Texas > California?

I just read this Economist article, and was a bit shocked to see Texas considered an equal to the California.
Posted by Scott at 7/15/2009 12:13:00 PM
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8 comments:

  1. ScottJuly 15, 2009 at 12:24 PM

    While this is far form a scientific examination of the two states, I think the article poses a number of key points us Californians should be aware of:

    1) That last four (4!) years has seen us ranked last amongst all 50 states as the state to do business in. How do we expect to maintain our global status (e.g. top-10 GDP) if businesses don't want to set up shop in our golden state?

    2) Our education system is top-notch. We really should avoid budget cuts to education in our state; it's one of the only glowing things we've got! However, it's also due to this glowing education (eats mucho dinero), that we're in the current budget mess.

    3) Ah yes - taxes. I can see this from both points of view. Part of me thinks that "starving the beast" (no new taxes - spending cuts) is the right way to go; we've gotten wildly out of hand with passing ballot initiatives in the past decade. However, I'm fearful of us over-compensating here, and slimming down too much (hello Lindsay Lohan!); a slimmed down California seems appropriate, but lets not get carried away here.

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  2. AaronJuly 15, 2009 at 4:58 PM

    I went into this article expecting to defend California from the close-minded Texans. In fact, I'm going to go off on a tangent before coming back to this article.

    At my previous employer, I had to go to a training in Austin and spent a few days with people from both California and Texas. This was early in my financial planning career, so I asked aloud why there was a California municipal bond fund, but no Texas municipal bond fund. Municipal bonds are always federal income tax-free and if you purchase a bond from the state in which you reside, it is also state income tax free. This makes a big deal in California and I learned at that time that Texas does not have a state income tax, but they really make up for it in property taxes.

    We had just bought a home the year before in San Diego, so I asked them what property values were like. One gentleman had purchased a home the same size as ours and paid about 40% of our purchase price.

    Even if their property taxes were twice what California is, they are still paying less.

    I brought this to their attention and they were just as caught off guard by the values of homes in California as I was to learn they had no state income tax.

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  3. AaronJuly 15, 2009 at 5:06 PM

    Back to the issue at hand. I feel this brings up a point I mentioned earlier about ballot initiatives getting out of hand. Californians loving approving a new $8Billion high speed train that SHOULD pay for itself, but across the board refuse to increase taxes for anything.

    I felt that "Ballot initiatives, the crack cocaine of democracy, have left only around a quarter of its budget within the power of its representative politicians." was particularly telling of the general philosophy of California's citizens.

    In general, I am glad they are taking this time to make so many cuts, because until the ballot initiative process is modified, Californians will keep on spending.

    The author does a great job identifying specific causes of California's mistakes, and uses Texas as an example of how California can get back to the top spot. I think California has earned it's spot as the 10th largest economy in the world and will do what is necessary to remain there.

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  4. ScottJuly 15, 2009 at 5:33 PM

    Ya - I was shocked to find that Texas didn't have state income taxes either - I never even thought that was an 'option'. I wonder what city budgets look like in Texas compared to California. With so little state spending, do you think they spend more at the city/county level, or do you think they're budgets are that much smaller across the board?

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  5. AaronJuly 16, 2009 at 9:29 AM

    A long time ago, before I had developed my own political beliefs, my Republican parents explained that the general Republican belief was that the government did not need to tax their citizens to create social programs, rather social programs can be funded from private donations. Whereas Democrats did not have the same faith in humanity and that they preferred taxes and government oversight of all social programs.

    It is very possible, that as conservative as Texas is, they may not need a state income tax, as there are not nearly as many social programs as are present in California.

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  6. RoyceJuly 16, 2009 at 1:33 PM

    Aaron, your point also speaks to the Economist's caution that "immigration is likely to reconvert Texas from Republican red to Democratic blue; Latinos may justly demand a bigger, more “Californian” state to educate them and provide them with decent health care. But Texas could then end up with the same over-empowered public-sector unions who have helped wreck government in California."

    That is an interesting proposition - was California just the first to explode with success and require a significant social framework? And if so, might that happen in Texas?

    The other thing that the article doesn't touch on at all, but I think has a big bearing - climate. California has the best climate of any US state, hands down, and therefore will always attract a significant amount of individuals who value quality of life. This will also keep property values higher than the rest of the country.

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  7. RoyceJuly 16, 2009 at 1:45 PM

    Aside - I know Arthur Laffer and went to high school with his son (played volleyball together), he's a funny dude. I've always thought his economic views were interesting and, from a purely economics theory standpoint, pretty accurate.

    I wonder if the big difference here isn't small gov't vs. large gov't, but rather efficient and productive leadership vs. crappy leadership. It seems that way to me.

    The article mixes the effectiveness of the state gov't with the productivity of the businesses there - but, to me, the two things are somewhat unrelated. Because of the entrepreneurial energy in the state I think CA has a great opportunity to reinvent its economy. But that is completely apart from any decisions the politicians might make.

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  8. ScottJuly 16, 2009 at 1:51 PM

    Good questions surrounding "California being the first" state to come across these issues. It would be interesting if someone had the time to track public spending across the history of each state against population inflows (both immigrant and internal US), to see how close a correlation there is.

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