This presentation provides information about Texas’ economy, labor market, and fiscal situation and key public policies that would strengthen the Texas model to foster more individual liberty and economic prosperity.
Here's my statement on the latest state-level jobs report.
AUSTIN – Today, the U.S. Bureau of Labor Statistics released state-level labor market data for April 2018. Texas employers created the most net nonfarm jobs (+36,900) of any state and the state has 22 consecutive months of positive job creation. The Texas Public Policy Foundation’s director of the Center for Economic Prosperity and senior economist Dr. Vance Ginn issued the following statement:
“The Texas jobs market remains hot as the private sector’s annual job creation rate hit 3.2 percent—the highest in three years,” said Dr. Ginn. “When you focus on relatively light taxation and regulation, like in Texas, the results speak for themselves. The benefits of the federal tax cuts and regulatory reforms have also helped employers statewide in addition to the resulting pro-growth climate.”
The Texas Workforce Commission reports diversified job creation across all industries in Texas except the information and financial services categories. With 332,300 jobs created in last twelve months, Texas’ unemployment rate of 4.1 percent in March has remained at or below 5 percent for 45 straight months.
The unemployment rates in major Texas metro areas remained essentially unchanged from last month: Austin-Round Rock at 2.8 percent, Dallas-Fort Worth-Arlington at 3.4 percent, Houston-The Woodlands-Sugar Land at 4.2 percent, and San Antonio-New Braunfels at 3.1 percent.
The North American Free Trade Agreement (NAFTA) has contributed to economic prosperity for Texans and all Americans, which is why any renegotiation should be toward freer trade.
I was quoted in this Houston Chronicle article.
I had the honor of presenting at the @SMUONeilCenter's event: “#Trump & the Texas Economy.” Watch my presentation (first presenter) along with others as we discuss #Texas, taxes, spending, #NAFTA, #tariffs, & #energy.
Find this full post with charts here.
Proponents of a U.S. carbon tax have been coming out of the woodworks for years, but even more recently, shouting about the need to reduce carbon dioxide emissions primarily from the use of fossil fuels to save the environment. But is it worth it? According to a recently published paper by the Texas Public Policy Foundation, the answer is no.
A carbon tax is often called a free-market approach to reducing the negative externalities, or social costs, of CO2 emissions while causing consumers little harm. In reality, a carbon tax would drastically increase the price of every good or service that requires the use of energy…so, all of them.
A free market is, by definition, a marketplace where consumers and suppliers mutually benefit through voluntarily exchange for goods or services. The proposed carbon tax is most definitely not a free market tax because a tax of any kind interferes in the market.
The Australian carbon tax, one of the most commonly cited examples of a “success,” caused the largest-ever quarterly increase in consumer energy prices. The initial cost was $23 per ton of CO2 equivalent emitted into the air and was increased to $24.15 per ton a year later. The program was so unpopular that the program was formerly ended in July 2014, just two years after it was implemented.
Estimates for the U.S. of a tax of $49 per ton of CO2 emissions indicate there could be an increase of $21 per barrel of oil and could increase the price of natural gas by $2.60/mcf, nearly doubling the current price. There’s no doubt about it: price increases that massive will cause consumer electricity prices and gasoline prices to spike, harming Americans, especially those least able to afford it, in the process.
Additionally, there’s little conclusive evidence to prove that carbon dioxide emissions cause environmental harm. Dr. John Christy, a leading atmospheric scientist, says that our current environmental models are too inaccurate to provide any reliable data. For example, Figure 1 shows 102 environmental model runs in 32 groups of global temperatures compared to the actual observed data.
All one has to do is take a cursory glance at this comparison to call the scientific community’s “consensus” into question, with the facts showing the estimated average increases were more than 2.5 higher than actual temperatures. In contrast, there is significant empirical data showing carbon dioxide emissions are associated with improved quality of life.
Figure 2 shows the massive increase in GDP per capita, population, and life expectancy that is associated with increased CO2 emissions.
Other research finds that there is a 95 percent correlation between increasing use of fossil fuels and rising economic growth over time. There is also an 83 percent correlation between rising CO2 emission levels and average life expectancy at birth.
In summary, the proposed “free-market” carbon tax is, by definition, not a free market solution. The tax would unduly burden American consumers with increased electricity and gas prices.
One of the most prominent examples of an implemented carbon tax was so unpopular that it was scrapped after just two years.
Finally, perhaps most importantly, there is little to no evidence that there is a need to reduce carbon emissions in this country. For all of these reasons, and many more, the proposed carbon tax should be whole-heartedly rejected.
As The Hill reported last week, two House Republicans have introduced a resolution condemning the idea of a carbon tax. Such a tax on carbon dioxide emissions, say Majority Whip Steve Scalise and West Virginia Rep. David McKinley, would “be detrimental to American families and businesses, and is not in the best interest of the United States.”
They’re right, but if anything, they’re understating the harm of a carbon tax. Because it’s a tax on energy production by fossil fuels that primarily fuel our livelihood, it’s a tax on virtually everything we do. It would mean people paying more for everything they do, eat, wear, and use. Reducing carbon dioxide to a taxable good means the subjection of nearly every facet of human existence to taxation.
The costs are real — and crippling.
What is a carbon tax? It’s often pitched as an economically painless “market” mechanism for addressing a compelling public problem — in this case, climate change. It’s based on the notion that free markets fail to account for broader social costs. For example, this thinking goes, the price paid for a piece of fruit at the grocery store does not account for the carbon dioxide emissions involved in its growth, harvest, preservation, or transport — and the damage those emissions might have on society by, say, making a future hurricane more intense.
That’s why carbon tax-supporter Sen. Bernie Sanders calls his legislation the “Climate Protection and Justice Act.”
But supporters of a carbon tax are wrong. Carbon isn’t a commodity. And it’s not a form of injustice. It’s a building-block of life. Without it, plants, animals, and humans alike would not exist. Moreover, carbon-based fossil fuels have supported unmatched economic prosperity since the Industrial Revolution.
We know what the effects of a carbon tax would be in America because we can already see them happening from such destructive policies in Europe where outrageously high prices of basic goods are forcing people to choose between food on the table and heating in the home. Even more damning and ironic is the last resort to burn wood for fuel in places like Germany.
That’s because in its desperation to make these policies look as if they’re working, the European Union counts firewood as “biomass,” and considers it carbon-neutral. It’s not — indoor burning releases more carbon dioxide than burning coal and is bringing back the respiratory ailments of previous centuries. Taxes meant to reduce carbon dioxide emissions are, paradoxically, encouraging even more of its releases at the household level – in homes desperate to stay warm.
