01:04) 2012, 2013, when he and his wife, Rachel Whetstone, moved to Silicon Valley. (00:01:09) Rachel worked at Facebook initially, and then she worked with you, Jason, at Uber and then has had a great run. (00:01:14) And then Steve, similarly. (00:01:16) And you said it in a funny way, but ultimately, this is an incredible land of immigrants. (00:01:21) And Steve has a really compelling story. (00:01:24) So before we jump into the questions, I know your background, Steve, but I do think it's important. (00:01:29) Go back to your parents (00:01:32) your mom, how you grew up, and just set the stage for how you made it out from the way you started, because I think that's important, and then how you got to the United States and why. (00:01:45) Thank you, thank you. (00:01:45) I appreciate that. (00:01:46) And you're right, we've known each other a long time now, and it's a great joy to be here. (00:01:50) By the way, just want to say it's a great joy to be on a show where I don't have to wear the (00:01:55) the suit and shirt. (00:01:56) And that's one of the things about running for governor that I'm loving most of it, but dressing up is not the favorite part for me. (00:02:04) So it's great to be with you. (00:02:06) I thought for this show, you know, we've got to get it right. (00:02:08) I think that the more I think about my background, the more I think it is really important in terms of how I see things and what I want to get done. (00:02:18) My parents are Hungarian. (00:02:20) They were refugees from communism. (00:02:22) And I grew up in England in a town called Brighton on the south coast. (00:02:26) And we just had a regular working class immigrant aspirational family story, I guess. (00:02:34) It was, my parents actually split up when I was young. (00:02:36) My stepfather's also a Hungarian. (00:02:38) He had an amazing story. (00:02:40) He was a refugee as well, but literally ran across the border. (00:02:44) He grew up in a small village on the west side of Hungary and in 1956 when he had the Soviet invasion. (00:02:49) And it tells this amazing story they heard on the radio, the Russians are coming. (00:02:53) And he and his brother and some friends from his school, he was 14 years old, like one year younger than my youngest son right now. (00:03:00) And they just ran. (00:03:01) They literally ran for, they said, right, we want our freedom. (00:03:05) They ran to the border, barbed wire fences, minefields, got shot at by the guards, all that. (00:03:10) Half of them were killed. (00:03:12) And he ended up in a refugee camp in Austria and from then to England. (00:03:15) So (00:03:16) All of that, I guess, just gives you that sense of real appreciation for actual for freedom, for freedom and opportunity. (00:03:24) And I grew up in England, worked very hard, ended up at Oxford University, but my first job was project manager for a construction company. (00:03:33) I just wanted to earn money. (00:03:34) I just wanted to get out. (00:03:36) I think that's exactly the right phrase that you used. (00:03:40) And (00:03:41) That's been the story. (00:03:42) after Oxford, I went to work for a little bit of the Conservative Party in England. (00:03:47) Then I worked for a big ad agency, worked all around the world, started my own business, a couple of offshoots of that, including a couple of restaurants. (00:03:57) Then went back into politics when my friend David Cameron, who I'd met many years before, had gone into politics, got elected to Parliament. (00:04:05) I helped run his campaign for the leadership (00:04:08) of the British Conservative Party, won that election, and then worked with him to get the Conservatives elected when he became Prime Minister in 2010. (00:04:17) Joined him in 10 Downing Street. (00:04:19) I was senior advisor to the Prime Minister. (00:04:20) Most of my job was really focused on trying to implement our reform program. (00:04:25) And then in 2012, that's when we met. (00:04:27) We moved here because Rachel, actually before Facebook, she was at Google. (00:04:31) And she had this big global job at Google. (00:04:33) She was running comms and public policy for Google worldwide. (00:04:36) I had my job in #10. (00:04:38) It was actually when our second son was born. (00:04:41) It just, it was a lot, you know, the travel for her and the time difference. (00:04:44) So that's why we moved here. (00:04:46) And (00:04:48) you're also notably, you became natural as you're a citizen of the United States now. (00:04:53) So you have dual citizenship. (00:04:55) Less people are confused by the accent. (00:04:57) You're running for governor and you're a citizen of the United States. (00:05:00) Well, let's talk about your political setup. (00:05:02) So being a child of Hungarian immigrants raising communism, you're going to hear a certain version of what the role of the state is versus what the role of the family or the individual is. (00:05:15) Then (00:05:15) Growing up in the UK, I'm sure your attitudes either get cemented or change. (00:05:21) Give us the setup. (00:05:22) What is the political evolution of Steve Hilton? (00:05:24) What did he believe? (00:05:26) And then what does he believe now? (00:05:28) And what has shaped these beliefs? (00:05:30) It's really, I think it goes back to just around that when I first really started thinking about it all, it was just as Margaret Thatcher