AUSTIN – Not only does California’s economic climate continue to lag that of Texas, “in several key areas, California’s economy has become even less competitive than before,” according to research released today by the Texas Public Policy Foundation.
“A comparison between Texas and California is not only valid but vital for our country,” said Dr. Arthur Laffer, one of the authors of the TPPF report. “Both are large, strategically located states, with strong demographics and bountiful natural resources. But California’s regulatory and tax costs, coupled with budgetary and policy instability, render it an impotent competitor when standing next to low-tax, business-friendly Texas, which levies no capital gains or income taxes to support its affordable government.”
The Texas Public Policy Foundation released the report, “Competitive States 2010: Texas vs. California,” during the luncheon of the “Keeping Texas Competitive Summit” in San Antonio. The report updates the scoreboard from Dr. Laffer’s 2008 report comparing the two states on six broad categories proven to affect a state’s economic competitiveness: taxes on labor, taxes on capital, taxes on consumption, overall tax environment, regulatory environment, and government spending policies.
“Texas’s superior economic performance is noteworthy,” Dr. Laffer said. “It’s just striking how the states with no income tax outperform the states with high income taxes. And the reason is simple: employers move to the location that promises better after-tax returns. Texas constantly focuses on improving its economic competitiveness and the citizens of Texas are benefiting because of it.”
As was the case two years ago, Dr. Laffer’s analysis declared Texas a decisive winner in five of the categories, with “taxes on consumption” scored as a tie. As a result, Texas is back to gaining jobs-129,000 in the last year according to the most recent Bureau of Labor Statistics data-while California had lost 112,000 during the same period.
“If Californians still have trouble understanding why so many of our former neighbors have ‘Gone To Texas,’ this scorecard spells it out in painful detail,” said Sally C. Pipes, President & CEO of the California-based Pacific Research Institute. “We must dramatically overhaul our tax and regulatory policies if the Golden State is ever to regain its former luster.”
The research graphically illustrated how California has allowed its government spending to surge during bad times without reining it in during good times. While Texas’ state and local government spending has remained steady at around 18 percent of the state’s private economy for more than 20 years, California’s has climbed from 19 percent to almost 26 percent.
The report also highlights that California has abundant natural resources much like Texas, but self-imposed government regulations have kept California from using those resources to advance the state’s prosperity.
“We find the lower level of restrictions imposed by Texas on the use of its resources allows Texas to take superior advantage of its resources compared to California and many other states,” the report noted. “Once again, Texas is capable of exploiting opportunities-in this case rising oil prices-due to its economic policies.”
Dr. Arthur Laffer is a Senior Fellow of the Texas Public Policy Foundation and a partner with Arduin, Laffer & Moore Econometrics. Laffer was a member of President Ronald Reagan’s Economic Policy Advisory Board for both of his terms. He is a former California resident and a former economic advisor to California Gov. Arnold Schwarzenegger.
Sally C. Pipes is President and CEO of the Pacific Research Institute for Public Policy, a non-profit, free market think tank with offices in San Francisco and Sacramento, California.
The Texas Public Policy Foundation is a non-profit free-market research institute based in Austin.
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