Believe in the ‘Texas Miracle’ But Trust in Facts
The debate over the “Texas miracle” just won’t die.
By my estimation (and a search of the Nexis news database) the “Texas miracle” emerged as a term in 2010-2011 and really gained currency when Rick Perry ran for president. Not to be confused with that other, earlier “Texas miracle”—the largely-debunked Bush-era notion that standardized testing bumped up the scores of Texas schoolchildren—this Texas miracle has to do with the state’s economy, job growth, relatively low unemployment and growing population.
It’s a silly phrase, because even if you think there’s much to admire in the Texas economy, there’s nothing particularly miraculous about it. Unemployment, for example, is lower here than the national average but not by much. In December, Texas had 6 percent unemployment, tied for 17th best in the U.S. with West Virginia and Missouri; the national unemployment rate is 6.7 percent. And many of those jobs are attributable to the miracle of fossil fuels underlying a good portion of our state. The other thing is that the proponents of the “Texas miracle” attribute it not to divine intervention but a constellation of Republican policies.
We all know it by heart: Low taxes. Light regulation. Pro-business. It’s typically the second thing GOP candidates for office mention right after how much they hate Obama.
The chairman of the Dallas Fed, Richard Fisher, is a tireless Texas miracle zealot, giving speeches and providing data-driven studies to back up his belief that Texas holds economic lessons the rest of the country should heed.
Paul Krugman has been one of the big guns on the other side, firing some of the first shots at the national level in 2011, when he disparaged the Texas miracle as “a myth.”
The latest entrant into the debate: an article by Phillip Longman in Washington Monthly. Now, first things first: Why does some guy writing in Washington Monthly care about the ins and outs of the Texas economy? Because, as he points out, Texas has had some of the best job growth during the Obama years, even as the state has lurched further to the right.
“Progressives, and everyone earnestly interested in improving the nation’s economic performance, need to confront all this Texas bragging and find out what, if anything, it proves,” Longman writes.
There’s a lot of work done in the article. For one, Longman deflates some of the overheated Texas vs. California rhetoric by pointing out that California isn’t hemorrhaging all that many people to Texas. (Although the intense bitching about Californians in Austin would suggest otherwise.)
Using U.S. Census data, Longman argues that most of Texas’ population growth comes not from Americans “voting with their feet” and moving to Texas but from a high birth rate and immigration, much of it unauthorized.
He also argues that the oil boom is responsible for a greater share of the state’s GDP, and job growth, than is usually accounted for.
But perhaps the most interesting points are scored in attacking the very notion that Texas is low-tax and business-friendly. It’s a thrillingly subversive argument. As Longman writes:
[F]or most Americans, as well as for most businesses, moving to Texas would not mean paying less in taxes, and for many it would mean paying more.
Oh yes, I know what you’ve heard. And it’s true, as the state’s boosters like to brag, that Texas does not have an income tax. But Texas has sales and property taxes that make its overall burden of taxation on low-wage families much heavier than the national average, while the state also taxes the middle class at rates as high or higher than in California.
If you’re a rich Texan, you do indeed pay low taxes, but if you’re poor or middle class you’re, excuse the phrase, Taxed Enough Already. This suggests that we’re having the wrong conversation. It’s not about low taxes vs. high taxes but who bears the burden. But you’re not going to hear a Rick Perry or Dan Patrick or Ted Cruz go there. Politically, Texas economic boosterism sells for the GOP and no data point is going to change that.
Finally, Longman makes his most startling point, one that flies in the face of Rick Perry’s central case for the “Texas model.” Businesses in Texas pay high taxes… at least relative to the national average and wasteland states like Massachusetts (aka “Taxachusetts”) and Illinois.
But most Texas businesses, especially small ones, don’t get such treatment. Instead, they face total effective tax rates that are, by bottom-line measures, greater than those in even the People’s Republic of California. For example, according to a joint study by the accounting firm Ernst & Young and the Council on State Taxation, in fiscal year 2012 state and local business taxes in California came to 4.5 percent of private-sector gross state product. This compares with a 4.8 percent average for all fifty states—and a rate of 5.2 percent in Texas.
With the exception of New York, every major state in the country, including New Jersey, Massachusetts, Pennsylvania, Ohio, Michigan, Indiana, Illinois, Wisconsin, and Minnesota, has a lower total effective business tax rate than Texas.
The Ernst & Young/Council on State Taxation study cited by Longman is just one way of slicing the data, of course. And the study’s authors acknowledge that their method does not look at competitiveness. However, a 2011 study by the same groups did rank states for local and state tax competitiveness for new investment. Texas came in 20th, right between Pennsylvania and Indiana. We’re No. 20! We’re No. 20! We’re No. 20! … It just doesn’t have much of a ring to it.