was coming to power. (00:05:40) And you'd had the 70s in England were a disaster. (00:05:44) and a decade that was just, the economy was completely stagnant and sclerotic. (00:05:50) Unions ran everything. (00:05:53) There was this period called the Winter of Discontent in 1979 when you had massive strikes. (00:06:00) Famously, you know, the dead went unburied and trash was piled up in the street. (00:06:05) Just real collapse of everything. (00:06:09) And that's what Thatcher came in to fix. (00:06:11) And I really did identify with that, as well as with the very clear stand against communism. (00:06:18) And so really, she was, funnily enough, when I was thinking about the video that I made to launch my campaign about a year ago now, we ended up putting that in there. (00:06:28) And I thought, well, actually, that was the thing that got me going. (00:06:30) I was totally inspired by her, but also the focus that she had on business and enterprise and hard work. (00:06:38) I remember my stepfather (00:06:40) I mean, they weren't at all political, by the way. (00:06:42) It wasn't like some household where we talked about politics. (00:06:44) It really wasn't. (00:06:46) But he had this thing that stuck in my mind when he talked about, like in England, you've got the Conservative Party equivalent of the Republicans, and for the Democrats, it's the Labour Party. (00:06:56) And I remember he just used to say, Mrs. (00:06:59) Thatcher's for the workers, and Labour are for the layabouts. (00:07:04) And I just this phrase stuck in my mind about the importance of work and hustle. (00:07:10) And I think about that all the time. (00:07:12) Where do you think California is, if you contrast? (00:07:15) Well, this is what I was just about to get to, is we really are there. (00:07:19) are so many things I see in California today that are exactly like the UK in the 70s. (00:07:26) You've got the massive dominance of the unions in policy making. (00:07:31) You've got a sclerotic economy. (00:07:34) You've got massively high taxation. (00:07:36) I mean, it was higher then. (00:07:38) At one point, I think the top rate when you add in the wealth taxes in the UK was literally 98%. (00:07:42) But you had that confiscatory taxation and top rate of 60% and so on. (00:07:48) So very, very similar. (00:07:50) And actually, funnily enough, Mike Moritz actually sent me a report that someone had done about the UK today. (00:08:00) And again, there's just these eerie parallels. (00:08:03) with just how impossible it is to do anything in the UK, to build anything, the overregulation. (00:08:11) When I read this report, it just is exactly like California State. (00:08:14) By the way, one thing, Jason, just to be clear, I am a proud American now, but I'm not, I actually renounced my UK citizenship. (00:08:22) And I did that because I just wanted to be clear that I'm, just to borrow the title of the show, You wanted to be all in. (00:08:28) Oh yeah, literally. (00:08:29) I think it's really important that everyone knows that. (00:08:31) And I am. (00:08:32) And you have some, to get into some, maybe some policy, thanks for the background there. (00:08:36) You have some unique policy positions. (00:08:39) Taxes, I think, is the most unique and, dare I say, pretty populist. (00:08:45) You want to have no state tax in California for people with under $100,000 in income and then a flat tax for everybody over 100K, but 7.5%. (00:08:57) How is that possible? (00:08:59) And is that something you've studied? (00:09:02) And where did this come from? (00:09:04) The tax plan that I put out there, that was the first day of my campaign. (00:09:09) I think of it as pro-worker and pro-growth. (00:09:11) And I think we need both of those things because if you look at what's going on in California today, just big picture, obviously you can look at the data. (00:09:19) That's a real economic disaster. (00:09:21) I'm not sure people appreciate just how bad things are because hiding behind that (00:09:26) data point of having the 4th largest economy in the world, which is true. (00:09:29) And obviously, I'm proud of that. (00:09:31) I want California to be big and successful and growing. (00:09:35) But that 4th biggest economy data point, underneath that, you've got the state with the highest unemployment rate in the country and the highest poverty rate in the country tied with Louisiana. (00:09:46) There's A United Way report just the other, about a year ago, they do it every two years, sort of an assessment of (00:09:55) of living conditions in California. (00:09:57) And they found that over a third of Californians cannot afford to meet basic needs. (00:10:01) And so the starting point for my tax plan is what can we do quickly to help people who are really struggling? (00:10:09) If you think about it, the working poor, who aren't particularly being taken care of by the welfare system, they're working incredibly hard, but they're being squeezed by all these costs. (00:10:20) We have the highest gas (00:10:22) Prices in the country, as the highest electric bills everywhere except for Hawaii. (00:10:29) Housing costs, the highest in the country. (00:10:31) Insurance, all these costs are so high. (00:10:33) So what can you do to help working people quickly? (00:10:37) And so the starting point was, and what's affordable, the $100,000 mark, I remember when I was