California vs. Texas: Which Model Is Best? 15 comments
-
Font Size:
-
Print
- TweetThis
I think this article in the Economist on the current situation in California versus Texas is worth reading. The Economist is known as an erudite publication that seeks out the underlying dynamics in a given situation. As a publication, it also tends to a more measured tone in the content, but it also goes for rather flashy front covers and internal imagery.
In terms of how the Economist views the current trend in the two states, this image says it all:
Source: Economist / Illustration by KAL
California v Texas: America’s Future (Economist, July 9, 2009)
…Plenty of American states have budget crises; but California’s illustrate two more structural worries about the state. Back in its golden age in the 1950s and 1960s, it offered middle-class people, not just techy high-fliers, a shot at the American dream-complete with superb schools and universities, and an enviable physical infrastructure. These days California’s unemployment rate is running at 11.5%, two points ahead of the national average. In such Californian cities as Fresno, Merced and El Centro, jobless rates are higher than in Detroit. Its roads and schools are crumbling. Every year, over 100,000 more Americans leave the state than enter it.
The second worry has to do with dysfunctional government. No state has quite so many overlapping systems of accountability or such a gerrymandered legislature. Ballot initiatives, the crack cocaine of democracy, have left only around a quarter of its budget within the power of its representative politicians. (One reason budget cuts are inevitable is that voters rejected tax increases in a package of ballot measures in May.) Not that Californian government comes cheap: it has the second-highest top level of state income tax in America (after Hawaii, of all places). Indeed, high taxes, coupled with intrusive regulation of business and greenery taken to silly extremes, have gradually strangled what was once America’s most dynamic state economy. Chief Executive magazine, to take just one example, has ranked California the very worst state to do business in for each of the past four years.
By contrast, Texas was the best state in that poll. It has coped well with the recession, with an unemployment rate two points below the national average and one of the lowest rates of housing repossession. In part this is because Texan banks, hard hit in the last property bust, did not overexpand this time. But as our special report this week explains, Texas also clearly offers a different model, based on small government. It has no state capital-gains or income tax, and a business-friendly and immigrant-tolerant attitude. It is home to more Fortune 500 companies than any other state-64 compared with California’s 51 and New York’s 56…
Is the California Dream sustainable?
These are dark days for residents of California. Once, we had the finest public school system in the country. We had good infrastructure and strong credit ratings. No more. Some believe that we just need to spend more in order to fix these problems. Unfortunately, we have been doing just that for years, but the problems were not fixed.
In fact, during the fat years of growing state tax revenues, our legislators and our governor managed to spend more than we had coming in. Did our schools improve or our highways? No. Now, during a very lean year, we have no resources to tide us over.
The State of California has to be one of the most badly-run in the nation. We have the biggest population in the country, an economy that would be one of the biggest in the world if California was a nation. The state has tremendous natural and human resources, a great climate and a position as the main port for Pacific Rim exports and imports. California is the home to many of the world’s leading technology companies and it is famous around the world as the Golden State. Despite all those advantages, this state is a fiscal basket case.
The state legislature has been unwilling to keep spending even within shouting distance of revenues, which until recently were climbing steadily. And, as many observers have been warning for years, the state has relied heavily on tax revenues from capital gains on sales of real estate, businesses, stocks and other assets. Obviously, capital gains were pretty scarce in 2008 and, as a result, capital gains tax revenues have fallen considerably. Finally, our legislature has recognized that this is a problem, but that’s small comfort now.
Does Texas have a better economic model?
By contrast to the high tax, nanny state model we have created in California, there is the Texas model. Now, I know that many in the Golden State might groan at the idea of looking favorably on anything Texan. And, no doubt, many Texans think California is nothing but a collection of nuts. Nonetheless, Texas has stuck with a proven model for solid economic development and California has gone in a different direction. The results speak for themselves.
As we saw in the article above, Texas has no state income tax. That’s quite a contrast to California because we have the second highest income tax in the country and our legislators and many in the media continually say we just need to tax ourselves a bit more…and more and more.
A better path to prosperity
We posted on this piece last year, but it is worth another look. This piece points out that there are proven principles for building and sustaining prosperity.
