By Dr. Vance Ginn and Nozim Ishankulov
The Texas model of low taxes, no personal income tax, sensible regulation, and a reasonably good lawsuit climate supported the creation of the most jobs, higher wages, less poverty, and less income inequality compared with other large states and U.S. averages during the last 15 years, according to a recent Texas Public Policy Foundation publication.
This model led to a favorable business climate with a high level of economic freedom that have made these labor market gains possible for all Texans. Indeed, Texas has been near the top of the Fraser Institute’s Economic Freedom of North America index that has been linked to economic prosperity from higher levels of economic freedom.
Texas is an absolute leader in creating jobs. Texas businesses created a remarkable 2,470,300 nonfarm jobs or 73 percent of the U.S. total nonfarm jobs from 2000 to 2014. Looking at the period since the Great Recession through December 2014, Chart 1 shows that Texas created a whopping 54 percent of all job created nationwide.
Though critics claim this job creation was primarily in the mining industry, which is dominated by oil and gas jobs, this just isn’t true as this industry has only 2.6 percent of the labor force. This industry did expand at a rapid pace of 110 percent during the last 15 years, but larger industries like educational and health services, leisure and hospitality, and professional and business services that comprise 37 percent of the labor force had substantially more job creation since 2000.
Texas is the place to earn more pay. Chart 2 illustrates that Texas is a leading state in creating well-paying jobs with average annual private pay up 67 percent more than the U.S. average since 2001.
Chart 2. Texas Workers’ Annual Pay Grows Faster than U.S. Average
The poor and rich get richer in Texas. Chart 3 shows that Texas has been the place where job creation has exceeded the rest of the U.S. in all wage quartiles during the last 15 years, but those jobs have been dominant in the upper two wage quartiles.
Further, Texas average level of income inequality measured by the top 10 percent of income earners’ share of total state income was 48.8 percent measured by IRS data from 2000 to 2012. This share was lower than other large states and only slightly higher than the 47.4 percent U.S. average. Texas’ more equal income distribution than California should be perplexing to liberals because Texas has substantially fewer redistributionary policies with no individual income tax compared with California’s highest top marginal income tax rate of 13.3 percent.
This job creation also contributed to a lower level of supplemental poverty that includes the cost of housing and noncash government assistance. According to this measure, Texas’ rate as well as the U.S. average is 15.9 percent while California’s 23.4 percent rate is the highest in the nation.
Texas’ record for the last 15 years clearly shows that prosperity is possible through a limited government, free enterprise approach. Despite these achievements, Texas has to continue moving forward with reforms as it still ranks only 10th in the state business tax climate index. This could be drastically improved by eliminating the onerous business margins tax. In addition, legislators should drastically reform burdensome property taxes with the ultimate outcome of eliminating them and moving to a more efficient reformed sales tax to increase economic activity, job creation, and incomes for all Texans.
The Lone Star State does not have to stand alone in reforms. The federal government and other states should learn from these successes and follow the lead of the Texas model.