Georgia Needs a Lone Star State of Mind

By Kelly McCutchen

Jobs, jobs, jobs. That's the mantra from nearly every elected official these days, from President Obama to Governor Deal. But do government policies really have on impact job creation? And if so, what should states like Georgia be doing?

Can government create jobs? Certainly, but every dollar spent by government is a dollar taken out of the private economy, where it most likely could be put to better use.

"More focus should be on incentives for people and businesses to invest, produce and work," says Harvard economist Robert Barro. "On the tax side, we should avoid programs that throw money at people and emphasize instead reductions in marginal income-tax rates — especially where these rates are already high and fall on capital income."

In order to improve, it is important to compare yourself with the best. When it comes to job creation, Texas is the leader. The Lone Star State created more than half of all the net new jobs in the United States last year and more jobs than all other states combined over the last 10 years.

"Did the greater prosperity in states like Texas just happen by chance?" speculates the American Legislative Exchange Council. "No. Dozens of academic studies — both old and recent — have discovered nearly irrefutable statistical evidence that high state and local taxes repel jobs and businesses."

So how does Georgia compare with Texas? States have different costs of living and a varied mix of services at the state and local level, so the best comparison is to examine state and local tax and spending as a percentage of personal income.

Total taxes in Texas take less of the average Texan's income than in Georgia. Georgia ranks 39th and Texas ranks 46th. In terms of how taxes are structured, the major difference is Texas does not have an income tax. Georgia's top income tax rate is 6 percent, although Georgia's Tax Reform Council just recommended cutting the rate by a third.

Is the solution more than just low taxes? Some argue that solely focusing on lower taxes is a race to the bottom that sacrifices the quality of other important government services that attract businesses. Instead, they propose more government spending on education, public safety, transportation and other government services.

Texas has a thriving oil and gas industry that Georgia does not. Perhaps this gives them an unfair advantage in tax revenue. But how about spending? Georgia already outspends Texas per capita in most areas: public welfare programs, health care and hospitals, corrections, and police and fire services. In K-12 education, the differences are significant. On a per-pupil basis, Texas spends $9,128. Georgia spends $10,971.That's a difference of $1,843 per student. Multiplied by Georgia's 1.6 million students, it totals $3 billion.

Texas outspends Georgia on higher education and transportation. If Georgia spent a similar amount per capita, transportation funding would be $1.9 billion per year higher. By comparison, the TSPLOST legislation to be considered on the ballot next year in Georgia would raise $1.6 billion per year.

Texas certainly has its challenges, including a large budget deficit this year and a high percentage of residents without health insurance. Georgia has these same problems (despite spending more money) and an economy that is much less dynamic than Texas.

The Texas economic development philosophy, according to the Texas Public Policy Foundation's Bill Peacock, is "rather than rely on government payouts to businesses, government spending or government programs to keep the economy growing, Texas tends to rely on economic freedom."

Governor Deal's proposed Competitiveness Council provides an excellent opportunity to focus on economic freedom. Georgia should embrace the Texas model of a pro-growth tax code, regulation that is entrepreneur- and small business- friendly, limited government and limited government spending, and a fair legal system. The Council should examine how to get a better return on investment in health care, education and corrections.

Georgia must leverage its great assets — a high-quality workforce, international airport, thriving ports and research universities — so companies will have Georgia on their mind. Because, "All my exes live in Texas," is nothing to sing along to when it's Georgia's businesses leaving.

 
Kelly McCutchen is president of the Georgia Public Policy Foundation, an independent think tank that proposes practical, market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the views of the Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.

(c) Georgia Public Policy Foundation (January 28, 2011). Permission to reprint in whole or in part is hereby granted, provided the author and his affiliations are cited.

Jobs, jobs, jobs. That’s the mantra from nearly every elected official these days, from President Obama to Governor Deal. But do government policies really have on impact job creation? And if so, what should states like Georgia be doing?

Can government create jobs? Certainly, but every dollar spent by government is a dollar taken out of the private economy, where it most likely could be put to better use.

“More focus should be on incentives for people and businesses to invest, produce and work,” says Harvard economist Robert Barro. “On the tax side, we should avoid programs that throw money at people and emphasize instead reductions in marginal income-tax rates — especially where these rates are already high and fall on capital income.”

In order to improve, it is important to compare yourself with the best. When it comes to job creation, Texas is the leader. The Lone Star State created more than half of all the net new jobs in the United States last year and more jobs than all other states combined over the last 10 years.

“Did the greater prosperity in states like Texas just happen by chance?” speculates the American Legislative Exchange Council. “No. Dozens of academic studies — both old and recent — have discovered nearly irrefutable statistical evidence that high state and local taxes repel jobs and businesses.”

So how does Georgia compare with Texas? States have different costs of living and a varied mix of services at the state and local level, so the best comparison is to examine state and local tax and spending as a percentage of personal income.

Total taxes in Texas take less of the average Texan’s income than in Georgia. Georgia ranks 39th and Texas ranks 46th. In terms of how taxes are structured, the major difference is Texas does not have an income tax. Georgia’s top income tax rate is 6 percent, although Georgia’s Tax Reform Council just recommended cutting the rate by a third.

Is the solution more than just low taxes? Some argue that solely focusing on lower taxes is a race to the bottom that sacrifices the quality of other important government services that attract businesses. Instead, they propose more government spending on education, public safety, transportation and other government services.

Texas has a thriving oil and gas industry that Georgia does not. Perhaps this gives them an unfair advantage in tax revenue. But how about spending? Georgia already outspends Texas per capita in most areas: public welfare programs, health care and hospitals, corrections, and police and fire services. In K-12 education, the differences are significant. On a per-pupil basis, Texas spends $9,128. Georgia spends $10,971.That’s a difference of $1,843 per student. Multiplied by Georgia’s 1.6 million students, it totals $3 billion.

Texas outspends Georgia on higher education and transportation. If Georgia spent a similar amount per capita, transportation funding would be $1.9 billion per year higher. By comparison, the TSPLOST legislation to be considered on the ballot next year in Georgia would raise $1.6 billion per year.

Texas certainly has its challenges, including a large budget deficit this year and a high percentage of residents without health insurance. Georgia has these same problems (despite spending more money) and an economy that is much less dynamic than Texas.

The Texas economic development philosophy, according to the Texas Public Policy Foundation’s Bill Peacock, is “rather than rely on government payouts to businesses, government spending or government programs to keep the economy growing, Texas tends to rely on economic freedom.”

Governor Deal’s proposed Competitiveness Council provides an excellent opportunity to focus on economic freedom. Georgia should embrace the Texas model of a pro-growth tax code, regulation that is entrepreneur- and small business- friendly, limited government and limited government spending, and a fair legal system. The Council should examine how to get a better return on investment in health care, education and corrections.

Georgia must leverage its great assets — a high-quality workforce, international airport, thriving ports and research universities — so companies will have Georgia on their mind. Because, “All my exes live in Texas,” is nothing to sing along to when it’s Georgia’s businesses leaving.

Kelly McCutchen is president of the Georgia Public Policy Foundation, an independent think tank that proposes practical, market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the views of the Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.

(c) Georgia Public Policy Foundation (January 28, 2011). Permission to reprint in whole or in part is hereby granted, provided the author and his affiliations are cited.