Texas Vs. The Beltway: What Economic Model Works Best?
By Chuck DeVore, December 21, 2015 (Click here for piece.)
The 2016 presidential contest will be decided, in part, on what economic model best promotes economic vitality and growth of well-paying jobs. There are two basic sides to this debate: a government-centric model or a model where the private sector comes first.
Three states offer real life examples to illuminate this fundamental economic choice: Texas and the D.C. Beltway states of Maryland and Virginia.
In the eight years from January 2007 to January 2015, Texas generated 1.4 million new nonfarm, non-government jobs compared to 2.3 million in the rest of the nation. Put another way, Texas accounted for 38% of all the new non-government jobs added in the nation over eight years—and this in a state that only 8% of Americans call home.
Further, contrary to conventional wisdom, most of the jobs added in Texas were not in the capital-intensive oil and gas industry which reached an employment peak of 305,000 out of 11.7 million jobs in December 2014, or less than 3% of the total. It is instructive to note here that Texas has no state income tax, a low overall tax burden and a light and predictable regulatory climate.
The antithesis of the Texas model of economic success can be seen in the nation’s D.C. Beltway region. That region’s record has plenty of defenders. For example, former Maryland Gov. Martin O’Malley this past weekend declared that Maryland—a state heavily dependent upon the D.C. jobs engine—possessed “…the highest median income in America” while “…creat(ing) 2,000 new jobs in the solar industry and… adopt(ing) more inclusive economic practices.”
But how is the overall economic record in Maryland, or even Virginia, for that matter?
The truth is that Maryland and Virginia have been beneficiaries of the massive growth in the federal government in recent years, with federal employees earning an average of 78% more than private sector workers in 2014: $84,153 vs. $56,350.
About seven out of every eight government employees work at the state and local level. In March 2013, the U.S. Census Bureau reported that there were 21.8 million government workers in America. Of these, 12.6% worked for the federal government, 24.2% for state governments, and 63.2% for local governments. But, federal employment is heavily concentrated in the Beltway area, with 27.5% of all federal workers residing in the Beltway region of the District of Columbia, Maryland and Virginia.
The table below shows that the District of Columbia’s federal workforce as a share of the private sector is about 26 times more concentrated than in the U.S. minus the Beltway region and Texas, while the federal workforce in Maryland and Virginia are eight and seven times more concentrated, respectively, than in the rest of America. Texas, with its large military and NASA presence is about three times overrepresented in federal jobs than the remainder of the nation.
|Regional Employment, March 2013
||Government Workers; Percentage of Private Sector Nonfarm Employment
||Federal Workers; Percentage of Private Sector Nonfarm Employment
||State & Local Workers; Percentage of Private Sector Nonfarm Employment
|District of Columbia
|U.S. (Minus Above)
What isn’t factored into the table is that the federal government spent about $129 billion in 2012 to employ 670,000 service contractors, with many of these residing in the Beltway region. Considering these private sector federal support employees would show D.C., Maryland and Virginia to be even more dependent on federal spending than is the case when only examining federal workers.
Looking at the jobs record of the Beltway states from January 2007 to January 2015 is illuminating when considering sustainable private sector growth:
|Regional Employment Record from Jan. 2007 to Jan. 2015
||Nonfarm Employment Change, Seasonally-adjusted
||Government Employment Change, Seasonally-Adjusted
||Change in Nonfarm Employment Minus Gov’t Employment
|U.S. (Minus Above)
Here we see that Maryland and Virginia private sector employment crept ahead by only 0.4% in eight years, less than one-fifth the pace of the U.S. economy minus Maryland, Virginia and Texas. Meanwhile, Texas added jobs at a rate of 42 times that of Maryland or Virginia and more than seven times the pace of the U.S., minus the three states examined.
In raw terms, Maryland added about 1,063 non-governmental jobs per year over the eight years ending in January 2015 while Virginia added 1,400 per year compared to Texas’ addition of 178,500 private sector jobs per year. Put another way, Texas produced 168 times as many private sector jobs over eight years as did Maryland and 128 times as many as did Virginia.
Looking at the ratio of private sector to government employee hires is instructive as well. In Virginia, every new private sector employee was overmatched by 2.5 new government workers. In Texas, the ratio was reversed, with each new private sector hire supporting only 0.09 new government workers with their taxes.
It isn’t at all sustainable to assume that each new worker in the private sector could support one new government employee, much less three or four as is the case in Virginia and Maryland.
The Beltway economic model only works with the trillions of dollars of federal money, much of it borrowed from future generations, coursing through the region, employing more than a million mostly well-paid federal workers and contractors.
Promoting the success of a region dependent on government growth, higher taxes, and a burgeoning regulatory burden administered by a growing bureaucratic elite is not a solution that can be applied to America as a whole—after all, we can’t all work for the government.
Chuck DeVore is Vice President of National Initiatives at the Texas Public Policy Foundation. He was a California Assemblyman and is a Lt. Colonel in the U.S. Army Retired Reserve.
Investor's Business Daily
Piketty Mistakes Wealth Inequality For Housing Inequality
By Chuck DeVore, August 11, 2015 (Click here for piece.)
