My friend and co-author Ross Douthat has written an excellent column on how Texas and California have weathered the recession. But consider this paragraph:
The Lone Star kept growing well after the country had dipped into recession. Its unemployment rate and foreclosure rate are both well below the national average. It’s one of only six states that didn’t run budget deficits in 2009.
One of the reasons Texas has a below-average foreclosure rate is because the state has a tough regulatory regime, as Anil Kumar of the Federal Reserve of Dallas explained late last year.
Due to the state’s strong predatory lending laws and restrictions on mortgage equity withdrawals, a smaller share of Texas’ subprime loans involve cash-out refinancing, which reduces homeowner equity and makes default more likely when mortgage payments become unaffordable.
As reader Dale Madren notes, Texas suffered a Florida-scale housing meltdown in the 1980s, which could account for the stringent regulations.
Paul Krugman wrote a tart blog post on Ross’s column in which he notes the following:
Some have pointed out that California, despite its liberal reputation, doesn’t have especially high taxes; others have pointed out that Texas, where almost a quarter of the population lacks health insurance, is hardly a model.
Krugman links to a chart from the Federation of Tax Administrators that places California’s tax burden, as measured by state and local revenue as a percentage of personal income, at 18th of the 50 states plus the District. This doesn’t strike me as a sound measure of the actual tax burden, however. In Alaska, state and local revenue is 35.5 percent of personal income, almost twice California’s 17.6 percent. But of course much of that revenue comes in the form of royalty payments from oil and other natural resources. According to the Tax Foundation, California has the 6th heaviest tax burden in the country, i.e., California does have especially high taxes.
Moreover, as Dan Walters of the Sacramento Bee notes,
We do know that about half of the state’s general fund revenues come from the personal income tax and that half of those income taxes come from the top 1 percent of taxpayers, a couple of hundred thousand families. It means that a quarter of the state’s income is dependent on how well a handful of wealthy people are doing in the stock market, which makes the revenue stream very unpredictable.
This isn’t to say that Texas is perfect: the state has a very high poverty rate, as reflected in the fact that Texas has far more food stamp recipients than California, a state with a far larger population. Yet what is the best answer to high rates of poverty: a high employment economy that socializes women and men from disadvantaged backgrounds into the world of work? Or a low employment economy in which high rates of unemployment and nonemployment undermine self-reliance? In an ideal world, you’d have a high employment economy in which the working poor are provided with work supports like those championed by Ron Haskins and Isabel Sawhill. This is a matter of striking the balance between raising revenue and fostering employment-generating, wealth-creating entrepreneurship. One gets the impressiont that California hasn’t struck the right balance, and that Texas is somewhat closer to doing so.