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California more prosperous, Kansas less prosperous

Over the past decade or so we have been writing a lot about California and Kansas. Because California in the 00s was considered in permanent decline and then with the election of Jerry Brown as Governor in 2010 went all in on a big tax increase and expanded public investments. Kansas because it took the opposite track with the election of Sam Brownbeck as Governor also in 2010. He slashed taxes and, because the predicted revenue windfall never happened, had to slash spending on essentials like schools and roads.

In my first post on California in 2009 I wrote:

Time Magazine recently published a thought provoking cover story on California. Its worth reading, thinking about and debating. Because if its right – as I believe it is – most everything we think drives state economic growth is wrong.

The article argues that California is and will be in the future a leader in economic growth. With lots of data to back up their assertion. Contrast that to the conventional wisdom that, because of arguably the most dysfunction state government in the country combined with what is thought to be business unfriendly polices, California’s economy is in for long term decline.

Have the folks at Time lost their mind? If you listen to the small government ideologues they have. They argue that the places that will be the economic winners in the future have low taxes, small government and weak unions. Then there are the good government moralizers who argue business won’t invest in places with hyper partisanship and where states and local governments can’t even balance their budgets.

In 2014 and 2016 we did posts that compared Kansas and California. In the 2016 post I wrote:

The Washington Post in an article entitled The interesting thing that happened when Kansas cut taxes and California hiked them provides an update on the economic fortune of the two states. Its a topic we covered previously in a post entitled California growing, Kansas not so much.

… The reason, of course, why the two states are being compared is that they have taken the exact opposite approach to taxes. California big tax increase, Kansas really big tax cuts. And, of course, that led to conservative economists predicting the opposite results. Wrong again!

The Bureau of Economic Analysis just released per capita income data for states for 2016. So let’s update what has happened in California and Kansas since the election of 2010. The two measures we have long used to compare the economic well-being of state residents are per capita income and the portion of per capita income that comes from wages and employer paid benefits, called employment earnings per capita.

In 2010 per capita income in California was 7.5 percent above the national average, in Kansas it was 2.7 percent below the national average. In 2016 per capita income in California is 14.5 percent above the national average a gain over six years of seven percentage points. Kansas per capita income in 2016 was 4.1 percent below the national average, a decline of 2.6 percentage points.

Californians saw an increase in per capita income, not corrected for inflation, of $13,000. In Kansas the increase was $8,000.

What about wages and employer paid benefits per capita? In 2010 employment earnings per capita in California were 9.7 percent above the national average, in Kansas it was 0.8 above. In 2016 employment earnings per capita in California are 16.0 percent above the national average a gain over six years of more than six percentage points. Kansas employment earnings per capita income in 2016 are 1.6 percent below the national average, a decline of more than two percentage points.

Californians saw an increase in employment earnings per capita, not corrected for inflation, of $7,700. In Kansas the increase was $4,500.

We concluded our 2016 post this way, starting with a quote from the Post article:

Few, if any, economists would say today that the recovery has been sufficient for all Californians. But almost no one can say that raising taxes on the rich killed that recovery. Or that given a choice of the two states’ economic performances over the past few years, you’d rather be Kansas.

Its a lesson Michigan policymakers should learn quick.

The evidence is even stronger a year later that it’s a lesson worth learning quick!

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Lou Glazer

Lou Glazer is President and co-founder of Michigan Future, Inc., a non-partisan, non-profit organization. Michigan Future’s mission is to be a source of new ideas on how Michigan can succeed as a world class community in a knowledge-driven economy. Its work is funded by Michigan foundations.

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