#50 California

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Regulatory policy includes the liability system, property rights, health insurance, and the labor market.

From 2009

California State Overview

State Facts

Net Migration Rate (?) -4.5 % 
Personal Income Growth (?) -0.38 %
How does the freedom ranking relate to these?


California not only taxes and regulates its economy more than most other states, but also aggressively interferes in the personal lives of its citizens.

Government consumption (at 11.0 percent of personal income) and employment (at 12.8 percent of private-sector employment) are about average, but debt is high (at 25.8 percent of income). The budgetary categories on which California spends significantly more than the rest of the country include general administration, housing and community development, utilities, and employee retirement. Individual and business income taxes are well above average. The total tax burden comes to 10.8 percent of income, a standard deviation above the national average.

Government interference in the land market is rife, as California’s zoning laws are among the toughest in the country, and the state is one of just four to authorize rent control, while eminent domain abuse has seen only token reform. Labor laws impose many costs on employers, from the minimum wage and a universal workers’ compensation mandate to short-term disability insurance and paid family leave. Health insurance mandates add about 49.5 percent to the cost of a premium of a policy without any of the mandated benefits. However, there is no community rating, guaranteed issue, or prior approval of rates in the nongroup health insurance market. Occupational licensing is rampant, and the nursing professions are tightly regulated. The state’s liability system is one of the poorest in the nation and has gradually worsened over time. The life and property/casualty insurance markets are among the most regulated in the nation. On the plus side, there is no certificate-of-need (CON) law for hospital construction.

Despite a reputation for social liberalism, California scores badly on personal freedoms. It has the strictest gun control laws in the country, prohibiting open carry and making concealed carry almost impossible, banning several types of weapons, imposing waiting periods on all firearms purchases, and onerously regulating dealers and ammunition. After Alaska, it has the most relaxed marijuana laws, but it nevertheless has a high incarceration rate, and its drug enforcement rate is only average. It shares the maximum possible score on marriage freedom with several other states, because it allows civil unions equivalent to marriage. California was the first state to enact a smoking ban in restaurants and bars, but the ban is slightly less strict than those since adopted in other states. Travel freedom is low due to a primary seat belt law, motorcycle and bicycle helmet laws, a statewide primary-enforcement cell phone driving ban, an open-container law, and sobriety checkpoints. Little gambling is allowed.

Policy Recommendations

  • Cut state spending in the categories called out above and enact tight ex post balanced-budget requirements to reduce future debt levels.
  • Enact tort reforms to make the state more attractive for business investment. Current property regulations, occupational licensing, and labor laws also deter economic activity investment.
  • Expand legal gambling. California’s political culture is unlikely to have many qualms about gaming, but legalizing non-tribal casinos would require a constitutional amendment.
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