Many Americans are recovering from the recession that began in March 2020 due to the COVID-19 pandemic and forced business closures by state and local governments. The economic expansion that began in the second half of 2020 continued in the first quarter of 2021 as many of those governments removed or reduced restrictions on the private sector. However, employment has slowed lately as some governments are still imposing restrictions and the federal government continues giving unemployment ‘bonuses,’ causing many people to choose unemployment over work. This has created a record number of 8.1 million unfilled job openings. Nevertheless, the economy is still growing, and more pro-growth policies should be implemented to support the tangible prosperity experienced until March 2020.
More in the brief below:
By Vance Ginn, Ph.D. and Quinn Townsend
Families in Alaska, whether in good or bad economic times, practice responsible, priority-based budgeting. They must make decisions, often difficult ones, on how best to spend their hard-earned dollars. The same is true for small business owners who must prioritize their spending to keep their doors open, meet payroll, and provide for themselves.
Alaska’s government should do the same, and even more so given it’s not their money.
The way to do this is for the state to practice priority-based budgeting, whereby legislators take a close look at how every taxpayer dollar is spent. By doing so, state officials can allocate funding so that it doesn’t exceed the state’s ability to pay for it, as appropriately measured by population growth plus inflation.
Considering Alaska budget trends over the last two decades, there has been an improvement since 2016. During the period from 2001 to 2015, the average annual budget increased by 9.9%, which was three times faster than population growth plus inflation. Since then, the budget has declined annually by 7.3%, on average, while this key measure increased by just 1.6%, meaning that the recent growth of state government has helped to correct for prior excesses.
From 2001 to 2021, the budget grew on an average annual basis by 4.7%, which was nearly double that of population growth plus inflation. The excesses in the earlier period compounded over time to result in an inflation-adjusted state budget per capita in FY21 that is 10.9%, or $601 million, more than this key metric.
Some in Alaska have argued that there is no more fat to trim from the budget, that the state has cut everything it can since the highest spending years. But because the enacted budget, year after year, allocates more state funds than the state is able to sustain, it’s clear that difficult decisions are necessary. Just like a family or business prioritizes their budget based on necessities before wants, Alaska must be responsible and do the same.
This is why a fiscal rule of a responsible spending limit on state funds in Alaska is essential. This can be achieved by capping state appropriations to growing no more than population growth plus inflation every year.
As noted above, if the budget had matched population growth plus inflation over the last two decades, the state could have saved about $800 per Alaskan this year. This means the state would be budgeting about $600 million less in FY21 thereby helping to avoid its current attempt to dig itself out of a fiscal crisis and would probably not have drained its savings accounts either.
But we can’t change the past, only learn from our mistakes and do better. Much better. This will take responsibility and discipline, two things common to Alaskans.
Alaska Policy Forum’s Responsible Alaska Budget sets the maximum threshold on state appropriations based on population growth plus inflation over the last year, similar to what a meaningful spending cap should do.
Specifically, our maximum threshold on FY22 state appropriations is $6.18 billion after an increase of 0.92%. Achieving this feat and working to increase the budget less than this amount will help immensely in reducing the cost of funding government.
History has demonstrated that governments cannot spend and tax their way to prosperity. Alaska’s spending over the past two decades has proven that.
Policymakers should consider Alaska Policy Forum’s Responsible Alaska Budget and work to further limit spending. Keeping spending levels lower will not only serve Alaskans’ interests, but it will also make Alaska more economically competitive so that residents have more opportunities to achieve their hopes and dreams.
Vance Ginn, Ph.D., is chief economist at the Texas Public Policy Foundation based in Austin, Texas. He is the former chief economist of the White House’s Office of Management and Budget (OMB) during the Trump administration.
Quinn Townsend is the Policy Manager at Alaska Policy Forum based in Anchorage, Alaska. Previously, Quinn worked as the Economic Research Analyst at The Buckeye Institute. She completed her M.S. in Resource Economics and Management at West Virginia University.
The substantially weaker than expected U.S. jobs report was unfortunate for struggling Americans, but it should have been expected given the disastrous policy out of D.C. Fortunately, states can fix it.
