Texas’ competitive advantage over California, according to the study, is lower taxes, lower government spending and less regulation.
The study compared the two states on six broad categories:
- taxes on labor
- taxes on capital
- taxes on consumption
- overall tax environment
- regulatory environment
- government spending policies
The Texas Public Policy Foundation is a free enterprise and personal responsibility research institute. One of the study’s authors is former Californian Arthur Laffer, a supply side economist who advised President Ronald Reagan. “A comparison between Texas and California is not only valid but vital for our country,” Laffer said. “Both are large, strategically located states with strong demographics and bountiful natural resources. But California’s regulatory and tax costs, coupled with budgetary and policy instability, render it an impotent competitor when standing next to low-tax, business-friendly Texas, which levies no capital gains or income taxes to support its affordable government.”
“It’s just striking how the states with no income tax (including Texas) outperform the states with high income taxes (California’s highest personal income tax rate, 10.55% is third highest in the nation),” Laffer said.
Sally C. Pipes, president and CEO of San Francisco-based Pacific Research Institute, said, “If Californians still have trouble understanding why so many of our former neighbors have gone to Texas, this scorecard spells it out in painful detail.”
California does outperform Texas on a few measures:
- State and local property tax burden per capita: California $32.89, Texas $36.50
- Sales tax per $1,000 of personal income: California $25.62, Texas $29.47
- State sales tax rate: Texas 6.25%, California 8.25%
- Marginal corporate income tax rate: Texas 1% GRT, California 8.84%
- Total state and local government expenditures per capita: Texas $7,763.49, California $11,256.83
- Average annual growth in government spending: Texas 7.02%, California 7.29%
- Recession-related job loss from peak employment to July 2010: Texas, -2.3%, California, -8.7%
“The lighter regulatory burden in Texas also helps its economy flourish in comparison to California, which overloads businesses in the state with excessive costs and burdens,” the 2010 study says.