Something else to understand about the real effects of a carbon tax is the tremendous aid it will give to those seeking to crush competition and gain an unfair advantage in our marketplace. Big corporations and big industries can bear the costs — of accounting, compliance, diminished sales — imposed by a carbon tax, which they then pass along to consumers. Their smaller competitors, hit harder by the costs of compliance, might not.
Think of the carbon tax, then, as an energy-specific counterpart to Dodd-Frank, or ObamaCare: only the huge and politically connected survive. And the small businesses and consumers lose.
But what about the benefits of a carbon tax? Just as it’s hard to overstate the harm of one, it’s difficult to understate — indeed, even to know — the benefits. That’s because the calculations of the “social cost” used to justify a carbon tax are so subjective in their attempt to quantify the value of human lives and livelihoods, in order to sum up how climate change might affect them. As economist and MIT Professor Robert Pindyck notes, these calculations “can be used to obtain almost any result one desires.”
Furthermore, these models fail to account for how reliable, affordable energy from traditional sources benefit people — by extending lives, fighting disease, reducing hunger, and alleviating poverty.
These benefits are, in fact, easily quantifiable. There is a historical correlation of over 95 percent between increasing use of fossil fuels and rising economic growth over time. As income rises, so does improvement in most indicators of human well-being including hunger, infant mortality, education, child labor, and economic freedom.
Calls for a carbon tax are based on flawed assumptions and bad math. Moreover, the proclaimed benefits of a carbon tax are not proven, yet the negative economic effects of such a carbon tax are clear.
Congress is right to take a stand against a carbon tax. More freedom and more opportunity to innovate are the keys to a cleaner environment. And American businesses are up to that challenge.
This commentary was originally featured in The Hill on May 3, 2018.
New economic reports suggest an increasingly thriving economy thanks to changes in regulatory and tax policy and the Bernie Sanders promise of the government providing a job, an education, and health care is just a fantasy that ultimately ends in misery, according to Texas Public Policy Foundation Chief Economist Dr. Vance Ginn.
Numbers released Thursday from the Labor Department show, that in the final week of April, just 211,000 Americans filed first-time unemployment claims. That’s the lowest number since 1969. The monthly average for April was 221,500 new claims, the lowest since 1973, when the U.S. workforce was half the size it is now.
Ginn says there are pretty simple reasons for the low numbers.
“A big part of it has to do with the regulatory reform. The rollbacks by the Trump administration last year gave some more consumer and business confidence out there, that are near record highs. Along with the Tax Cuts and Jobs Act that was passed in December, these things have (people) saying, ‘Let’s go ahead and invest. Let’s go ahead and hire more workers.
“People are spending more at the same time. That’s the way you really get more job creation and more economic growth over time,” said Ginn.
But the historically low unemployment claims don’t tell the whole story. Ginn says there is definitely room for improvement in the labor participation rate and the unemployment rate, known as U-6, that includes part-time workers and people who have given up looking for work.
“They are improving but there is still a ways to go. The unemployment rate – the reported number – is at 4.1 percent. But the U-6, which includes under-employed and discouraged workers, is still above eight percent. That’s above where we’re usually at at this time in an economic expansion. As of this month, this is the second-longest economic expansion in U.S. history,” said Ginn.
He’s also not satisfied from what he’s seeing from an economic indicator known as the employment to population ratio.
While the economy grows, the political left has a very different vision for America’s economic future. Sen. Bernie Sanders, I-Vermont, who narrowly lost the 2016 Democratic Party nomination to Hillary Clinton, is now pushing a plan to provide a government job to every American, along with taxpayer-funded health care and college tuition.
While conservatives recoil at such an agenda, a new Rasmussen poll shows 46 percent of Americans like the Sanders plan.
Ginn is not surprised.
“What it tells us is that people like to get things for free or what they perceive to be free. But it also tells me that 54 percent of people understand the opportunity cost and what direct cost this will have,” he said.
“So even with it being “free,” they still oppose it because they understand this is going to come with some sort of cost. Somebody’s got to pay for it and all the details aren’t out yet,” said Ginn.
He says a majority of Americans still realize this cannot be done.
“Making sure that the jobs pay $15 an hour or making sure that there’s health care benefits, maybe even having “free college,” all these things come with a huge cost,” said Ginn, who says that money would have to come from tax hikes on businesses and individuals.
“If you’re raising the cost of doing business, that means fewer jobs available in the private sector. So are we going to have more federal government jobs. How exactly will these people be employed?” asked Ginn, who also notes that many people may not like the jobs the federal government would assign them.
But conservatives like Ginn face an uphill climb. While firmly believing data and experience are on the side of limited government and free markets, Ginn says it’s a lot easier to promise “free” stuff than to articulate the beauty of markets.
“Often times that can be difficult. When you say you’re cutting taxes and then you show that the corporate income tax rate went from 35 percent to 21 percent, how is that not for the “rich?” (We know) businesses simply submit taxes. They don’t actually pay for them. People pay for them through the form of higher prices, lower wages, and fewer jobs available.
“Often times that’s a difficult message to sell but that’s the economic reality and I think we’ve got to stick to those core principles throughout each and every one of these policy initiatives,” said Ginn.
Today The Texas Public Policy Foundation released the paper Does a Carbon Tax Support Prosperity? which examines the economics, assumptions, and results of a carbon tax.
“Market decisions of millions of people generally provide better, more efficient outcomes than decisions by a select few in government,” said the paper's co-author Dr. Vance Ginn, senior economist and director of the Center for Economic Prosperity. “Calls for a carbon tax are based on flawed assumptions and climate models that have been highly inaccurate. Congress and state legislatures should not hinder our economic and environmental prosperity with a carbon tax.”
“We need to stop apologizing, take pride in our accomplishments, and lead,” said Megan Ingram, policy analyst for the Armstrong Center for Energy and the Environment. “History proves that removing government barriers to entrepreneurship allows more innovation to improve our well-being and clean the environment. We should not block prosperity by imposing a carbon tax."
Don't miss my discussion with @JackiDailyShow on why the #carbontax is bad policy because it's based on flawed assumptions and would result in costly economic effects, especially on the poor. http://www.stitcher.com/s?eid=54369618 #txlege @TPPF #energy
Don't miss the Texas Public Policy Foundation's latest "The Foundation" Podcast episode: Dr. Kevin Roberts, Executive Director of TPPF, & I discuss how #NAFTA, #MinimumWage, #Tariffs, and the #Texas model affect people:
Be sure to subscribe to the Podcast so you won't miss an episode: http://texaspolicy.com/podcast.
