New study compares the economic policies of Texas and California

State & Regional

AUSTIN (KXAN) — The wave of businesses, and in turn people, leaving California for Texas has caught the attention of researchers at two of the nation’s top academic institutions.

Professors from the University of Texas at Austin teamed up with their counterparts at Stanford to determine how the two state’s economic policies compare, and which state works best.

Their conclusion – it’s not so black and white.

The study points out that some may speculate that Texas’ approach of lower taxes and limited government works better than California’s model of higher taxes and stronger regulation when it comes to fostering economic growth.

At the same time, California remains the dominant destination for venture capital funding, and there are downsides to Texas’ lower spending on social programs.

Government Size

The study noted that Texas and California differ significantly when it comes to the size of their state and local governments.

While California’s state and local governments spent $16,145 per resident in 2019, Texas’ spent just $10,024 per resident.

Using these numbers, the researchers concluded government is more than 60 percent larger in the Golden State than in the Lone Star State.

Taxes

California has the country’s highest top marginal individual income tax rate, while Texas has none.

As a result, tax revenue per capita in California was $7,326 per resident, compared to $4,709 in Texas.

The researchers say this difference is entirely explained by income taxes.

On the other hand, property tax revenue in Texas is higher than in California ($2,098 vs. $1,840). What makes this difference all the more striking is that the median value of a home in California is almost three times higher than in Texas, according to the researchers.

Health Policy

One in three Californians obtains their health insurance through the state Medicaid program, whereas just one in six Texans get their insurance from the state.

While California chose to expand its Medicaid program under the Affordable Care Act, Texas was one of 11 states that didn’t.

As a result, 18.4 percent of Texans don’t have any health insurance, compared to just 7.7 percent of Californians.

“That’s one of those areas where in the study it’s pretty unequivocal in terms of access to insurance, access to healthcare, especially among low-income individuals,” said University of Texas Professor Shelia Olmstead. “California is doing better than Texas on that front.”

Education

With a combined 11.7 million students, the public education systems in California and Texas are two of the country’s biggest.

Both also share a similar number of “English Language Learners,” approximately 19 percent.

Despite these similarities, California spends more than $3,000 more per student than Texas, according to data from the 2017-2018 school year.

However, California also has the highest student-teacher ratio of any state at 23:1, compared to 15:1 in Texas.

In this case, Texas appears to be outperforming California with 90 percent of students graduating high school compared to 85 percent in California.

“Just looking at those raw data, it doesn’t look like on average California is delivering a higher quality of education to its public-school students,” Olmstead said.

Energy and Environment

California has much stricter rules when it comes to protecting the environment, including tighter rules on new motor vehicle emissions.

However, those rules came about due to the state’s severe air pollution prior to the 1970 Clean Air Act. While the air quality has improved, California still struggles when compared to other states, including Texas, according to the study.

“It would be actually much worse in California if they didn’t have those more stringent regulations,” Olmstead said.

The authors also found that both states have poor electric grid reliability. Between 2000 and 2016, electric customers in Texas experienced 127 major power outages. Only one other state had more, California, with 201 major outages.

Which is better?

The study’s authors conclude both states have reason to celebrate, especially for their economic success.

While Texas has seen a population boom, California has surging per capita income and GDP.

“When you think of states as laboratories for democracy, California and Texas are wonderful examples,” Olmstead said. “They have such different approaches, and yet they’re both so big, and their influence is so strong in the U.S. as a whole and both have had really bright years in terms of income and employment and so on. It’s interesting that both models can work in different ways, but they both have their limits.”

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