Milton Friedman said that if the federal government oversaw the Sahara Desert, within five years there would be a shortage of sand. So inefficient and feckless is D.C. that we should never underestimate its ability to ruin good times and make bad times worse.
The 2020 recession and the current anemic recovery are a prime example.
State government-imposed shutdowns destroyed the greatest American economy in recent memory. Sure, the novel coronavirus played a role, but it was primarily imprudent policies which annihilated the best labor market in over half a century. On top of wounding that labor market so severely, the federal government then proceeded to poison the patient, ensuring a languid recovery.
The poison of choice? “Bonuses” for the unemployed.
At first glance, this hardly seems like an economic sedative. Why would it be harmful to help the unemployed? If anything, it sounds humane. The unemployed need assistance until they can find another job, and unemployment insurance (UI) payments partially or completely fills that temporary need, especially for those with little or no savings.
While that is true, new UI bonuses by the federal government haven’t been humane.
UI payments normally provide about half of what you earned while employed. However, in 2020—amid all the other decisions in D.C.—the federal government initiated a weekly bonus of $600 to everyone on unemployment. There were numerous reasons given for this enhancement, but they were all rather nebulous.
The actual effect was more people became unemployed and stayed unemployed.
Adding a weekly bonus to UI payments on top of what the unemployed already receive from the state frequently created the bizarre scenario wherein a person received more on unemployment than while working. Between April and July of 2020, 69% of those who lost their jobs had higher after-tax income on unemployment. (UI payments are not subject to Social Security tax, Medicare tax, nor income tax in some states.) Half of the unemployed were receiving at least 134% of what they earned while working.
If you are receiving more on unemployment than you did while working, why would you go back to your job? It’s one thing to expect people to be rational, but another to expect them to be saints.
Even after the $600 weekly bonus expired, D.C. instituted a $400 bonus, and now a $300 bonus. While the deleterious effects of the bonus have diminished with its size, the negative effect on unemployment is still potent. Some 6 million people are staying on unemployment because of all the government handouts they receive.
And although the businesses that didn’t fold during the lockdowns are finally able to reopen their doors with the lifting of government lockdowns in some states, those businesses are struggling to find people willing to work.
Unlike before the government shutdowns when the economy was roaring and businesses could not find enough workers because commerce was so busy, now businesses are contending with Uncle Sam’s generous handouts—an uphill battle to be sure.
There is now a chronic labor shortage of almost 7 million workers (and that number is rising) amidst massive unemployment. The incompetence of the federal government was worse than Milton Friedman predicted—in less than a year, it has produced this surreal and terrible scenario.
At least two states are telling D.C. that enough is enough. Montana Gov. Greg Gianforte will no longer accept the UI bonuses starting in June. And South Carolina Gov. Henry McMaster will do the same starting this week. However, these funds shouldn’t be used as a bonus to incentivize people to work as proposed in Montana, because nothing is free—whether it be handouts or precedence.
But regarding rejecting this federal expansion into the economic livelihood of Texas, Gov. Greg Abbott should do the same.
Texas currently has almost 1 million unemployed people—nearly twice the number from February 2020 before the pandemic—despite hundreds of thousands of unfilled job openings statewide. If the governor cancelled the federal unemployment bonuses, it would help alleviate this situation by removing the artificial incentive to remain unemployed.
This would not impact regular state-provided UI payments, so those who are truly struggling to find work will still receive those payments.
Opening the great state of Texas was the right decision, but it means little to businesses and economic prosperity if businesses are unable to find workers. Rolling back these injudicious UI bonuses will eliminate a reason for too many not to work and help Texas flourish once again while providing yet another model for the country.
A recent Wall Street Journal article claimed “U.S. Debt Is at a Record High, but the Risk Calculus Is Changing.” But is that calculus really changing? According to some, the government can borrow and print all the money it wants without repercussions.
Modern Monetary Theory (MMT) advances the puerile notion that we have somehow moved beyond the antiquated restriction of scarcity under which our ancestors labored. This thinking is reminiscent of the childish fantasy that our actions will not have consequences, but realities like scarcity are inescapable.
