Unless you’ve been to Texas lately, you might have missed just how gigantic its latest oil and gas boom has become. Thanks to fracking and other new drilling techniques, plus historically high world oil prices, Texas oil production increased by 126% just between 2010 and 2013. Only a few years ago, Texas’s oil production had dwindled to just 15% of U.S. output; by May of last year it had jumped to 34.5%, as new drilling methods opened up vast new plays in once-forgotten corners of south and west Texas with names like Eagle Ford, Spraberry Trend, and Wolfcamp. Thanks to the bonanza of drilling, Texas already produces more oil than Venezuela, and is headed to become the 9th largest producer of oil in the world, ahead of Kuwait, Mexico, and Iraq. Meanwhile, Texas accounts for 27% of U.S. natural gas production, which is more than the production of any nation except Russia.....
Though Texas boosters point to the growth of the high-tech industry in Austin, the so-called “telecom corridor” in Dallas, and the growth of health care jobs in Houston, this can’t hide the fact that oil and gas are by far the fastest-growing sources of the state’s economic growth. Between 1998 and 2011, for example, the percent of Texas GDP produced directly by oil and gas extraction more than doubled, according to the U.S. Commerce Department’s Bureau of Economic Analysis. This doesn’t even count the growth of related industries, like oil refining and a petrochemical sector now thriving on the state’s abundant supplies of natural gas. Meanwhile, the share of the Texas economy produced by the information, communications, and technology sectors is 27% smaller than it was in 1998.
To be sure, only about 8% of the new jobs in Texas are directly involved in oil and gas extraction, but the multiplier effects of the energy boom create a compounding supply of jobs for accountants, lawyers, doctors, home builders, gardeners, nannies, you name it. Saying that Texas doesn’t depend very much on oil and gas just because most Texans are not formally employed in drilling wells is like saying that the New York area doesn’t depend very much on Wall Street because only a handful of New Yorkers work on the floor of the stock exchange.
The next big question is how much Texas’s growth in jobs just reflects its growth in population. ... But in the conservative narrative, this population growth is largely driven by individual Americans and businesses fleeing the high taxes and excessive regulation of less-free states.
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For example, according to Census Bureau data, 441,682 native-born Americans moved to Texas from other states between 2010 and 2011. Sounds like a lot. But moving (fleeing?) in the opposite direction were 358,048 other native-born Americans leaving Texas behind. That means that the net domestic migration of native-born Americans to Texas came to just 83,634, which in a nation of 315 million isn’t even background noise. It’s the demographic equivalent of, say, the town of Lawrence, Kansas, or Germantown, Maryland, “voting with its feet” and moving to Texas while the rest of America stays put.
And despite all the gloating by Texas boosters about how the state attracts huge numbers of Americans fleeing California socialism, the numbers don’t bear out this narrative either. In 2012, 62,702 people moved from California to Texas, but 43,005 moved from Texas to California, for a net migration of just 19,697. That’s a population flow amounting to the movement of one village in a continental nation. Far from proving the merits of the so-called Texas model, it shows just how few Californians have seen fit to set out for the Lone Star State, despite California’s high cost of housing and other very real problems. The same is true for all but a handful of Americans living in other states. Net domestic migration to Texas peaked after Hurricane Katrina devastated Louisiana and Mississippi, and has been falling off ever since.
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This comparatively low level of net domestic migration to Texas is consistent with another little-appreciated fact that runs counter to the conservative narrative about the Texas Miracle. It is that, for most Americans, as well as for most businesses, moving to Texas would not mean paying less in taxes, and for many it would mean paying more.
Oh yes, I know what you’ve heard. And it’s true, as the state’s boosters like to brag, that Texas does not have an income tax. But Texas has sales and property taxes that make its overall burden of taxation on low-wage families much heavier than the national average, while the state also taxes the middle class at rates as high or higher than in California.
For instance, non-elderly Californians with family income in the middle 20% of the income distribution pay combined state and local taxes amounting to 8.2% of their income, according to the Institute on Taxation and Economic Policy; by contrast, their counterparts in Texas pay 8.6%.
And unlike in California, middle-class families in Texas don’t get the advantage of having rich people share equally in the cost of providing government services. The top 1% in Texas have an effective tax rate of just 3.2%. That’s roughly two-fifths the rate that’s borne by the middle class, and just a quarter the rate paid by all those low-wage “takers” at the bottom 20% of the family income distribution. This Robin-Hood-in-reverse system gives Texas the fifth-most-regressive tax structure in the nation.
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But most Texas businesses, especially small ones, don’t get such treatment. Instead, they face total effective tax rates that are, by bottom-line measures, greater than those in even the People’s Republic of California.
For example, according to a joint study by the accounting firm Ernst & Young and the Council on State Taxation, in fiscal year 2012 state and local business taxes in California came to 4.5% of private-sector gross state product.
This compares with a 4.8% average for all fifty states—and a rate of 5.2% in Texas. With the exception of New York, every major state in the country, including New Jersey, Massachusetts, Pennsylvania, Ohio, Michigan, Indiana, Illinois, Wisconsin, and Minnesota, has a Lower total effective business tax rate than Texas. If you think that means Texas might not offer as much “liberty” as advertised, well, you’re right.
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