AUSTIN – Today, the U.S. Bureau of Labor Statistics released state-level labor market data for January 2018. Texas employers created 16,000 net nonfarm jobs in January, bringing the total to 240,500 jobs created in the last twelve months. The Texas Public Policy Foundation’s director of the Center for Economic Prosperity and senior economist Dr. Vance Ginn issued the following statement:
“Texans continue to prosper from a model of limited government in the Lone Star State that supports more job creation,” said Dr. Ginn. “With a focus on preserving liberty, government can help Texans enjoy more opportunity both economically and personally."
The state’s unemployment rate of 4 percent has now been at or below 5 percent for 43 straight months.
This originally appeared on the WND website.
President Trump’s embrace of new tariffs on steel and aluminum imports is largely believed to be behind the exit of his top economic adviser, and one free-market advocate is concerned that it could hurt American consumers and stunt the nation’s economic growth spurt.
Last week, during a meeting with executives from America’s leading steel and aluminum manufacturers, President Trump announced his new policy.
“We’ll be imposing tariffs on steel imports and tariffs on aluminum imports. Pretty much all of you will be immediately expanding if we give you that level playing field, if we give you that help,” said Trump in announcing 25 percent tariffs on steel imports and a 10 percent surcharge on foreign aluminum.
The policy comes as little surprise, since Trump routinely condemned what he characterized as terrible trade policies with the likes of China and Japan and vowed to revive American manufacturing by addressing America’s trade posture.
However, Texas Public Policy Foundation senior economist Vance Ginn believes tariffs are the wrong policy for Trump to pursue.
“I think this would be bad for Americans overall and reduce our economic potential over time, which had been boosted by the tax cuts last year and the regulatory reforms that were made,” Ginn told WND and Radio America. “I’d rather see those sorts of things boosted instead of tariffs and trade practices such as this.”
Ginn said the simple fact is that charging more for imports means higher prices for all of us.
“If you raise the cost of doing business, that hurts business. And it hurts American consumers,” he said. “Whenever you look at raising steel prices and aluminum prices, those are in the cars that we drive and the buildings where we work and in many other aspects of capital throughout our economy.”
He also said Americans were reminded just last decade in the George W. Bush administration that steel tariffs don’t necessarily get the intended results.
“Some estimates show that cost us about 200,000 jobs,” Ginn said. “I would hate to see more Americans not have a job when we’ve had an expanding economy.”
Commerce Secretary Wilbur Ross estimates that the steel tariffs would result in a bump of one-half of one percent to three-quarters of one percent, an average of about $700. He said the difference is “trivial.”
Ginn said that approach badly undermines the administration’s defense of the tax cuts.
“If $1,000 is just crumbs, according to Nancy Pelosi, but a big deal according to those in favor of the tax cuts, $700 is also a big deal,” he said. “That takes away a lot of the potential from those bonuses that they had before to [add income].”
But with significant trade deficits and China dumping steel into this country in violation of World Trade Organization protocols, the U.S. stands at a tactical disadvantage.
Ginn said that doesn’t explain why the tariffs apply to everyone.
“The proposal so far would be a global tariff on steel and aluminum,” he said. “It wouldn’t just hit China. So if there are those issues with China, let’s deal with those, not necessarily make it for everyone to pay these higher costs.”
Ginn also said the effort to reduce America’s trade deficits starts with a tough look in the mirror.
“Let’s look at what we’re doing here at home that’s also maybe raising the cost of living and raising the cost of doing business such that China and other countries are having a competitive advantage in the global market,” he said.
“Let’s look at the cost of unions and what they’re doing to the cost of labor over time. Let’s look at our minimum wage and what that’s doing over time. Retirement pensions. There are a number of factors that are raising the cost here that are putting us at a disadvantage compared to other countries.”
Ginn believes America’s position on the global trading stage is already on the upswing, thanks to the tax-reform bill.
“That helps to reduce the cost of doing business,” he said. “It allows us to be more competitive on a global playing field. I think we should look at more of those things, along with regulatory reforms.”
According to Ginn, the way to help an economy flourish is not to add more complications but to remove as many as possible. He said it’s led to a booming economy in Texas.
“The ability for us to focus on freedom and free markets has allowed us to be a powerhouse,” Ginn said. “As an independent nation, we would be the 10th largest economy in the world and continue to create a lot of jobs. In fact, over the last decade, we created 26 percent of all new jobs that were added in the United States.”
President Trump’s negotiating tactics often show him throwing out an idea, watching his critics set their hair on fire, and then finding common ground with a less severe approach. Ginn suspects that is Trump’s approach here, as well as an effort to put the heat on officials renegotiating the North American Free Trade Agreement, or NAFTA.
“He’s even talked to the Mexicans and the Canadians and said, ‘Look, if we don’t get something done with NAFTA, then I’m definitely going through with these tariffs.’ That puts pressure on the NAFTA renegotiation process as well,” he said. “I’m hopeful this is not where we’ll be at the end of the day.”
Ginn contends NAFTA could be much better but it’s not as destructive to the U.S. economy as its critics suggest. He says free trade ought to be the ultimate goal.
“What would be a perfect trade agreement?” he asked. “It would be no trade barriers between the countries that are involved. Instead, we have a 1,700-page trade agreement with NAFTA.
“So what does that do? That picks winners and losers throughout the whole economy. There’s a lot of ways to renegotiate to make this more of a free-trade agreement. I’m just a little concerned that’s not where we’re going to go if we start picking out even more winners and losers in the process.”
This commentary was originally featured in the Odessa American on March 8, 2018.
Imagine: You own a business. You love what you do, the opportunity to employ people, and satisfying customers. But the cost of doing business is escalating as local property taxes increase.
Down the road, a large corporation started construction of a new building. They considered other locations before choosing your community. That corporation received a tax abatement with the school district. That means for 10 years, they will pay only a small portion of taxes due without abatement. Meanwhile, your business does not benefit from a tax abatement, and you will likely pay higher property taxes every year.
Even worse, that new corporation may compete directly or indirectly with your business.
If that sounds frustrating, or outright unfair, it should. Yet, it happens often using Chapter 313 of the Texas Tax Code.
Actually, it could soon happen in your backyard.
The Ector County Independent School District Board of Trustees received a request by 174 Power Global Corporation to conduct a public hearing on an application under that chapter, also known as the Texas Economic Development Act. The company seeks a 10-year, 100 percent tax abatement for a solar energy project that may bring a $50 million investment and create two full-time jobs, according to documents submitted to the school district.
Tax abatements like this are nothing new and are justified under the guise of economic development.
The Texas Comptroller reports that 53 percent of these tax abatements in 2016 were for renewable energy. Renewable energy projects received 25 percent of the total estimated gross tax benefits but represented only 11 percent of jobs committed for creation.
Supporters argue tax abatements increase tax revenue and foster job creation through new investment by businesses. However, these tax abatements exemplify why we should pay close attention to not only effects that are seen, but also those that are unseen.