What adherents of MMT have really done is determined their socialist agenda and then reconstructed the policy tools available to support the agenda. It’s a sneaky move but one not based on reality nor economics.
But our point is not to counter every flaw of MMT, but rather to note that similar bad economics is snake oil sold to us by those who supposedly have “better” economic theories.
The notion being peddled today is that D.C. can spend trillions of taxpayer dollars, run up massive deficits, fund most of it by the Federal Reserve through money creation, and voilà, no inflation—reminiscent of a bad magic trick. A growing body of political activists in economists’ clothing subscribe to this view. Inflation has become a dirty word, unbefitting modern discourse among intellectuals.
But ask yourself: Am I paying more for food and gasoline? Are home and rent prices going up, and property taxes with them? Are cars more expensive? Is lumber more expensive?
It seems everything is getting more expensive, and that is price inflation—a rise in the general price level of a basket of goods and services. But what exactly causes it?
You’ll hear all kinds of explanations. Some have blamed greedy businesses for raising their prices. Some have blamed grasping unions for demanding higher wages. Some have blamed the consumer-at-large for being a spendthrift.
Yes, businessmen are greedy—everyone is. Yes, unions are grasping—everyone is. Yes, the consumer is a spendthrift—everyone is. But they don’t cause inflation.
Inflation originates in one place: behind the façade of a Greek temple on Constitution Avenue in Washington, D.C.—at the Federal Reserve.
The Fed can create money out of nothing—or more technically, create money out of government debt. Only the Fed can churn out unlimited money, and that is why only it can cause inflation. Businessmen, consumers, unions, and investors do not have this magical printing press and so they cannot cause inflation.
But why does creating money cause inflation? Wouldn’t we be better off if we all had more money?
Imagine that Santa Claus writes you a check for Christmas equal to the amount of money you already have. You now have twice as much money! But imagine Santa does the same thing for everyone else. Shortly thereafter, the price of nearly everything you purchase would be about twice as expensive because there’s too much money chasing too few goods.
That is inflation—and the Fed has been playing Santa Claus.
As the big spenders in D.C. take the country further into debt, the Fed has been there to write trillion dollar checks to pay for it. Normally, the government would have to borrow money from the public—which doesn’t cause inflation but does crowd out private sector activity. But for more than a year now, the Fed has kept its printing press in overdrive, thereby artificially holding down interest rates and distorting economic activity.
Initially, this appears to create an economic boom, as everyone thinks he’s better off with his government “stimulus” check and increased spending. But remember that nothing is free in a world of scarcity. Everyone discovers that others also have more money, and that prices are rising as more dollars chase fewer goods and services.
This inflation also acts as a tax on us as it reduces our purchasing power. Put simply, government uses inflation to confiscate a portion of your savings and your wealth.
If inflation averages just 2% per year (the Federal Reserve’s target), the government will have confiscated about half the value of your liquid wealth in just 36 years. For context, one measure of general price inflation was 2.6% for the 12 months through March 2021, but 4.1% in the first quarter of 2021 based on another measure. At a 4% average annual rate, the hidden tax of inflation will seize half of your money’s purchasing power in a mere 18 years.
Perhaps the Federal Reserve is not playing Santa Claus, but the Grinch. Instead of the massive spending boondoggles by the Biden administration and resulting costly repercussions, we need rules that limit excessive government spending and excessive money creation.
Texas will likely receive roughly $40 billion in taxpayer money provided by Congress through the American Rescue Plan Act (ARPA) for a number of budget areas: roughly $12 billion to public schools, $10 billion to local governments, and $4 billion to infrastructure projects (i.e., water, sewage, and broadband). Texas looks to also receive $17 billion in more flexible funding to state government.
Approach Depends on Restrictions
There are restrictions on how state and local governments can use the ARPA funds, but we will not know details on these restrictions until the U.S. Treasury issues guidance. Generally, these restrictions include using the funds for direct or indirect cuts to state taxes or deposits into pension funds. Given these restrictions, if the state is going to accept these funds, the best approach would be to follow a pro-growth, long-term strategy to provide relief to Texans from the struggles imposed by COVID-19 and shutdowns.