just playing around with numbers, actually I did it with some economists from the Hoover Institution, where I was a fellow. (00:10:49) The first couple of years that we moved to, I taught at Stanford, (00:10:53) including in the public policy department, also the D school at Stanford, but I was also a fellow at Hoover. (00:10:58) And so we did the math on the tax plan there just about a year ago. (00:11:02) And so that first part, first 100 grand tax free, actually in many counties in California today, the official definition for low income is 100,000. (00:11:15) So that number may sound very high to people in other parts of the country. (00:11:18) It's actually the definition in a lot of counties of low income. (00:11:22) So you've got people earning 70 grand, 80 grand, 90 grand in California. (00:11:26) They are paying 9.3% state income tax. (00:11:30) That rate is higher than the top rate in most states in America. (00:11:35) So to me, that's ridiculous. (00:11:36) When you've also got all these other taxes that those exact people are paying, sales tax, property tax, gas tax, all of those are the highest in America. (00:11:45) So cutting taxes this significantly means you have to then also cut spending. (00:11:52) Yes, but I just did the other part of it. (00:11:55) I just did the other part, which is the 7.5% flat tax. (00:11:58) I just thought, you know, when you look at the facts about (00:12:03) Economic performance, the fact that, for example, Chief Executive Magazine ranks us and has done for the last 10 years or so, the 50th out of 50 for business climate, a big driver of that is tax. (00:12:14) And I'm sure we'll get into the insane proposed billionaires tax and, you know, all these things that are driving wealth creation out of our state and business investment out of our state. (00:12:23) So it's not enough just to take care of or give some relief to people who are on the lower end of the scale. (00:12:30) You've got to actually have a pro-investment, pro-growth tax (00:12:33) framework. (00:12:34) And so apart from anything else, the complexity is ridiculous of our tax system. (00:12:37) These endless different rates is ridiculously complicated. (00:12:42) And that itself is a cost, the bureaucracy and hassle associated with that. (00:12:46) That's why I think a flat tax makes sense. (00:12:48) Remember, this is in the context of federal taxes, all these other taxes, it's not the only component. (00:12:54) But the cost is to get to that cost, you've got to reduce spending exactly as you say. (00:13:01) And basically, the cost of that in total is about an 18.5% reduction in revenue, which takes us back, it takes us down about 60 billion, something like that, which is not even going back to what the budget was just before the pandemic. (00:13:16) They've actually, if you look at the budget of the state of California, it's nearly doubled in the last 10 years. (00:13:21) In the last five years, it's gone up something like 75%. (00:13:24) And so this is just bringing the budget back to achieve that entire tax (00:13:30) up, would bring the budget back just to where it was roughly before the pandemic. (00:13:34) Let me just summarize. (00:13:35) So if you make between zero and $100,000 a year as a California resident under your plan, no tax. (00:13:42) No state income tax. (00:13:44) No state income tax. (00:13:45) If you make $100,000 in a dollar and above, you pay 7.5% flat tax. (00:13:53) Yes, that's the concept. (00:13:54) Okay. (00:13:56) How many Californians (00:13:59) What does that impact? (00:13:59) So what percentage of the population now get that affordance if you were to be successful? (00:14:03) It's about 7 million. (00:14:04) How the tax numbers usually only households. (00:14:07) And so it's about 7 million households would benefit from the under 100,000. (00:14:13) And do you know how many that is as a percentage? (00:14:15) Well, working house, we got 40 million people. (00:14:17) I think that's about probably just over 1/3, something like that. (00:14:20) Okay. (00:14:21) So 1/3 of homes now essentially go to 0 tax. (00:14:25) State income tax. (00:14:25) State income tax. (00:14:26) There's all these other taxes there. (00:14:28) Now, the pushback would be, if we then take a dollar for dollar from the operating budget, programs will suffer. (00:14:36) And to your point, your comment is, I'm putting words in your mouth, but you've filled them in. (00:14:41) Well, not really, because we're just going to go back to 2019, 2020 budgets. (00:14:46) And the difference was we spent a dollar in 2020. (00:14:48) We now spend $2 and nothing has changed. (00:14:51) So go from $2 back to $1.50 and everything should be fine, is your point. (00:14:55) Yes, and I'd actually go further than that. (00:14:57) So first of all, what we've seen happen to the budget is basically the expansion that we saw in... (00:15:04) in the pandemic and afterwards has gone baked into the baseline, which is totally unsustainable. (00:15:09) And so we've got to get back to, even without tax cuts, I would argue, you've got to get back to a more reasonable growth in spending because you go bankrupt, as we're seeing with these deficits that we're getting even in times when we're not in recession and taking money out of the reserves, out of the rainy day fund to plug the gaps, which is what they're doing, totally irresponsible