Texas public policy foundation
Texas vs. California: Jobs and Taxes
 
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The federal Bureau of Labor Statistics released their February state employment figures last Friday.  The data for the two biggest states, California and Texas, appear to confirm a jobs slowdown in California over the past four months, likely due to a big tax increase passed by the voters in November. Meanwhile, Texas' job market is accelerating. 

In the four month period from November 2012, when California enacted the highest state income tax bracket in the nation, 13.3 percent, to February 2013, California added 74,900 jobs. In the same period, Texas added 153,800 jobs, more than double California's pace. 

The national economy saw its employment rolls grow by 0.61 percent from November 2012 to February 2013, an anemic rate. California fell short of this mark, seeing its nonfarm payrolls grow by 0.52 percent. Texas, on the other hand, almost tripled California's rate of job growth, seeing its payrolls grow by 1.4 percent. 

Providing context, California's population of 38,041,430 is 46 percent larger than Texas' 26,059,203. This means that Texas' addition of 153,900 nonfarm payroll jobs in the four months ending February as a percentage of the population grew three times faster than California's addition of 74,900 jobs. 

Digging a little deeper, we see that, of the 74,900 jobs added in California in the four months ending in February, 12,000 were in the government sector while California's beleaguered manufacturing sector lost 12,500 jobs. Texas' comparable figures saw a loss of 800 manufacturing jobs and the addition of 8,300 government jobs. 

In the previous four month period, from July 2012 to October 2012, California actually beat Texas in payroll job growth, by the grand total of 300 jobs, 100,700 to 100,400-but that was before California enacted a $50 billion tax hike.

California's income taxes went up immediately on the passage of Proposition 30 in November, with the higher rates retroactive to January 1, 2012-a big blow to small business owners who frequently pay personal income taxes rather than corporate taxes. California's sales tax jumped next, with the state rate going from 6.25 percent to 6.5 percent on January 1, 2013, amounting to a 4 percent increase in the state sales tax rate. Some cities in California now have a 10 percent sales tax rate when local taxes are added on top.

Lawmakers in Texas, working with a multibillion dollar budget surplus, are considering tax action of a wholly different sort: a tax cut. If Texas cuts taxes in the months ahead, and we believe a tax cut is needed, it will set up a fascinating experiment in economics between the two biggest states: tax-hiking California and tax-cutting Texas.

There are already signs that California's tax increase is slowing the job market there. 

Texas' jobs market, already number one in the nation, would likely be supercharged by a tax cut. 

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