The chosen strategy should keep taxes lower than otherwise, reduce government debt obligations, fund only one-time expenditures, and reject all or most funds with strings attached to avoid expanding government and to reduce the impact on the country’s high spending and debt burdening America. Doing so will help provide relief from the effects of the pandemic and associated shutdowns. Using this strategy would help Texas recover faster and better withstand the onerous policies by the Biden administration to Keep Texas Texan by considering the following options for the $17 billion in more flexible funding.
If Texas accepts some or all the funds, the following uses should be considered:
Support Key Priorities
In response to the Texas Comptroller’s announcement that state revenue would be more than $3 billion higher than expected for the 2022-2023 biennium, the Texas Public Policy Foundation’s Vance Ginn released the following statement:
“The Texas Comptroller’s improved estimate of tax collections from primarily an improving COVID-19 situation and opened economy shows that the Legislature has $3.1 billion more available for the Texas budget. Both the House and Senate have already voted in favor of budgets that cover the state’s priorities and stay within the average taxpayer’s ability to pay for them. Therefore, the responsible approach to addressing the additional tax collections should be to give taxpayers relief—especially more toward property tax relief—to help Texas families and businesses.”
Texas Comptroller Glenn Hegar forecast $115.65 billion available for general-purpose spending in 2022-23, which is up $3.12 billion from January.
72% of Texans say property taxes are a major burden
TPPF Conservative Texas Budget: $246.8 Billion
Texas Senate Committee Substitute Budget: $244.7 Billion
Texas House Committee Substitute Budget: $240.9 Billion
This table provides an apples-to-apples comparison of amounts appropriated for the 2020-21 budget from the Legislative Budget Board’s (LBB) Fiscal Size-Up and each chamber’s 2022-23 appropriated amounts. We compare each chamber’s appropriated amounts with the Foundation’s Conservative Texas Budget (CTB) limits for state funds and all funds (state and federal) based on a maximum increase of 5% in population growth plus inflation over the last two fiscal years.
We exclude from the 2020-21 budget the designated $8.3 billion in Hurricane Harvey recovery one-time expenses and $5 billion in general revenue for school district M&O property tax relief in HB 3 from the 2019 session. Likewise, we exclude from each chamber’s version of the 2022-23 budget the $6 billion in general revenue to maintain last session’s property tax relief—which without this allocation would result in school district M&O property taxes rising 7 cents and likely in increased spending—and will exclude one-time COVID-related funding. The exclusion of one-time expenses for a declared disaster recovery is important for budget transparency and for not inappropriately inflating the base by that amount allowing for excessive spending later.
Fortunately, the passed versions of the budget by the Senate and the House fall well below the CTB limits in state funds and all funds, and neither appropriates money from the rainy day fund. This must be maintained—with hopefully more tax relief—by the conference committee and Governor Abbott to account for the average Texas taxpayer’s ability to pay for government spending while leaving more money in the productive private sector to let people prosper.
House Bill 1869 is scheduled for floor debate today. The bill would protect last session’s tax reforms by including debt not approved by voters, such as certificates of obligation, in the 3.5% voter-approval tax rate calculation. Under current law, these items are excluded from the tax rate calculation, even though they lead to higher taxes. This loophole gives cities and counties a big incentive to use (and abuse) them.
As you can imagine, the Texas Municipal League has come out strongly against the bill and has even succeeded in softening it somewhat. It may have even mustered the votes to kill it in the House floor.
For further explanation, here’s my colleague James Quintero’s testimony before a House Committee:
Mr. Chairman and Members of the Committee--
Good morning! My name is James Quintero and I’m a policy director at the Texas Public Policy Foundation. I’m here today to testify in support of House Bill 1869.
As we just heard from the bill author, the primary motivation for this legislation is to strengthen the principle of taxation with representation. Its goal is to provide people with the opportunity to participate in the democratic process as their true tax burden rises above a certain level.
The core of this idea is already established in state law, thanks to the passage of last session’s signature property tax reform. HB 1869 would simply expand upon those existing concepts by requiring tax-supported debt obligations not approved at an election to be paid through the M&O portion of the tax rate.
