A Texas-sized lesson for lawmakers
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California may be a budget basket case but not all states are in such dire straits. In spite of the economic downturn, some states have managed to spend responsibly, avoid debt, and maintain reasonably strong economies.
Texas provides a vivid contrast with California. The comparison has been made by various sources including The Economist, the American Legislative Exchange Council (ALEC), and most recently political analyst Michael Barone.
This year, California is expected to spend $179.9 billion – double what it spent just 10 years ago (despite an economy that only grew by 50 percent). In June 2009, Texas Gov. Rick Perry signed a two-year budget that is slightly smaller than the previous budget because lawmakers planned for reduced revenue due to slower economic growth.
On the taxes side, tax rates are higher in California than in Texas. For instance, Texas has no income tax, while California has a top marginal personal income tax rate of 10.3 percent. Texas has also sought to counter the economic downturn by cutting taxes on small businesses.
California struggles with massive state deficits (in spite of higher taxes). Texas has a balanced budget.
The outcomes are instructive. California suffers from an unemployment rate of 12.3 percent (the fifth highest in the nation). Texas unemployment is a relatively modest 8.2 percent.
People vote with their feet. They leave states with dismal economic environments and migrate to states with greater economic opportunity. Texas has long been one of the fastest-growing states and managed to keep the number of total employed people steady.
Public policies have real consequences. People around the country should consider the different policy paths California and Texas have taken and urge their elected representatives to adopt the ones best for their state.