Thomas Piketty's "Capital in the Twenty-First Century" revitalized the debate over the "1%" and its accumulation of wealth. Using a wealth of assembled data, Piketty hypothesized that capital would increasingly concentrate because the return on capital was exceeding economic growth. Thus, money would increasingly widen the gap over labor.
Piketty's suggested a global wealth tax to combat the trend that he identified — an especially attractive idea to elites on the left and their populist allies in the Occupy movement.
But, what if Piketty's underlying assumption on the accumulation of wealth was wrong?
Matthew Rognlie, an MIT economics doctoral student, took apart Piketty's thesis last year in a paper titled, "A Note on Piketty and Diminishing Returns to Capital." The gist of Rognlie's critique is contained in a pithy suggestion for a more accurate alternative title for Piketty's book: "Housing in the Twenty-First Century."
Piketty's contention that wealth is concentrating due to higher relative returns on capital is wrong, Rognlie says, because "recent trends in both capital wealth and income are driven almost entirely by housing," which itself is due to artificial scarcity of housing caused by land-use regulation.
If growing wealth inequality is not an issue of the 1% but rather an issue of excessive home equity increases because of government land-use restrictions that restrict the supply of new housing, it changes the debate considerably.
A statistical analysis verifies that Rognlie is onto something important. Running a multivariate regression analysis for 50 states using a state's cost of living as the dependent variable against two predictors — the degree of urbanization and a state's land-use-freedom score from the Mercatus Center at George Mason University's "Freedom in the 50 States" annual survey — shows that land-use restrictions, not the percentage of urbanization, have a large and predictable effect on the cost of living.
In the San Francisco Bay area, notes Cato Institute senior fellow Randal O'Toole, the ratio of median home value to median family income hit 10 to 1 during the height of the housing bubble in 2006. In Houston, it was 2 to 1 in the same year.
After subsiding for a few years during the recession, the Bay Area ratio climbed back to 6.8 to 1 in 2013 while in Houston it was 2.2 to 1. Given the mounting development restrictions in California, now including greenhouse gas considerations, 2006's 10-to-1 ratio has likely already been breached.
O'Toole says Golden State housing prices have gotten so out of control that average Californians soon may need intergenerational loans or 50-year mortgages to buy a house in job-rich areas.
One practical effect of California having the nation's third-worst land-use restrictions, after New Jersey and Maryland, is the depopulation of African-Americans from urban areas. O'Toole notes that San Francisco is seeing the nation's biggest exodus of blacks, with every urban area in California seeing a relative decline in African-Americans except the Riverside-San Bernardino region.
The irony of progressive California and its restrictive development policies harming working class minorities isn't lost on the Obama administration's Department of Housing and Urban Development. HUD is targeting tony Marin County for its lack of minority housing. Marin, where California Sen. Barbara Boxer once served on the Board of Supervisors, is too white and too wealthy, it seems.
And, no more perfect an illustration of how wealthy homeowners infringe on their neighbors' property rights, pressuring local officials not to allow paradise-soiling development, can be found in the saga of "Star Wars" creator George Lucas.
Lucas tried to expand his film studio next to his Marin ranch in 1987 and was rebuffed by Marin County elected officials at the behest of Nimby (Not In My Back Yard) activists. In 2012, frustrated by 25 years of stonewalling, Lucas decided instead to work with a developer to build affordable housing.
Local officials nixed this project too, and the developer backed out. Now Lucas is using his own money to build the proposed 224-unit affordable housing project. If construction is approved, it might be completed by 2019, 32 years after Lucas wanted to build something on his own land.
Predictably, the liberal "solution" to land use restrictions isn't to try to loosen them. Rather, it's work around them with more government: tax credits, housing vouchers, transit-oriented development (served by trains operated by government unionized employees), lotteries for below-market rate homes and government affordable-housing bonds. But these "solutions" can't come close to meeting market demand for affordable housing.
Perhaps they should try the one solution not taken: allowing the market to operate.
• DeVore is a vice president at the Texas Public Policy Foundation and served in the California Assembly from 2004 to 2010.
Fort Worth Star-Telegram
Texas shows policy is better than luck
BY CHUCK DEVORE - Special to the Star-Telegram - June 12, 2015
Texas critics are fond of attributing the Lone Star State’s bull run in jobs to oil and gas, allowing them to discount the role of public policy and claim Texas’ success is due to nothing more than geologic good fortune.
It’s true that oil and gas extraction and mining produces about 14 percent of the Texas economy, but this is about two-thirds of what it was back in 1981.
Only about 2.7 percent of the state’s workforce is engaged in extracting resources from Texas bedrock, down from 5 percent in 1981.
The fact is that the Texas economy is far more diversified than it was in the recent past. This diversification has been driven by a competitive state tax structure, a light regulatory burden and an improved lawsuit climate.
The Legislature can’t set the international price for oil, but it can improve Texas’ competitiveness, making the state a more attractive place to expand operations, hire people and start a business and live the American dream.
To that end, the just-completed session of the 84th Legislature has to be considered a success.
Foremost among the accomplishments was the 25 percent reduction in the business margin tax — a savings to business, large and small, of $2.6 billion.
