Economic growth: Texas, California and revisions

The BEA revised California’s real GDP growth downward from 2009 to 2011 in each of three years by a cumulative 2.6 percent, the third-largest negative revision in the nation.
In other words, California’s economy shrank an additional 2.6 percent before it grew 3.5 percent.
So, in the past five years California’s real GDP contracted 0.3 percent, one of ten states where economic activity was less in 2012 than it was in 2008.
By contrast, the BEA revised Texas’ growth upward by 0.5 percent from 2009 to 2011.
Texas’ newly revised real GDP growth from 2009 to 2012 was 13 percent.
From 2009 to 2012, California’s share of the U.S. economy shrank from 13.1 percent to 12.9 percent while Texas’ portion of the American economy increased from 8.2 percent to 9 percent.
Some critics might contend that Texas’ economic boom is wholly due to the revitalization of the Lone Star State’s oil and gas fields through fracking. However, if the entire mining sector is removed from the calculations, Texas’ economy would have still grown at a faster pace than California’s from 2009 to 2012. Further, California has about two-thirds of the nation’s proven shale oil reserves in the vast Monterey Shale formation—that the Golden State makes the political choice not to allow the extraction of this underground wealth can’t be held against Texas.
There’s another interesting data nugget to be mined out of BEA’s revisions. Looking at the year-by-year real GDP revisions for California, we see that California’s output was revised downward 0.4 percent in 2009, 1.4 percent in 2010, and 0.8 percent in 2011. What most people have already forgotten is that California enacted a $24 billion, two-year tax increase in 2009, the largest state-level tax hike in U.S. history. This tax increase boosted income taxes, sales taxes, and vehicle taxes and was in full effect in 2010, then phased out in 2011. The greatest downward revision in California’s economy was in 2010, the year when the whole weight of the tax increase was being felt. The BEA now estimates that California’s 2010 output grew at an anemic 0.3 percent, down from the previously estimated 1.7 percent. The overall U.S. economy grew at a revised 2.4 percent that year, eight times California’s pace. Texas’ economy expanded 4.1 percent, 71% more rapidly than the national economy.
In 2012, California’s temporary tax increase fully expired. Not coincidentally, California’s economic performance that year, 3.5 percent growth, outpaced the 2.5 percent growth of the U.S. economy. This was first time in several years that California’s economy grew faster than the U.S. economy—a regular occurrence for Texas.
Slow growth has a direct bearing on prosperity and poverty. According to the U.S. Census Bureau, from 2009 to 2011, California’s supplemental poverty measure was 23.5 percent, the highest in the nation with 42 percent more people living in poverty as a share of the population than in Texas.
It will be highly instructive in the coming quarters to see if California can continue to exceed the national growth rate, especially after California voters approved a big tax increase last November which made California’s income tax the highest in the nation.
Texas, on the other hand, looks set to enact a modest tax cut.
The public policy contrast between the two largest states couldn’t be clearer.
Time (and revisions) will tell which model works best for the people in each state.
DeVore, a former California state lawmaker, is vice president of policy at the Texas Public Policy Foundation and the author of “The Texas Model: Prosperity in the Lone Star State and Lessons for America.”