Editorials

Politicians and policymakers usually get too much credit for the state of the economy - for both its ups and its downs. The economy is largely a matter of psychology - the confidence consumers and investors have in the future. But politics and policies do contribute to the "business climate," a more palpable factor in the economic wellness of a city, state or nation.

"We understand desirability well enough in human terms," The Texas Public Policy Foundation's William Murchison wrote recently. "Want a friend, be a friend, is the rule. Figure out the relationship in terms of mutual satisfactions. Why is it so hard, in that case, to apply the rule of thumb to governments and the ways they order, or disorder, their relationships with businesses whose job-creating, tax-paying potential they can't live without?"

The principle isn't complicated; a governmental entity can attract businesses by implementing policies that businesses like.

"Which brings us, with some satisfaction, but just a bit of trepidation, to the question of how we're doing in Texas along those lines?" Murchison says. "So far, so good, is the immediate answer. But there's the future to think about."

Texas is generally pro-business, he contends.

"Its fiscal and regulatory policies generally inspire business to like Texas in return," Murchison says. "Forbes magazine calls modern Texas the fourth-best state for business. Not bad - except a year earlier, it was second best; falling this year behind No. 1 Virginia, No. 2 Utah, and No. 3 North Carolina."

The Washington, D.C.-based Tax Foundation ranks Texas No. 8 in the country for "tax climate."

"The top three - Wyoming, South Dakota, and Nevada - aren't strictly comparable to a semi-industrialized state with 24.1 million people and 254 counties, so let's not start getting jealous," Murchison points out. "Let us note instead that Texans pay only 9.3 percent of their income to state and local government, compared with a national average of 11 percent. No small reason for our standing, as practically all Texans know, is the absence of a state income tax. Only six other states enjoy that blessing."

But the outlook isn't entirely rosy, he adds.

"A new feature of life called the Margins Tax - a 1 percent gross receipts tax - has begun to haunt those who ponder the state's economic future," Murchison says. "Enactment of the Margins Tax, in 2006, as replacement for Robin Hood property tax reductions, caused Texas' drop to eighth place in tax climate from a consistent sixth dating back to 2003."

As the Legislature prepares to meet in January, lawmakers must keep a weather eye on the business climate, and how their policies are affecting it.

"The last thing Texas should want at this stage is the inadvertent shaping of tax policies that undermine its relationship with business - that make our state not a more, but rather a less, desirable place to set up shop and hire people and send goods to market," Murchison says. "A 'business friendly' environment depends directly on acts of friendship: like saying, through specific tax policies, hey, we want you here."

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