by Gail Collins
Four out of ten! Or maybe more. “Since June 2009, about 48 percent of all the jobs created in America were in Texas. Come add to it,” Perry told Glenn Beck in June of 2011.
“Thank you. I’d love to,” Beck responded. And indeed, after his unceremonious departure from Fox, the loud, emotional, right-wing populist announced he was moving to Dallas. Gone To Texas.
Or even more! “Approximately 70 percent of the jobs created in the US from November 2007–8 were in Texas,” announced the governor’s office in 2009, as it reported on a Perry speech crediting “Texas’s low taxes, reasonable regulatory structure and economic development incentives” for this wonderful achievement—which, it turned out, was actually based on statistics from only fourteen other states. “In fact, if you throw out just thirteen more inconvenient states, Texas accounted for 100 percent of all new US jobs,” snarked Texans for Public Justice.
Obviously, we are paddling in statistically challenging waters. But whatever the jobs number was, the Texas Miracle seemed impressive. (When good news comes to other states, it’s an uptick. In Texas it’s always a miracle.)
“There is still a land of opportunity, friends. It’s called Texas. We’re creating more jobs than any other state in the nation,” said Rick Perry during his last gubernatorial campaign. “Would you rather live in a state like this, or in a state where guys can marry guys?”
Okay, not normally what you would think of as alternate career paths.
OVER THE PAST decade Texas has replaced New York as the nation’s second largest economy. California, which is still first, has been struggling and Texas, which has spent most of its modern history resentfully sitting in California’s shadow, has been known to gloat. “As the state of California continues to support legislation that causes undue burden and taxation on companies doing business in the Los Angeles area, I invite you to consider your future in America’s new land of opportunity, the state of Texas,” Perry recently wrote to companies in the California town of Vernon. (He was attempting to profit from the bad feelings that arose over a bipartisan attempt in Sacramento to deprive Vernon of its status as an independent municipality, for no good reason except Vernon’s enormous political corruption and lack of actual residents.) And in 2006, when a trade association paid for a private jet to fly Perry and his family to the Rose Bowl (U. T. was playing!), a gubernatorial spokesman suggested the real reason for the trip was to hold a barbecue during which the governor would persuade California companies to relocate.
Texas has been named the best place to do business by so many publications, it has come to resemble an irritating kid who wins all the awards at graduation and then devotes the valedictorian speech to his secrets for success.
• In Forbes, columnist Joel Kotkin put Austin first on his “next big boom town” list, giving the number four slot to San Antonio and number five to Houston.
• CNBC chose Texas as the top state for business in 2010, citing the state’s first-place ranking in the categories of overall economy and transportation. Texas came in thirtieth in education and twenty-ninth in quality of life, but you can’t have everything.
• A magazine called Site Selection awarded Texas its Governor’s Cup for the most new and expanded corporate facilities in 2010. Sending a shout-out to his fellow governors, Perry said: “It’s a clear challenge to improve the business climate in their states to put pressure on Texas to be more competitive.”
• Chief Executive magazine, in a 2011 article naming Texas the best state for business for the seventh consecutive year, deemed it a “Periclean Athens” compared to archrival California.
Perry did love to boast about the companies he’d snatched away from California, although critics claimed he frequently confused “moving to Texas” with “opening a modest-sized branch in Texas.” But sometimes it did seem as if California couldn’t do anything right. In 2011, the Houston Business Journal reported that Andrew Puzder, the CEO of Carl’s Jr., a fast-food chain that boasts a six-dollar bacon-burger, was in town scouting sites. Carl’s Jr. was headquartered in Carpinteria, California, but the lure of the Lone Star State, Puzder said, was compelling: “People in Houston love their meat.”
Take that, you West Coast vegans.
California’s deepest humiliation came in April of 2011, when a delegation of its state legislators, led by Lieutenant Governor Gavin Newsom, came to Texas claiming they wanted to learn what their state was doing wrong. (Their motivation wasn’t entirely clear, although the desire to drive Governor Jerry Brown crazy must have figured in there somewhere.) The group was organized by Dan Logue, an assemblyman who had put together a similar pilgrimage to booming Nevada two years earlier. Since then, the Nevada economy had tanked so deeply that it had the highest unemployment rate in the country and was in worse shape than California. However, Logue told the Los Angeles Times that Nevada would come back faster “because it has a business-friendly climate.”
We will stop for a moment to mull how a state with such an estimable attitude toward the free market managed to get in such a hole in the first place.
But about the legislators’ visit to Texas: The gang was trotted from one meeting to the next, where the message, as Nolan Hicks of the Houston Chronicle described it, was always pretty much the same: “Lowering taxes, handcuffing trial lawyers and a ‘business friendly’ (or lax) regulatory climate were the keys to Texas’s success and could be the keys to boosting the California economy.” At one stop, Governor Perry joined the fun, listening to the speakers sing his state’s praises while he sat, cowboy-style, legs crossed, the boots Liberty and Freedom on display, with his arm around the back of Newsom’s chair.
