Texas has no state individual income tax and no corporate income tax, allowing it to boast the sixth lowest tax burden in the entire country. Texas ranks ninth on the Tax Foundation’s Business Tax Climate index. The index examines corporate taxes, individual income taxes, sales taxes, unemployment insurance taxes, and both residential and commercial property taxes and ranks states in order from the most business-friendly to the least.
Perhaps these policies are why so many companies are moving their operations to Texas. After the 2012 election, the Austin Chamber of Commerce reported a spike in relocation inquiries from states like California. Apple, based in Cupertino, California, recently began construction of a one million square foot campus in Austin. At the end of last year, Apple already employed about 3,500 people in Texas, but that number is expected to grow to 7,100 over the next few years. Veracyte, Inc., a biotech firm based in San Francisco is also opening a lab and office in Austin.
Do lower taxes and smaller government work only in places like Texas, or can similar policies turn around states that are struggling? The governors of New Jersey and Michigan think so. When New Jersey Governor Chris Christie, elected in 2009, made his first round of budget cuts, his approval rating dropped to 44%. But over the next three years, despite the setback from Superstorm Sandy, he was able to balance his state’s budget without raising taxes. His popularity responded, rising to 57% in the polls.
Rick Snyder, a former venture capitalist, was an unlikely Republican victor in 2010 when he took the reigns as governor of Michigan. Snyder immediately faced $1.5 billion dollar deficit and chose to dispose of the longstanding Michigan Business Tax, which taxed corporate revenue as well as profit. He then embarked on a series of unpopular and painful reforms of the state’s tax code. The results? Well, Michigan is still home to struggling cities like Detroit, but the state has projected a historic $493 million surplus this year. University of Michigan Research Seminar in Quantitative Economics is predicting the state’s unemployment rate will continue to drop, as about 373,500 jobs are added by 2015.
Federalism at its best offers different states and localities the opportunity to experiment with various policies and see the results. Of course, no political experiment can ever be truly “scientific” – there are too many unpredictable factors and there is no real “control” for comparison. Nonetheless, an examination of the different policies employed by various states and their results does offer a useful perspective when considering the more widely publicized debates on the national level. Maybe Washington could learn a thing or two from Texas. Do your representatives in Congress have a clear picture of what is happening to most Americans? Take a look at their websites. Keep tabs on their voting records for economic policy. But most of all, let them hear your voice!
Bishop Harry Jackson is chairman of the High Impact Leadership Coalition and senior pastor of Hope Christian Church in Beltsville, MD, and co-authored, Personal Faith, Public Policy [FrontLine; March 2008] with Tony Perkins, president of the Family Research Council.