If these new businesses create permanent jobs, demand for basic government services may grow. If the businesses responsible for this demand pay lower taxes than existing businesses, current businesses – and individual taxpayers – foot the bill.
In addition, the exempted property value under such an agreement is excluded from school finance formulas that determine much of the funding for school districts. The Legislature generally covers declines in a district’s revenue, thereby forcing taxpayers statewide to pay more for certain districts that provide tax breaks to favored businesses.
School districts can also negotiate “supplemental payments” from businesses applying for an abatement. These payments are paid outside the school finance system.
Hence, school districts are incentivized to accept all tax abatement applications because they can replace lost local revenues with state dollars and can get supplemental payments.
And what do communities gain by offering such tax incentives? It’s probably not as much as they may think.
A recent study by Dr. Nathan Jensen of the University of Texas at Austin examined the bargaining power between school districts and businesses with plans to expand or relocate in Texas. Using supplemental payments as a percentage of the preferential tax treatment businesses were ready to give up, and a survey of economic development professionals, he concluded that around 85 percent of these businesses would have come without an abatement.
A bill passed last session tried to remedy another problem resulting from such tax abatements.
The legislation modified Chapter 313 to prevent wind energy companies from receiving tax abatements for wind turbines built within 25 nautical miles of military aviation bases. Offering preferential tax treatments in areas close to these bases often encouraged businesses, including wind energy businesses, to locate there despite challenges for flight operations, such as radar interference.
These costs to taxpayers highlight why government, including your school district, shouldn’t be in the business of economic development. Government should preserve liberty, not favor a few, politically connected businesses at the expense of all other taxpayers
Texas should repeal tax abatements like these and other corporate welfare programs while focusing on reducing government spending and tax burdens so everyone has more opportunity to prosper.
This commentary was originally featured in The Gilmer Mirror on February 27, 2018.
Critics often claim Texas’ prosperity is based on abundant oil and natural gas production.
Others suggest it’s a “miracle.” Evidence, however, proves the Texas model, based on conservative fiscal policies, that ranks second best in economic freedom according to the Fraser Institute supports sustained human flourishing.
With less than 10 percent of the U.S. population, Texans have created 26 percent of all jobs added nationwide since December 2007. Texas’ two million new jobs exceed the combined populations of Wyoming, North Dakota, and Vermont.
This historic job creation has contributed to a near record low unemployment rate of 3.9 percent rate in December 2017. That rate marked the 42nd straight month of an unemployment rate at or below 5 percent, which some economists consider full employment.
There’s no doubt oil and gas played a role.
History shows Texas’ economy boomed when oil prices spiked in the 1970s, then bust when they collapsed in the 1980s. But Texas’ economy is more resilient to oil price fluctuations today.
The mining sector, dominated by oil and gas activity, accounted for roughly 20 percent of real private output and 5 percent of workers in the 1980s. Now, oil and gas activity directly represents only about 10 percent of output and employs just 1.8 percent of the labor force.
The drop in oil prices from nearly $110 in 2014 to around $60 today should have led to a severe recession in Texas had critics been correct. Instead, Texas’ real private economy grew by an annual average of 3.3 percent amidst the oil bust helping almost single-handedly pull the U.S. average growth up to 2.3 percent.
Contributing to Texas’ resiliency is diversification into healthcare, financial, and other professional sectors with high-paying jobs. Jobs in the lowest wage quartile increased by about 33 percent while the top two wage quartiles each increased by 25 percent in Texas from 2005 to 2014 according to the Federal Reserve Bank of Dallas. Comparatively, Texas’ job creation exceeded that for the rest of the nation in each income quartile, rebutting critics’ arguments that Texas creates only low-wage jobs.
The free enterprise system in Texas provides jobs for workers with all skill levels and experience — a key to individual prosperity.
Some point to Texas’ nearly worst ranking in the Census Bureau’s official poverty measure as evidence of a failed model. That measure, however, doesn’t include regional variations such as cost-of-living differences or non-cash government benefits, like housing and food assistance. The Bureau’s new Supplemental Poverty Measure does correct for these exclusions, putting Texas’ poverty rate instead at the national average of 14.7 percent, down from 14.9 percent in the previous report.
The Texas model has performed well over time.
The last major federal tax reform before what Congress just passed was in 1986. Since then Texas has practiced more fiscally conservative policies. A result was Texas’ real private economy quadrupling from 1987 to 2016. This translates to a compounded annual growth rate of 4.9 percent, which was 40 percent faster than the rest of the nation’s 3.5 percent rate.
The Texas model of reducing government barriers to competition lets people prosper more—a big reason why more people move here. In 2017 alone, Texas’ population increased by almost 400,000 from births and migration from other countries and states, particularly those from big government states noted by recent U-Haul migration trends.
Texas has taken strides to limit government’s growth and empower Texans in recent years. But there’s more to do.
The Foundation has launched the Texas Prosperity Promise (www.texasprosperitypromise.com/) campaign to promote and sustain the prosperity of all Texans by focusing on areas ripe for major reform. These areas include property taxes, education, spending restraint, government accountability, and self-governance.
But let’s not fool ourselves as we cast our ballots for folks offering a path towards greater prosperity, Texas is prime evidence that freedom works.
Texas ranks the 2nd most economically free state, tied with Florida, in the U.S. according to the Fraser Institute. This ranking is based on levels of taxes, government spending, and labor market freedom. Figure 1 shows states that rank in each quartile of economic freedom.
Research finds that higher economic freedom is overwhelmingly linked to a variety of economic benefits, which is why Texas cannot rest on its laurels but rather continue to free Texans from unnecessary economic barriers to competition.
Here are three of the many findings:
Last week the Texas Public Policy Foundation held the 16th Annual Policy Orientation. This three day event included a number of keynote speeches and panels on key policy issues (watch YouTube Channel for all panels).
I had the honor of moderating the following panels dealing with the Center for Economic Prosperity:
Please watch and share as you see fit. This is truly one of my favorite times of the year. May you enjoy and learn as much from these videos as I did.
This content was originally featured in the Houston Chronicle on February 5, 2018.
Students across Texas enjoyed a rare snow day - or even two - last week, as ice and snow kept campuses closed from Houston to Tyler to Austin. For most, it was a welcome break, though they knew there would be work to make up when they return.
One critical topic they'll need to address is education.
Although most of the debate has centered on how much money has been or should be spent, the focus should not be on taxpayer dollars spent, but on how to spend that money equitably and effectively. The facts show that Texans need more education for their money, not more money for education.
Texans can prosper by revamping the school finance system through education freedom, not by pouring more money into a broken system. Student-centered funding will ensure that dollars flow to the child and the classroom, not to bureaucratic bloat and infrastructure.