fiscally. (00:15:29) But actually, it's more than that. (00:15:30) Even if you don't change anything, (00:15:33) in the composition of the spending and just get back to where we were, that gives you scope for a major reduction in tax. (00:15:40) But the other part of it is what we're discovering in terms of where the money is actually going. (00:15:47) And so obviously, the whole fraud story has exploded as a national political and economic story ever since Nick Shirley's first investigation in Minnesota just around the time of Thanksgiving last year. (00:15:59) Well, we've been making our own (00:16:02) contribution to that. (00:16:03) So a few months ago, I set up, I literally called it CalDOCH, California Department of Government Efficiency. (00:16:09) I know that's a controversial brand, but the idea of it, efficient government, is something I think everyone would support. (00:16:17) So I thought, why not use that? (00:16:19) Because everyone knows what it is. (00:16:20) So we've been just looking at the published data on spending to find examples and to make an estimate of the total amount (00:16:29) of fraud, waste, and abuse in the system. (00:16:32) And we've now published 4 separate fraud reports out of Cal Doge. (00:16:37) When I say we, by the way, it's, I mean, this is a longer story we can get into, but one of the ways I think I'm running this campaign differently is that I'm actually putting together a team before the election of the, in terms of others who will run with me for statewide office. (00:16:53) because you've got some very important positions alongside the governor that are going to be crucial in putting us back on track. (00:16:59) In this instance, the state controller is very important because the state controller is an elected position, has the legal power to audit any organization receiving state money and to stop the flow of money if there's any suspicion of improper spending. (00:17:15) So there's a guy running with me called Herb Morgan, and we've been doing this work together. (00:17:20) And (00:17:21) We've published 4 reports now, three of them on individual examples of fraud. (00:17:26) We can get into that in a second, if you want to know. (00:17:28) Some of the examples are really shocking. (00:17:30) And then the 4th one was an estimate of the total. (00:17:33) And we just went through published data from the state auditor, from Medicaid error rates and so on, to make an estimate of the total amount of fraud. (00:17:42) What did you find? (00:17:45) Give us a couple of examples. (00:17:46) Here's some specific examples. (00:17:47) Now, the second fraud report, (00:17:50) It's a classic. (00:17:52) $1 billion over the last 10 years, 100 million every year since 2015. (00:17:59) This is from the Climate Change Mitigation Fund, which is part of the cap and trade system. (00:18:05) This is actually gas taxes and surcharges on electric bills and so on. (00:18:10) 100 million a year was allocated to be spent on (00:18:15) climate change mitigation. (00:18:17) In this case, it was solar panels for low-income apartment buildings. (00:18:21) So we actually tracked that money with an AI partner that can get all the reports. (00:18:27) And of that 1 billion total in 10 years, the actual amount spent on the purported benefit here, solar panel installation, was 72 million. (00:18:38) 928 million actually went to (00:18:42) nonprofits doing all the usual Democrat-associated bullshit, frankly, voter registration, environmental justice campaigns, all that kind of stuff. (00:18:54) The actual thing was mostly spent on that. (00:18:57) That's $1 billion. (00:18:58) The first one was the cannabis tax, Proposition 64 legalizing cannabis. (00:19:03) There's a tax associated with that, supposed to be spent on substance abuse prevention. (00:19:09) We found $350 million. (00:19:11) that was supposed to be spent on substance abuse prevention, again, going to this network of nonprofits, over 500 of them, in small individual grants. (00:19:19) When you look at what each of those organizations does, it's all the usual stuff, voter registration, activism. (00:19:26) So the third one was Project Homekey that we looked into, which was the homelessness thing. (00:19:32) that they set up after the pandemic, which was buying up property for homeless people, and sometimes can building new property for homeless people, or converting hotels, 3.8 billion. (00:19:43) That was on that one that we found. (00:19:45) I mean, there's others have found other amounts, most of which went into the pockets of developers without any real... (00:19:54) The California budget, if I'm not mistaken, 350 odd billion customers. (00:20:00) this year, yeah. (00:20:01) What percentage of it, in your best estimation with you and your team, do you think is inefficient, fraudulent, wasted? (00:20:07) Well, our number over the last five years, total, our estimate was 425 billion. (00:20:13) So averaged over the years, it's about 80 billion a year. (00:20:16) So that's, so it's around, you know, 20% or so. (00:20:19) That's unbelievable. (00:20:21) Now, just to bring some reality to the situation, you would have to (00:20:26) get through the legislature, which is both controlled by Democrats. (00:20:30) You can't unilaterally, as the governor, just say, hey, we're cutting these services. (00:20:36) And we had a governor, Schwarzenegger, who