This sort of change is important from a truth-in-taxation standpoint. But it’s also important from the perspective of good governance.
In the decade preceding the reduction in the property tax trigger—which really only took effect this fiscal year—local governments were increasingly indulging in nonvoter approved debt. Consider that from fiscal year 2011 to 2020, CO debt held by cities, counties, and certain special districts grew from $12.87 billion to $15.85 billion.
Much of that debt was owed by a relative few too. As you’ll note on your hand-out, the top 20 issuers accounted for approximately 40% of all CO debt outstanding, with places like Bexar County, Travis County, San Antonio, and Lubbock among the most prolific users.
It’s too early in the fiscal year to say whether this trend will hold or accelerate; however, what I can tell you is that, under current law, local governments have an incentive to lean more heavily on nonvoter approved debt than they did in the past, since those costs are excluded from the 3.5 percent calculation.
Updating the definition of debt for the purposes of truth-in-taxation will eliminate this incentive and, perhaps in some instances, dissuade questionable expenditures in the future.
Despite what you may hear today, CO debt is not always need-based or proper. Here are a few quick examples of their misuse in recent years.
The Texas Public Policy Foundation’s Chief Economist Vance Ginn and economist E.J. Antoni break down the massive spending proposals in President Biden’s recent address to Congress.
$225 billion toward high-quality childcare and ensuring families pay only a portion of their income toward child-care services, based on a sliding scale
Raising taxes from one pocket to put money in the other is just shuffling dollars. The subsidies will also increase the overall cost of child care for those who need it.
$225 billion to create a national comprehensive paid family and medical leave program
Americans should be free to negotiate compensation packages like paid leave as they see fit; it shouldn’t be dictated by a bureaucrat. The consequence of a government-mandated paid family and medical leave will be lower wages and less opportunities for those with less skill and experience.
$200 billion for free universal preschool for all 3- and 4-year-olds, offered through a national partnership with states
Parents want valuable schooling options for their kids, especially during critical years of early development, not rhetorical fallacies that something is free. Instead of creating another spendthrift program with a profligate bureaucracy behind it that will reduce the quality of preschool like government has to K-12 education, government should focus on removing imposed barriers of high taxes and marriage penalties that reduce parents’ resources to meet their child’s unique needs.
$109 billion toward ensuring two years of free community college for all students
College, including community college, is not always the right fit. Some people enter trade or technical schools or begin their careers right after high school. This is especially true among those with lower lifetime earnings. “Free” college programs just take tax money from those with lower earnings to pay for the tuition of those who will likely have higher potential lifetime earnings. Government-guaranteed funding for higher education will also further inflate costs and reduce quality as things are rationed without market prices.
About $85 billion toward Pell Grants, and increasing the maximum award by about $1,400 for low-income students
Pell Grants, like many subsidies for higher education, benefit school administrators more than students. As subsidies increase, so does tuition, and so do administrative costs. Students eligible for Pell Grants often take out student loans to cover the remainder of their education expenses and they graduate with heavy debt burdens. To help make higher education more affordable, government should remove demand subsidies and supply restrictions, forcing schools to compete for students by slimming down their bloated administrative departments and by increasing access to lower tuition.
A $62 billion grant program to increase college retention and completion rates
There is no evidence that a lack of funding is causing retention problems at colleges and universities. There is, however, substantial evidence that low-quality government-run primary and secondary schools have failed to provide students with the knowledge and skills to succeed at the college level. The solution is not more government spending, but more educational choice throughout the education system.
A $39 billion program that gives two years of subsidized tuition for students from families earning less than $125,000 enrolled in a four-year historically Black college or university, tribal college or university, or minority-serving institution
Subsidies in higher education is what’s leading to the rapid increases in tuition, so doubling down on that is poor policy rather than finding ways to increase competition and lower prices while improving quality.
$45 billion toward meeting child nutritional needs, including by expanding access to the summer EBT program, which helps some low-income families with children buy food outside the school year
This is another government program that is fraught with waste and inefficiency. We would do better to lift burdensome regulations and taxes off the backs of small business, stimulating development, investment, and job growth. A parent with a well-paying job can afford to feed his or her own children.
