Texas Public Policy Foundation

POLICYMAKER'S GUIDE
TO CORPORATE
WELFARE
The Texas Model
The Issue ic growth, it often tramples the rights of citizens who dont share
the vision of enlightened central planners.
Texas is a national leader in relying on the free market to There will always be experts, though, who claim that collec-
increase prosperity within its borders. It has arrived at this point tivist economic development programs are good for the economy.
because it has relied on the Texas Model of economic develop- For instance, one study claims that Texas $7 billion subsidy for the
mentlower taxes and spending, less regulation, fewer frivolous wind industry through the building of the Competitive Renewable
lawsuits, and reduced reliance on the federal governmentmore Energy Zone (CREZ) electricity transmission lines will provide an
than the collectivist approach where government planners decide additional $3.8 billion in gross product per year and generate more
what is best for the economy. than 40,000 jobs. Studies like this always assume that the collec-
The results of the Texas Model speak for themselves, with low tivist development experts can make better decisions than Texans
spending Texas (Texas state government spends $4,098 per capita about where to invest their money.
versus $5,711 for the average state) leading the nation in just about Yet, these claims are deeply flawed because, in addition to the
every economic category. And Texas isnt alone. States that cut use of questionable assumptions and economic multipliers, they
taxes and return surpluses to taxpayers have much stronger eco- mostly ignore the benefits that Texas would have gained if Texans
nomic growth than states that use government spending to grow had invested that $7 billion themselves through the free market. A
an economy. Some examples: quick look at economic development spending in the states proves
Texas ranks third in the Fraser Economic Freedom Index and this point.
the PRI Small Business Index; There is in fact a strong positive connection between heavy
economic development spending by state governments and poor
Rich States, Poor States ranks Texas first among all states for
job growth in the 20 most populous states. From 2007 through
economic performance;
2014, Ohio averaged $402 per capita in economic development
Chief Executive ranks Texas as the best place for doing busi- spending while jobs declined by 3.6 percent. The biggest spending
ness; states averaged $281 in per capita economic development spend-
Forbes rates the Houston metropolitan area as the most af- ing, while sporting a meager 1.9 percent job growth.
fordable place to live in the United States; and Meanwhile, Texas tops the group of states with low economic
development spending. Texas $92 per capita economic develop-
States that dont have an income tax rank higher in GDP and ment spending from 2007 through 2014 is second to last not only
employment growth than the states with the highest income among the biggest states but among all states. This lack of reliance
tax rates. on collectivist economic development hasnt hurt Texas any. No
Texas has long embraced the Texas Model. In addition to our other large state comes close to its robust 19.4 percent increase
overall approach to less government intervention, Texas also ranks in jobs since 2007. Though 10 states out of the 20 largest states
49th among the states in state economic development spending. that spend the least on economic development still averaged 5.5
While Texas has always embraced this approach, it really started percent job growth.
separating itself from the pack in 2003 as the country was still re- Large states that spend more on collectivist economic devel-
covering from the dot-com bust. Texas relatively restrained fiscal, opment programs have less job growth. It would be difficult to find
regulatory, and tort policy over the ensuing years put Texas at the a more compelling argument against the technocratic development
forefront of economic growth in the country. During this time, job model.
creation in Texas has grown at almost five times the rate of the rest
of the country. Recommendations
However, Texas isnt the only state that pursues relatively Slow spending growth by adopting a Conservative Texas Bud-
restrained fiscal policy. Other states are also using the Texas Model get for 2018-19 that increases spending by less than popula-
in their way, which after all is simply the most recent expression of tion growth plus inflation.
the founding principles of this country. In general, these states also
are experiencing above average economic growth. Eliminate the margin tax.
Require local government entities to get voter approval for
The Arguments increasing property tax revenue more than 4 percent or popu-
Collectivist economic development does more harm than lation growth plus inflation, whichever is less.
good. Not only does it fail to achieve its goal of increased econom- Eliminate state and local economic development programs.
Resources
Growing the Economy without Growing Government: Eliminating Taxpayer-funded Corporate Subsidies by Bill Peacock, Texas Public Poli-
cy Foundation (Sept. 2014).
The 2018-19 Conservative Texas Budget by Talmadge Heflin and Vance Ginn, Texas Public Policy Foundation (June 2016).
The Real Texas Budget: Why Texas Needs to Ratchet Down Spending Growth by Talmadge Heflin, Vance Ginn, and Bill Peacock, Texas
Public Policy Foundation (June 2016).
The Failure of Texas Business Margin Tax by Talmadge Heflin and Vance Ginn, Texas Public Policy Foundation (Dec. 2015).
Why Texas Needs Spending Limit Reform by Talmadge Heflin and Vance Ginn, Texas Public Policy Foundation (Dec. 2015).
Why Entrepreneurship Is Essential for Economic Development by Shawn Ritenour, Institute for Faith, Work & Economics (July 3,
2014).

901 Congress Avenue, Austin, Texas 78701 | 512.472.2700 PH 512.472.2728 FAX | www.TexasPolicy.com