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THE ECONOMIST: Return on state taxes a mixed picture for Texas

🕐 2 min read

Texas has one of the best rates of return on taxpayer investments of all states, according to an analysis by WalletHub. The Lone Star State ranked seventh in this measure of the services received compared with taxes paid. In other words, despite all the criticism, Texans tend to get a lot of bang for their buck. Before we get too excited, however, there’s more to the story.

This analysis first looked at education, health, safety, economy, and infrastructure and pollution. These categories were translated into measurable parameters such as high school graduation rates, hospital beds per 1,000 residents, household incomes, unemployment rates, violent crime statistics and commute times. Information was then compared across states and an overall measure and ranking of the quality of government services emerged.

The other aspect of the calculation was total state and local taxes paid in each state per capita (for people over 18). When the math was done, Texas compared well in terms of the return on investment. It’s the nature of this type of calculation that a state can rank at the top (or the bottom) of the list depending on whether taxes are high or low. A state with high taxes but really good services can compare well, as can a state with relatively low taxes but not-too-bad services (where Texas fits). The worst case is high taxes without correspondingly excellent services (California is in this category). And some natural advantages can skew the rankings in either direction. It wasn’t public policy that put oil under the Permian Basin.

Clearly, a good return on taxpayer investment is a desirable outcome. It’s less clear, however, whether the long-term interests of Texans are best served by the current situation. In terms of services, there were several categories where Texas fell near the bottom of the list, and Texas’ overall rank for government services was a less-than-mediocre 38. Long-term prosperity is not optimized when education, health and infrastructure are falling behind on the altar of low current tax levies.

Another look at taxes by state is the Tax Foundation’s State Business Tax Climate Index. Texas comes in at 15th, largely due to ranking sixth for individual income tax. Unemployment insurance tax rank for Texas was 18th, sales and property taxes were both 37th, and corporate taxes were a dismal 49th. Again, while some aspects of the state’s tax situation are favorable, there is ample room for improvement.

Hats off to the governmental entities that are managing to provide reasonably good quality services given very tight budgets. However, additional resources will definitely be required to keep Texas at the forefront of growth and prosperity in the coming decades.

M. Ray Perryman is president and CEO of The Perryman Group. He also is Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.

Ray Perryman
Dr. Ray Perryman is President and CEO of The Perryman Group, an economic research and analysis firm based in Waco, Texas. His firm has served the needs of more than 2,500 clients, including two-thirds of the Global 25, over half of the Fortune 100, the 12 largest technology firms in the world, 10 US Cabinet Departments, the 9 largest firms in the US, the 6 largest energy companies operating in the US, and the 5 largest US banking institutions.

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