Perry’s worldview was simple. Texas had lower taxes, less regulation, and more business-friendly incentives like its Enterprise Fund, which offered money to sweeten the deal for firms looking to move in. So it was growing business. And if the rest of the country would follow its lead, they, too, would create lots and lots of jobs all over. And the whole country would be booming. “As well as Texas has done in the past and in 2010, we’re not going to be what we can be, or as strong as we can be, unless we have competition from other states,” Perry told Site Selection in his victory interview. In other words, Texas was doing the rest of the states a favor. And the governor was dying for the other forty-nine to get in the game and try to snitch Texas jobs, too. Really, nothing would make him happier.
“It started up as a good plan and it
wound up a mess”
It was an early clarion call for what would become a national debate during the presidential election year. Perry might have been gone from the scene, but the Republican argument over how jobs could be created was still built around the Texas model—low taxes, low regulation, special incentives to lure businesses to move in.
There are a couple of ways to look at Perry’s idea for a national competition among the states to see who could develop the most business-appealing environment. Perhaps Texas has the recipe for growing the national economy. Great! On the other hand, maybe job growth in Texas is mainly due to accidents of the state’s location, and the competition is just a way to blackmail other states into bankrupting themselves for no good reason whatsoever except corporate greed.
Of course, the truth could lie somewhere in the middle. That’s always a good bet, but for the moment, I’m going with the blackmail-and-bankrupt scenario.
Tax-wise, the thing businesses love most about Texas is that it has no income tax, and is highly unlikely to have one in the future. As former Lieutenant Governor Bob Bullock once said, you’re more likely to see a Russian submarine invade Houston. Supporting a state income tax is considered such political suicide that when Bullock called for one during the Ann Richards administration, word spread that he had thrown political caution to the winds due to a terminal illness. The entire experience was so traumatic that the lieutenant governor, in one of those deeply Texas impulses, expressed his frustration over the lack of an income tax by engineering the passag
e of a constitutional amendment requiring a voter referendum before an income tax could ever be put into law.
Unless such a referendum passes, an event slightly less likely than that submarine attack, an income tax is officially unconstitutional, right up there with same-sex unions and state officials who don’t believe in God.
For revenue, Texas relies heavily on the sales tax, as regressive a levy as you can invent short of a tax on children. It averages out at more than 8 percent once the local governments get their extra taste. “When we were faced with the necessity of passing a tax bill in the legislature, we would talk about this idea and that recommendation and in the end it all came down to the same thing—add a quarter penny to the sales tax,” former Lieutenant Governor Bill Hobby recalled.
So as it turns out, Texas is a low-tax state only for people with lots of income. A study by the Institute on Taxation and Economic Policy found that the bottom 20 percent of residents pay more than 12 percent of their income in state and local taxes, while the top 20 percent pay about 3.3 percent. After the report came out, the Dallas Morning News interviewed a former state House Appropriations Committee chair, Talmadge Heflin, who denounced the study for praising states like New York and Vermont for their more even-handed taxation systems. What Texan would want to be like New York or Vermont? “The data show emphatically that people want to live and do business in states with low overall taxes and no income tax,” Heflin concluded.
Rule One: To join the Texas job-growth derby, begin by making sure poor people pay a disproportionate share of the freight.
On the business side, Texas had long made its money off a complicated levy known as the franchise tax, which fell heavily on some firms while leaving many others untouched. Meanwhile, the localities and school districts got their funds mainly from the property tax, which was also relatively high on average in Texas, and hard on large-space enterprises like manufacturing. The Council on State Taxation, an organization representing business taxpayers, estimated that in 2010, Texas ranked nineteenth highest in what it called its “total effective business tax rate,” slightly above the national average.
So, rule two in the economic development sweepstakes is to lowball the taxes you’re actually imposing. Those pilgrims from the California state legislature eventually made a stop at the Texas Taxpayers and Research Association, which broke the news that the business tax numbers of the two states were actually pretty similar. They left “kind of in shock,” said Dale Craymer, the association’s president.
In 2006, under the gun to do something about the level of property taxes Texans were paying to fund their schools, the legislature undertook a big, ambitious reform. “They needed to create a business tax that was fair. The franchise tax only taxes one in four,” said Bill Ratliff, the former Republican state senator who was once acting lieutenant governor. The endeavor, he said unhappily, “started up as a good plan and it wound up a mess.”
The franchise tax was out, and something called the margin tax on business profits was in. The Tax Foundation, a conservative Washington think tank that’s generally been a big fan of Texas fiscal policy, denounced the new tax as “a failed experiment desperately needing reform” that had already “become notorious for its complexity.” Politicians’ passion for passing exemptions for favored businesses, the Foundation noted, was so fierce that “in 2009 alone, an additional 100 proposals to modify the tax made their way through the Texas state legislature.” But the biggest defect was in the math. The lawmakers refused to believe the comptroller when she said the new tax structure would raise around $12.5 billion a year less than they were counting on. Which was exactly what happened.
But nobody’s perfect. And remember, no income tax.