Critics say, as they have always said, that we must spend more. They even contend that Texas has cut funding for public education.
But when the dollars are adjusted for inflation, we see that Texas spends billions more on public education now, on a per-student basis, than the 2004-2005 school year. In fact, education spending is on the rise.
Critics often point to a couple of years - 2008 to 2010 - to show that the Legislature has "cut" school funding. But that's misleading.
It's true that per-student spending was higher, but that was because of a massive, one-time infusion of funding from the federal stimulus bill – the American Recovery and Reinvestment Act.
School district budgets in 2008 also benefited from another phenomenon.
Following a Texas Supreme Court ruling that declared the school finance system unconstitutional, lawmakers enacted a new business margins tax to pay for a reduction in property taxes. But any relief that Texas property owners saw from that cut was short-lived, as appraisals kept their tax bills high.
And that's why it's disingenuous to use 2008 - a high-water mark for education spending in Texas - as the standard. A broader view shows that Texas is spending $23.4 billion more for education than it was in 2004-2005.
But are we getting sufficient education for our money? The evidence says we are not, and the reason is clear. Education spending in Texas is not focused on the students; it's focused on the school system.
In the 2015-16 school year, for example, Texans spent $12,257 per student, with a standard classroom of 20 students receiving roughly $245,000. But teachers - the biggest factor in the quality of education - received only 21 percent of that per-classroom expenditure. The average teacher salary was $51,891.
Where did the money go? In large part, it went to administration.
Since 1993, the number of students in Texas has increased by 48 percent, while the number of staff has increased by 61 percent. Yet the number of administrators and other staff employees, not including teachers, has increased by 66 percent. Our public schools grew rapidly, but their administrations grew more rapidly still.
One study shows that if school districts had kept the growth of non-teaching staff to the same rate as the increase in students, Texas' public education system could have saved $2.2 billion annually or increased each teacher's benefits by $6,318.
What's the solution? We must refocus Texas education on the consumers - students and their families.
The courts have consistently found that Texas education is inequitable on a per-student basis. So that's what our approach should be - equity for students. We should move to student-centered funding, which lets money follow the student and allows parents to decide the best way to meet their children's needs.
Last year, the Legislature created the Texas Commission on Public School Finance. That group has the opportunity to recommend real reform - increasing educational freedom through a student-centered funding model, the kind that research shows will improve educational outcomes.
And when lawmakers are called back from their long break, they'll have the opportunity to make these reforms real, for the benefit of Texas.
BY VANCE GINN AND DREW WHITE, OPINION CONTRIBUTORS
Original can be found at The Hill
The good news keeps coming. Since the passage of the Tax Cuts and Jobs Act, announcements about increased investment in the U.S. and various companies offering employees bonuses haven’t stopped.
The vast majority of Americans will prosper from the Tax Cuts and Jobs Act. As an economist and policy analyst, we’ve been skeptical of the Trump administration’s direction on some issues, like NAFTA renegotiations, but we’re encouraged by the results of regulatory and tax reforms because they let people prosper, the flipside of what’s been stifling us.
This first major rewrite of the federal tax code in a generation is a historic moment for our republic. The institutional framework that stifled Americans can again work for We the People instead of for bloated governments.
We admit that the bill isn’t perfect and encourage Congress to follow this massive $5.5 trillion gross tax cut with spending restraint. That’s especially important because without spending reductions roughly $500 billion could be added to the national debt in the next decade. Also, doing so will help keep the roughly $112 trillion in federal IOUs from requiring government to further infiltrate our lives.
We’ve experienced government’s overreach during the worst recovery since WWII of about two percent annual growth while the national debt almost doubled under the Obama administration’s high tax and spend policies. This reshaping of institutions increased barriers to prosperity through excessive regulations, like ObamaCare, and higher taxes that redistributed resources among people.
America voted for a new institutional direction in 2016.
Regarding regulations, the Trump administration has already repealed 67 of them while creating only three. Entrepreneurs can now budget lower costs longer which contributes to more investments in workers and capital. The result is faster economic growth with a three percent average annualized growth the last three quarters of 2017 matching GDP’s long-term average, which has lifted consumer sentiment.
The tax bill’s most sweeping changes include cutting the corporate tax rate and individual income tax rates for most Americans. Sixty percent of the gross tax cuts go to families while the rest goes to businesses.
As expected, critics claim these changes benefit the rich. Interestingly, the corporate tax rate cut once had bipartisan support, as President Obama proposed cutting it to 28 percent, and progressives passed and extended much of President Bush’s personal income tax cuts.
Regardless, permanently cutting the corporate tax rate from 35 percent, the highest in the developed world, to 21 percent, slightly below the worldwide average, drastically improves employment prospects.
Often missed in the discussion is that corporations simply submit taxes to the government because people pay them through higher prices, lower wages, and fewer jobs available. Cutting the corporate tax rate means corporations can pass those savings along to people.
Businesses are reporting they will pay bonuses and higher wages, immediate pay increases to let people freely prosper.
On the individual income tax side, most taxpayers will pay less tax until at least 2026. According to good tax policy, the tax bill doesn’t flatten as it leaves seven income tax brackets, but it broadens the base by eliminating many exemptions and deductions and simplifies the code by doubling the standard deduction.
Critics claim that these changes could increase income inequality. But history shows that the tax code is not the place to deal with supposed income inequality as it fluctuates whether taxes are high or low. By changing the institutional incentives through this tax bill, more people can move up the income ladder.
But, do only the rich get a tax cut? No. The Tax Foundation calculated the changes in tax liability for multiple households and found that each of them would pay less tax.
An individual earning $30,000 with no kids could pay $379 less in taxes. An individual earning $50,000 with two kids could pay $1,892 less in taxes. A married couple filing jointly earning $165,000 with two kids could pay $2,224 less in taxes. And a married couple filing jointly earning $2 million could pay $18,904 less in taxes.
All income groups receive a tax cut.
Higher income people pay fewer dollars than those with lower income, but that’s because they pay more in income taxes. For example, the top 10 percent of income earners pay 70 percent of federal income taxes collected. However, the share of income taxes paid could become more progressive under these tax changes.
It’s not just more money in people’s pocket, but doubling the standard deduction lets many people spend less time on their taxes and more time with their families. This is great news for working Americans.
Icing on the cake would be for Congress to restrain government spending, the ultimate burden of government.
Bipartisan welfare reform in the 1990s helped cut spending but more importantly improved the lives of many Americans as they returned to work or received better assistance. The amount of waste, fraud, and abuse in these programs along with too many dollars to bureaucracy and not to people make welfare a good place to start.
Reforms to the major drivers of Medicaid, Medicare, and Social Security must be on the table to restrain spending growth while improving them for the truly needy.
