Texas & California: A Cautionary Tale of Two States

 Texas and California are two states rocked by economic earthquakes that are pulling each in opposite directions.  California, once a growth powerhouse, is languishing in the throes of economic upheaval, while Texas is shaking up its economy with unparalleled business development.

This state of economic affairs was well documented in a recent USA Today article which marveled at Texas' business gains, calling the growth "one of the biggest economic shifts in the past half-century."  Based on federal data, Texas has leapfrogged New York and is now the country's second-largest economy behind only California.  And the gap is narrowing. 

The newspaper relied on recently released data from the Bureau of Economic Analysis for its analysis.  The verdict underscores how tax, labor and regulatory laws created by state legislatures directly impact economic growth in ways both harmful and helpful. 

Despite the obvious factors shaping each state's business environment, USA Today viewed the differences as little more than luck.  In its article, the newspaper quoted an economic forecaster from academia who accounted for Texas growth as equal parts "good planning and good fortune."

In a classic case of numbing stupidity or journalistic bias, the national newspaper concluded that the "economic winners of the last decade are states that focus on raw materials, government and senior citizens."  Really?  Apparently, the folks at USA Today are clueless about what drives business expansion. 

States like Texas, where Republicans hold big legislative majorities, have outperformed the rest of the pack by making it easier for businesses to relocate, operate and prosper in the state.  The losers, like Democrat Party controlled California, are heaping onerous regulation, taxes and labor laws upon the backs of business, stifling economic growth.

USA Today ignored these facts because an honest analysis would have exposed the Democratic Party's propensity for tax, labor and regulatory policies that are crippling economic development, both regionally and on the national level.   With a little digging, here's what the newspaper would have found:

Texas is one of 22 states with right-to-work laws, which prevent employees from being forced to join a union as a condition of employment.  This not only safeguards employees' rights, but attracts businesses suffering under the iron fist of union rules.   On the other hand, California is one of 28 states that have bowed to union pressure to outlaw right-to-work rules.  As a result, the Bureau of Labor reports that 17.2 percent of California workers belong to unions, even higher than the national average of 12 percent.  Only 5.1 percent of the Texas workforce is represented by a union. Studies have shown that right-to-work states enjoy higher job growth.  That research helps explain why unemployment in Texas was 8.0 percent at the end of May according to the Labor Bureau, while the jobless rate was 11.7 percent in California, significantly above the 9.1 percent national average. 

Texas is one of seven states with no personal income tax, leaving consumers with more discretionary income to spend on goods and services.  A family of three with a household income of $50,000 in Los Angeles pays the government 10.6 percent of their income.  Tack on sales taxes and the burden becomes even worse.  California's state sales tax is 9.25 percent with some cities and counties piling on local sales taxes on top of that, making it the highest in the nation.  Texas is among the lowest at 6.25 percent.  High taxes raise the cost of living for families, leaving households with less money to spend with local businesses.   

Texas has no corporate profits tax, although it collects franchise fees.   In 2006, the Texas legislature overhauled the tax structure providing for $3 billion in tax relief for business, reducing their tax burden by 33 percent.   In contrast, the California legislature has saddled businesses with a 8.84 percent tax on profits.  Banks and financial institutions pay an even higher rate of 10.84 percent. In weighing corporate tax burdens, the nonpartisan Tax Foundation ranked Texas 13th for its business friendly system, while California was nearly dead last at 48.  It is no wonder that California's share of the national economy shrank faster than all but three states from 2000 to 2010, according to Bureau of Economic Analysis figures.  Meanwhile, Texas' historic growth spurt during that same period has hiked the state's share of the U.S. economy to 8.3 percent. 

Regulations on Texas businesses pale in comparison to California's bloated system of legal handcuffs.  The governor's office in California released a study in 2009 that calculated the total cost of business regulation in the state at an astounding $492.994 billion.  In addition, the analysis estimated that over regulation of business had robbed California of nearly 4 million jobs.  Another California state-sponsored study this year, dubbed the "Commission on the 21st Century Economy," determined that the cost of doing business in California was almost 23 percent higher (on  average) than other states.

Clearly, by any objective measurement California is overtaxed, overregulated, over unionized and overrated as a place to do business. The state will continue to shed jobs and spiral deeper into economic decline as a result of Democrats' tax and spend policies that have driven California to the brink of bankruptcy.

Don't expect any sympathy from Texas, which has targeted California businesses as part of its economic development program.  With an economic output valued at more than $1 trillion annually and expanding, Texas has set its sights on wrestling away the No. 1 ranking from California.

When that happens, as it surely will, perhaps Californians will finally tire of the Democratic Party's anti-business policies in the once Golden State.