21st Century Boom Towns
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We all know the economy is struggling. We feel it at the gas pump and we watch our paychecks diminish with increased tax assessments. But while many of us hear the rumors of sequestration and layoffs plow through our companies, the nation faces a greater problem in low income areas. The number of households below the poverty line is increasing, and we are still missing about 2.6 million jobs compared to the employment levels of January 2008. But not every area of the country is struggling at the same rate. Some cities still have double digit unemployment while others are recovering, adding thousands of jobs each month. And, not surprisingly, people are responding by moving to the areas with greater opportunity.
In April, Bloomberg released a list of the top twelve “boomtowns” in the United States. These were the metropolitan areas that had experienced the greatest growth in population according to US Census data, and the greatest growth in economic productivity as measured by Gross Domestic Product, adjusted for inflation. Number six on the list was no surprise to anyone: the growth of Washington, DC is of course directly related to the growth of the federal government. But nine of the remaining eleven cities were in states with Republican governors. Texas alone boasted four of them—Austin, San Antonio, Houston and Dallas—which is perhaps why President Obama opted to make Austin the first stop on his “Middle Class Jobs and Opportunity Tour,” kicked off in May.
The economic growth in Texas as a whole is undeniable. Private sector jobs in Texas have increased 10% since 2009, while per capita income has increased 13.3%. So what is making places like Texas so successful? Why are four of its major cities booming while much of the rest of the country is still facing a recession?
In the state that boasts the second largest population and square mileage in the United States, there is a running joke that “Everything is bigger in Texas.” The one exception to this adage might be the state government, which is famously small. In fact, Texas is one of only four states whose legislatures meet in regular session just every other year, rather than annually. The length of the session is just 140 days, from January until May. By contrast, the legislature in California meets year round, except for a short holiday recess.
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!