tried this very thing. (00:20:40) He had to move to the center. (00:20:42) You, of course, I believe in California, have a line item veto. (00:20:46) So you have some balance there. (00:20:48) But this is fantastic for people to (00:20:51) maybe get a reprieve from taxes. (00:20:54) You're going to get a major fight with Democrats to cut any spending. (00:20:59) What's your plan there if you were to win? (00:21:02) So Jason, a couple of things. (00:21:04) You're right about that. (00:21:06) And I'm very thoughtful about the realities of these things. (00:21:10) And I always make clear that I think it's certainly on the tax plan that (00:21:15) Tax is definitely, you can't do that without the legislature. (00:21:18) I think that actually we'll get a, there's a possibility of a consensus around some of these items where we can actually work together with the legislature to make it happen. (00:21:27) One indicator of that is actually one of my Democrat opponents in the governor's race, Katie Porter. (00:21:34) Actually, you know, we were doing a debate the other week in Fresno and she just said, (00:21:39) We've talked about affordability or whatever it wasn't. (00:21:42) I've decided I'm stealing Steve Hilton's tax plan. (00:21:44) I agree with him, first 100 grand tax-free, and I think we should take good ideas where we find them. (00:21:49) So it's an interesting example that I think that part of it, I think we may be able to actually persuade the legislature to do. (00:21:57) And then I noticed she yelled at you and said, get the hell out of her shot. (00:22:00) And she was blocking her video. (00:22:02) Except a stronger word than A, exactly, than hell. (00:22:06) So (00:22:07) The attitude that I've got on that whole question of the legislature is that when I'm elected, that's, and I'm sure your eyebrows are raised and saying, what are you talking about? (00:22:18) It's impossible for Republicans to win, and we'll get into that. (00:22:20) But I'm doing this on the basis that I will, and I'm preparing to actually start implementing the big changes we need to make in a thoughtful manner on day one, because otherwise, what's the point of doing this? (00:22:32) Steve, do you think that there's legislative agreement or momentum to (00:22:37) to give you the win, even though to your point, I think it's quite significant that the Democrats would signal that it's a legitimate policy proposal. (00:22:45) But do you think that if you win, people would see the forest from the trees and realize how important it would be to take salaries under 100,000 to no state income tax? (00:22:55) Look, I've seen the Democrat arguments now up front. (00:23:02) Many, many times. (00:23:03) We've done a lot of events together, some of the televised debates, many more that aren't televised. (00:23:08) We're literally all saying the same thing. (00:23:11) All the day in terms of the diagnosis of the problem. (00:23:14) It's incredibly expensive to live here. (00:23:16) People can't, people are really struggling. (00:23:19) The business climate is a disaster. (00:23:20) We're massively over-regulated. (00:23:22) We can't build anything. (00:23:24) Everything takes too long. (00:23:25) Everything's too complicated. (00:23:27) You know, there's a real consensus about diagnosing the problem among all the candidates. (00:23:33) And so I think that doesn't mean that we agree, of course, on the solutions. (00:23:38) I would argue that the Democrats all, you know, are some version of more of the same, actually, despite what they say about the problems. (00:23:45) But I think that there are certain things where we will be able to get agreement. (00:23:51) I also think that when you have a situation where you have the first Republican governor elected for 20 years, that really will change the dynamic in Sacramento. (00:24:00) I think it actually may (00:24:04) loosen things up a little bit, because I think that there are people there in the legislature who really understand that things have gone too far. (00:24:13) I mean, some of them have said it to me personally, Democrats there, but they feel constrained by the current political situation, the machine being in control. (00:24:20) They can't really move. (00:24:21) And I think that'll shake things up a little bit. (00:24:24) That's one point. (00:24:25) Secondly, you know, I really do have experience (00:24:28) working across party lines like this. (00:24:30) I think that I'll be able to bring some of that into play. (00:24:33) I mentioned earlier, I worked in 10 Downing Street, senior advisor to the Prime Minister, he was a Conservative Prime Minister, but it was a coalition government. (00:24:41) And I literally shared an office in 10 Downing Street with my opposite number from another party. (00:24:47) And we would, you know, hash things out and argue. (00:24:49) And, you know, we were part of the team that negotiated a coalition agreement and then tried to implement it. (00:24:55) And I think that those (00:24:57) skills of actually putting something together where you don't agree about everything, but you can make some things happen. (00:25:04) And you'll be useful in this situation. (00:25:06) And I think we can. (00:25:08) I mean, look, everyone agrees we can't go on like this in California. (00:25:11) And it's not farcical to think a Republican can't win here. (00:25:14) Pete