Image credit: KAL, the Economist
Texas is beating California...again. Earlier today, the Texas Public Policy Foundation, the state's premier free-market think tank, released a report showing that the Lone Star State continues to outperform the Golden State in terms of economic competitiveness. In fact, Texas has actually been growing at a better rate than California or the nation despite the Great Recession. The reason for this is because of Texas' tax and budget policies.
Texas and California are states that make for a good comparison in terms of tax and budget policies. Both states are large in terms of geography and population. Both have reliable infrastructure, favorable climates, abundant natural resources, world-class universities, and varied industries. But, unlike California, Texas levies no income or capital gains taxes. In fact, California levies some of the highest personal and corporate income taxes in the nation. Moreover, Texas has a significantly lighter regulatory burden than California, especially when it comes to environmental and labor policies. As a result, Texas has a much more business-friendly and lower tax climate than California.
The economic strength of Texas can be illustrated vividly by job creation statistics. Last month, Texas added 129,000 new jobs over the last year - approximately half of all new jobs in the U.S. Meanwhile, California lost 112,000 jobs over the same period.
As the study's principal author, Dr. Arthur Laffer, notes, “It’s just striking how the states with no income tax outperform the states with high income taxes. And the reason is simple: employers move to the location that promises better after-tax returns. Texas constantly focuses on improving its economic competitiveness and the citizens of Texas are benefiting because of it.”
States like Texas that keep the tax, spending, and regulatory burdens low outperform others, like California, that do not. Texas may face budget challenges in the future and competition from other states for business. It's important for legislators to remember what makes Texas great, so they cannot rest on their laurels or take up bad habits with the promise of a quick fix. Both Texans and others would be wise to read this fine report to see why the Lone Star shines brighter than the Golden State.