The Austinist: Texas Economy Trails Slowly Behind Income Tax States
media mentionA new report just released by the Institute on Taxation and Economic Policy shows the Lone Star State economy lagging far behind states that have income taxes. Reviewing economic data over the past decade In measures of growth per capita, median household income growth, and average annual unemployment rates, the study show Texas and other non-income tax states like Florida, Tennessee, and Nevada all grew slower than states like Oregon, New York, and California that collect personal income taxes.
Contrary to conventional wisdom that raising income taxes reduces the amount of money a family has to spend, the study shows that families living in states that collect income taxes to pay for schools, roads, police officers, teachers, and other economically supportive services have higher average incomes than families in non-income tax states. Over the past decade, Texas families have seen their incomes fall, on average, by 2.3%, which is better than the 50 state average of -4.3%, but worse that income tax states like Oregon (-1.4%) and Maine (+7.9%). This overall Gross State Product for Texas has increased by 6 percent in the last decade, just under the 50 state average of 6.1% and trailing behind states like California (6.9%), New York (12%), and Oregon (34.4%) that all collect income taxes.
Though Governor Perry has been touting Texas strong jobs growth for the past few years, the actual data behind that growth only further demonstrates Texas’ lagging economic growth. While Texas did add the largest number of private sector jobs in the nation, the state also led the nation in population growth and has a birth rate that is 27% higher than the average of other states. Adjusting for population growth, Texas’ jobs picture has not kept up with demand. In addition, according to the Center for Immigration Studies, more than half of the jobs growth in Texas since 2007 went to newly arrived immigrants, both legal and illegal. Texas also leads the nation in the number of minimum wage jobs. While the actual numbers of jobs created in Texas is a good sign overall, the net effect has been a decrease in the average family’s economic standing across the state. By comparison, California, a high-income tax state, has outpaced Texas in overall job growth and high wage job growth.
This report comes at a time when lawmakers in at least five states are considering repealing their income tax laws in an effort to attract out of state businesses and boost growth. What this research demonstrates though, is that the infrastructure, services, and investments in education those income taxes pay for may actually be more attractive for businesses and contribute more to average family income than they do in states like Texas, which slashed more than $5 billion from its education budget last year.