When it comes to economic policy, policymakers are increasingly looking to the two largest states in the nation as guides for what to do and what not to do. California and Texas represent nearly opposite visions for how to achieve prosperity.
Even though California is in an economic death spiral elected officials are looking for ways to tax carbon emissions, increase regulation, and they have basically refused to cut government spending. Meanwhile, Texas, with its welcoming business environment of no income tax and lighter regulation, is booming.
The differences between the two states are stark:
• The number of government employees in California has grown, but Forbes magazine notes that the state has not produced a single net new job since 1998.
• Texas has grown the number of middle-income jobs by 16 percent while California’s grew by 2 percent.
• Even film production in California has declined markedly; 82 percent of all films were produced there in 2002, now it’s only 30 percent.
• Texas now has more Fortune 500 companies than any other state.
California will find itself even more disadvantaged after the Panama Canal is widened in a couple of years. Large retailers with shipments from China have been looking for new ports since a California longshoreman’s strike left goods sitting on docks just before Christmas several years ago.
California’s situation proves that taxes and regulation matter. Even natural advantages like a beautiful climate and a coast line can be neutralized by over-reaching government. States become and stay prosperous when the private sector is free to innovate and invest. So, the key to avoiding California’s fate is to borrow from Texas’s tax and regulation playbook.
Dr. Byron Schlomach is director of the Goldwater Institute’s Center for Economic Prosperity.
American Legislative Exchange Council: Rich States, Poor States
The Economist: California v Texas: America’s Future