Business Review Board / September 22, 2017

California vs. Texas: Poverty Edition

Smaller government that focuses on individual freedom is a better recipe than welfare for fighting poverty.

If anyone needed a good example of how increasing the size of government, all in the name of generosity, would actually only increase the problem of poverty, one can compare the states California and Texas. They are the nation’s two most populated states — California at 39 million to Texas’ 27.5 million as of 2015. While both states boast significantly large populations, the similarity between the two begins to diverge quickly. Politically, California has been for years dominated by Democrats. Texas on the other hand has been run by Republican for over two decades. So let’s look at those differences.

The overall poverty rate in California sits at 20.4%; in Texas the rate is 14.7%. Why the significant disparity? Proportionally, California’s poverty percentage is 38.8% higher than Texas. In other words, there are a lot more people living in poverty in California than in Texas. Here are the three leading causes.

Welfare: One of the largest factors leading to California’s high poverty rate has to do with its overly generous welfare system. So overly “generous” that people are disincentivized from seeking work. Texas, on the other hand, has a welfare system that is focused primarily on getting people back into jobs. If California had the same adult workforce participation rate as Texas has, it would total 550,000 more people earning a paycheck.

Regulations: An overly generous welfare program is not the only contributing factor. California has become increasingly over-regulated. This regulatory-rich environment has created an overly burdened economy that is stifling to business growth, needlessly increases the cost of living and unduly inflates housing costs. Compare the overall cost of living between the cities of Dallas and Los Angeles. LA is 75% more expensive than Dallas, with LA housing costs a whopping 294% more expensive. The average price of a home in California is $698,000; in Texas it’s less than half that — $320,000.

Taxes: California sports the nation’s highest marginal state income tax rate at 13.3%. Texas has no state income tax. Combining all state and local taxes, nationally California ranks 8th most costly, while Texas comes in at 30th.

Texas, through promoting smaller government combined with greater individual freedom and responsibility, has been able to maintain a lower poverty rate and tax rate than the increasingly socialist California. Texans have learned that a big state doesn’t need a big government.

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