Jobs, jobs, jobs. That’s the mantra from nearly every elected official these days, from President Barack Obama to Gov. Nathan Deal. But do government policies really have on impact job creation? And if so, what should states such as Georgia do?
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.”
When it comes to job creation, Texas is the leader. Texas 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 such as 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.
Some argue that solely focusing on lower taxes is a race to the bottom that sacrifices the quality of other government services that attract businesses. Instead, they propose more government spending on education, public safety, transportation and other 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 penny sales tax 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.
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.
Kelly McCutchen is president of the Georgia Public Policy Foundation.
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