Marion Johnson, Policy Analyst, Think NC First
This year, North Carolina competed with a handful of other states to house Toyota’s new relocated headquarters. The state even offered Toyota an incentive package worth over $100 million. But Toyota chose Texas – and its smaller incentive package – instead. Commerce Secretary Sharon Decker argued that Texas could offer lower taxes than North Carolina could, which made it a more competitive location.[i]
Texas Governor Rick Perry leads the way in supporting the “Texas Miracle” – the idea that Texas’s low tax and low regulation environment has made it a Recession-proof haven for taxpayers and business owners. In recent years, Texas has enjoyed more robust job growth as a state than the nation as a whole, a fact which supports this narrative. Between 2000 and 2013, Texas’s nonfarm payroll grew by 19.7 percent. By contrast, the national growth rate during that time was just 3.6 percent.[ii]
Should North Carolina try to look more like Texas? Do we need a Carolina Comeback that looks more like the “Texas Miracle”?
Well, not so fast. There are good reasons that North Carolina can and should never try to become Texas.
It’s true that Texas has no personal income tax. However, in order to balance revenue, Texas has higher than average sales and local property taxes, as well as a hefty corporate franchise tax.[iii] The corporate tax rate makes it particularly difficult for small or medium-sized businesses to get off the ground. In fact, only four other states have a smaller share of business owners than Texas.[iv] So while it may make sense for Toyota to relocate its headquarters to Texas, it would make less sense for an entrepreneur to start out and grow her business there.
Texas’s dependence on sales and property taxes thrusts a sizable tax burden on the state’s poorest residents. The lowest fifth Texas earners pay roughly 12.6 percent of their family income to taxes, while the wealthiest earners pay only 3.2 percent.
The fact that Texas has the fifth most regressive tax system in the nation affects the state’s ability to provide a good quality of life for its residents. For example, Texas is 42nd in public school spending per student.[v] And at 22.1 percent, the state also has the highest rate of uninsured residents in the country.[vi] Economic mobility is also severely limited – in Austin, Dallas, and San Antonio, children who grew up in the bottom fifth of income distribution have at most a 7.1 percent chance of rising to the top fifth as adults.[vii]
The Texas Miracle narrative argues that Texas’s outsized job growth comes from its explosive population growth, fueled by the in-migrating American individuals and businesses that prefer the state’s low-tax and low-regulation environment.
In reality, foreign immigration has driven Texas’s population growth to a much greater degree than domestic in-migration. As of 2013, a whopping one out of every six Texans are foreign-born immigrants.[viii] Additionally, about one out of every five working Texans is an immigrant.
On the other hand, only 7.3 percent of North Carolinians are foreign-born immigrants.[ix] While we do have a growing immigrant population, Census numbers show that North Carolina’s population growth comes more from Americans moving here from other states.
The growing population has contributed to Texas’s economic growth and helped buffer it from Kansas’s low-revenue fate, but so has the exponential growth of Texas’s oil and gas industry.[x]
Texas’s oil and gas industry is booming. “Oil and gas are by far the fastest-growing sources of the state’s economic growth.”[xi] Texas is responsible for over a quarter of natural gas production in the country, and entire towns have grown to accommodate the growing number of oil rig workers. Since 2010, the industry has directly created over 28,600 jobs, which include oil and gas’s multiplier effect on jobs in other industries.
While we don’t have a huge oil and gas industry, North Carolina is home to fast-growing industries of our own. A recent Wells Fargo study ranked North Carolina as second in the nation of States with a Positive Regional Advantage in More than 17 Industries (behind Florida, tied with Georgia – and ahead of Texas).[xii]
“North Carolina continues to augment its reputation as a home for cutting-edge research and is also becoming a major destination for national and regional headquarters. Growth is being led by the state’s key technology sector...and its financial sector is growing again.” – Wells Fargo
In September, HCL Technologies – a globally competitive IT services company – announced it was investing $9 million and creating over 1,200 jobs to expand its hub in Cary. The expansion comes as part of an award from North Carolina’s Job Development Investment Grant (JDIG) program, which supports businesses’ recruitment, retention, and expansion efforts. Programs like these, rather than extensive tax cuts, are what’s working for North Carolina.
North Carolina would do better to find solutions that suit our unique needs, rather than adopt practices that only work in the Lone Star State.
More and more Americans are moving to North Carolina for jobs and a better quality of life. The state has thriving tech and financial sectors, and our manufacturing industry Is actually growing again. In order to continue attracting individuals, families, and businesses, we don’t have to become Texas. We need to continue investing in what makes our state great.
[i] Portillo, Ely. (August 28, 2014). The Charlotte Observer. “North Carolina was ready to offer Toyota $107 million, documents show.” Available at http://www.charlotteobserver.com/2014/08/28/5135747/north-carolina-was-ready-to-offer.html#.VCA81o1dWQw
[ii] Longman, Phillip. (May 2014). Washington Monthly. “Oops: The Texas Miracle That Isn’t.” Available at http://www.washingtonmonthly.com/magazine/march_april_may_2014/features/oops_the_texas_miracle_that_is049289.php?page=all
[iii] Batheja, Aman. (May 24, 2013). The New York Times. “The Joys of No Income Tax, the Agonies of Other Kinds.” Available at http://www.nytimes.com/2013/05/24/us/in-texas-the-joys-of-no-income-tax-the-agonies-of-the-other-kinds.html?pagewanted=all&_r=0
[iv] See note ii.
[v] See note ii.
[vi] U.S. Census Bureau. (September 2014). Health Insurance Coverage in the United States: 2013. Available at http://www.census.gov/content/dam/Census/library/publications/2014/demo/p60-250.pdf
[vii] Chetty, Raj; Hendren, Nathaniel; Kline, Patrick; Saez, Emmanuel. (June 2014). Where is the Land of Opportunity? The Geography of Intergenerational Mobility in the United States. Available at http://obs.rc.fas.harvard.edu/chetty/mobility_geo.pdf
[viii] Immigration Policy Center. (May 2014). “New Americans in Texas.” Available at http://www.immigrationpolicy.org/just-facts/new-americans-texas
[ix] Immigration Policy Center. (May 2014). “New Americans in North Carolina.” Available at http://www.immigrationpolicy.org/just-facts/new-americans-north-carolina
[x] Krugman, Paul. (August 14, 2011). The New York Times. “The Texas Unmiracle.” Available at http://www.nytimes.com/2011/08/15/opinion/the-texas-unmiracle.html
[xi] See note ii.
[xii] Vitner, Mark; Brown, Michael A.; and Watt, Sarah. (2011). Wells Fargo. Employment Dynamics and State Competitiveness. Available at http://mediaserver.fxstreet.com/Reports/f94cca42-c3fa-47e4-88dd-b4c17a0cdced/aad8948a-7e6c-42eb-b58f-b98f7024c09a.pdf