Daniel Gross on Slate and Mickey Kaus on his campaign website (he’s running against incumbent Barbara Boxer for the California Democratic Senate nomination) ruminate on why the Texas economy is so much more resilient than that of most states. Gross points out that Texas has successfully globalized our economy, that energy is more resistant to recessions than most industries, that high tech plays a bigger role than crude oil, and that the independent nature of the Texas Interconnect Grid meant Texas was able to deregulate its energy sector without having to play “mother may I” with the feds. Kaus argues that since Texas is a Right-to-Work state, we don’t have unreasonably powerful public sector unions to drive up budgets, and the lack of rigid work rules results in a more dynamic economy. All of which is true. However, being from the left, Gross and Kaus both miss one of the biggest reasons for Texas’ economic success:
Texas has no state income tax.
People want to move to Texas (and people already here want to stay) because we get to keep more of our own money. Not only does this make our economy more resilient during downturns, but it limits the size and scope of state government. Numerous studies have shown that high earners flee high-tax states for low-tax states. California and New Jersey’s loss is Texas’ gain. There’s a reason blue states are the ones hit hardest by the recession.
Liberals never bring this up because, well, big government and high taxes go hand in hand, and love of big government and its redistributionist policies are all the left have left these days. Even relatively sane anti-New Left liberals like Kaus want to believe that bigger government can improve people’s lives with the right reforms/cost controls/etc., which is why he favored the abomination that is ObamaCare.
Clueless liberals have been calling for a state income tax for decades. Indeed, when you see a newspaper editorial headlined with “Texas Needs a More [Equitable/Fair/Robust/Just] Tax System,” when you read it you see that what they want is an income tax, and what they really want is bigger government. It’s no wonder that when you look at the board of the pro-state income tax group Citizens for Tax Justice, their guiding board is filled with union cronies. State income taxes mean more money for public employee unions, which is why unions always push for higher taxes. (Are you reading, Mickey?)
Here’s a handy breakdown of the differences between California and Texas. Note that it only covers up to 2007; since then, the economic and budgetary picture for California has only deteriorated.
To be sure, the lack of a state income tax isn’t a cure-all panacea; Florida and Nevada are hurting badly in The Great Recession, mainly because they were among the hardest hit in the housing bubble collapse. But Nevada’s estimated $1.24 billion 2010 deficit, and Florida’s $6 billion shortfall, look positively Utopian next to the yawning chasm of California’s $41.6 billion deficit.
Despite liberal contention to the contrary, it is low tax states that have low budget deficits, and high tax states that have the largest problems, and the lack of a state income tax is a big contributing factor to state budget discipline. That’s unlikely to change, even when the current recession ends.
Edited to add: Here’s a fine piece by Kevin D. Williamson that appeared in National Review on why Texas is doing so comparatively well. I had read it when it came out last year, but didn’t realize it was now available online. Well worth reading.