California’s bigger, population-wise, but Texas delivers the growth.
California, with 39.5 million people, is some 40 percent more populous than Texas, at 28.3 million. Yet, in spite of California’s large advantage in residents, the Golden State generated 356,800 new nonfarm jobs in the past 12 months through April, a rate of 2.1 percent, compared to 332,300 jobs in Texas, clocking in at 2.7 percent growth.
Texas’ strong job market sustains the state’s vibrant population growth as well. Since the 2010 census, Texas has added 12.6 percent more people, double California’s growth rate of 6.1 percent, America added 5.5 percent to its numbers from 2010 to 2017.
Every year, the U.S. Census Bureau estimates the number of people who move across state lines. In the five years from 2012 to 2016, a net of 521,052 Californians moved out. Their most popular destination was Texas, with a net of 114,413 Californians moving 1,300 miles east to Texas. California lost about 1.4 percent of its population to other states over five years.
Over the same five year period an estimated 542,432 more Americans moved to Texas than moved out, growing Texas’ population by 2.1 percent.
For more than a decade, California has consistently lost residents to other states, with the middle class and entrepreneurs alike driven out by the nation’s highest marginal income tax rate (13.3 percent), a heavy regulatory burden, and high housing costs inflated by restrictive zoning, environmental rules, and development fees that add about $200,000 to the price of a typical new home.
However, compared to most nations around the globe, even California remains a strongly desirable destination. Foreign immigration to both California and Texas are strong. From 2012 to 2016, new foreign arrivals added 4 percent to California’s numbers and 3.9 percent to Texas’ population.
Tax Reform’s Role in Job Growth
Of particular interest on the employment front are the emerging implications of the wide-ranging federal tax cut and reform measure signed into law by President Trump in late December 2017. The new tax law capped state and local tax (SALT) deductions at $10,000 per household that, when combined with state tax law, resulted in what amounts to be a change to the tax code in all 50 states at once. Since the tax cut passed, Texas, a low-tax state with no individual income tax, added 150,500 nonfarm private jobs through April amounting to 1.4 percent growth rate. California, one of the highest-taxed states in the nation, added jobs at half the pace, 0.7 percent, for 104,400 nonfarm private sector jobs.
Nationally, the five most-populous states high-tax states—California, Illinois, New York, New Jersey and Massachusetts—where high-earning taxpayers will see little savings from the federal tax cut with some even seeing a tax hike due to the limitation on the SALT deduction, saw private sector nonfarm job growth of 0.57 percent in the first four months of 2018. In the ten largest low-tax states, led by Texas and Florida, private job growth through April was 0.91 percent, 58.5 percent higher than in the high-tax states.
Should these job trends sparked by federal tax reform continue, look for California’s domestic outmigration to pick up, with Texas foremost among the beneficiaries of Californians bringing their enthusiasm, knowhow and capital to work in the Lone Star State.
This commentary was originally featured in Forbes on May 22, 2018.