This commentary was originally featured in The Hill on August 24, 2017.
The discussion of raising the debt ceiling before the federal government potentially defaults on September 29 is an excellent opportunity for Congress to demand tax cuts and restraining government spending for pro-growth budget neutrality. Budget neutrality would allow increased economic activity from restraining government while allocating more tax revenue from that growth to pay down expected ballooning deficits.
This would help move the country past President Obama’s government-centered policies such as the ironically named “stimulus” plan, ObamaCare, Dodd-Frank, and the numerous lesser known regulations and programs. The result of this approach, along with unconventional monetary policy, was the slowest economic recovery since WWII and a doubling of the national debt to a level exceeding annual U.S. economic output.
Instead, Congress can and should pursue a limited government approach that’s repeatedly helped achieve more economic prosperity in Texas and other places that have practiced it.
A good start was Congress recently putting to rest the misguided border adjustment tax (BAT).
While advocated as a way to maintain tax revenue neutrality when lowering the industrialized world’s highest corporate income tax, the argument assumed an economically questionable strengthening of the dollar value to mitigate higher costs of goods and services paid by Americans.
For example, the Texas Public Policy Foundation and R Street Institute published a study highlighting how the BAT could substantially raise property-casualty insurance premiums from the effects on the international reinsurance market. With mounting opposition to the BAT, Congress rightfully dismissed this bad idea that would have grown government.
There are, however, some very good ideas available that depend on restraining government spending to provide relief from onerous regulations and burdensome taxes.
On the regulatory front, the Heritage Foundation noted that from 2009 to 2015 more than 20,000 new rules resulted in a net burden on businesses and individuals of approximately $108 billion. Fortunately, the Trump administration has begun dismantling onerous regulations by a pace of 16 regulation rollbacks for each new regulation.
With many costly regulations and mounting expenditures with ObamaCare, Congress should fully repeal it. This would not only set the stage for a market-based, patient-centered healthcare system that would provide better care, but it would also help bend the cost-curve of a major driver of excessive government spending. Until Congress demonstrates the fortitude to overcome the obstacles to accomplish this, it should move to restraining government by providing tax relief and cutting spending elsewhere.
The Texas model of low taxes, relatively less government spending, and sensible regulations provides a good guide. During the last two legislative sessions, there’s been a push to pass a “Conservative Texas Budget,” whereby spending growth increases by no more than state population growth plus general price inflation. Fortunately, the state legislature has taken steps to passing two such budgets in a row. These allowed for $4 billion in tax and fee relief in the 2015 session and budget growth of less than 4.5 percent during the upcoming 2018-19 period.
Texans are rewarded for this fiscal conservatism. Texas has created almost 30 percent of the increase in U.S. employment since the start of the Great Recession, stayed below a five percent unemployment rate for three straight years, and had lower supplemental poverty and less economic inequality than comparable states — California, New York, and Florida. Moreover, Texas was the top state for net domestic migration from 2010 to 2016 and has led the nation in exports for 15 straight years.
The Texas model of limited government has been tried and tested, and similar pro-growth fiscal policies should be implemented at the federal level.
As a first step, Congress should work toward budget neutrality, whereby a dollar of a tax cut will be much more effective if it’s met with a dollar cut to spending. This approach helps to minimize any influence a tax cut might have in contributing to the growth of projected deficits and likely reduce current deficits over time due to continued spending restraint.
As the all too familiar practice of raising the debt ceiling nears, Congress has the opportunity to look to the Texas model as it focuses on reforming the institutional framework of the federal government. By fully repealing ObamaCare, simplifying the tax code, broadening the tax base, lowering tax rates, and continuing to cut excessive regulations, America can again be the beacon of fast-growing prosperity for the world.
I appreciated the opportunity to testify before the Texas House Ways & Means Committee regarding eliminating property taxes in Texas and replacing them with a reformed sales tax that would have a sufficiently broad base for the lowest rate, along with making structural reforms to local spending.
House Bill 285 would eliminate school district M&O property taxes and replace them with a 12 percent sales tax rate, which would leave other property taxes in place that have risen at a faster rate while not expanding the tax base to achieve a lower rate. Regardless, the Foundation is encouraged with the discussion about eliminating property taxes.
But there are ways to improve this bill and others discussed at the hearing that would take only a piecemeal approach in eliminating property taxes, which both property taxes and sales taxes should never be on property. The elimination of all property taxes should be combined with structural reforms to student-centered funding in public education and spending limits on local governments, which excessive spending is the true driver of higher tax burdens.
I provided in-depth research and data on these issues to hopefully move the ball toward eliminating burdensome property taxes on Texans once and for all.
Check out the press release here: http://mailchi.mp/texaspolicy/today-tppfs-vance-ginn-to-testify-on-eliminating-property-taxes-in-texas.
Below is my written testimony with links to data and other research:
This commentary was originally featured in Austin American-Statesman on August 1, 2017.
Gov. Greg Abbott’s supplemental call for a special session includes instruction to structurally reform Texas’ escalating property tax burden.
From 2000 to 2015, property taxes levied statewide soared by 132 percent, outpacing combined population growth and inflation that grew just 82 percent.
Critics have been quick to attack the governor’s push for property tax reform, claiming that the problem can be solved by increasing state government spending on public education. Most reasonable people recognize that throwing money at Texas’ property tax problem, regardless of source, isn’t an actual solution.
The answer lies in structural property tax reform that emphasizes accountability and transparency, at least until officials can replace the property tax system entirely with a more efficient, reformed sales tax.
It’s only by changing the nature of the system, both incrementally and in radical fashion, that Texans will find real relief. That’s something that can’t happen soon enough, considering some of the recent trends.
Excessive property tax levy increases have been partially fueled by the mammoth number of property taxing jurisdictions here in Texas. Today, more than 4,100 local governments that levy a property tax collect more than $52 billion from homeowners and businesses statewide. That translates into a burden of roughly $1,900 per Texan or about $8,000 for a family of four.
While it’s true that most of this burden — 54 percent — can be traced to school districts, it’s a mistake to think that pouring even more state tax dollars into public education will solve the problem.
Already, the state spends roughly 40 percent of the funds it has discretion over on public education. An increase would shift the already-excessive government burden from local to state. It could exacerbate the problem by giving school districts breathing room to raise taxes even higher to pay for wish-list items, like multimillion-dollar football stadiums.
Let’s be clear: School district property taxes are a big part of your property tax bill — but they aren’t the only part, nor are they the fastest-growing portion.
From 2005 to 2015, total property taxes levied statewide increased by 4.9 percent on an average annually. Separating levies into major categories of property taxes, average annual growth increases were: 7 percent by special purpose districts, 6.3 percent by counties, 5.6 percent by cities and 4 percent by school districts.
Clearly, there is room for reform across the board.
Two bills discussed during the regular session would have provided long-term property tax relief. Senate Bill 2 would have set the automatic rollback election to 4 percent for cities, counties, and special purpose districts — those that had the largest growth rates during the last decade. Senate Bill 669 would have enhanced property tax transparency.
The reforms encompassed in these bills should be the target for lawmakers in the special session. Over the long-term, lawmakers should be thinking about how to achieve the ultimate prosperity-generating reform: the elimination of property taxes entirely.
In tandem, these reforms will not only be good for taxpayers, but also great for the economic health and prosperity of Texas.
Vance Ginn, Ph.D.