What explains this Lone Star success? Texas is a big state, but its population of 24.7 million isn't that much bigger than the Empire State, about 19.5 million. California is a large state too—36.9 million—and yet it's down 11,400 jobs. Mr. Fisher argues that Texas is doing so well relative to other states precisely because it has rejected the economic model that now prevails in Washington, and we'll second that notion.
Mr. Fisher notes that all states labor under the same Fed monetary policy and interest rates and federal regulation, but all states have not preformed equally well. Texas stands out for its free market and business-friendly climate.
Capital—both human and investment—is highly mobile, and it migrates all the time to the places where the opportunities are larger and the burdens are lower. Texas has no state income tax. Its regulatory conditions are contained and flexible. It is fiscally responsible and government is small. Its right-to-work law doesn't impose unions on businesses or employees. It is open to global trade and competition: Houston, San Antonio and El Paso are entrepôts for commerce, especially in the wake of the North American Free Trade Agreement.
Here’s an statistic worth pondering: 45 percent of net U.S. job creation in the last two years comes from Texas.
Yes, Texas: the state that is the poster child for right-wingery, the state with no state income tax whose population is growing at about 1000 per day (see a connection?) while bankrupt behemoths like California are bleeding jobs and people.
California currently ranks #49 among U.S. states for "business tax climate" (Tax Foundation) and #48 for for "economic freedom" (Mercatus). It shouldn't be any surprise then that companies are leaving the "Golden State" in record numbers this year (see chart above) for "golder pastures" and more business-friendly climates in other states.
From Joe Vranich:
"Today, California is experiencing the fastest rate of disinvestment events based on public domain information, closure notices to the state, and information from affected employees in the three years since a specialized tracking system was put into place. Out-of-state economic development officials are traveling through the state to alert frustrated business owners and corporate executives to their friendlier business climate versus California's hostility toward commercial enterprises.
Californians can take scant comfort from the prospect that a blue-state meltdown may start elsewhere. (Illinois, for instance, appears to have dug itself into an even deeper hole.) No matter which other states have it worse, California faces years of austerity. According to a report issued in November 2010 by the Legislative Analyst's Office (LAO)—California's counterpart to the Congressional Budget Office—the state's general fund is heading for a $20 billion shortfall every year until 2016, as far ahead as LAO cares to project. Since LAO does not expect general fund revenues to exceed $100 billion until 2015, these deficits would be more than one-fifth of the state's budget for half a decade.
And that's the good news. "We believe that our projections probably understate the magnitude of the state's fiscal problems during the forecast period," the report says. The picture would have been even bleaker if LAO had factored in the billions of additional dollars California must devote each year to fulfill pension and health care obligations to public employees who have retired or will in the future. (When and how the state will pay for those promises, and whether it will bend or break some—these were too murky for the agency to quantify and forecast.) LAO does estimate that the unfunded liabilities for these obligations amount to $136 billion. California's "long-term fiscal liabilities—for infrastructure, retirement, and budgetary borrowing—are already huge," the report states. "By deferring hard decisions on how to finance routine annual budgets of state programs to future years, the state risks increasing further the already immense fiscal challenges facing tomorrow's Californians."
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The planted axiom is that higher taxes—California's are already among the highest in the nation—will get the state through the recession and recovery without further reductions or reorganizations of its public sector, hastening the happy day when things can go back to normal. The long-term structural deficits that appear endemic in the blue-state model of high taxes, big government, and strong public employee unions all argue, however, that "normal" is the problem. Americans are endorsing this proposition with the articles they write and the bonds they sell but also, more importantly, by decisions about where to build lives and enterprises. The first results from the 2010 census, released in December, show that the population of Texas, a state with no corporate or individual income tax, grew twice as fast as the nation's overall population between 2000 and 2010. California grew at the national rate, meaning that for the first time since 1850, the census will result in no additional California seats in the House of Representatives. (New York will lose two House seats; Illinois and New Jersey will each lose one. Texas adds four.) More generally, as Michael Barone has calculated, 35% of the nation's population growth since 2000 took place in the nine states that have no income tax, which together accounted for only 19% of the nation's total population at the beginning of the decade.
In 2008, 70 percent of all the jobs in the country were created in Texas. In 2009, all of America's top five job-creating cities were in Texas.
More recently, "Texas created 129,000 new jobs in the last year -- over one-half of all the new jobs in the U.S. In contrast, California lost 112,000 jobs during the same period," according to "Texas vs. California: Economic growth prospects for the 21st Century," a new report by the Texas Public Policy Foundation released in October.
