Surplus in Texas, deficit in California could inflame Washington debate

He blamed the heavy reliance on taxing high-income residents and stock market earnings that have tumbled, in some cases dramatically, as the tech sector struggled of late.

“If you ask, ‘Why California?’ what more evidence do you need than that?” Newsom said at a news conference in Sacramento.

Tech sector struggles as major California companies lay off workers

In Austin, meanwhile, Texas Gov. Greg Abbott (R) told lawmakers that he had never been more excited at the opening of a new legislative session, because of the record $33 billion surplus the state is projecting.

“Not every state can say what we can say,” Abbott boasted. “As we sit here today with a budget surplus of $32.7 billion dollars, California has a budget deficit of more than $20 billion dollars.”

The divergent financial forecasts in California and Texas come at a time when political leaders in Washington are girding for battles over federal tax and budget policy. The contrasting realities offered a preview of some of the political arguments likely to play out in the U.S. Capitol in coming months — as did the contrasting comments from two high-profile governors discussed as potential presidential candidates.

“California chose a ‘tax the rich’ approach that means much of the budget depends on a relatively small number of taxpayers. When their fortunes dwindle, the state’s do, too,” Michael Thom, an associate professor at the University of Southern California’s Price School of Public Policy, said in an email. “Other states with broader tax systems don’t experience California’s budget extremes.”

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In Sacramento, Newsom defended California’s progressive tax code, which taxes people with large incomes at much higher levels than low-earning residents, as “more fair” than alternative approaches.

Texas, on the other hand, has no income tax at all — instead relying heavily on sales tax revenue. Newsom insisted that the result of this approach is that most Texans pay more in taxes than Californians do. His staff cited a news report relying on data from several years ago to back up this claim.

“They tax much more heavily in the service sector than a state like California — many red states — by the way,” Newsom said.

Texas also benefited from strong performance in the energy sector, as well as robust population growth. California’s population, on the other hand, has been shrinking amid a high cost of living and scarcity of affordable housing. There’s been something of a rivalry between the two states over Californians moving to Texas.

Abbott said the budget surplus offered a…