Wilson did two terms. (00:25:16) Schwarzenegger did two terms. (00:25:18) That's 16, I guess, of the last 36 years. (00:25:21) It is completely conceivable that a Republican could win. (00:25:24) And you and Katie Porter have the same plan, I think, (00:25:27) Chad Bianco has the same plan, which is under 100,000, all of you agree, no taxes. (00:25:32) You're all attacking affordability. (00:25:34) They don't believe in cutting services, though. (00:25:36) They want to increase taxes on businesses, if I'm correct. (00:25:40) And so why is that plan not as good as yours, I guess, is the question. (00:25:45) Which one do you think will be more appealing to the voters? (00:25:49) Would the voters, I think they'll all agree, paying less taxes, fantastic, makes you more competitive with Florida and Texas. (00:25:56) But if they had their druthers, they're probably going to want to see Google and Apple pay more in taxes and not lose their services. (00:26:02) Yeah, but we're losing jobs. (00:26:04) And I think that that's the consequence of the squeezing businesses and high earners more and more. (00:26:12) And you're seeing it right now. (00:26:13) You're seeing the business exodus. (00:26:16) If the billionaire tax proposal goes through, I mean, that absolutely puts, you know, I think that's just a complete disaster for (00:26:24) for the tech ecosystem and what we've built in Silicon Valley over the years and all the job creation and wealth creation that comes with that. (00:26:32) You're seeing, I mean, I just, it's not just tech. (00:26:35) Everywhere you go in the state, there are so many conversations. (00:26:37) You sit down with business people, you know, we are on the brink of leaving. (00:26:41) I don't think people realize quite how near the cliff edge we are. (00:26:46) And I'll give you another example. (00:26:49) I was just in Pomona, (00:26:51) the other day down in Southern California, fantastic companies, sheet metal. (00:26:56) It's an HVAC duct manufacturing. (00:26:57) It's exactly the kind of thing you'd want here. (00:26:59) They're union jobs, actually. (00:27:01) It's a great, you know, manufacturing facility. (00:27:04) They are making the HVAC systems, the air conditioning, incredibly important, as you know, for TSMC and these semiconductor factories and all these high-end manufacturing that's happening in other states. (00:27:19) in, and these facilities now massive amounts of investment in the AI economy and tech more broadly, but none of it's happening in California. (00:27:27) I mean, we just published our policy report on that today, how we can get some of that full stack of those jobs in California. (00:27:33) But that company, they said to me, since the facilities are all now being built in other states, we're on the brink of moving our facility to be closer. (00:27:44) Because what's the point of making this stuff in California? (00:27:47) It's not going to be used. (00:27:48) because nothing's happening, nothing's going to be happening in California. (00:27:51) So you have to stop this squeeze on business. (00:27:54) You really do. (00:27:54) Let me ask about the broader cost of living for a second. (00:27:59) Probably the most impactful cost to people's lived experience is the cost of housing. (00:28:06) Yeah. (00:28:08) Double click into that for a second. (00:28:10) For the 40 million residents of California, what is going on? (00:28:14) Why are (00:28:16) rents so high, why are homes so expensive? (00:28:20) And what can actually be done to make the cost of living and rent cheaper? (00:28:28) So the thing, this particular issue, I think, almost captures better than anything else the underlying structural reasons why everything is so difficult in California and so expensive. (00:28:41) Because you've got these three structural forces that I think (00:28:46) underpin the problem and show why a Democrat can't fix it. (00:28:51) And the three things are union power, litigation, and climate dogma. (00:28:57) And they all come together in the housing story. (00:29:01) The first part of the story is that we're just not building enough homes for the number of jobs that we're creating and the size of our population. (00:29:09) It's a classic supply and demand situation. (00:29:12) Now within that, there are certain (00:29:15) wrinkles. (00:29:16) You could point out that because of rent control, which has got completely out of control, there are a lot of empty properties in California that could be used to house people, but they're not because landlords don't want to do it because the rights have swung so far in favor of tenants. (00:29:35) But I don't think that's the major driver. (00:29:37) The major driver is the fact that we just haven't built enough housing of different kinds. (00:29:42) And (00:29:43) If you go through the reasons for that and why it's so expensive, it brings into play these three factors. (00:29:48) First of all, it just costs more to build anything in California. (00:29:52) The same exact floor plan, house, apartment building, industrial building, whatever it is, costs just two or three times more to build in California than in neighboring states. (00:30:03) The first reason is the building codes, the actual requirements (00:30:06) for construction, which is way more onerous, driven by climate dogma that actually doesn't really provide much climate. (00:30:13) What