$200 billion to make permanent the $1.9 trillion COVID-19 stimulus plan’s provision lowering health insurance premiums for those who buy coverage on their own
This sounds like a subsidy for those buying health insurance, but it is actually a subsidy for the insurance companies. After the implementation of the Affordable Care Act, which would supposedly reign in profits of the insurance companies, those profits reached record highs. People want more choices for healthcare, not handouts to insurance companies.
Extending through 2025, and making permanently fully refundable, the child tax credit expansion that was included in the COVID-19 relief bill
As Ronald Reagan said, nothing is so close to eternity as a temporary government program. The justification for transitory COVID-19 relief was the pandemic, which is now far past its peak as we approach herd immunity. There is no reason to continue these temporary relief measures going forward.
Making permanent the recent expansion of the child and dependent care tax credit
These tax credits are accomplishing the opposite of the bipartisan welfare reforms of the 1990s. Instead of rewarding work, they reward idleness. These government handouts will serve to trap people in a cycle of poverty and dependency.
Making permanent the earned income tax credit for childless workers
This is another example of a government program taking on a life of its own. The American Rescue Plan Act (ARPA) tripled the credit and gave benefits to childless workers that were previously reserved to working parents. The justification for this ill-conceived measure was the temporary hardship from government-imposed lockdowns; there is no reason to make them permanent but rather open their economies so people can find jobs and prosper. The effect of these government handouts is to keep people in low-wage jobs because the tax credit is quickly phased out as income rises. Once again, these programs cause dependency on government instead of letting people prosper.
The extortionate cost of higher education continues to rise and is unlikely to moderate soon. From 2000 to 2020, college tuition and fees nationwide rose more than three times faster than general price inflation and more than twice as fast as average hourly wages.
Put simply, college is unaffordable to many and becoming more out of reach for many more.
Making matters worse, the Biden administration has proposed to attempt to solve this problem with record levels of new government spending. This is on top of the billions of dollars Congress has already allocated to more than double the Department of Education’s most recent annual budget. Biden wants a 41% increase in the department’s pre-pandemic budget along with “free” college for families earning less than $125,000 annually and “free” community college for all, together with a long list of other costly, socialist-style programs.
Of course, nothing is free, as the cost to taxpayers and students will be much higher in terms of taxes, lower quality education, and waiting lists.
This proposal is another D.C. idea of throwing more money at problems, even though that fails every time. The U.S. spends roughly twice the amount on higher education per student as the average spent by OECD countries. Our problem is not lack of resources, but lack of vision.
Driving higher tuition is excessive government intervention with increases on the demand side from subsidized student loans, Pell grants, and other factors, and suppression on the supply side through restrictions and accreditation limitations on new institutions and opportunities for competition.
So, what justifies more than doubling of the price of higher education?
The quality of instruction has not doubled. Neither has the student-to-teacher ratio. Students are not earning substantially more post-graduation, and in fact are graduating with more debt than ever as the total student loan debt now exceeds $1.7 trillion.
If student outcomes are not improving, then where is the money going? In a word: administrators.
Administrative staff has grown substantially faster than faculty, to the point where there are now more administrators than faculty at a typical university. From 1987 to 2012, colleges and universities nationwide more than doubled their administrative staffs. The portion of college budgets devoted to teaching—which is the actual mission of education—has fallen substantially. The source of this spendthrift administrative growth is government subsidies for higher education.
As grants, student loans, and other state and federal funding have increased, institutions of higher education have lost the need to spend efficiently. They waste these taxpayer dollars on profligate administrative expenditures, knowing full well that Uncle Sam (read: You!) will keep the assistance coming.
The normal free-market mechanism of competition which keeps prices down has been abrogated by this heavy-handed government intervention. The “profits” gained by these public institutions would bring about competitors in the private market, but that’s not possible given the restricted supply and limited accreditations, which is why the inflated demand simply pushes up tuition at rapid rates.
Instead of doubling down on government failures like these, it’s time to do something different. In Texas, we can temporarily limit tuition growth via Senate Bill 167 in the Texas Legislature.
