There is a little known laboratory experiment being conducted in the United States pitting two economic systems against one another. Those systems are Socialism and Capitalism. This experiment is taking place in two of the largest states in the country, California and Texas, with California representing the big government, high taxes, Socialist economic system and Texas representing the small government, low taxes, Capitalist economic system. The recession has no doubt helped in highlighting the differences between these two systems and the results of this experiment are coming in loud and clear; Capitalism by a long shot.

Since the conclusion of World War II California’s growth has been extraordinary. In 1950 California’s population grew from 10.6 million to 36.8 million in 2008. During this period, the Golden State attracted commercial and industrial expansion of astronomical rates. The adoption of a Master Plan for Higher Education in 1960 allowed the development of a highly efficient system of public education in the Community Colleges which included the University of California and California State University. By creating an educated workforce, California was able to attract investment, particularly in areas related to high technology. By 1980, California became recognized as the world’s eighth-largest economy. Millions of workers were needed to fuel the expansion. The high population of the time caused tremendous problems with urban sprawl, traffic, pollution, and, to a lesser extent, crime.

Accompanying this growth was a liberal, progressivism with labor unions dominating the public sector and an unquenchable thirst for big government spending. California’s budget has doubled from $59 billion to $120 billion in the decade 1995 to 2005 alone. To feed this spending binge California has systematically increased taxes on individuals to 9.3% and to 8.84% on corporations. Despite its best efforts to expand its tax revenues, California is projecting a budget deficit as high as $25 billion. There is even some talk of a $40 billion deficit, with a total public debt now approaching $500 billion. Its freeways are crumbling, public sector college tuition is up 30% and unemployment stands at 14.3%, 4.6% higher than the national average. California’s economy is collapsing and citizens are voting with their feet. From 2000 to 2009 more than 1.5 million individuals have left the state and this trend is accelerating.

Contrast this to Texas. Texas’ economy is booming. Nearly 1 million have moved into the state from 2000 – 2009. Nearly 145,000 have moved into the state during 2008-2009 alone. It’s fiscal condition is sound. Public employee unions are weak or nonexistent. It’s government is a fraction of the size of California’s. Despite its small government, Texas is delivering superior services. Its teachers are paid less than California’s, yet Texas’ test scores are higher than California. Texas has no income tax, a legislature that meets only ninety days every two years, is building new freeways and boasts an unemployment rate below that of the national average. Due to population growth Texas is poised to add four more electoral votes in the 2010 apportionment, while California, for the first time in its history, will gain no electoral votes.

The differences between the two states is clear. California’s high-tax, expensive government verses Texas’s low-tax, low-services government. Or, better put; progressive socialism verses conservative, free market capitalism. The conclusion of the laboratory experiment between socialism and capitalism, between California’s and Texas’ two diverse economic systems is clear. The results are in. With the debate raging in the U.S. over government expansion, increased entitlements, which may include socializing health care, and increased taxes to pay for all of this, we do not need to look beyond our own backyard. Socialism has failed where capitalism has succeeded. Unfortunately for the citizens of the U.S. we cannot vote with out feet and leave for another state. We must stay and fight. We must wage the war against socialism and preserve the American Dream for our future generations. It’s a battle worth fighting. Thanks to the genius of our founding fathers we have the means to wage revolution in this country, not with bullets or bloodshed but with a more formidable weapon; the power to vote.

Tom is a Certified Public Accountant, a Certified Financial Planner, CLTC (Certified Long-Term Care) and President of Cerefice & Company, the largest CPA firm in Rahway, New Jersey. Tom works with clients helping them manage their money, retirement planning, college savings, life insurance needs, IRAs and qualified plan rollovers with an eye towards maximizing tax benefits and minimizing taxes. Tom is founder of the Rich Habits Institute and author of “Rich Habits”.