We’ve been hearing it for years – sheer luck, not effective policies, has been the driving force behind Texas’ economic boom.
This mantra has been repeated continuously among those who refuse to believe that low taxes, low spending, low regulation and competition-promoting public policy positively influence economies.
At the Center for American Progress, Scott Lilly makes the claim that Texas’ policies deserve little or no credit for the state’s substantial economic achievements. According to Lilly, the rise in oil, gas, wheat and cattle prices alone has saved fiscally-conservative Texas from an otherwise self-inflicted ill fate.
In reality, the opposite is true, and a simple comparison between two similarly-sized, resource abundant states can explain it.
Economically, California – an oil-rich state with some of the most fertile agricultural land in the world- has performed significantly worse than Texas in recent years. California’s highly progressive income tax and burdensome regulations have negated any positive economic effects related to higher commodity prices and have driven businesses out of the state in great numbers. From 1999 to 2009, California experienced a 70.1 percent growth in gross state product (GSP) and a 56.6 percent growth in personal income. In Texas, a state with no personal or corporate income taxes and less regulation, GSP grew 94.5 percent and personal income increased by 67.6 percent. During the same period, a net 220,000 people relocated from California to Texas.
Texas also has right-to-work laws, which allow residents to work regardless of whether or not they join a union. This significantly lowers the cost of doing business for employers, allows for more competition between groups that provide labor representation and gives employees more freedom of mobility.
Texas’ favorable tax climate and business environment, not high commodity prices, have been the main factors behind the state’s remarkable job creation and rapid growth. As resource-equivalent yet policy-divergent states like Texas and California continue down separate paths, that fact becomes ever more apparent.