does that mean, climate dogma? (00:30:15) Well, you have to install, here we are. (00:30:16) Because like Nevada is hot and drought ridden and Arizona has issues. (00:30:20) So what is it that we say that those states don't say? (00:30:24) So when you build apartments, when you build parking, you have to put in EV charging. (00:30:33) And (00:30:34) the scale of what's required for the EV charging just makes it more expensive. (00:30:39) You have to, likely to do a parking structure, they have to reinforce the floors, the bays have to be wider, just it adds to, you can have, you have fewer bays per structure. (00:30:50) There's specific costs associated with that. (00:30:53) Solar panels, we talked about that earlier in terms of low-income apartments that taxes are paying for, developers have to pay for that as well. (00:31:02) Insulation. (00:31:04) energy efficiency. (00:31:05) All these things are good. (00:31:07) And I think that's pretty much the story of California, which is things that start with good intentions actually end up being taken to an extreme where it just makes it too expensive to build at a rate that people can afford to buy the properties. (00:31:20) And the other two are really that CEQA, where anybody can sue on behalf of them. (00:31:24) Exactly, the private right of action under CEQA. (00:31:26) So (00:31:27) But let's unpack that because that brings together the three things, climate litigation and unions. (00:31:33) Because CEQA, the California Environmental Quality Act itself is a nightmare in terms of the amount of regulation you have to comply with. (00:31:41) The private right of action means anyone can sue. (00:31:45) 70% of CEQA lawsuits are used to block housing. (00:31:49) Most of those lawsuits are filed by unions. (00:31:52) They're used as leverage to negotiate what they call project labor agreements, where you have an agreement for the site, and usually they have one or two of these components, both of which sound great. (00:32:05) Skilled and trained, workforce, which means union only, so it's a closed shop, and prevailing wage. (00:32:11) Again, sounds very good, but it's two or three times market rate wages. (00:32:16) So both of those things inflate the cost. (00:32:18) Often, I've spoken to many developers, there aren't enough union workers in the area to actually do the job. (00:32:26) So they have to sometimes fly them in from other states to do the job and the cost of travel and accommodation. (00:32:32) It's just crazy. (00:32:33) This is the cage, Hamath. (00:32:34) There's no equivalent to CEQA in Texas, where I now reside after 20 years in California. (00:32:40) The other thing is the fees. (00:32:41) It's 30,000 per door in fees to government. (00:32:44) Yeah, to build a door in California. (00:32:47) It's under 1000 in Texas. (00:32:49) And in California has three times the new units per capita than California. (00:32:54) So every year we produce three times as many new homes per capita. (00:32:58) Just a simple question though, guys. (00:32:59) Put this into ChatGPT or whatever. (00:33:02) California's mandate with CEQA is to protect the air, protect the water, protect the land. (00:33:10) by some measures. (00:33:12) Texas doesn't have it. (00:33:14) Is it the case that Texas's air is worse, the water is worse, and the land is worse? (00:33:18) No, definitely not. (00:33:21) So is it roughly the same, meaning the particular count, the pollen count, is the air quality the same? (00:33:28) Because if it is, then what is CEQA doing other than just slowing down (00:33:33) and retarding the progress of housing. (00:33:35) Why hasn't that study? (00:33:37) Because I think, again, all of this, guys, comes back to when the data is presented in a way that's factual, there's very little room for people on both sides to argue it because they're all relatively smart. (00:33:51) It's when it's presented either in a partisan way or by somebody who reeks of partisanship that I think people attack the messenger versus the message. (00:34:00) So I'm just trying to understand (00:34:02) Why hasn't the California government confronted this? (00:34:05) It has the highest rents in America. (00:34:07) It has the highest poverty rate in America. (00:34:10) And it also has the highest regulation that has the lowest and the slowest unit housing growth. (00:34:16) Steve, I guess what I'm asking you is, how does that not get to the legislatures more? (00:34:22) Okay, well, I'll tell you. (00:34:23) I'm afraid the answer is, (00:34:26) the corruption within the system and the interest groups that have taken over the system. (00:34:30) I'll tell you a story, which is my first, I know a lot about housing policy because it was the first area of policy I studied when I decided that I wanted to get into the whole world of policy and politics in California. (00:34:42) I actually tried to get a ballot initiative (00:34:45) qualified for the ballot that would have two elements to it. (00:34:48) One is what Jason just mentioned, capping impact fees, which are now up to about 20% of the cost of housing. (00:34:56) I wanted to do a statewide cap of 3% of construction cost. (00:35:01) And the second component was eliminating the private right of action under CQA. (00:35:06) I didn't succeed in getting it on the ballot, didn't raise enough money in time. (00:35:10) So then I tried to pursue it