This bill would provide a viable alternative to more spending proposed by the Biden administration.
It temporarily limits tuition at public colleges and universities to price inflation for the next five years. This would better match the cost-of-living adjustment received in wage growth by many families and taxpayers. While the limitation does not include fees, tuition is a much larger portion of the total cost of attending these public schools.
The effect will be to force these public institutions to rein in the number of administrators (and associated costs), along with other inefficiencies. If these institutions foolishly cut spending on instruction, then students and faculty can simply leave and go to another school.
A perfect example of this policy, voluntarily prescribed, is Purdue University—a public institution of higher education in Indiana that is comparable in size to the University of Texas and Texas A&M University. Purdue has kept tuition frozen for the last decade, during which its inflation-adjusted funding from the state legislature has actually decreased.
Clearly, restraining the cost of tuition can be done—not by expanding government intervention, but rather by better managing the resources provided to these institutions, and ultimately through competition. If we want things in higher education to change, then we must change them. Otherwise, they will continue as they are, unaffordable as that may be.
Vance Ginn, PhD, is chief economist at the Texas Public Policy Foundation.
By combining property tax reductions and reform with spending limitations, Texas could shift to a more efficient and fairer sales tax system. In this way, Texans can be assured meaningful, lasting property tax relief and an improved Texas Model that will sustain economic prosperity for generations.
Testimony in Support to Texas House Appropriations Committee
Vance Ginn, PhD, is the chief economist at the Texas Public Policy Foundation.
Considering that high taxes and debt are always and everywhere a government spending problem, the state’s current weak spending limit has contributed to excessive government spending that has resulted in less economic prosperity for Texans. Fortunately, the Legislature has taken strides to improve the budget picture during the last three budgets by better following the Conservative Texas Budget, which is why it is crucial to put this responsible, conservative fiscal management in statute.
Testimony in Support Before the Texas House Appropriations Committee
It’s easy to tell who the Texans are in a crowd; you simply shout, “the stars at night, are big and bright”—then wait for about the span of four quick claps.
It’s easy to tell if a budget in Texas is truly conservative—and worthy of the great Lone Star State’s commitment to freedom and prosperity. If the biennial budget grows less than population plus inflation—our formula for a Conservative Texas Budget (CTB)—then it’s a budget that doesn’t grow beyond the average Texan’s ability to pay.
We love budget and tax cuts, of course; the Texas Legislature should take every opportunity to ease the burden on taxpayers, leaving more of their money in their own pockets. Yet the CTB is a useful guideline for lawmakers.
The good news is that both the House and Senate versions of the 2022-23 budget come in well under the CTB level.
This is a big win for Texans (see this thread), and it includes rightfully rejecting funding for Medicaid expansion in the budget, which effectively kills this attempt by the left. There are better, more affordable ways to help those in need rather than just providing government-run coverage that does not result in quality, timely care, as market-based reforms that put patients in charge would do.
There are other conservative policy victories in the budget, as well. It defunds some corporate welfare, it requires proposals of some state agency cuts each session, and it improves the process in determining the use of COVID-19 relief funds from the federal government.
Note that we appropriately don’t count these federal funds in our budget calculations because they haven’t been accepted yet (and much if not all with strings attached should be rejected) and should be used for only one-time expenditures to keep from unnecessarily growing government and then falling into the trap like the state did when the federal funds from President Obama dried up.
Now, some are saying that the budget doesn’t provide additional property tax relief for Texas families. That’s true. But it does preserve property tax relief from the last biennium. This is relief just like it was last session, when $5 billion was allocated toward lowering school district M&O property taxes—which meant taxpayers paid less than otherwise.
The $6 billion in this budget is to fund that same 7-cent property tax rate compression because of rising appraisals across the state. If that $6 billion wasn’t in the budget, then property owners would face a 7-cent tax increase and those funds would go to other programs that grow government.
So, the $6 billion is property tax relief by keeping property taxes and the size of government lower than otherwise—that’s certainly better than the alternative.