Texas is home to 64 Fortune 500 companies -- more than any other state in the union. (California has 51 and New York has 56.) For five years in a row, Texas has topped Chief Executive magazine's poll of the best state to do business.
Meanwhile, California is ranked dead last in the Chief Executive's survey. California state treasurer Bill Lockyer even went so far as to pen a Dec. 20 op-ed in the Los Angeles Times denying "the claim that we have a hostile business climate."
So why are businesses flocking to Texas and fleeing California? Well, as a recent headline from The Economist put it, in California "They paved paradise and put up the parking taxes."
Texas has no personal income tax. With a top rate of 10.3 percent, California has the third-highest state income tax after Oregon and Hawaii.
The tax advantage goes much deeper. The Tax Foundation cites California as having the 33rd highest corporate income tax topping out at 8.8 percent -- much higher than Texas' modest 1 percent gross receipts tax on business.
California's capital gains tax is the highest in the country, whereas Texas levies no tax on capital gains. California's sales tax is the second highest in the nation and its energy taxes are the highest in the country.
And as California's taxes have gotten higher, the state's revenue has become more unstable.
Higher education in America, historically the envy of the world, is rapidly growing out of reach. For the past quarter-century, the cost of higher education has grown 440%, according to the National Center for Public Policy and Education, nearly four times the rate of inflation and double the rate of health care cost increases. The cost increases have occurred at both public and private colleges.
Like many situations too good to be true--like the dot-com boom, the Enron bubble, the housing boom or the health care cost explosion--the ever-increasing cost of university education is not sustainable.
Just 10 years ago the cost of a four-year public college education amounted to 18% of the annual income of middle-income families. Ten years later, it amounted to 25% of that family's average annual income.
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We're seeing articles with headlines like: "The End of Higher Education Enrollment as we Know It"; "Is College Worth the Investment?"; "Will Higher Education be the Next Bubble to Burst?"; and "Drowning in Debt: The Emerging Student Loan Crisis."
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All this happened while total federal student aid more than doubled, in constant dollars, from $60 billion ten years ago to $120 billion today. Sadly, more federal student aid simply fuels the rising costs. The cost of education tracks with the growth in federal aid; the transaction cost for students is not lowered. The federal money effectively flows directly to the operating expenses of the Universities-which seem to rise in direct proportion to the flow of federal funds.
Because all universities offer some kind of financial assistance, the nominal tuitions are not the amounts universities actually take in. Discounting, often in the range of 25% to 35% of tuition, is offered as financial aid. But even after the discounting the average realized tuition revenue at universities continues to grow.
During his state of the state address Tuesday, Gov. Rick Perry said it is time for colleges and universities to lay out a low-cost path to a degree.
"It's time for a bold, Texas-style solution to their challenge that I'm sure the brightest minds in their universities can devise," said Perry. "Today I'm challenging our institutions of higher education to develop bachelors degrees that cost not more than $10,000 including textbooks."
It is a goal Perry said could be reached with online courses and "innovative teaching techniques." Patrick said offering a packaged price for what a college education will cost is a good idea. Democrats blasted the governor said it would dumb down Texans.
While visiting with old college friends on New Years’ Eve we did a back of the envelope calculation on the cost and value of our BA degrees in Accounting from 1981. We attended a small well regarded Midwestern liberal arts college from 1977 to 1981. Tuition, room and board was between $3,000 and $4000 per year so around $16000 for our BA. As entry level accountants in public CPA firms we earned a salary of around $17,000 per year. So we earned in salary an amount equal to the cost of a BA degree in our first year of employment. Now that same college, which my youngest daughter is looking at attending costs $42,000 per year. If she earned her BA in Accounting it would cost her $168,000. Her possible first year salary as a CPA? Not even close to $168,000. Maybe around $45,000. What a change in 30 years in the value of that BA in Accounting.HIGHER ED BUBBLE UPDATE - Glenn Reynolds
Administrative Bloat at American Universities: The Real Reason for High Costs in Higher Education. “Between 1993 and 2007, the number of full-time administrators per 100 students at America’s leading universities grew by 39 percent, while the number of employees engaged in teaching, research or service only grew by 18 percent. Inflation-adjusted spending on administration per student increased by 61 percent during the same period, while instructional spending per student rose 39 percent. Arizona State University, for example, increased the number of administrators per 100 students by 94 percent during this period while actually reducing the number of employees engaged in instruction, research and service by 2 percent. Nearly half of all full-time employees at Arizona State University are administrators.”UPDATE: Related: Is The College Business Model Broken?
