Two months ago, Dr. Arthur Laffer released Competitive States: Texas v. California, highlighting the vast tax and spending differences between the nation’s two economic heavyweights. Needless to say, Texas won hands down.
One of the reasons Texas fared so well against California, according to the study, is because the state imposes a relatively low tax burden. A state’s tax burden is important because lower taxes means people spend more money; when people spend more money, more jobs are created; when jobs are in full-supply, the economy blossoms.
The lessons passed along by Dr. Laffer don’t seem to be resonating very well in the Golden State. Yesterday, the Wall Street Journal reported that Governor Arnold Schwarzenegger would raise taxes in an already souring economy.
The governor’s plan calls for a 1.5 percent sales tax increase and other “revenue generators” in an effort to close an $11.2 billion deficit. But higher taxes won’t solve what ails California. Consider that The Tax Foundation’s 2009 Business Tax Climate Index already ranks California’s tax system as America’s third-worst.
California’s financial woes come not from the fact that it taxes too little, but that it taxes too much. People have no money to spend; how, therefore, can they possibly be expected to create economic activity?
And that’s where we differ.
Texas has grown rich and prospered because we understand the concept of limited government and the value of our taxpayers. In all the world’s history, government has never taxed its way to prosperity.
– James Quintero