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April 2009

Poor Texas?

Paul Krugman ridicules the Matthew Yglesias's claim that Texas is rich due to its low taxes and less regulation because he used median income instead of per-capita income for the comparison. He goes on to point out that "free-market" Texas has a per-capita income of $37,187 vs $49,194 for nanny-state New Jersey.

As many people noted in the commentsthis does not take into account cost of living differences between the two states (Texas has much lower cost of living than New Jersey). Additionally, the median incomes figures are before-tax. Since, the point is to compare economic well-beings of people living in states with different tax rates, we should be using after-tax income. I couldn't easily find after-tax median household income data for Texas and New Jersey, but I suspect, New Jersey will fare much more poorly on that measure.