First, the great engine of growth in America is not the Northeast Megalopolis, which was growing faster than average in the mid-20th century, or California, which grew lustily in the succeeding half-century. It is Texas.
Its population grew 21 percent in the past decade, from nearly 21 million to more than 25 million. That was more rapid growth than in any states except for four much smaller ones (Nevada, Arizona, Utah and Idaho).
Texas' diversified economy, business-friendly regulations and low taxes have attracted not only immigrants but substantial inflow from the other 49 states. As a result, the 2010 reapportionment gives Texas four additional House seats. In contrast, California gets no new House seats, for the first time since it was admitted to the Union in 1850.
There's a similar lesson in the fact that Florida gains two seats in the reapportionment and New York loses two.
This leads to a second point, which is that growth tends to be stronger where taxes are lower. Seven of the nine states that do not levy an income tax grew faster than the national average. The other two, South Dakota and New Hampshire, had the fastest growth in their regions, the Midwest and New England.
Altogether, 35 percent of the nation's total population growth occurred in these nine non-taxing states, which accounted for just 19 percent of total population at the beginning of the decade.
In a little more than month, the state of California lost over $6 billion in ground on its latest budget. With the deficit now thought to be $25.4 billion, Gov. Schwarzenegger calls a special session of the legislature to start on December 6.California Suggests Suicide; Texas Asks: Can I Lend You a Knife? - Joel Kotkin
Some Assembly Democrats think this is a political gimmick--what's changed in the 5 weeks since they last approved a budget that could make things better?--and their biggest priority is something that would make the deficit bigger, not smaller--reversing a Schwarzenegger line item veto of $256 million worth of day care.
In the future, historians may likely mark the 2010 midterm elections as the end of the California era and the beginning of the Texas one. In one stunning stroke, amid a national conservative tide, California voters essentially ratified a political and regulatory regime that has left much of the state unemployed and many others looking for the exits.
California has drifted far away from the place that John Gunther described in 1946 as “the most spectacular and most diversified American state … so ripe, golden.” Instead of a role model, California has become a cautionary tale of mismanagement of what by all rights should be the country’s most prosperous big state. Its poverty rate is at least two points above the national average; its unemployment rate nearly three points above the national average. On Friday Gov. Arnold Schwarzenegger was forced yet again to call an emergency session in order to deal with the state’s enormous budget problems.
Texas’s low-cost, liberty-loving atmosphere has become an attractive alternative to California’s oppressive public sector and dysfunctional policy environment. No amount of heart-melting vistas, celebrity sightings, or traipses through wine country can make up for what almost appears a strategic attempt by one of the nation’s largest states to drive businesses and productive people away.
Thanks to an interesting interactive map at Forbes.com, we now can see some visual evidence of the trends we have been discussing. The map shows county migration in the United States in pictorial form. Black lines show inward migration to a county, and red lines show outward migration. The thicker the line, the higher the volume.
It is taboo to ask our failing youth a simple question, “What exactly have you done the last month to ensure your birthright to the world’s most sophisticated lifestyle propped up by advanced math, science, social stability, and political tranquility?”
It other words, our elite is becoming more elite and refined, while our non-elite is becoming more rough around the edges. But they share a disturbing commonality: both expect something that they are not willing to invest in.
In the two decades after World War II California, with its pleasant weather, was the Golden State, a promised land, for most Americans, while Texas seemed a provincial rural backwater. Many saw postwar California's expansion of universities, freeways and water systems a model for the nation. Few experts praised Texas' low-tax, low-services government.Now it is California's ruinously expensive and increasingly incompetent government that seems dysfunctional, while Texas' approach has generated more creativity and opportunity. So it's not surprising that Texas voters preferred Perry over an opponent who has spent 16 years in Washington. What's surprising is that Democrats in Washington are still trying to impose policies like those that have ravaged California rather than those that have proved so successful in Texas.
Here's the money quote about saving the status quo:"We cannot survive without raising taxes," Santa Clara County Assessor Larry Stone said. "We're just going to sit and wallow in deficits until somebody steps up."
In short, California is a disaster for business. The state has piled up so many taxes, regulations and mandates that businesses are leaving the state. Just this week I learned that a spare part order for my Lennox fireplace is delayed because Lennox is moving this division of its business to Tennessee. Wealthy individuals are also fleeing the state to avoid the country's highest tax bracket. When both wealth and wealth creation leave the state, tax revenues leave with them.