Until then, let’s celebrate the Trump administration’s new institutional direction that has long supported prosperity. Skepticism is healthy to provide proper checks and balances on government. But when pro-growth policies like regulatory and tax reforms improve human flourishing, we’re much more optimistic about the future.
Vance Ginn, Ph.D., is director of the Center for Economic Prosperity and senior economist and Drew White is senior federal policy analyst, both at the nonprofit Texas Public Policy Foundation.
Texas’ public education spending, in inflation-adjusted dollars, has increased in recent years with little-to-no improvement in the quality of education received. A problem with the philosophy of throwing more money at the education problem expecting a different result is that it doesn’t work.
As you can see in Figure 1, per-student education expenditures have been volatile and are currently on the rise. This is interesting as a recent University of Texas study finds that 47 percent of Texas voters believe too little is spent on education.
Where is the money going?
From FY 1993 to FY 2015, student enrollment at public schools in Texas increased by 48 percent while non-teaching staff increased by 66 percent and teachers increased by only 56 percent. Public education spending should be dedicated to benefitting students, not excessively expanding administrative staff at schools.
Moreover, Texas teachers are only receiving roughly 21 percent of classroom expenditures, which is abysmal considering the importance of teachers. The average Texas teacher makes $51,891 per year, which may not be enough to attract the most talented teachers possible. If the increase in non-teaching staff had matched the increase in the student enrollment, Texas teachers could be earning an additional $6,318 per year.
Despite what a plurality of Texans think, Texas should not just continue increasing per-student public education expenditures without focusing on the level of student achievement. By making major reforms to the state’s school finance system through student-centered funding and considering a simpler funding source, more students, teachers, and Texans can flourish.
Just as Americans mutually benefit from voluntary exchange domestically, so can individuals in different countries within the rule of law. A perfect trade agreement would be one sentence that provides no more than a contractual obligation: “There shall be no trade barriers among countries X, Y, and Z.”
The Texas Public Policy Foundation (TPPF) recently held an event co-sponsored with The Heritage Foundation that discussed whether Texans gain or lose from the 1994 North American Free Trade Agreement (NAFTA). Panelists included Texas Comptroller Glenn Hegar, Dr. David Kreutzer of the Heritage Foundation, and Dr. Vance Ginn of TPPF, with moderator Drew White of TPPF.
NAFTA is an agreement among the U.S., Mexico, and Canada designed to reduce costs of exchange among Americans, Mexicans, and Canadians. While it’s far from a perfect agreement, as more than 1,700 pages pick government winners and losers, data indicates it at least benefits Texas and the energy sector.
In 2016, Texas exports totaled $231.1 billion and imports were $229.3 billion, giving a trade surplus of $1.8 billion. Instead of evaluating a trade deficit versus surplus, consider that people agreeing to each transaction benefit from more than $460 billion in foreign trade.
Texas’ trade total with Mexico resulted in a $10.8 billion trade surplus and with Canada a $4.7 billion trade surplus, so NAFTA contributes to a $15.5 billion trade surplus in a $1.4 trillion economy.
Texans prosper from each individual transaction through overall lower prices and a growing economic pie. Research finds that fewer trade impediments among NAFTA countries helped Texas become economically diversified and more resilient to oil price fluctuations over time.
Moreover, a Texas industry that should support NAFTA is the energy sector. In 2016, Texas exported $37.1 billion in petroleum and coal products, the majority of that sum going to Mexico and Canada.
Critics of NAFTA point to trade imbalances as a reason for dissolving the agreement. This reason can be discounted in the context of the energy sector: the U.S. energy sector had a positive trade surplus with Mexico of $11.5 billion.
The agreement is also credited as a driving force in the North American resurgence in energy production.
North American economies produced a total of 22 million barrels of oil a day in 2016, with the majority produced in the U.S. Although the U.S. is the leading producer of petroleum in the world, we demand six million barrels of oil and related products per day more than we produce. Canadian producers who export about three million barrels a day to the U.S. satisfy the bulk of this excess demand.
NAFTA benefits the construction of natural gas pipelines stretching from the U.S. to Mexico. This helps expand the market for excess natural gas production in the U.S. while allowing Mexicans to convert to cleaner-burning energy production.
Members of the energy sector should support the continuation of NAFTA as well as an updating of the section of the agreement dealing with energy production toward freer trade. If U.S. producers could more freely operate in Mexico, the U.S. energy sector, Texans, and Americans, could prosper more.
VIDEO of event "#NAFTA and #FreeTrade: Gain or Loss to Texans?" hosted by @TPPF & @Heritage here: https://t.co/U5cwxTjrXV. Panelists include @Glenn_Hegar, @dwkreutzer, and me, with @DrewWhiteTX moderating. I hope you'll watch and share it with others.
Here are other publications of mine on NAFTA and international trade:
1) Texans Support, Prosper from Free Trade
2) Renegotiating NAFTA Without Favoritism Supports Prosperity
3) NAFTA Contributes to Texas Model's Success (Overview of my academic research)
4) Trade Deficits Can Be a Good Sign
5) Fast Track to Free Trade Prosperity
Hurricane Harvey brought devastation of catastrophic proportion. Reports note more than 80 deaths and around $150 billion in economic destruction. As someone raised in South Houston and with family and friends directly affected, it’s heart wrenching to see such damage.
Potentially adding to people’s pain was the possibility of scam contractors and price gouging. Scam contractors, also known as “storm chasers,” shouldn’t be allowed to prey on vulnerable people with fake promises of home repair or cheap cars.
What about the concept of price gouging? Is there a price that takes advantage of people who need resources for their livelihood in the wake of natural disasters? Answers to these questions are often not clear cut, as determining that a price is gouging the consumer could harm those that need the good.
Defined statutorily in Texas as “selling or leasing fuel, food, medicine or another necessity at an exorbitant or excessive price,” price gouging laws may help control consumers’ costs, but they can also have the adverse effect of deterring an increase in supply.
Low price mandates may make items more affordable, but are useless if items aren’t available. Elevated prices, on the other hand, attract more supply, preventing long-term shortages and ultimately driving the price back down.
Additionally, price controls can lead to hoarding, resulting in even fewer people getting supplies, potentially setting up costly price gouging in the black market. Allowing prices to rise discourages hoarding of supplies and encourages more rationed use of goods.
To put it simply, higher prices send signals to suppliers of where and how much to supply and to consumers of how much to purchase. Without these signals, the devastation from natural disasters will likely be much worse.
These principles could clearly be seen in the days following Hurricane Harvey. The storm shutdown roughly 25 percent of the nation’s refining capacity and transportation routes were blocked for days from flood waters. Fear of running out of gas naturally increased demand. Spooked consumers dashed to their nearest gas station to fill their tanks and other containers.
