This piece originally appeared in the Midland Reporter Telegram on July 31, 2016.
Although the 2017 legislative session in Texas doesn’t start until January, budget talks are heating up around Austin. To harm families’ budgets the least while funding key budget areas, the 85th Legislature should pass a historic second consecutive conservative budget.
The tax burden on Texas families has been rising for years. For example, average families of four pay $1,600 more in taxes this year than increases in the government’s cost of providing basic goods and services since 2004. This leaves less money available for families to put food on the table, save for a rainy day, and send their kids to college.
The $1,600 amount is derived from the increase in spending since 2004 above the compounded increases in the key metric of population growth plus inflation. To put it simply, state government spending has increased by more than the cost to fund the government’s expenditures on basic goods and services for a changing population and general cost of those items.
At a time when things have become a little more difficult with less oil and gas activity in Midland, every dollar counts even more. Finding a way to keep dollars in their pockets is essential. That’s why the Foundation recently joined 12 other member organizations of the Conservative Texas Budget Coalition to set the marker for a 2018-19 conservative budget.
What is a conservative budget?
It’s a total budget, which includes state and federal funds, that increases no more than population growth plus inflation of 4.5 percent during the most recent two fiscal years. After adding this growth rate to expected expenditures in the current budget period, the limits on the total budget is $218.5 billion. This limit amount is a $9.4 billion increase from the prior budget that can be prioritized as legislators see fit.
Note that we are not asking legislators to cut the budget but rather get the spending trend back on track to funding only basic goods and services.
Given the slower economic growth statewide, especially in oil and gas dependent areas like Midland, state government leaders recently issued a letter to state agencies requiring them to include in their appropriations request a four percent cut from their budget. They also asked agencies to provide budget information by program that will help with conducting zero-based budgeting throughout the legislative process.
We applaud this action as it will help legislators deal with a potentially tight budget next session, as there’s likely to be less revenue available than last session, and increase budget transparency, which the Foundation has recommended for years.
Although a tight budget session may make it easier to pass a conservative budget, the tax burden on Texas families should be reduced. The tax cut with the biggest bang for the buck is the business franchise tax.
For example, the 84th Legislature cut the margin tax by 25 percent last session and the Comptroller predicted a corresponding drop in revenue during the current budget cycle. Interestingly, the recent monthly revenue report shows that the trend in franchise tax collections through June of the current fiscal year indicates that the decline is not as large as forecast. This supports the Foundation’s research that shows substantially more personal income and private sector jobs when this tax is cut and ultimately eliminated.
When hard times are already on many in Midland and statewide, legislators must be good stewards of taxpayer dollars by helping keep the size and scope of government from crowding out the productive private sector—the best economic stimulus.
Texas must lead the way by continuing to provide a model that the federal government and other states would be wise to follow. Last session the Legislature passed a conservative budget and cut taxes. Families in Midland and across Texas deserve a second round of this dynamic combination to provide vast opportunities for them to succeed.
Today, the Texas Workforce Commission released Texas labor market information for June 2016. The Texas Public Policy Foundation’s Economist Dr. Vance Ginn issued the following statement:
“Although Texas employers have created net nonfarm jobs at a slower 1.4 percent pace this year compared to recent years, job creation has now been positive for a remarkable 67 of the last 69 months,” said Dr. Ginn. “The 77,800 combined job losses in the mining and manufacturing sectors, driven by lower oil prices and slower global economic growth, have been matched with 246,600 job gains in the service-providing sectors during the last year. The economy and job creation have been more resilient than in previous economic cycles because of diversification and the valiant steps taken last session by the 84th Texas Legislature to pass a conservative budget and cut the business franchise tax by $2.6 billion. However, there’s more work for the Legislature to do next session by passing a second consecutive conservative budget and cutting the franchise tax to put it on a path to elimination. These steps will ensure that Texans continue to have opportunities to prosper.”
Find presentation on economic, labor market, and fiscal situation here.
This commentary originally appeared in The Austin American-Statesman on July 6, 2016.
In 2015, the 84th Texas Legislature faced an unusual problem: The state’s coffers were overflowing with tax revenues from a robust economy.
Rather than following the standard approach of discussing ways to spend every dollar, legislators focused on cutting taxes. This “novel” approach provided the means to pass a conservative budget and should be the template legislators use to pass a historic second consecutive conservative budget in 2017.
All told, the 2016-17 budget increased total appropriations to $209.1 billion, an increase of 4.3 percent from the initial appropriations in the previous budget. By holding down the budget’s growth rate, legislators were able to provide Texans with $4 billion in tax and fee relief and left billions of dollars unspent.
The Conservative Texas Budget Coalition deemed this a conservative budget because the increase in appropriations fell below the 6.5 percent growth in the key economic metric of population growth plus inflation during the previous two fiscal years. This metric is critical because it accounts for growth in the state’s economy by considering changes in the population and the general cost of providing goods and services, such as health care and education.
While last session resulted in a favorable outcome, there’s no guarantee that next year’s Legislature will pass a conservative budget if the past is a good predictor of the future.
After all, legislators practiced fiscal constraint in 2003 and 2011, however, subsequent legislative sessions in 2005 and 2013 saw vast increases in spending, wiping out all of the previous gains at the expense of the taxpayer.
Collectively, the state’s fiscal irresponsibility has increased spending 11.8 percent above increases in compounded population growth plus inflation since the 2004-05 budget. In other words, this failure to practice consistent budget discipline has led to $22 billion in higher taxes during the current budget period, at a cost of $1,600 to the average family of four this year.
To prevent further unrestrained increases in state spending that lead to even higher taxes, the Coalition proposes the 2018-19 Conservative Texas Budget.
Under this budget, the total 2018-19 budget would be limited to an increase of no more than the growth rate of population growth plus inflation of 4.5 percent during fiscal years 2015 and 2016. This growth rate above current appropriations leads to a maximum appropriations level of $218.5 billion for the 85th Legislature to pass and be considered conservative.
Accomplishing this would help keep taxes relatively low, encouraging job creation while supporting relatively modest government spending. Although this conservative budget could allow for an increase in spending of $9.4 billion among multiple programs, legislators could also choose to spend less and cut more taxes.
Restraining spending growth to prioritize the funding of basic government-provided goods and services helps keep taxes low and avoids the need to ever pass a costly personal income tax.
From 2004 to 2014, data for the nine states without a personal income tax and the nine states with the highest personal income tax rates show that those without an individual income tax are overwhelmingly more prosperous.
In the nine states without an income tax, nonfarm payroll job creation increased 9.7 percent and gross state product rose 51.4 percent. Contrast this with increases in job creation of only 4.7 percent and gross state product of 40.1 percent in the nine states with the highest income tax rates. Furthermore, higher taxes failed to generate more tax revenue. State and local tax revenue increased by 90.4 percent in those states without an income tax compared with an increase of only 58.4 percent in those states with the highest rates.
The evidence is clear: Texas must not only sustain a relatively low tax burden but must also reduce the out-of-control spending trend in Austin.
Given the current economic climate of slower economic growth and job creation, less tax revenue will probably be available this session than the last, reducing the ability of the 85th Legislature to enact massive spending hikes. However, there will be pressures to spend every available dollar, thereby increasing the budget by more than 4.5 percent.
It is essential that the Legislature make history by adopting a second consecutive conservative budget. As a result, the state will continue to lead the way as one of the last free market bastions nationwide and empower its citizens to attain true economic freedom.
Ph.D. Economist at the Texas Public Policy Foundation. Blog posts are publications by the author.