AUSTIN – Even amid the United States’ worst economic setback in decades, Texas’ competitive edge over California remains sharp, 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. “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 internationally renowned economist Dr. Arthur 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.
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. The report noted that the latest Bureau of Labor Statistics data showed that Texas had gained 129,000 new jobs in the last year-more than half of the national total-while California had lost 112,000 during the same period.
“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.”
The research showed that Texas’ economy has been growing stronger and with less volatility than California or the nation as a whole.
“If people needed any reminder of why Texas is the greatest place in America to live, work and raise a family, this report certainly provides it,” said Texas Gov. Rick Perry. “With all due respect to California, it’s hard to beat our state’s combination of low taxes, predictable regulations, fair legal system and world-class workforce. The fact that Texas has created more jobs this year than any other state is confirmation that our state is on the right track.”
A key reason for Texas’ strong economic performance is due to Texas keeping its tax, spending, and regulatory burdens low-and staying away from the personal income tax. For instance, state and local government spending in Texas has remained steady at around 18 percent of the state’s private economy, whereas California’s has increased from 19 percent to almost 26 percent since 1987.
The report notes that Texas’ pending budget shortfall presents a significant challenge to Texas’ long-term economic prospects. “To meet this challenge and avoid California’s path toward overspending and economic decline, the Texas Legislature in 2011 must ensure that Texas maintains its long run trend of controlled government spending,” the report recommends.
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. His economic acumen and influence in triggering a world-wide tax-cutting movement in the 1980s have earned him the distinction in many publications as “The Father of Supply-Side Economics.”
Governor Rick Perry is the 47th Governor of the State of Texas.
The Texas Public Policy Foundation is a non-profit free-market research institute based in Austin.
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