n a 30-second radio advertisement that began airing in Los Angeles, San Francisco, Sacramento, San Diego and the Inland Empire on Monday, Texas Governor Rick Perry claims that it is nearly impossible to build a business in California.
The advertisement is the latest in a verbal joust between the former GOP presidential hopeful and California Gov. Jerry Brown, as Perry encourages Californians to check out Texas for its economic advantages.
As enticing as that offer is, Gov. Perry, this is one California boy that is going to stay in the Golden State.
And as students, our connection to the state doesn’t end with a college education – we should understand that California is expanding on both innovative technological ideas and employment opportunities.
Perry’s pro-Texas assertions are well founded, highlighting the Lone Star State’s low tax rates. Presently, Texas sits pretty with a sales tax of 6.25 percent and no state income tax; California has the highest tax rates in the United States, with sales tax at 7.25 percent and personal income tax as high as 13.3 percent. In addition, Texas has an unemployment rate of 6.1 percent compared to California’s 9.8 percent.
By the numbers, Perry makes a very convincing pitch. However, tax rates and jobless figures are not the only considerations when businesses choose a state of residence.
California’s economy is largely founded on three pillars: agriculture, construction and technology.
When the 2008 recession fell, it impacted agriculture and construction disproportionately hard and as such, California felt the recession’s ill effects harder than most states.
But as was true during past recessions, the world’s ninth largest economy rebounded with a vengeance. While the unemployment rate in California has decreased only moderately and the state’s agricultural heart continues to languish, the California tech sector has come roaring back.
The San Francisco Bay Area is enjoying a particularly strong resurgence, with the area’s economic growth rate expected to surpass that of California as a whole and the rest of the U.S. over the next two years.
For the most part, this growth is courtesy of the vibrant tech industry in the Bay Area that has long led the nation in computing innovation and health care technology. Furthermore, the housing sector in California is quickly returning to pre-recession levels, pointing to a rebirth of California construction.
Gov. Jerry Brown delivers his State of the State address in Sacramento, Calif. on Jan. 23. The address laid out the ideas he will work on during the second part of his term.[/caption]Finally, unemployment in California is also on the mend. In December last year,the UCLA Anderson Forecast predicted that employment in California will grow by 1.3 percent this year and 2.4 percent the following year.
Texas, on the other hand, has seen only modest expansion of its technology industry and most of the state’s economic growth has come from oil and natural gas, resource markets that were largely untouched by the recession.
Furthermore, Perry has kept tax rates low by scaling back state spending, notably on infrastructure. While this currently aids the state’s economy, in the long-run it may hamper economic productivity and growth.
All in all, the Perry radio spot hasn’t converted me to a longhorn.
Texas certainly shames California’s tax rates and it did recover from the recession faster than the Golden State, but residents of California call the state home because of more than sales tax: technological innovation, economic diversity and a little thing called weather.
Email Padgett at hpadgett@media.ucla.edu. Send general comments to opinion@media.ucla.edu or tweet us @DBOpinion.
Note that Texas’ property tax is significantly higher than California’s. If you move to Texas, your higher property tax will likely wipe out any savings from lower income and sales taxes.