A Tale of Two States: the Contrasting Fiscal Fortunes of Texas and California

AP Photo/Dario Lopez-Mills

Two big states with huge business tax bases and plenty of wealthy citizens but governed by two completely different governing philosophies. One state is running a huge surplus. The other state is running a huge deficit.


That one state is governed by a fiscal conservative and the other by a profligate spender shouldn’t surprise us. And I won’t let you guess which state is governed by a Republican and which is governed by a Democrat.

Both Gov. Gavin Newsom (D-Calif.) and Texas Gov. Greg Abbott (R-Texas) are reasonably competent in their jobs but are guided by wildly different ideologies. One ideology held by Newsom stresses “fairness,” while the other held by Abbott stresses “opportunity.”

Newsom’s state is running a $22 billion budget deficit, while Abbott’s Texas is running a $33 billion surplus.

Does it really matter which ideology is used in governance?

Washington Post:

The divergent financial forecasts in California and Texas come at a time when political leaders in Washington are girding for battles over federal tax and budget policy. The contrasting realities offered a preview of some of the political arguments likely to play out in the U.S. Capitol in coming months — as did the contrasting comments from two high-profile governors discussed as potential presidential candidates.

“California chose a ‘tax the rich’ approach that means much of the budget depends on a relatively small number of taxpayers. When their fortunes dwindle, the state’s do, too,” Michael Thom, an associate professor at the University of Southern California’s Price School of Public Policy, said in an email. “Other states with broader tax systems don’t experience California’s budget extremes.”

Admittedly, Abbott’s Texas doesn’t offer as many government goodies as Newsom’s California. But the California government makes it impossible to build new housing at a rate of anything close to what’s necessary, driving up the piece of a home into the stratosphere, making existing homes out of reach for anyone but the very wealthy.

The average price for a house in Dallas is about $350,000, while it costs less than $280,000 to live in Houston. There are homeless people in those Texas cities, but not nearly as many as there are in California’s big cities. Meanwhile, the median price of a home in California is $834,000. And California’s homeless problem is a national disgrace.

In Sacramento, Newsom defended California’s progressive tax code, which taxes people with large incomes at much higher levels than low-earning residents, as “more fair” than alternative approaches.

Texas, on the other hand, has no income tax at all — instead relying heavily on sales tax revenue. Newsom insisted that the result of this approach is that most Texans pay more in taxes than Californians do. His staff cited a news report relying on data from several years ago to back up this claim.

“They tax much more heavily in the service sector than a state like California — many red states — by the way,” Newsom said.

In fact, the cost of living in Texas is less than $40,000 a year, while California’s is more than $46,000. With no income tax, the opportunities for wealthy taxpayers to cheat or avoid taxes are a lot less.

I’m sure there are happy people in both states and miserable people as well. But from what we know of Texas and what we know of California, which state would you rather live in?




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