By Joe Bruns — Texas Governor Rick Perry is on the trail again. Unlike his short-lived but memorable presidential campaign, this time he is trolling for business instead of votes.
Gov. Perry is starring in a series of ads running in at least five states, touting the business-friendly environment of Texas, in contrast to whatever state the ad happens to be running in.
Recently, the campaign geared up in Maryland.
There is certainly no doubt that Texas has been a robust job creator. It ranks #1 in job growth over the past five years, adding 451,000 jobs with a 4.43% job growth rate while most of the country is still getting back to its pre-recession level. Even as the national economy recovers, Texas ranks highly, at seventh in projected job growth for 2013. And, in many respects, Texas survived the great recession better than most, suffering fewer jobs lost and experiencing less of a housing bubble.
By most measures, business in Texas is good. But the premise being put forward is that the key to Texas’ success can be found in the policies of low taxes and loose regulation that drive a virtuous circle of business growth and individual prosperity. Does that hold up?
Personal and Business Taxes
Texas is a low-tax state. That’s a fact. According to the Tax Foundation, Texas has the fifth lowest individual tax burden in the country, at 7.9%, compared to the US average of 9.9%. Maryland has a 10.2% individual tax burden. But Texas personal income also lags behind both the national average and Maryland.
Per Capita Income 2012
- Texas $39,142
- US Average $41,146
- Maryland $51,329
In other words, while Texas taxes its citizens less, they also earn less to begin with.
But Personal Income Lags
For a state to be considered ‘business friendly,’ one would think that would mean a low tax burden on businesses.
One way to look at business taxes is as a percentage of GSP, or Gross State Product. It turns out that, collectively, businesses in Texas pay more than the national average rate — 5.2% vs 4.8% as a percent of GSP. The Maryland tax burden is 4%, while Virginia comes in at only 3.8%. It turns out that while overall taxes in Texas are low, businesses carry 61.5% of the overall tax burden, compared to 45.2% in states nationally. With no personal income tax, Texas must find sources for the tax revenue it does raise.
The Costs of Low Taxes and Loose Regulation
Government may be inefficient, and even wasteful, but there is no denying that state and local taxes provide useful programs, such as education, highway maintenance, public health services, public safety and so on. And regulations may be, by their very nature, burdensome, but they are designed to protect workers as well as the general public, to create a level playing field for business, and to protect common public interests.
One reason Texas suffered less in the housing bubble burst is that it had already tightened mortgage lending as a result of the Savings & Loan scandals. In 1967, the anti-regulation Texas government greatly loosened restrictions on S&L’s. By 1987, though, half of all the S&L losses nationwide were in Texas, and 14 of the 20 worst failures were in the state, a result of frenzied and virtually unregulated lending activities as well as criminal conduct.
As Joseph W. Grant wrote in The Great Texas Banking Crash: An Insider’s View, “In retrospect, it seems incredible that virtually no one saw the thrift crisis coming. Perhaps in Texas we were too close to the situation to realize what was happening. But, regardless of the reason, in the short period of two to three years following deregulation, the S&L industry engaged in reckless, irresponsible, and, in many cases, fraudulent activities that created a financial disaster of epic proportion.” One price of deregulation, Grant writes, was that of the top 100 Texas S&L’s in 1987, only six survived.
Another possible by-product of a libertarian attitude toward regulation is public health. Texas consistently ranks near the bottom in measures of health, based on factors such as policy, environment, and lifestyle (Maryland ranks 19th). And while worker’s compensation claims filed in Texas are near the national average, its workplace fatality rate is substantially higher.
Education is also a frequently used metric in comparing states, and, according to Education Week’s Quality Counts survey, Texas ranks a respectable 14th in the nation. But for the fifth year in a row, Maryland ranked number 1. In higher education, more than a third of Marylanders attain a Bachelor’s Degree or better, while about a quarter of Texans do.
The comparisons can go on. Texas has a culture of individualism, where neighbors may help each other, but government that imposes its will is abhorred. It is a state that prides itself on low taxes, few regulations and self-reliance, and earns rankings near the top of places to do business. But in those areas where taxes and regulations can make a difference — education, public health, infrastructure and controlling business excesses — it frequently lags behind its more progressive peers.
In the end, businesses and individuals need to balance a number of factors, knowing that the best place to set up a business might not be the best place to raise a family. That might just be…The Garden State.
– Joe Bruns (Cajun Joe) is a Trail Mix Contributor