Gas prices jumped in Houston from an average of $2.10 per gallon to $2.50 within days after the storm, according to gasbuddy.com. But there were reports of some stations charging as much as $20 per gallon, and many stations there and statewide had no gas. The average price remained near $2.50 per gallon for a while, as it tends to track gas futures prices that soared after the storm, and most stations soon had gas available.
Gas markets work with higher prices sending signals to suppliers of where and how much to supply gas and to consumers of how much gas to purchase. Without these signals, the devastation from natural disasters will likely be much worse.
What if stations can sufficiently raise gas prices? Consumers use that information to ration purchases of gas to just what’s necessary, instead of hoarding it in multiple gallon containers statewide. Other suppliers use this information to dedicate more gas to that area now that they can cover increased costs of transportation, labor, and risk, which has been the case as refineries come back online.
Frivolous allegations of price gouging laws at the time, with 127 retailers eventually receiving notices of alleged violations after the storm, could distort market prices and deter charity thereby hurting those most the law is trying to help.
Let us be cautious about claiming negotiations of individuals in the marketplace are wrong so that Texans affected by this tragic event and statewide will have sufficient resources to recover and prosper now and in the future.
This commentary was originally featured in the Dallas Morning News on January 6, 2018.
Texas' economic policies keep it near the top in economic freedom, but government barriers hinder more human flourishing.
The Fraser Institute gleans these insights in its recently released annual Economic Freedom of North America report. Based on variables related to government spending, taxes and labor market freedom, Texas and Florida tied for second place, behind only New Hampshire, where fewer than 1.5 million people reside.
Texas, with a population of roughly 28 million, has ranked in the top five for 11 straight years, and has its highest overall score since the report began. On the other end of the spectrum, New York ranked 50th and California 49th, as they have for three of the last five years.
This matters because residents and businesses frequently vote with their feet in favor of economic freedom.
Since the last national recession ended in 2009, population in the 10 most-free states has grown two-and-a-half times faster than it has in the 10 least-free states, and nearly three-and-a-half times faster in just the past three years. Employment and income, two key measures of economic prosperity, have also increased faster in the freer states.
More than 230 scholarly articles by independent researchers have used Economic Freedom of North America report data to examine economic freedom at the state level, while more than 400 articles have done the same at the national level (using its companion report that ranks countries).
Most of that literature finds that economically free areas tend to experience more broadly positive outcomes, including more economic prosperity. One reason is that high levels of spending, taxes and regulation make it harder for entrepreneurs to succeed. When businesses can't expand and hire new workers, everyone hurts.
States with the fastest economic growth, like Texas and Florida, tend to have a common focus in their economic policies: low taxes (including low or no income taxes), a fiscally conservative approach to spending, and a common-sense approach to regulation that makes it easier for entrepreneurs to succeed.
States that take the opposite approach, like New York and California, tend to experience much less economic prosperity and many more moving trucks leaving for greener pastures.
While Texas is ranked near the top again, it should be noted that the report grades on a curve, so there's plenty of room for improvement.
One step is to eliminate the burdensome gross receipts-style business margins tax. After multiple states eliminated such a tax because of the high compliance cost to businesses and its job-killing nature, only four other states (Delaware, Nevada, Ohio and Washington) still have it. This antiquated tax is a reason the Tax Foundation's State Business Tax Climate Indexranks Texas 49th on corporate taxes, better than only Delaware.
While Texas benefits from no personal income tax, another step is to reduce the burden of property and sales taxes; the Tax Foundation ranks both 37th. Reducing that burden would allow working Texans to keep more of their hard-earned money rather than leaving exorbitant amounts in politicians' hands.
In order to reduce the burden of taxation, of course, Texas must take the pivotal step in reining in excessive government spending. Allowing the budget to grow no faster than the population growth plus inflation, which has been done for a historic two straight legislative sessions, would make a big difference.
A good start would be to eliminate wasteful spending on corporate welfare programs, like the Texas Enterprise Fund, that put small businesses and businesses already in Texas at a disadvantage to businesses elsewhere. We should follow Florida's example, as the state zeroed out funding for economic incentives to individual companies in their similar fund two years in a row.
Taking the steps necessary to rank higher on the various measures of economic policies is a win-win for Texas (and all other states). Politicians can take the credit for improving the economy, and Texans can benefit from greater prosperity.
This commentary was originally featured in The Hill on January 4, 2018.
As 2018 begins, there’s chatter about what Congress will do after passing the Tax Cuts and Jobs Act. The Trump administration signaled a new bipartisan approach on infrastructure, a sentiment shared by Senate leadership. The House, however, seems poised to reform welfare through budget reconciliation.
Static analyses of the recently passed tax bill fail to capture the dynamic effects of increased economic activity and job creation that tax cuts generate. Regardless, fewer taxes will still go into the federal coffer, leading to larger deficits unless met with spending cuts. The biggest spending obstacles Americans face are the rising cost of healthcare and the rapidly escalating cost of Social Security and Medicare.
Although the tax bill appropriately repealed ObamaCare’s individual mandate, onerous federal health insurance regulations still remain, leaving patients and consumers again with double-digit premium increases, on average, next year.
Furthermore, the national debt is quickly approaching $21 trillion, or closer to $110 trillion including unfunded liabilities of Medicare and Social Security. In this environment, Congress’ 2018 priority must be to reduce government spending that’s contributing to higher costs of living, subpar healthcare system, and fewer Americans flourishing.
Congress will have to address the continuing resolution that funds the federal government in January. It should enact real reform that bends the cost-curve of Medicare and Social Security.
Sadly, some want to use this opportunity to bail out health insurance companies and create new reinsurance programs that pilfer tax dollars while further diminishing the quality of healthcare.
Members should outright reject these bail outs. They must also resist the temptation to bust the budget caps or adopt a standard that for every dollar increase in defense there is a dollar increase in non-defense discretionary spending.
The Texas legislature recently provided a good example as it successfully adopted fiscally conservative budgets. Doing so means Texans pay lower taxes while still funding essential services, allowing the state to have an economic environment conducive to creating 25 percent of all new jobs nationwide since 2007.
The Texas model is a proven recipe that should be emulated in D.C. Congress should take a page out of the Texas playbook by using budget reconciliation to finally make good on the promise to fully repeal ObamaCare and curtail spending to empower people with more choices on how to satisfy their desires.
Welfare reform is also critical for empowering impoverished communities and providing a pathway to prosperity. This can and should be done through strengthening families and promoting the dignity of work. But the groundwork has simply not been laid, as far too often people rely on the government as the head of the household and choose to live on welfare instead of working.
