This commentary originally appeared in the San Antonio Express-News on November 27, 2016.
Texas is often referred to as a poverty-ridden state due to its reliance on a model of limited government. More prosperity is preferred, and the evidence is clear that standards of living are substantially higher in Texas than in California, which has a model of excessive government.
These two states provide a nice comparison because they are similar in terms of their economies and populations while radically different in their policy choices.
Together they contribute to $1 out of $4 in economic output nationwide, 1 of every 5 Americans resides there, and both have abundant natural resources. However, the Texas model is based on low taxes, no personal income tax, and sensible regulation whereas California’s model is high taxes, highest marginal income tax rate nationwide, and burdensome regulation.
These policy differences are reflected in measures of government intervention. Texas ranks third best in terms of economic freedom while California ranks second worst. Texas has the 14th best business tax climate while California ranks third worst.
These rankings matter because research surrounding them finds that states with more economic freedom and lower tax burdens support higher standards of living.
Poverty averages over the 2013 to 2015 period for the official measure were 15 percent in California and 16.1 percent in Texas. Although these data support critics’ claims of the failure of the Texas model, the official measure doesn’t include regional differences in housing costs or noncash government assistance like Section 8 housing. The supplemental poverty rate does account for these factors and finds that Texas’ rate is 14.9 percent and California’s is the nation’s highest at 20.6 percent during the same period.
Nominal median household income for the 2010 to 2014 period in California ($61,489) is 17 percent higher than in Texas ($52,576). However, real income after adjusting for regional price parities, otherwise known as costs of living, is the same in the two states, meaning that $1 in Texas goes just as far and even further when accounting for less after-tax income in California.
Income inequality as measured by the share of a state’s total income held by the top 10 percent of income earners has also been higher in California. From 2000 to 2013, the average of this measure was 46.8 percent in Texas and 49.7 percent in California. The redistributionary policies in the Golden State haven’t been as fruitful in equalizing incomes as the free market policies in the Lone Star State.
Texas shines when it comes to raising standards of living. It’s not just in less poverty, more income and less income inequality, but it’s also in more economic opportunities.
During the last decade, economic growth in the real private sector has increased by 29 percent in Texas compared with only 14 percent in California. Job creation increased by 1.2 million in California compared with 1.7 million in Texas, which has a labor force two-thirds of that in California. Remarkably, Texas’ job creation was roughly one-third of total civilian employment increases nationwide.
It boils down to basic economics: The more you tax and regulate something, the less you get of it. This is why it’s important for the 2017 Texas Legislature to give Texans the best opportunity to get themselves out of poverty by getting a well-paid job from passing conservative budgets, putting the business franchise tax on a path to elimination, and reducing unnecessary regulation.
Achieving these goals will avoid the Californiazation of Texas so that higher standards of living in San Antonio and elsewhere result and people can live a more fulfilled life.
Ph.D. Economist at the Texas Public Policy Foundation. Blog posts are publications by the author.