The Path to Prosperity (The American Magazine, August 7, 2008, Amela Karabegovic and Alan W. Dowd):
A new report confirms that low taxes, limited government, and flexible labor markets help to spur economic growth.
There are times when common sense is not so common. We may be in one of those times, which is why a new report on the power of economic freedom is so important.
Common sense tells us that low taxes, limited government, and flexible labor markets will help to spur economic growth. The Fraser Institute’s 2008 Economic Freedom of North America (EFNA) report offers a striking, yet unsurprising, picture of the benefits that flow from such policies.
In 2005, the most recent year for which data are available, Colorado, Georgia, Delaware, North Carolina, New Hampshire, Tennessee, and Texas-states with consistently strong records of promoting economic freedom-had an average per capita GDP that was more than $4,300 above the U.S. average. Their total growth from 1981 to 2005 was nearly 20 percentage points higher than the U.S. average.
In the latest EFNA index, Delaware is the top-ranked state or province in all of North America while Texas is tied for second with the Canadian province of Alberta. And for good reason: Delaware has the smallest size of government at the subnational level and ranks first among U.S. states on key taxation measures; Texas ranks first in labor-market freedom at the all-government level and has a state top marginal income tax rate of zero. Delaware and Texas also rank high in the categories of government transfers and subsidies as a percentage of GDP at the all-government level.
By comparison, West Virginia, Hawaii, Maine, Montana, New Mexico, North Dakota, and Rhode Island-states with low levels of economic freedom-had an average per capita GDP that was more than $4,300 below the U.S. average. Their total growth from 1981 to 2005 was 10 percentage points below the U.S. average.
Again, this is predictable: all of these states rank in the bottom half of the nation on taxation at the all-government level, labor-market freedom at the state/local level, and size of government at the all-government level…
More economic freedom means more prosperity
The results we see in the 50 states make this point very clearly. Some economic models work better than others, but clearly improving and enhancing economic freedom is valuable. Conversely, if you restrict economic freedom by increasing taxes or laying on more bureaucratic red tape, you inevitably reduce prosperity. Our economy is resilient, yet it should also be clear that people gain prosperity faster and find more job opportunities in areas with more economic freedom.
The Economist piece linked above concludes with this:
…The truth is that both states could learn from each other. Texas still lacks California’s great universities and lags in terms of culture. California could adopt not just Texas’s leaner state, but also its more bipartisan approach to politics and its more welcoming attitude towards Mexico. There is no perfect model of government: it is America’s genius to have 50 public-policy laboratories competing to find out what works best-just as it is the relentless competition of clever new firms from Portland to Pittsburgh that will pull the country out of its current gloom. But, to give Texas some credit and serve as a warning to Mr Schwarzenegger’s heir, at this moment America’s two most futuristic states look a lot more like equals than ever before.
In the U.S., we have a unique situation with 50 distinct states. Why not analyze what works in other states and put those principles to work in California? The Texas model is almost certainly not a perfect fit for California, but elements of it are.
If we take a hard look in the mirror, we would have to face the fact that sunny California has lost its way. On the other hand, if we implement proven policies for building prosperity, then California could once more be the Golden State.
Via: Real Clear Markets
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most activeSee all
Instabloggers.
Top Instabloggers » -
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 15 comments:
With all of California's resources they should be the model for excellence in this Country and the World, instead we are a laughing stock. If California had any kind of reasonable government at all we would be fine regardless of this Recession, but we spend more time worrying about how to spend $10 million on saving a swamp with mice in it than creating real jobs.
That is what is so scary about this new administration, it's thinking is exactly along the same lines as California has been for the last 30 years, spend all your money on your pet social projects without concern on where the money will come from to pay for them. If you take care of business first then you will have the extra money to pay for all the social programs you want or at the least the ones that make real sense.
Creating jobs, paid for by the government, to dig a hole then fill up the hole, may let someone make some money for a short time, but after a while where does that money come from? These aren't jobs that are permanent, you use that money to help companies grow and to recruit other companies to move here, they create permanent jobs.
