Miracle Faker

Rick Perry is right: America can learn from Texas. He's just wrong about what the lesson is.

An October 2005 analysis by economists at the Federal Reserve Bank of Dallas looked closely at how Texas recovered from the post-9/11 recession. They concluded that the Texas economy was significantly slower to heal and more jobless in its rebound than the national recovery, for a variety of reasons.

Perry's critics often say he benefits from all that "oil in the ground," but oil and gas jobs have waned. Meanwhile, a wider shift from manufacturing to government employment — especially all those education jobs added before Perry helped gut them — required major retraining of laid-off workers. According to the Fed study, that shift left the state's economy more susceptible to the punch it's taking now, and to the roundhouse represented in the recession's potential double-dip. But in the end, the report called Texas's poor performance in overall job creation "a bit of a mystery."

It was less mysterious in a report published two years later, by the conservative Kauffman Foundation. The group's "New Economy Index" measures growth and innovation in information technology. It examines an array of measures — patent applications, initial public stock offerings, immigration of knowledge workers, workforce education and other indicators — to see where the new technology economy is hot and where it isn't.

On the campaign trail or at the debate podium, Perry cocks that cowboy smile and vows to "get America back workin'" again.
Brian Cahn/ZUMAPRESS.com
On the campaign trail or at the debate podium, Perry cocks that cowboy smile and vows to "get America back workin'" again.
Bernard Weinstein, energy economist at Southern Methodist University, gives Governor Perry credit for being "a good steward of Texas values," but even Weinstein balks at giving Perry credit for the state's economy.
Mark Graham
Bernard Weinstein, energy economist at Southern Methodist University, gives Governor Perry credit for being "a good steward of Texas values," but even Weinstein balks at giving Perry credit for the state's economy.

Of the 50 states, Texas earned a second-tier overall ranking in the 2007 report — 14th place — but with low marks in the areas of workforce education (34th), high-tech manufacturing (35th) and desirability as a destination for knowledge industry immigrants (44th). The 2010 version reported that Texas had slipped from an overall national ranking of 14th place in 2007 to 18th in 2010. And while Texas got a much better mark as home to high-tech manufacturing, moving up from a national rank of 35th four years ago to tenth place in 2010, Texas's overall rank was dragged down by rankings in the 40s in two key areas: workplace education and the immigration of knowledge workers.
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What if Perry's critics are right? What if a strong public school system and prestigious university research programs were keys to Texas's economic success? If those legs of the Texas miracle are being sawed off, what's left?

Another important plank in Perry's Texas miracle platform is his portrayal of Texas as a low-tax state. The way he tells it, low state and local taxes are what is drawing businesses and people to his state. Like so much in Perry's portrait of Texas, the notion may be more wishful than real.

SMU's Weinstein now confines himself to the economics of energy, but for 25 years he was the state's best-known business recruitment and expansion consultant, hired by cities all over Texas. During that time most tax incentives in Texas amounted to state government giving local governments permission to give away their own tax bases to woo companies. It's a practice Weinstein now questions.

"All the research on economic development I'm familiar with over the last 60 years has found that state and local incentives are a fairly minor factor in the business site selection calculus," he says. "And that's understandable, because state and local taxes for a lot of companies are fairly minor costs of doing business."

Plus, he says, "every other state does the same thing."

But, as Weinstein points out, cutting those local taxes can hurt the localities that do it.

"[Those businesses are] still going to have kids in school," he says. "They're still going to need the roads and the water. Somebody else has got to pay for the cost of providing services to that business that isn't going to be paying its fair share of the taxes."

Despite the giveaways, small government still doesn't mean scant government in Texas. It means lots and lots of small government and accompanying taxes. Sure, a new Texan might relish the paycheck bump owed to the state's lack of income tax. But a typical Dallas property owner pays property taxes to the county, city, local schools, county hospital district, a county educational services district and a community college district, along with sales tax to the state, sales tax to the regional transportation agency and a plethora of local, county, regional and state fees and excise taxes.

In addition, a host of new tax-related entities, mainly invisible to the public, has been created in the last 25 years, including municipal utility districts, tax increment financing districts, redevelopment zones, municipal management districts and more, most of which have the power to borrow money, all of which must be repaid by taxes.

So is Texas truly the low-tax state Rick Perry paints it to be compared with the other 49? Judging by the few available comprehensive surveys, the answer is one that should be familiar by now: no.

The Council on State Taxation (COST), which represents large corporations on state tax issues, hires the accounting firm of Ernst & Young every year to study total state and local business taxes. Their 2010 study puts Texas at 19th for states with highest business taxes as a percentage of gross state product.

The Tax Foundation, a conservative think tank, gives Texas good marks for total state and local tax burden per capita — 39th place, with 50th marking the lowest tax burden. But the Tax Foundation ranks Texas fifth-worst for corporate taxes, a ranking that reflects a plethora of excise, licensing and other costs, taxes and negative incentives that businesses must deal with in Texas. The state also claims the third-highest effective property tax rate in the country after New Jersey and New Hampshire, according to the Tax Foundation.

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