Regardless, the Trump administration and Congress should carefully consider ‘bipartisan’ notions for a new $1 trillion infrastructure bill, which could serve as a remix of President Obama’s failed stimulus approach. Also, it should reconsider a new $1 trillion food and farm welfare bill without significant reforms to both the food stamp program and agriculture subsidies.
What’s needed is an agenda that unifies and empowers Americans by diminishing the power of Washington. Fully repealing ObamaCare, reforming Medicare and Social Security, enacting welfare reform, and cutting discretionary spending can achieve this agenda. It cannot come from increasing government spending and giving D.C. more control over our lives.
The administration and Congress have greatly boosted prosperity in America through regulatory and tax reforms, but they must now lay out the next steps of their vision that puts the American people first and the interests of the Washington cartel last.
After many highs and lows in 2017 (similar to most years), there were certainly far more highs. The opportunities to be alive, have a wonderful wife and two healthy boys, have terrific family and friends, and achieve much this year give me much optimism for 2018.
If you watch one video today, watch my interview on Capital Tonight discussing the benefits of the pro-growth Tax Cut and Jobs Act passed today by Congress and signed by President Trump at time 3:30 here.
Here’s the Texas Public Policy Foundation’s press release on it today with my statement.
My thoughts: Although it’s not perfect, upon final passage today by the House and eventual signature by President Trump, this first major tax reform in a generation (1986 was last time) is a historic moment for our republic.
The permanent cut of the corporate tax rate to below the worldwide average, immediate expensing of capital purchases for five years, lowering tax liability for business pass-through income, and permanent elimination of the corporate alternative minimum tax are huge for reducing the cost of doing business. The individual income tax cuts will likely be felt by the vast majority of taxpayers. The $10,000 limit on the state and local tax deduction will put pressure on state and local politicians from excessively spending and taxing hard-working people. The inclusion of 529 savings plans in the tax bill to allow $10,000 to be used for schooling will empower parents so more children can have their unique needs met. The repeal of Obamacare’s individual mandate is a tax cut for people that had been forced to purchase insurance, but the regulations and likely continued increases in premiums from fewer non-healthcare users require full repeal of this absurd law.
According to the principle of good taxation (simple, flat, broad), this tax bill achieves simplification and broadening the base, but flattening the brackets didn’t happen as there remains seven income tax brackets with the highest rate dropping from 39.6% to 37% and the lowest remaining at 10%.
Overall, this is a pro-growth, prosperity-generating tax bill that help many people have a brighter future by reducing government barriers to their ability to flourish.
But there’s more work to do! We must push for spending restraint and cuts, which is the way we truly reduce the excessive burden of government instead of just the tax burden.
The Texas model has provided the path to policy, let’s make sure that continues here and continues to infiltrate the big government planners in D.C. as we have seen in regulatory reform and now what is historic tax reform.
Does Texas need more money for public education? This question can cause heated debates, which were on full display during the 85th Texas Legislature’s regular and special sessions.
Although most of the debate has centered on how much money has been or should be spent, the focus should not be on taxpayer dollars spent, but really on how best to increase student achievement.
Read this paper to learn more: https://www.texaspolicy.com/content/detail/texans-need-more-education-for-their-money.
This commentary was originally featured in The Hill on December 8, 2017.
In today’s politically polarized environment, compromise is a rare commodity, especially in the energy debate. While progressives push for the use of zero-carbon energy, conservatives counter by advocating for a reliable electricity grid.
Yet, nuclear energy could bridge the divide. Innovative technologies like molten salt reactors safely create power that is both carbon free and highly reliable. By removing onerous energy-related regulations and subsidies, federal and state governments can provide an economic environment that allows such a game-changing innovation to benefit Americans.
Countries around the world — particularly China and developing nations — see the benefits and are poised to increase their nuclear production. Even France has backed off its plan to reduce their 75 percent share of electricity from nuclear power as it finds alternatives scarce.
Unfortunately, new projections by the Energy Information Agency show a diminishing U.S. nuclear presence as closures of reactors mount. To improve the human condition — ensuring clean air, clean water, and a robust economy — nuclear energy must be a part of America’s future.
Nuclear energy is simply more reliable than all other sources of energy except geothermal. It has the ability to operate at full capacity 90 percent of the time. By contrast, solar energy can only sustain maximum output less than one-third of the time and wind generation just about half of the time because the sun isn’t always shining and the wind isn’t always blowing. Another source of energy must always be ready to back up unreliable renewables, which is often coal and natural gas.
Nuclear power has even proved its reliability in the face of devastating conditions. A two-reactor nuclear power plant located near Houston, known as the South Texas Project, took a direct hit from the Category 4 Hurricane Harvey. While Texas’ wind farms quickly cut off generation due to high winds, the nuclear power plant continued providing power at capacity for struggling communities during the disaster.
In other words, nuclear provided electricity when Texans needed it most.
The Trump administration has shown some support for nuclear energy’s unmatched resiliency. This new direction of energy policy along with rolling back crippling regulations and quickly ending wasteful energy subsidies to allow for a level playing field could reinvigorate implementation of molten salt reactors technology.
Most of today’s nuclear plants operate on systems that rely on water to cool and facilitate nuclear fission while exchanging heat to make steam that drives turbine generators. While these processes are highly effective and have become safer over time, both operate under intense pressure, which can build and eventually rupture containment cells when the system fails. This happened in the Fukushima accident in 2011.
Because molten salt reactors run not on solid uranium rods, but rather on a liquid fuel in their heat exchange, molten salt reactor vessels are able to operate at normal, atmospheric pressures making reactor blowouts nearly impossible.
Additionally, the liquid fuel provides the added benefit of acting as both the reaction catalyst and the coolant. In the event of a molten salt reactor system failure where pumps are not able to move the liquid fuel through the reactor, the reaction safely slows as the fuel cools and self-regulates the fission process. The ability to self-regulate makes molten salt reactors incredibly resilient in addressing the containment fears from not only system malfunctions but also modern-day concerns of targeted terrorist threats on the American grid.
Molten salt reactors also provide the country with an extraordinary opportunity to reduce its massive holdings of nuclear waste by reusing it as liquid fuel. While conventional reactors utilize between only two and five percent of the energy available in their fuel rods before requiring replacement, molten salt reactors can consume upwards of 98 percent of the energy. This uses less resources and reduces the amount of time waste remains radioactive from more than 100,000 years to 300 years.
As Americans balance a clean environment and reliable energy, one solution advances toward both. Add in safety enhancements and efficient waste recycling, nuclear energy offers a sustainable way forward.
Governments should remove barriers for development of nuclear energy and other energy sources so that markets provide the best mix of energy production. This will provide Americans with an energy future that is not only clean, affordable, and reliable, but also powers their lives and their potential for flourishing.
Ph.D. Economist at the Texas Public Policy Foundation. Blog posts are publications by the author.