#0 California


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    From 2012

    Bottom 5 States

    State Facts

    Net Migration Rate (?) -4.9 % 
    Personal Income Growth (?) 1.06 %
    How does the freedom ranking relate to these?


    Although it has long been significantly freer on personal issues than the national average, California has also long been one of the lowest-scoring states on economic freedom.

    Despite Proposition 13, California is one of the highest-taxed states in the country. Excluding severance and motor fuel taxes, California’s combined state and local tax collections were 10.8 percent of personal income. Moreover, because of the infamous Serrano decision on school funding, California is a fiscally centralized state. Local taxes are about average nationally, while state taxes are well above average. Government debt is high, at 22.8 percent of personal income. The state subsidizes business at a high rate (0.16 percent of the state economy). However, government employment is lower than the national average.

    Regulatory policy is even more of a problem for the state than fiscal policy. California is one of the worst states on land-use freedom. Some cities have rent control, new housing supply is tightly restricted in the coastal areas, and eminent domain reform has been nugatory. Labor law is anti-employment, with no right-to-work law, high minimum wages, strict workers’ comp mandates, mandated short-term disability insurance, and a stricter-than-federal anti-discrimination law. Occupational licensing is extensive and strict, especially in construction trades. It is tied for worst in nursing practice freedom. The state’s mandatory cancer labeling law (Proposition 65) has significant economic costs. 123 It is one of the worst states for consumer freedom of choice in homeowner’s and automobile insurance. On the plus side, there is no certificate-of-need law for new hospitals, some moves have occurred to deregulate cable and telecommunications, and the civil liability regime has improved gradually over the past 14 years.

    California is a classic left-wing state on social issues. Gun rights are among the weakest in the country and have been weakened consistently over time. It was one of the first states to adopt a smoking ban on private property, but other states have since leapfrogged California in their restrictiveness, and tobacco taxes are actually a bit lower than average. Similarly, California led in cannabis liberalization in 2000, but it has not further relaxed its laws at all since then. Alcohol is not as strictly regulated as in most other states. Private school choice programs are nonexistent, though there is some public school choice, and homeschooling is moderately regulated. Incarceration and drug arrest rates used to be higher than average but have fallen over time, especially since 2010. The state adopted same-sex partnerships and then civil unions fairly early but received same-sex marriage only recently.

    Policy Recommendations

  • Fiscal: Cut spending in the areas of general administration, housing and community development, and employee retirement, where it exceeds the national average, and use the proceeds to reduce indebtedness.
  • Regulatory: Eliminate the California Coastal Commission’s authority to regulate private land use. Instead, give it the authority to overturn local zoning rules that undermine sound environmental objectives, such as housing density.
  • Personal: Expand legal gambling. California’s political culture is unlikely to have many qualms about gaming, but legalizing nontribal casinos would require a constitutional amendment. If California’s gambling regime rose, consistently with that culture, to a standard deviation better than the national average, it would rise from 16th to 9th on personal freedom.
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