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Why Liberal States Won America's Tax Experiment

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From Robert Reich Blog

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For years, conservatives have been telling us that a healthy business-friendly economy depends on low taxes, few regulations, and low wages. Are they right?

We've had an experiment going on here in the United States that provides an answer.

At one end of the scale are Kansas and Texas, with among the nation's lowest taxes, least regulations, and lowest wages.

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At the other end is California, featuring among the nation's highest taxes, especially on the wealthy; lots of regulations, particularly when it comes to the environment; and high wages.

So according to conservative doctrine, Kansas and Texas ought to be booming, and California ought to be in the pits.

Actually, it's just the opposite. For years now, Kansas's rate of economic growth has been the worst in the nation. Last year its economy actually shrank. Texas hasn't been doing all that much better. Its rate of job growth has been below the national average. Retail sales are way down. The value of Texas exports has been dropping.

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But what about so-called over-taxed, over-regulated, high-wage California? California leads the nation in the rate of economic growth -- more than twice the national average. In other words, conservatives have it exactly backwards.

So why are Kansas and Texas doing so badly? And California so well?

Because taxes enable states to invest in their people -- their education and skill-training, great research universities that spawn new industries and attract talented innovators and inventors worldwide, and modern infrastructure.

That's why California is the world center of high-tech, entertainment, and venture capital.

Kansas and Texas haven't been investing nearly to the same extent.

California also provides services to a diverse population including many who are attracted to California because of its opportunities.

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And California's regulations protect the public health and the state's natural beauty, which also draws people to the state -- including talented people who could settle anywhere.

Wages are high in California because the economy is growing so fast employers have to pay more for workers. And that's not a bad thing. After all, the goal isn't just growth. It's a high standard of living.

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Robert Reich, former U.S. Secretary of Labor and Professor of Public Policy at the University of California at Berkeley, has a new film, "Inequality for All," to be released September 27. He blogs at www.robertreich.org.

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