President Trump’s Council of Economic Advisors recently released a reportshowing that there is a large portion of non-disabled, working-age adults (16 to 64 years old) who are receiving government non-cash welfare payments funded by taxpayers but aren’t working. For example, of those on Medicaid, 53 percent of non-disabled, working-age adults don’t have a job.
These perverse incentives created by relaxed work requirements for able-bodied workers who receive welfare payments not only hurts their financial prospects today and over time, but is an extractive institution hurting civil society.
Institutions are the framework that makes up society. They are the rules of the game. Institutions can include formal laws and rules, but also more informal social norms, families, and churches. Institutions can be considered inclusive, like capitalism, or extractive, like socialism, as noted by Acemoglu and Robinson.
Economist Douglass North remarked in his 1993 Nobel Prize in Economics lecture that “if the institutional framework rewards productive activities then organizations—firms—will come into existence to engage in productive activities.” On the opposite side, if institutions reward unproductive behavior, the result will be more unproductive behavior and increased poverty.
Unfortunately, the institutional framework in the U.S. has many extractive programs in our welfare system that have incentivized unproductive behavior and made many people poor in the process.
As another example of a costly welfare program, the Supplemental Nutrition Assistance Program (SNAP) provides assistance to more than 10 million non-working, non-disabled working-age adults. Of all the childless adult recipients on SNAP, 63 percent do not work, which is higher than the rate of recipients with infants (57 percent)—often the most difficult age to raise a child.
Clearly, the incentives to work while getting welfare are little to none, even when you are able to work and don’t have a child. Welfare should be based on need, and with the unemployment rate at record lows and more job openings than people unemployed, there are few excuses to not work.
Work ethic, personal responsibility, and independence are all informal institutions. They are the rules of our game. These institutions are inclusive, because they allow individuals to be self-sufficient, and become productive members of civil society.
When these incentives and social norms are eroded, our institutions become extractive, redistributing resources from productive workers to welfare recipients. This process is done by government bureaucrats subjectively determining who gets what and when. Moreover, these institutions create a situation that crowds out inclusive social institutions, such as families and private charities and churches, which have been the backbone of civil society for centuries.
Our current welfare system, specifically the Temporary Assistance for Needy Families (TANF), has been reformed before, making it more inclusive. This includes putting the recipients on a path to individual responsibility and prosperity by increasing work requirements to receive welfare, thereby increasing recipients’ productivity that helps them actually get off government welfare.
Chicago economist Casey Mulligan has explained that the income cliff when someone earns more income and is dropped from government welfare programs acts like an implicit marginal income tax that reduces their incentive to work. It’s time to stop this sort of welfare for non-disabled working age adults. This would not only improve the relatively low but improving employment-to-population ratio for the prime age working group(25 to 54 years old) but also help to reduce welfare and the taxes paid by workers to fund these programs.
The Trump administration’s recent report highlighting these issues and calling for an increase in work requirements of welfare programs for able-bodied people is a step in the right direction to let people prosper.
I appreciated the opportunity to testify before the Texas House Appropriations Committee regarding strengthening the state's current weak spending limit by passing a conservative spending limit. House Bill 208 gets Texas much closer to the ideal limit, which I outlined in my testimony. While there are some beneficial aspects of the House Joint Resolution 1, I provided some recommended changes to improve the resolution.
You can watch my testimony here at time 1:36:00: http://tlchouse.granicus.com/MediaPlayer.php?view_id=40&clip_id=14360.
Check out the press release here: https://www.texaspolicy.com/press_release/detail/tppfs-vance-ginn-to-testify-on-passing-a-conservative-spending-limit.
Here's my written testimony:
I appreciated the opportunity to testify before the Texas Senate Finance Committee regarding strengthening the state's current weak spending limit by passing a conservative spending limit. Senate Bill 9 gets Texas much closer to the ideal limit, which I outlined in my testimony.
You can watch my testimony here (I'm the first person to testify in the hearing--look for video of Senate Finance Committee on 7/22/17): http://www.senate.texas.gov/av-archive.php.
Check out the press release here: http://mailchi.mp/texaspolicy/tppf-experts-testifying-at-capitol-this-weekend.
Here's my written testimony:
Vance Ginn, Ph.D, testimony before the Senate Finance Committee for SB 9 on Strengthening Texas’ Appropriations Limit. The following are excerpts from the testimony:
"Texas has done better economically and fiscally than most states during much of the last two decades. However, the state’s weak appropriations limit is a problem that needs improvement to consistently control excessive government appropriations. Since government spending must ultimately be paid for by taxation, limiting excessive spending increases is essential for a competitive economy that supports prosperity. The 84th Texas Legislature appropriated a 2016-17 budget that increased by 4.3 percent above the previous period’s appropriations. Although this budget increased by less than population growth and inflation, it should be the first of many given past excessive budget trends. Specifically, the total budget is up an estimated 11.8 percent above the pace of compounded population growth plus inflation since the 2004-05 budget.