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The irony here really cries out for attention: a large state university system needs a free market economy that hums along in top gear so that the revenue needed to support it can be generated. But California's two unusually well developed state university systems provide enormous local voting power in many Assembly districts for a bitterly anti-capitalist ideology that sabotages the California economy. The campuses are shooting themselves in the foot. The power that those students and faculty chanted about is indeed theirs, and if they used it to elect sensible assemblymen and state senators their problems would be solved by the healthy business climate that would result. The votes that they actually cast are the source of their troubles.
So far, the sunny socialist state has gotten by on two general truths: Most people won’t leave the beautiful coastlines, sunny weather, and scenic landscapes no matter how high the taxes go to subsidize less productive or more needy others; and, second, lots of tourists will visit to bask in the beauty and warmth — and pay quite a lot for even that brief taste of natural paradise.
Yet those smug assurances of the Lala Land redistributive state may be ending. An estimated 3,500 upper-income Californians are leaving their beautiful state each week. They seem to think that crumbling highways, schools rated at near to last in the nation, 5 to 7 million illegal aliens, and overfilling prisons aren’t worth the 10 percent sales tax, 10 percent income tax, and 63-cent-a-gallon combined state and federal gasoline taxes. And they don’t think that Barbara Boxer, Nancy Pelosi, or the California legislature can or wants to fix things.
The argument about what went wrong with California is really an argument about the future of America. To the right, the Golden State’s ongoing crisis is a case study in liberal failure: A big-spending state that lived far beyond its means, and let its public-policy priorities be dictated by the appetites of liberal interest groups instead of the common good. To the left, it’s a case study in how a malign nexus of conservative intransigence and institutional sclerosis can thwart good governance. The problem in California isn’t the spending, liberals argue: It’s the supermajority requirements that prevent a liberal majority from raising the taxes necessary to pay for it.The Big-Spending, High-Taxing, Lousy-Services Paradigm - by William Voegeli
Unpacking the numbers is even more revealing—and, for California, disturbing. The biggest contrast between the two states shows up in “net internal migration,” the demographer’s term for the difference between the number of Americans who move into a state from another and the number who move out of it to another. Between April 1, 2000, and June 30, 2007, an average of 3,247 more Americans moved out of California than into it every week, according to the Census Bureau. Over the same period, Texas saw a net gain, in an average week, of 1,544 people. Aside from Louisiana and Mississippi, which lost population to other states because of Hurricane Katrina, California is the only Sunbelt state that had negative net internal migration after 2000. All the other states that lost population to internal migration were Rust Belt basket cases, including New York, Illinois, New Jersey, Michigan, and Ohio.Failed State - by William Voegeli
Public Employee Unions Are Sinking California - Steven GreenhutAdjusted for inflation, California's per-capita outlays increased by 21.7% between 1992 and 2006; the increase for the other 49 states and the District of Columbia was 18.2%....
A few counterfactuals show that these different growth rates matter—a lot. If constant-dollar, per-capita expenditures by California's state and local governments had grown by 18.2% between 1992 and 2006, the rate for the rest of the country, rather than 21.7%, California's public sector would have spent $10.6 billion less than it actually did in 2006. While California government expenditures grew faster than the national average, even states not famous for the parsimony or integrity of their public sectors, such as New York (16.4%) and New Jersey (12.8%), grew more slowly. If California's outlays had grown only fast enough to keep pace with population growth and inflation from 1992 to 2006, public spending would have been 17.8% less in 2006, $300 billion rather than $365 billion. The resulting level of per-capita government outlays in 2006 would have equaled neither Somalia's nor Mississippi's, but...Oregon's, which is rarely considered a hellish paradigm of Social Darwinism.
Approximately 85% of the state's 235,000 employees (not including higher education employees) are unionized. As the governor noted during his $83 billion budget roll-out, over the past decade pension costs for public employees increased 2,000%. State revenues increased only 24% over the same period. A Schwarzenegger adviser wrote in the San Jose Mercury News in the past few days that, "This year alone, $3 billion was diverted to pension costs from other programs." There are now more than 15,000 government retirees statewide who receive pensions that exceed $100,000 a year, according to the California Foundation for Fiscal Responsibility.
Many of these retirees are former police officers, firefighters, and prison guards who can retire at age 50 with a pension that equals 90% of their final year's pay. The pensions for these (and all other retirees) increase each year with inflation and are guaranteed by taxpayers forever—regardless of what happens in the economy or whether the state's pensions funds have been fully funded (which they haven't been).