through (00:35:12) The legislators said, well, let's see if we can make something happen in the legislature. (00:35:16) So I went to Sacramento. (00:35:17) I took meetings with legislators, started to engage with Sacramento. (00:35:22) There's one meeting I had with the legislator who was described to him as good on housing. (00:35:27) This is a person you need to talk to. (00:35:29) And we had a great meeting. (00:35:30) They said this would be transformational. (00:35:33) I said, great, let's work on it together. (00:35:35) Bipartisan, you're a Democrat, I'm a Republican, that'd be great. (00:35:37) People like that. (00:35:38) Oh, I couldn't support you publicly. (00:35:40) Why not? (00:35:41) Well, the unions would hate it. (00:35:43) Why? (00:35:44) Because if you take away the private right of action, you take away the union's leverage. (00:35:48) And I said, yeah, but you just told me it would be transformational. (00:35:52) We were sitting in an office, you could see the state capitol down below, high up. (00:35:56) They just waved their arm around like this and said, yeah, the unions run this place. (00:36:00) And that's the real reason. (00:36:02) If you look at, for example, Newsom touted these two bills last year, AB 130, AB 131, that were going to solve the housing crisis. (00:36:10) He said, this is the moment where we are embracing abundance and all the rest of it. (00:36:15) Big CEQA exemptions for certain types of housing. (00:36:19) But if you look at the fine print, (00:36:21) tucked away in it, you only get the exemptions if you have these project labor agreements and union closed shop and prevailing wage. (00:36:30) So you're just writing back in exactly the things that CEQA is causing the cost increases from. (00:36:36) So because the union, let's follow all the way through, if you look at Gavin Newsom's political donations over the 16 years he's been running statewide, just as a proxy for Democrat politicians, (00:36:48) by category. (00:36:49) The #1 category, government unions. (00:36:52) Number 2, trial lawyers. (00:36:54) Number 3, non-government unions. (00:36:56) So these are the, that's why nothing changes, because the interests that benefit from this system are funding the politicians that make the decisions. (00:37:05) Yeah, and Chamath to your other question of like, is the environment better since 1970 when this regulation came into pass? (00:37:13) California still has the worst air quality in the country, largely because of the addiction to (00:37:18) cars and traffic. (00:37:21) And then Texas, as a comparison, just has industrial waste problems because we have a lot of chemicals here or chemical processing done here. (00:37:28) So we have a car-loving culture in California, to your point, Jason. (00:37:32) It's part of our cultural fabric driving down Highway 1. (00:37:35) It's just a very iconic thing that's embedded in this state. (00:37:38) Steve, I have two questions. (00:37:40) What has all of the incremental regulations done with respect to (00:37:47) climate quality, whether it's EV mandates or the ice engine requirements. (00:37:52) And then separately, just as a more general way to explain it, why is gas in California 7 to $8 a gallon and why is it $3 everywhere else? (00:37:59) Why is ours more than two X that it costs everywhere else, including other states that are also quite expensive to live in? (00:38:08) Well, also that they don't that we have the highest gas in the country. (00:38:12) including Hawaii in the middle of the Pacific Ocean, even though we have abundant oil reserves here. (00:38:16) So we have way higher gas prices than states that don't have oil reserves. (00:38:20) We actually have very significant oil reserves in California. (00:38:23) The fundamental reason that gas prices are so high is because, again, in the name of climate, but without actually, actually in this case, it's counterproductive to climate, instead of using (00:38:37) The production that we have here in California, I've been to the oil fields in Kern County mainly, near Bakersfield. (00:38:43) We are now importing nearly 80% of the oil that we use. (00:38:47) Over the period of the, since, really this all started in 2006 with the passage of the Global Warming Solutions Act. (00:38:54) That was the sort of foundational climate legislation in California. (00:38:57) Over that period, our use of fossil fuels has declined by not that much. (00:39:02) And the proportion of our energy that's coming from fossil fuels is about 80%. (00:39:07) still. (00:39:07) The rest of the country, it's about 81%. (00:39:09) So it's barely any different. (00:39:11) But the difference is we used to produce most of what we use in state. (00:39:15) Now we are importing nearly 80%. (00:39:18) And that has driven up the cost. (00:39:21) You have to strip it from halfway around the world. (00:39:23) Our #1 provider is Iraq right now. (00:39:26) That's the number one source of oil. (00:39:28) I'm sorry, The state of California itself, we are (00:39:36) the wholly dependent on Iraqi oil to sustain our economy? (00:39:40) Not wholly. (00:39:41) It's the number one provider, yes. (00:39:43) So if you look at the sources of oil, number one, Iraq. (00:39:48) Number two, I think it's Ecuador and Brazil. (00:39:51) But the broader point on that is because-- let's just go back a few steps. (00:39:59) We had a real