The California Department of Finance last month released figures showing that the number of California residents moving out of the state exceeded the number of individuals moving in. While the overall population increased due to foreign immigration, domestic migrants on net left the Golden State. This is hardly a surprise given that California continues to foster an economic climate that's unfriendly to entrepreneurship.

According to the Pacific Research Institute's U.S. Economic Freedom Index: 2004 Report, co-authored by PRI's Director of Business and Economic Studies Lawrence J. McQuillan, California ranked second-worst among the 50 states based upon how friendly or unfriendly their policies were toward free enterprise and consumer choice. The index found that California's heavy regulatory burden and punitive tax system discouraged entrepreneurship and restricted consumer choice. This has been costly for Californians.

According to the index, if California were as free as Kansas, the best state in the rankings, each Californian would see their annual income increase by a sum of $1,180. Not surprisingly, the weight of this "tax" correlates with population migration patterns across the country.

The index looked at the rates of population growth for the top 20 and bottom 20 states in the index. It found that the top 20 states saw an average increase in population, while the bottom 20 states, including California, saw a decrease. This shows that states that foster economic freedom by lowering taxes, cutting government spending, and reducing regulations will be able to create jobs and strengthen their economies. States that create these opportunities will see an influx of residents.

On the other hand, states that continue to expand government and punish hard-working taxpayers will eventually experience a population exodus and dwindling economic growth.

The Department of Finance figures showed that for the 12 months that ended June 30, 67,000 more people left the state than came in from other states. The prior year, the state had a domestic net loss of more than 59,000 the first time the state lost residents since 1994. But back in 1994 the state was in a recession, and was adjusting to a number of military base closures, layoffs in the defense sector and a slumping housing market.

In contrast, 2005 and 2006 were banner years for California: wage and job growth increased, housing prices reached record levels, and state tax revenues poured in, exceeding estimates by billions of dollars. With such a rosy picture, California should have been the population magnet it has always been, but it wasn't. Instead, Californians were moving to Nevada, Arizona, and Texas.

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