January 7, 2025

Texas vs. California Economy: Which State is Best for Business?

Texas and California remain the two most populous states in the nation. Both boast the United States’ largest Gross Domestic Product (GDP), a comprehensive measure of economic size and health. The Lone Star and Golden States are economic powerhouses that attract corporate headquarters, top talent, and substantial capital. However, their divergent public policies play a crucial role in shaping the business environment, compelling entrepreneurs and business owners to weigh the pros and cons of each state when making long-term decisions.

GDP & Texas Economy

Texas’ economy continues to shine as one of the fastest-growing in the nation. The Lone Star State’s $2.6 trillion economy is the 8th largest in the world, surpassing countries like Russia, Canada and Italy.

In the third quarter of 2023, Texas experienced an impressive annualized real GDP growth rate of 7.7%, up from 4.9% in the previous quarter. This latest data highlights that Texas’s economic growth continues to outpace the national average, reinforcing its position as a key driver of the U.S. economy.

Texas vs. California: A 2024 Comparison of Economic Powerhouses

Texas and California, the two most populous states in the U.S., have long been key players in the nation’s economy. Both boast some of the largest GDPs in the world and attract businesses, talent, and investments. However, their contrasting policies, tax structures, and business climates create vastly different opportunities and challenges for entrepreneurs and corporations.

Here’s a 2024 snapshot comparing these two economic giants.


Economic Growth: The GDP Giants

  • Texas: The Lone Star State’s GDP reached $2.6 trillion in 2024. Over the past five years, Texas has achieved an annualized GDP growth rate of 5.8%, driven by a robust energy sector, tech expansion, and manufacturing.
  • California: With a GDP of $4.1 trillion in 2024, California remains the largest state economy in the U.S. However, its growth rate over the same five-year period has averaged 1.7%, significantly slower than Texas.

Employment and Unemployment Trends

  • Texas: Texas has experienced sustained job growth, adding over 2.4 million jobs from 2023 to 2024. As of September 2024, its unemployment rate stood at a low 4.1%.
  • California: The Golden State added an average of 16,500 jobs monthly in 2024. However, its unemployment rate remains higher than Texas, at 5.4% as of October 2024. Rising costs of living and regulatory challenges have hindered employment recovery in some sectors.

Tax Climate: A Stark Contrast

Taxes play a significant role in the business landscape of both states:

  • Texas: Known for its no individual income tax policy, Texas has one of the most favorable tax climates in the U.S. The state’s tax revenue per capita is $4,822, supported by property taxes and other revenue sources.
  • California: In contrast, California imposes the highest individual income tax rates in the country. Its tax revenue per capita is $9,229, almost 90% higher than Texas, reflecting the burden on residents and businesses.

Population Trends: Growing vs. Shrinking

  • Texas: The state continues to attract residents from across the country, ranking first for population growth. Affordable housing, a lower cost of living, and a business-friendly environment are key drivers.
  • California: California has faced a population decline in recent years. In 2024, the trend continued as residents and businesses left the state in search of more affordable and business-friendly alternatives like Texas.

Business Climate: Where Companies Thrive

  • Texas: The Lone Star State remains a top destination for corporate relocations. Companies like Tesla and Oracle have moved their headquarters to Texas, drawn by its low taxes and deregulated environment. However, rapid growth has introduced challenges, including infrastructure strain and rising property costs.
  • California: While still an economic powerhouse, California has faced increasing pressure from businesses frustrated with high taxes, extensive regulations, and escalating operational costs. Despite these challenges, the state maintains a strong innovation ecosystem fueled by its world-class universities and venture capital presence.

Why Business Are Moving to Texas

Texas’ advantageous tax policies, coupled with a robust economy, continue to lure businesses from around the globe. With no corporate or individual income tax, Texas offers a less burdensome regulatory environment that fosters entrepreneurial growth. Companies across industries such as technology, finance, and logistics have relocated their headquarters or expanded operations in the Lone Star State.

Relocate or Expand Your Business in Texas

So, why move your business to Texas from another state? Texas has an advantageous tax climate and a robust, rock-solid economy that fosters entrepreneurial growth. Businesses that are established or new to the Lone Star State can benefit from the guidance and resources of TxEDC.

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