Property taxes were cut by about $1.2 billion by raising the homestead exemption on school property taxes from $15,000 to $25,000, pending a vote of the people in November.
Read more here: http://www.star-telegram.com/opinion/opn-columns-blogs/other-voices/article23915161.html#storylink=cpy
Investor's Business Daily
Regulations Could Top Taxes as an Enemy of Small Business
By Chuck DeVore, June 9, 2015
A populist tide may swamp expectations for the 2016 presidential campaign. This current is running in both camps, as many candidates seek to distance themselves from Wall Street, big business and banks.
Americans have long been skeptical that their interests align with business. Less well-known and understood is that many big businesses are comfortable with big government — in fact, much of the time, big business works hand-in-glove with big government, using legions of lawyers (especially tax attorneys) and lobbyists to shape government tax and regulatory policy to their advantage.
Small businesses can't afford attorneys and lobbyists. For instance, a 2009 study commissioned by the California legislature estimated the total cost of legal compliance for every small business in the Golden State was $134,122 annually.
The federal government imposes plenty of rules as well. A few days ago, the Occupational Safety and Health Administration issued a four-page edict on transgender bathrooms, writing that "gender identity is an intrinsic part of each person's identity and everyday life."
The Feds suggest that businesses let employees use whatever restrooms they feel like using. The implied threat is that if they don't, they may get sued.
For a large business, complying with regulations is often just a minor cost of doing business. For a small business, regulatory compliance can be an enterprise-killer.
For the rest of the piece, see: http://news.investors.com/ibd-editorials-perspective/060915-756512-small-businesses-need-freedom-from-regulation.htm?
Investor's Business Daily
California’s Unsustainable Comeback
Is California really heading into economic boom times again, or is the Golden State setting itself up for another bust?
By Chuck DeVore, JUNE 5, 2015
Much has been written about California’s tough economic times over the past few years. The recession that hit in December 2007 slammed particularly hard into California.
From a nonfarm employment peak in July 2007 to February 2010, California shed 1.3 million jobs—idling almost 9 percent of its workforce. It wasn’t until February 2014 that California’s employment numbers recovered to 2007 levels. Year-over-year, California employment is up 2.9 percent through April, besting the overall U.S. picture with its modest 2.2 percent gain, and even big-state rival Texas, at 2.5 percent.
California’s state government is even running a $3 billion surplus, on top of an almost $2 billion deposit into a new rainy-day fund, leading to predictable liberal twin cries: hike taxes and ramp up spending on welfare, education, and the environment. But, is California really heading into economic boom times again, or is the Golden State setting itself up for another bust?
High Tax Intake Doesn’t Mean Economic Health
A common error is that of conflating a state’s budget with the overall health of the state’s economy. A government can enjoy a surplus through any combination of spending and revenue that results in more money coming in than going out.
For the rest of the piece, see: http://thefederalist.com/2015/06/05/californias-unsustainable-comeback/
The Texas model works for jobs and business
By Chuck DeVore
(This letter to the editor appeared on September 27, 2013 in the Washington Post.)
Regarding Maryland Gov. Martin O’Malley’s Sept. 18 op-ed, “The secret of our success”:
Attacks on Texas aren’t really about Gov. Rick Perry’s job-hunting expeditions. Rather, such attacks are, as Mr. O’Malley suggested, proxies for the national debate on the efficacy of lean government vs. large government. So, given the stakes for Americans, is Maryland or Texas a better model to follow?
First, let’s be frank: Maryland is a federal colony. Its economy rises or falls with the federal behemoth in Washington. As a result, its example is utterly unrepeatable across the United States. From January 2007 to August 2013, Maryland lost 22,900 private-sector jobs but gained 33,500 government jobs, the vast majority being highly paid federal workers, for a net of 10,600 jobs. By comparison, Texas added 958,700 jobs, or 90 times more than Maryland.
The Maryland governor’s shopworn bromides about Texas included this whopper: “Texas ranks 49th in high school graduation.” False. The Education Departmentreports that 86?percent of Texas high school students graduate, the nation’s fourth-highest rate, vs. 83?percent in Maryland. The misleading statistic Mr. O’Malley used refers to the number of adults with high school diplomas, which is solely because of the large number of immigrants attracted to Texas’s thriving economy.
Mr. O’Malley also insisted that Texas is poor. But federal reports ignore the cost of living, which is 31?percent higher in Maryland than it is in Texas.
The Texas model, not Maryland’s, is more relevant for America.
Chuck DeVore, Dripping Springs, Tex.
The writer is vice president for policy at the Texas Public Policy Foundation.
Chuck DeVore appeared on Fox News in May 2013 to discuss how California's overall level of taxation is so high that, if the Golden State eliminated its income tax, with the the highest tax bracket in the nation, they would still have higher taxes than does Texas.
Chuck appeared with John Stossel on Fox News to discuss Texas vs. California and his book, "The Texas Model."
A proud new Texan by way of California's high taxes and burdensome regulations. (Texas' veterans' plate is the same cost as a regular plate; in California, veterans' plates cost $30 per year.)