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The Texas Miracle: The Devil in the Details

by: Joe Deshotel

Fri Mar 14, 2014 at 02:00 PM CDT

As the American economy begins to gain traction and the national dialogue addresses the subject of income equality it is a good time to reflect on merits of "The Texas Miracle." The narrative is simple -- Low taxes, low services, and low regulation equals jobs and a strong economy. That's the familiar Conservative explanation, but the reality is much more complicated, at least if you are trying to use it as a model for other states.

Texas is experiencing an economic boom thanks to oil and gas, and heavy foreign immigration, but without a strong investment in infrastructure it will be impossible to sustain. Use of the state's water supply by the booming hydraulic fracking industry now have some communities who are drying up wondering whether their own supply will come from.

More below the jump...

The low tax rhetoric is running towards a head on collision with the state's infrastructure needs, so, while businesses may have come here because of low taxes, they will leave or stop coming when we don't have adequate roads, water or an educated workforce. These are the real issues facing our state but the Texas GOP's primary continues to be dominated by social issues instead of what investments are necessary for our state's economic future.

Currently it seems that no statewide Republican is taking the leadership role of explaining to the Tea Party that at some point taxes could be "too low," or that government spending does not equate to government waste. As of now the GOP is the dominant party but if the likes of Senator Dan Patrick becomes the new party standard, the business community, particularly the small business community, may be forced to break ranks with the "conservative" party and back pro-business Democrats like Senators Wendy Davis and Leticia Van de Putte.

The boom in the Texas economy has largely been fueled by the oil and gas industry and has also led to a boom in income equality. According to an exhaustive piece in the Washington Monthly:

Texas has more high-tech, knowledge-economy jobs than it did forty years ago. But so does the rest of America, and the stubborn truth is that, despite there being more computer programmers and medical specialists in Texas than a generation ago, oil and gas account for a rapidly rising, not declining, share of the Texas economy.

When it comes to entrepreneurship and upward mobility in Texas, a lot of people are trying but not so many are succeeding when compared to, wait for it...California. The WM continues:

But for the vast majority of businesses, which are small and not politically connected, Texas doesn't offer any tax advantages and is in many ways a harder place to do business.

But this model of economic development, which also combines a highly regressive tax system with minimal levels of public investment, has not allowed Texas to keep up with America's best-performing states in per capita income or rates of upward mobility.

The idea that taxes are lower in Texas also depends on your level of income. While middle and lower income Texans enjoy less services than their countrymen in other states, they also pay a higher proportion of their income in taxes. According to the Institute on Taxation and Economic Policy the lowest 20% of income earners in Texas pay 12.6% of their earnings in taxes and the Middle 20% pays 8.6%, while the Top 1% only pays 3.2%. Part of the issue is that Texas has no income taxes and relies heavily on regressive forms of taxation like sales taxes. In an effort to lower property taxes the Texas legislature imposed a franchise tax on business that has underperformed leaving government funding subject to the contributions of the oil and gas industry.

In 2011, budget cuts were made to public education based partially on inaccurate projections of income from the state's Comptroller. In 2013, the funds were reinstated after the real totals were realized. However, by that time the damage was done leaving thousands of teachers without jobs when we should be trying to figure out how to recruit and retain the best ones. About half Texas school districts are still involved in a lawsuit against the state over the school finance system. The results of which bolster arguments for both an annual budget legislative session and a more reliable system of revenue for essential state functions.

When asked about the lack of services provided by the state, Rick Perry has said that it comes down to the government Texans choose, but considering Texas ranks at the bottom for civic engagement and voting, that sure isn't very convincing.

You can follow me on Twitter at @joethepleb.

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