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Texas is in a comfortable place while California goes belly-up

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California vs. Texas


Comparing a bust state to a boom state. Part one of a four-part series.

Today: Texas booms while California busts

Wednesday: Dividing taxpayer money among politicians

Thursday:
Texas adds jobs while California taxes them away

Friday:
California unions stand in the way of Texas-size success



Among the states, it has become clear there are two competing visions of political economy in America, embodied by California and Texas.

Broadly speaking, the two states have many similarities. They have diverse economies, large urban areas, a border with Mexico and similar demographic makeup. Yet one state is failing and one state is succeeding.

California is facing budget shortfalls in excess of $20 billion each year for the next five years, and the state acquires $25 million in new debt each day. “We’ve been living in fantasy land. It is much worse than I thought. I’m shocked,” new Gov. Jerry Brown told the Los Angeles Times before taking office.

By contrast, when Gov. Rick Perry, R-Texas, campaigned successfully for a third term this year, he ran ads touting the fact that the state has billions in surplus. In fact, Texas was one of only six states that did not run a budget deficit in 2009.

Texas is expected to run a two-year deficit going forward, $15 billion over two years. But that does not have observers worried. Texas legislators closed a $10 billion deficit in 2003 without raising taxes.

Already, the Texas Legislature has proposed $73.8 billion over the next two years, or “exactly what the state comptroller said Texas will earn in revenues over the next two years,” according to The Associated Press.

While Texas has been affected by the economic downturn, its 7.9 percent unemployment rate is well below the national average of 9.8. Unemployment in California is well above the average at 12 percent.

Perhaps the most dramatic illustration of Texas’ superiority is that Americans have been stating their preference for the Lone Star State with their feet. Between 2000 and 2009, California had a domestic outflow of 1.5 million people, while Texas had 850,000 move in from other states. From 2008 to 2009, Texas’ population inflow was double any other state.

So how have two similar states ended up in such radically different situations?

What Texas is doing “appears as right-wing science fiction to many California legislators and pundits. They claim serious reform of the tax code is unrealistic, that a large state has many duties to fulfill, and that it is irresponsible to call for a return to a 19th century view of the role of government,” wrote economists Arthur B. Laffer, Stephen Moore and Jonathan Williams in their annual report, “Rich States, Poor States.”

Texas has no state income tax or personal capital gains tax, and a 1 percent gross receipts tax on business. California’s 10.3 percent personal income tax is No. 2 in the country, and its top marginal rates for corporate income and capital gains are 8.84 and 10.55 percent, respectively.

Texas is easily weathering the economic storm, while state services and infrastructure in California are on the verge of collapse. That contrast should serve as a warning to the whole country.

Mark Hemingway is an editorial page staff writer for The Washington Examiner.