“A smoking gun of bad economic development”
When it comes to job growth policies that businesses really love, there are few more attractive than the idea that states should simply give them a bunch of money to move in. No part of Rick Perry’s vision of a national job-attraction competition sounded more delicious than the idea of a perpetual bidding war.
In Texas, the cash used to bribe—um, incentivize—businesses to relocate is called the Enterprise Fund. In recent years it’s been the largest program of its kind in the country, handing out more than $400 million in taxpayer dollars to encourage corporations to create jobs in the state. The Fund is Governor Perry’s particular brainchild, one he protected even in 2011, when the legislature was forced to slash other programs, including public schools, in order to create at least a pretense of having balanced the budget without tax hikes. There is also an Emerging Technology Fund and a special fund for moviemaking which critics say is actually more like a special fund for subsidizing the filming of corporate TV commercials.
The Fund was supposed to be a “deal-closer” that would win over firms that couldn’t quite decide whether Texas’s award-winning business friendliness was really enough to make a move there worthwhile. It has zero oversight beyond needing the approval of the three top elected state officials, all currently Republican. Negative minds have been known to refer to it as “the governor’s slush fund.”
“If you’re looking for a smoking gun of bad economic development, that’s it,” said Don Baylor of the Center for Public Policy Priorities, an Austin-based think tank. “It’s state money—and it’s money, not tax credits. On top of local tax incentives. It’s a one-, five-, twenty-million-dollar cherry on top of the sundae.”
Now, people, how many of you would like to think that the company you work for might pull up stakes and move someplace else because another state offered them a bunch of money to do it? How many of you would like to spend your own tax dollars one-upping the bids so hometown firms will stay put?
Let me see a show of hands. Just as I thought.
If we’re going to give public funds to businesses, shouldn’t it be going to the ones that can actually create new jobs rather than the ones that are just prepared to ship their existing ones across state lines? “Nationally, all we are doing is moving companies around and giving them huge incentives to do what they were probably going to do anyway,” Robert Orr of the North Carolina Institute for Constitutional Law told the Dallas Morning News.
And if we’re thinking about the welfare of the country as a whole, shouldn’t we be discouraging states from this kind of wasteful competition? Instead of demanding that every state have an Enterprise Fund like Texas, shouldn’t we be considering whether to make things like the Enterprise Fund illegal? Instead of trying to amend the Constitution to make it impossible for states to permit gay marriage, shouldn’t we be looking at an amendment that would make it illegal for one state to use public money to pay another state’s businesses to move away?
The Enterprise Fund strategy doesn’t even seem to be working out all that well for Texas. Reporters discovered that the Texas Institute for Genomic Medicine—a biotech effort at Texas A & M that received $50 million from the state and allegedly created 12,000 jobs—only actually employed ten people. The Wall Street Journal determined that the state had been counting every biotechnology-related job created anywhere in Texas since 2005, including employment in areas like dental equipment and fertilizer manufacturing. In the case of another $25 million for a medical-imaging research facility at a Houston cancer center, Perry took credit for 2,000 jobs created which, the Journal noted, included virtually any position added anywhere in the giant cancer center for anything, including “a plumber and a chaplain, along with nurses, social workers and other staffers.” Alec MacGillis of the New Republic went to the Houston suburb of Sugar Land to check out the Texas Energy Center, an awardee that was supposed to have created 1,500 jobs, and discovered it existed only on paper, through the efforts of the president of the local economic development council, who appeared to be getting a slice of the $3.5 million Enterprise Fund grant mainly for figuring out how to credit the Center with job creation.
We will pause here to contemplate whether Texas’s love affair with the i
maginary extends to economic statistics.
One of the most infamous Enterprise Fund deals involved Cabela’s (“Quality Hunting, Fishing, Camping and Outdoor Gear at Competitive Prices”), which got $600,000 to build stores in Fort Worth and Buda, a city just south of Austin. The retailer also received whopping local incentives, including $40 million from Fort Worth to help pay for property acquisition and construction.
“I know I speak for thousands of fellow hunters when I say we have waited anxiously for this to arrive, like a kid on Christmas Eve,” said Perry, announcing the Buda deal.
The stores arrived but the jobs never really did. Cabela’s eventually lost the last of its $200,000 in state grants and had to pay back $70,000 of what it originally took home because it fell far short of creating the 400 jobs it originally promised. “But the property is already bought, the store built and the company saved a couple of million dollars it would have had to pay in salaries and benefits to those 126 mythical workers. Not a bad bottom line,” said the Fort Worth Weekly. Also, the other stores, hotels, entertainment parks, and restaurants that the state expansively predicted would follow the Cabela’s openings never materialized.
But there’s still all that outdoor gear. At competitive prices.
“The most important thing that’s happened to us”
Next stop, regulation.
Among the many, many benefits which Rick Perry sees from a cutthroat economic development competition among the states is the way it would force the competitors to reduce unnecessary regulation. And that could indeed be a good thing. Nobody likes unnecessary regulation. Although of course the last thing in the world we would want is to see rogue companies try to avoid righteous penalties for their bad behavior by decamping to a place that seems intent on allowing them to do whatever the hell they want if only they’ll move in. Obviously.
