Texas vs California- Which Model is Right for the Nation?
UPDATED April 19, 2011 – from August 18, 2009 (roughly two years later)
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California has over $500 BILLION in unfunded Public Workers Pensions
Texas has over $140 BILLION in unfunded Public Workers Pensions
When comparing California with Texas, U-Haul says it all. To rent a 26-foot truck oneway from San Francisco to Austin, the charge is $3,236, and yet the one-way charge for that same truck from Austin to San Francisco is just $399. Clearly what is happening is that far more people want to move from San Francisco to Austin than vice versa, so U-Haul has to pay its own employees to drive the empty trucks back from Texas.
Texas is gaining much of what California is losing. While California was kissing one moving van after another goodbye, Texas created 129,000 jobs last year — more than all of the positions generated in every other state combined. One California-based company after another announced during 2010 that they would be pitching in: Los Angeles-based LegalZoom decided to create up to 600 jobs at a “second headquarters” in Austin, for instance, while San Diego-based Medtronic decided to establish its new diabetes business unit and generate up to 1,400 new jobs in San Antonio.
Net migration specifically from California to Texas was about 32,000 people in 2008, according to the Tax Foundation, making the Lone Star State the No. 1 destination of those leaving the coast. Yet even with having to absorb all those displaced Californians, the unemployment rate in Texas was about 8 percent at the end of 2010, nearly two percentage points below the national rate — and a full four percentage points below California’s.
It’s a good thing that the San Francisco Giants beat the Texas Rangers in the World Series in November, because that’s about the last thing that has gone right for California at the expense of Texas.
As the State of California continues to support legislation and initiatives that cause undue burden and taxation on companies doing business within the state,” Perry wrote in the letter, “I invite you to consider your future in America’s new land of opportunity, the State of Texas.”
Indeed, Laffer’s analysis found Texas a decisive winner over California in five of six tax, spending and regulatory criteria that affect a state’s economic competitiveness. Overall, state and local spending in Texas has remained steady, at around 18 percent of the private economy, whereas California’s has increased from 19 percent to almost 26 percent since 1987.
Most important among its one-on-one advantages: Texas has no personal state income tax, while California’s steeply progressive tax can range up to more than 10 percent for the state’s biggest earners. Such taxes rain revenues on state governments in good times, which are inevitably spent, but then intensify the loss of revenues that naturally occur during hard times like the recent Great Recession.
“Because Texas does not suffer from the progressive revenue rollercoaster,” Laffer concludes, “its budget and economy have exhibited more stability compared to California.”
(Reuters) – Texas Governor Rick Perry treated guests to a barbecue lunch paid for by a wealthy businessman. Supporters of California Governor Jerry Brown munched on hot dogs at a union- sponsored picnic.
The stark contrast in inaugural menus last month highlights the different approaches the two most populous U.S. states are taking to deal with massive budget deficits.
Texas currently is on the hook for close to $10 BILLION for educating, housing, feeding, health care, etc. of 1.8 MILLION KNOWN ILLEGAL ALIENS in the state.
Texas has a budget deficit of $27 billion for the next TWO years, of that $20 BILLION is allocated to ILLEGAL ALIENS……so, taking out the ILLEGAL ALIENS would mean Texas has a budget deficit of roughly $7-8 BILLION……
Texas has an ace up its sleeve — a $9.4 billion “rainy day” fund the state has built up over the years, funded by a tax on the state’s oil and natural gas production.
If the Federal Government would do its jobs and either rid Texas of its illega aliens or pay for them, then Texas would be in the BLACK for its budget if it used $7-8 BILLION of its rainy day funds……
Real personal income in Texas grew 4.24 percent a year on average between 1998 and 2007. This exceeded average personal income growth in California over this time period (3.51 percent) and for the nation as a whole (2.99 percent). Since 2002, Texas’s real personal income growth premium has expanded further as personal income growth in Texas has continued expanding 4.2 percent a year while real personal income growth has slowed in California (2.87 percent) and for the nation as a whole (2.66 percent).
California imposes the highest top marginal state income tax rate in the country – 10.3 percent. The median household income in California in 2006 was $55,319. The average or median family faces a 9.3 percent marginal state income tax rate in California.
Texas does not impose a state income tax.
By definition, the marginal income tax rate for both the highest income earners and the average worker is zero percent.
Californians have responded by leaving the state. From 2000 to 2009, the Census Bureau estimates, there has been a domestic outflow of 1,509,000 people from California — almost as many as the number of immigrants coming in. Population growth has not been above the national average and, for the first time in history, it appears that California will gain no House seats or electoral votes from the reapportionment following the 2010 census.
Texas is a different story. Texas has low taxes — and no state income taxes — and a much smaller government. Its legislature meets for only 90 days every two years, compared with California’s year-round legislature. Its fiscal condition is sound. Public employee unions are weak or nonexistent.
But Texas seems to be delivering superior services. Its teachers are paid less than California’s. But its test scores — and with a demographically similar school population — are higher. California’s once fabled freeways are crumbling and crowded. Texas has built gleaming new highways in metro Houston and Dallas-Fort Worth.
In the meantime, Texas’ economy has been booming. Unemployment rates have been below the national average for more than a decade, as companies small and large generate new jobs.
And Americans have been voting for Texas with their feet. From 2000 to 2009, some 848,000 people moved from other parts of the United States to Texas, about the same number as moved in from abroad. That inflow has continued in 2008-09, in which 143,000 Americans moved into Texas, more than double the number in any other state, at the same time as 98,000 were moving out of California. Texas is on the way to gain four additional House seats and electoral votes in the 2010 reapportionment.Now it is California’s ruinously expensive and increasingly incompetent government that seems dysfunctional, while Texas’ approach has generated more creativity and opportunity.Read more at the Washington ExaminerBy Tom Pauken
These difficult economic times have inspired serious soul searching on the part of the policy makers. In the quest for the right formula for economic prosperity, analysts have been increasingly drawn to a comparison between two of the largest American states: Texas and California. While these two states share much in common, their policies could not be more different. After thirty years of divergent views, the analysts agree: Texas has chosen the better path.
California and Texas were not always so different. Both earned their own independence as sovereign republics before joining the United States. Each is blessed with abundant natural resources and a robust population. Both cover a vast landmass with a wide variety of climates and growing seasons.
Each was conscious of its role as a policy trailblazer and knew that its choices of governmental structure, tax rates, and regulatory regimes could become a model for the rest of the nation.
In July, the London-based Economist magazine published an extensive comparison of these two models. In “California v. Texas: America’s Future”, The Economist detailed the pronounced differences between the two approaches. Despite inherent similarities, the policy choices of both Texas and California – set many years ago, and confirmed many times since – are stark opposites. Thirty years of punishing real life later, the fact is that that Texas model works.