Texas vs. Maryland: Opposing Economic Strategies

Recently, Texas Governor Rick Perry and Maryland Governor Martin O’Malley had a verbal sparring match on CNN’s Crossfire. Both participants mentioned various statistics and claimed the mantle of economic success for their states. However, the two strategies are nearly polar opposites.

Governor O’Malley’s strategy has been to increase government spending in an effort to create jobs. Unfortunately for Maryland residents, high levels of spending require much higher levels of taxation. Maryland has one of the highest combined state and local personal income tax rates in the nation at 8.95 percent on top earners and its corporate income tax rate is nearly as high at 8.25 percent. Additionally, Maryland is not a Right-to-Work state and still levies both a death tax and an inheritance tax.

On the other hand, Governor Perry has taken a much more hands-off approach to growing the Lone Star State’s economy. Texas focuses on reasonable regulation and limited taxation. In fact, Texas is one of nine states that does not levy a personal income tax on wages. Texas also does not have a traditional corporate income tax rate. It does, however, levy a one percent margins tax on businesses that have more than $1 million in gross receipts. Finally, Texas is a right-to-work state and does not levy a state death tax or an inheritance tax.

By nearly every measure, Texas is far outperforming Maryland. Rich States, Poor States, the annual ALEC-Laffer state economic competitiveness guide, tracks three of the most important metrics for economic growth, and Texas beats Maryland by a large margin on all accounts.

1) When it comes to growth in the state’s gross domestic product (GDP), or its total economic output, Texas’ economy grew 33 percent faster than Maryland’s over the last ten years.

2) Over the past ten years, Maryland lost 104,391Americans on net to one of the other 49 states while Texas gained 947,075 in the same period.

3) From 2001 to 2011, Maryland enjoyed 3.4 percent growth in non-farm payroll employment (job growth), in the same period Texas’ growth in non-farm payroll was 12.4 percent.

Because of the pro-growth policies Texas has in place, the state is also far outperforming every other state when it comes to economic growth. In fact, How Money Walks uses IRS and Census Bureau data to track how much wealth enters or leaves a particular state and where it goes. According to the most recent data, between 1992 and 2010, Maryland lost an average of $7.04 billion in Adjusted Gross Income (AGI) every year. Texas, on the other hand, gained an average of $24.94 billion in AGI every year in that period.

As Texas proves, a pro-growth tax and fiscal policy with reasonable regulations, low taxes, and limited government spending is a recipe for economic success. As time and data prove this to be true, other states should observe these two opposing “laboratories of democracy” and decide after which state they would like to follow.

In Depth: Cronyism

Cronyism in tax policy stifles innovation, hinders competition and introduces a deep temptation for corruption. The 2014 ALEC Center for State Fiscal Reform study, The Unseen Costs of Tax Cronyism: Favoritism and Foregone Growth, found that in the most recent year in which states published their respective tax expenditure…

+ Cronyism In Depth