In Texas, the payroll count is back to pre-recession levels. California is nearly 1.5 million jobs in the hole. Why such a difference? Chalk it up to taxes, regulation and attitude.
The contrast between America's two largest states, in terms of both population and economic heft, is as stark as it has ever been. Texas is leading the country out of the recession; California is holding it back.
By August, the job count in Texas had rebounded to where it was when the recession officially began in December 2007. California's payroll was still 1.46 million below the pre-recession level. The nation as a whole was down by 6.42 million jobs. In other words, California, with one-eighth the nation's population accounts for more than a fifth of its job deficit left over from the downturn.
What country needs a state like that dragging it down?
Of course, what America really needs is not to be California-free, but to have something like the old California back — the economic dynamo that was the envy of the nation in the '50s and '60s. But to those who try to do business in the state now, those days seem impossibly distant.
California's business climate is notoriously bad. CEOs polled by the magazine Chief Executive have ranked it dead last for the past five years, with Texas, naturally, ranked first. To anyone seeking to start an enterprise and hire workers, moving to Texas is a lot less trouble than trying to change California's high taxes, overregulation and not-so-subtle bias against the profit motive.
A new study from the Texas Public Policy Foundation gives a good overview of why California lags so far behind and what it can learn from its Lone Star rival. The study was prepared by the econometrics firm of supply-side guru Arthur Laffer, so it's no surprise that Texas gets high marks for low taxes and, in particular, its lack of a personal income tax. The data behind these conclusions are hard to discount, no matter what your point of view.
California and other states with steeply progressive income taxes simply do not grow as fast as their tax-free competitors. The nine states with no income tax had nonfarm payroll growth of 11.76% from 1999 to 2009. Payrolls in the nine states with the highest top tax rates (a group that includes California) rose an anemic 2.48%.
The difference in tax systems reflects a difference in attitudes toward business and the wealth that business generates. Capital gains are tax-free in Texas; in California, they are taxed up to 10.55%. To an entrepreneur choosing where to set up shop, the message is clear: Texas wants to reward success; California wants to tax it.
California also has developed a web of regulations that raises labor costs, spurs litigation and ties up building projects indefinitely. Government at all levels squeezes businesses and property owners with fees and mandates.
Finally, at the basic, personal level, businesses in California feel what can only be described as a bad vibe. They get the sense that they're just not wanted.
As one of the CEOs in the Chief Executive survey put it: "California is terrible. Even when we've paid their high taxes in full, they still treat every conversation as adversarial. It's the most difficult state in the nation. We have actually walked away from business rather than deal with the government in Sacramento."
Just how pervasive is the state's anti-business attitude? Consider a recent story about how some governments in the San Francisco Bay Area — get this — are gouging the solar power business.
If California officialdom stands for anything, it stands for renewable energy, against Big Oil and for "green jobs." Yet an informal survey by the Sierra Club, reported this week in the San Jose Mercury News, found that some cities were charging sky-high fees for solar installations on schools, churches, retail stores and other buildings.
The city manager of Brisbane, a town that charges $13,510 for a permit to install a 131-kilowatt system, told the Mercury News that his city is "trying to promote the most solar that we can."
But lowering the fee would "be passing on savings to a commercial, for-profit developer, and that doesn't make a lot of sense to us."
That just about says it all — we're all for solar, but we can't have people making money off it, now can we? As long as California officials can say something like that with a straight face, the state faces a very long slog back to prosperity.
Conclusions are clear. Lower taxed, less regulated red states (or global economies) beat their progressive counterparts hands down in economic well being. Now, how sad is it that progressives do not accept this fact, even when confronted with empirical data.