NCPA - National Center for Policy Analysis


March 17, 2009

What do Delaware and California have in common?  Not much: One is very small, one very large, but more important they have over time followed very different economic policies that explain the direction of the Obama administration' economic thinking, says Pete du Pont, chairman of the board at the National Center for Policy Analysis.

Many years ago Delaware's economic policies were much like California's today:

  • It had the highest personal income tax rate (19.8 percent), the second-highest unemployment rate, and the lowest credit rating.
  • Government spending rose at triple the rate of inflation for four years and the state budget had five deficits in seven years.
  • Two governors of different political parties had presided over this decline and so the state found itself sliding down the slippery slope toward depression.

The next administration took a different economic course (that administration was du Pont's; he was elected governor in 1976):

  • Spending was held nearly flat for eight consecutive years, the budget was balanced every year and income tax rates were cut almost in half -- from 19.8 percent to 10.3 percent in the top bracket.
  • The next governor made further cuts, down to the current 5.95 percent for the top tax bracket.
  • The result was real economic progress; jobs increased substantially, income tax revenues increased by 200 percent over the next 20 years and there were no budget deficits in any of those years.

The other side of the coin is modern California, which now has the country's highest income tax rate (10.4 percent) and lowest credit rating, has raised state spending about 7 percent a year for four years (twice the inflation rate of 3.5 percent) and has been prone to running deficits in many years.

So which of these states' economic policies, Delaware's back then or California's now, has been the model for the new Obama government?  That's easy: The federal government has been enacting policies similar to those of shaky California, not successful Delaware, says du Pont.

Source: Pete du Pont, "California or Delaware? Obama emulates the wrong state."

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