"Population growth and inflation are two economic measures that account for most of the cost of funding public provisions to a changing population. Research finds that simply changing the appropriations limit to population growth and inflation will lead to tax relief and accelerated economic growth. The key is that a limit with the combination of these measures holds budget growth to no more than the means of taxpayers as more people pay taxes and wages are often tied to price inflation. Our recommendation is to add these measures to account for economies of scale whereby the average cost of providing many government provisions declines over time. Moreover, the appropriations limit growth rate’s current measure of personal income can be represented as population growth plus inflation plus productivity. However, a more productive private sector signals that the marginal return per dollar would be greater in the private sector, meaning that more dollars should remain there instead of being taxed to pay for higher government spending. If government productivity is considered in this calculation, it would be practically impossible to measure and would likely be zero over time, thereby leaving population growth plus inflation.
"The current appropriations limit has contributed to excessive government spending. Texas needs to adopt a more responsible appropriations limit to better control the budget so it can be a model for other states to follow. Although SB 9 could use some changes to strengthen it, we believe that it will help limit the size and scope of government in Texas, allowing Texans many more opportunities to improve their well-being. Thank you for your time and I look forward to answering your questions."
AUSTIN – Texas Public Policy Foundation’s Center for Fiscal Policy Director Talmadge Heflin will testify before the Texas Senate Finance Committee TODAY, Tuesday, May 17, at 10:00 a.m. CDT in room E1.036 of the Texas State Capitol. Mr. Heflin will give invited testimony on an interim charge to recommend reforms for strengthening the state’s spending limit and consider options for providing tax relief with available revenue above the limit.
“Limiting the size and scope of government is best achieved by passing a conservative budget. We believe this is a budget that doesn’t increase by more than population growth plus inflation based on actual past data,” said Heflin. “Any funds available above this limit should be placed in a fund to restrain growth in the budget by returning those dollars to taxpayers. These steps would limit government and allow Texans the best opportunity to improve their well-being.”
WHO: The Honorable Talmadge Heflin, Director, Center for Fiscal Policy, TPPF
WHAT: Testimony before the Texas Senate Finance Committee
WHEN: TODAY, Tuesday, May 17, 2016
10:00 a.m. CDT
WHERE: Texas State Capitol
More information about the hearing can be found at: http://txpo.li/1XwQxhY
Mr. Heflin’s full testimony can be found at: http://txpo.li/1XwQTVL
To schedule an interview with Mr. Heflin, please contact Caroline Espinosa at firstname.lastname@example.org or 512-472-2700.
The Honorable Talmadge Heflin is Director of the Center for Fiscal Policy at the Texas Public Policy Foundation, a non-profit, free-market research institute based in Austin. In the 78th Session, Heflin served as chairman of the House Committee on Appropriations and navigated a $10 billion state budget shortfall through targeted spending cuts that allowed Texans to avoid a tax increase.
The Texas Public Policy Foundation is a non-profit, free-market research institute based in Austin, Texas.
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This commentary, written by Dr. Vance Ginn and Kiara Pillay, originally appeared in the Austin American-Statesman on May 2, 2016.
Texas’ 2017 legislative session is quickly approaching. The bedrock of the Texas miracle has been a diversified economy and a good tax climate. Lower oil prices and slower economic growth and job creation threaten the state’s prosperity.
With less revenue likely available next session, it’s essential to keep this solid economic foundation by scrutinizing every taxpayer dollar spent, so excesses and higher taxes are not on the table. The Texas Public Policy Foundation does this with its Spotlight series that highlights trends in all 10 articles of the 2016-17 state budget.
The findings are alarming when comparing budget increases with compounded population growth plus inflation. This key measure is included in the recommended spending-limit reform that covers the budget and uses actual past data. Thirteen member organizations of the Conservative Texas Budget Coalition support using this key measure as the budget’s maximum growth rate.
Since the 2004-05 budget, the overall budget has increased 69 percent, compared with an estimated 55 percent increase in the key measure. If our reforms were followed since the 2004-05 budget, taxpayers would be supporting a budget that’s $17 billion less than the 2016-17 budget of $209.1 billion.
This means Texans are paying higher taxes today than if the budget had increased at only the rate of essential demands of government. Therefore, it’s important for legislators and taxpayers to probe every budget area for excesses.
Fortunately, the Legislature passed a budget last session that increased 2.9 percent, which was less than our target based on this key measure of 6.5 percent. However, several functions have increased by more than this measure — and multiple articles increased by more than it has increased since the 2004-05 budget:
Bottom line: Each article must be watched closely to ensure that the 2018-19 budget doesn’t exceed population growth plus inflation. This will assure Texans that lawmakers are being good stewards of their tax dollars and are keeping a solid economic foundation for them to prosper.
Vance Ginn, Ph.D.
Free market economist with leanings towards Chicago/Austrian schools of economics. Hard rock drummer. Classical liberal. First generation college graduate at Texas Tech University. Hometown: Houston. Recovering academic. Work at the Texas Public Policy Foundation in Austin to research ways to #LetPeopleProsper. Live the dad life in Round Rock, TX. Views=mine.