Use your State and Federal Government income to create real jobs, you do this the way Texas does. When American Airlines decided to relocate, they went to Texas, why? Because Texas said "come on down, you don't have to worry about property taxes for your huge buildings, let us worry about that". In the meantime, Texas benefits from all the new jobs for both local and relocating employees. They get taxes from these people, and these people buy houses and cars and other goods. That's how you do business, you don't tax the heck out of every company that tries to business with you, its short sighted and irresponsible.
Texas is a no BS State, come people don't like that attitude but it keeps all the pork out of the State budget, keeps labor unions in their place and uses common sense when conducting business. Texans love wildlife as much as any Californian, but you would be hard pressed to find one that would stop a new Hotel or development because some endangered rat was living in some shrubs, can you hear me Nancy Pelosi?
1. Obviously a smaller government will have lower tax rate, because fewer services provided = less spending = less tax. but it also mean you will be paying for those services with your own after tax dollars.
2. smaller gov't does not always mean greater efficiency. in fact, trend suggests that gov't has grown in size world wide. many gov't branches and services were "recent" inventions that did not exist 100 yrs ago (ie public health, education, etc). Would you vote to abolish these services?
3. Not having capital gains/income tax isnt necessarily good. Tax is meant to be a fair burden. by day's end, someone has to pay tax bill. income tax is a way to split the tax pie, it doesnt make the pie bigger.
On Jul 13 06:25 PM dybydx wrote:
> the article is somewhat flawed.
>
> 1. Obviously a smaller government will have lower tax rate, because
> fewer services provided = less spending = less tax. but it also mean
> you will be paying for those services with your own after tax dollars.
>
>
> 2. smaller gov't does not always mean greater efficiency. in fact,
> trend suggests that gov't has grown in size world wide. many gov't
> branches and services were "recent" inventions that did not exist
> 100 yrs ago (ie public health, education, etc). Would you vote to
> abolish these services?
>
> 3. Not having capital gains/income tax isnt necessarily good. Tax
> is meant to be a fair burden. by day's end, someone has to pay tax
> bill. income tax is a way to split the tax pie, it doesnt make the
> pie bigger.
I have been saying exactly that with respect to the fossil fuel energy...
in california, when you ask people about developing this resource, the response is usually, "NIMBY". whereas in TEXAS, it is "That is the smell of money"
Business wise, the economy is not as bad off as it was in the late 1980's when the defense industry dried up.
The government is dysfunctional in a crisis, as it was in 1990 under Pete Wilson. It is a structural problem.
What is worse, the current administration and Congress have two economic models of how to do things right and how to do things wrong, and they have chosen wrong.
You can have fascism (look it up), or you can have civilized society. Take your pick.
7 California 41,805
22 Texas 37,083
en.wikipedia.org/wiki/...)
It is always easy to LIE with figures. Why is "income growth", instead of "income level" used in the discussion?
Texas has oil and natural gas. California only has oranges in the desert.
When you see fat oil companies pumping oil from the ground and yet Texas's per capita income is still lower than that of California, obvious there must be a lot of income inequality in Texas!
California is a well-known world-class place for its academic achievement. Stanford, UC Berkeley, UC California, ... What do we have in Texas? Texas Austin, Texas AM, Texas Tech? Come on, they are in a different class! Researchwise Texas Austin, Texas AM are only comparable some Canadian Universities, such as UBC and U Toronto. That's why Texas is way behind in high tech!
If the U.S. still wants to lead the world, the Texas model certain wouldn't work!
it is wise to make your decisions based on fact, not assumptions.
having raised my family and run a business in TX i have found a basic tenant that i find fits well in this state.
SSSH
Seeds
Shells
Simplicity
Honesty
it works well here
Send the 100,000 people leaving California each year on buses to Texas. Problem solved.
heres the link;
www.ocregister.com/art...
How can a state that produces losers for presidents (LBJ-Vietnam, Bush 41-failed to kill Saddam, Bush 43-Iraq) be rated the "best" economic model over the state that produced a winner for a president (i.e., RWR-stood up to Russians)? Easy...have these loser presidents pump up the TX economy while jacking up the economies of competing states like CA, NY, FL, IL, MI, NV so TX looks better in comparison.
California. There guiding star is the redistribution of Wealth, NOT in its creation.