The next step in the budget process is for the conference committee on the budget to iron out the differences of a gap of $4 billion more in the Senate budget than the House budget, which the amount of expected federal funds is the main difference. This should include continued spending restraint for actual tax cuts and additional tax relief before the end of session.
There are a few key amendments to the budget by the House that lawmakers should keep, including:
Asking state agencies to provide proposed cuts of 1%, 5%, and 10% each session;
Defunding more corporate welfare; and
Improving federal COVID-19 funds determination.
Overall, this approach to the budget is a key part of TPPF’s Responsible Recovery Agenda that will support more growth, job creation, and economic opportunity in Texas.
It’s never hard to tell who the Texans are in a crowd, and in a crowded legislative session, it’s not hard to tell which budgetary decisions are the right ones. They’re the ones that lead to more freedom and more prosperity for Texans like the Legislature looks poised to do.
Vance Ginn, PhD, is chief economist at the Texas Public Policy Foundation, a 501(c)3 nonprofit, nonpartisan research institute in Austin.
Texas’s public higher education systems can withstand a temporary tuition freeze. SB 167 would freeze tuition for 5 years in response to the COVID-19 pandemic, and tuition would be adjusted by the previous year’s change in the consumer price index (CPI). This sort of freeze will be a step in the right direction, and the temporary nature of the freeze will allow for the results of this action to be evaluated to determine if it is working better than the current flawed approach. Tuition freezes have been successfully instituted by other public colleges.
Testimony in Support to the Texas Senate Committee on Higher Education
In Texas, we dream big. That’s what House Bill 59 does—it imagines a Texas that lightens the tax burden on Texans, upholds property rights and ensures that education is properly funded.
Authored by Rep. Andrew Murr, R-Junction, the bill would eliminate the school maintenance and operations portion of your property tax bill on Jan. 1, 2024, and would create a legislative commission that would use the intervening time to study the best way to replace that revenue. This bill would cut local property taxes nearly in half while adhering to the state’s constitutional responsibility of funding government schools.
The key to achieving this, of course, is restraining government spending at the state and local government levels.
The fact is that the skyrocketing local property tax burden remains one of the state’s most pressing policy challenges. Property taxes have been growing faster than the average taxpayer’s ability to pay for them. Any growth over population-plus-inflation represents a growth in government above our ability to pay. For more on this formula, which we call the Conservative Texas Budget, click here.
According to the Tax Foundation, Texas has the seventh most burdensome property tax on homeowners. Using a different calculation, Fox News ranks Texas third-worst.
Too many have been forced out of their homes and businesses because of rapidly rising property taxes.
It would be great to eliminate all property taxes, which tend to hurt lower-income earners the most, so Texans can stop effectively renting from the government forever.
A good start in that process would be to eliminate school district M&O property taxes, which account for nearly half of the total property tax burden on Texans. Eliminating just the school district M&O property taxes is rather straightforward because the state determines the funding formulas for the school finance system, and it represents nearly half of the property tax levy across the state.
The question is how to replace this revenue. That’s easy—with a broader-based sales tax.
State sales taxes have grown far less than property taxes, less than personal income, and more closely with population growth plus inflation. This indicates that moving to a system based on the sales tax better aligns with the average taxpayer’s ability to pay for these taxes that fund government spending over time.
There are some important reasons why a sales tax is the better way to fund schools.
First, property taxes are inefficient. Property taxes in Texas are based primarily on subjective valuations by appraisal review boards and tax rates determined by local tax entities with little to no feedback from citizens, creating a highly inefficient collection mechanism.
Next, property taxes are more regressive than sales taxes. Sales taxes are paid once at purchase, yet property taxes are paid annually, hurting low- and fixed-income Texans the most because the costs compound over time. A high property tax also prevents many low-income earners from purchasing their first home and forces many others who do purchase to struggle to keep their home—they may even lose it.
Finally, during recessions (like the recent pandemic), lower-income earners tend to face the highest levels of unemployment and are least able to shoulder a tax burden. Their property tax burden, however, would increase relative to their income, while their sales tax burden would fall more proportionately with their income.
The sales tax is money that comes directly from the choices of consumers. It ensures that all financial power remains within their control, whereas property taxes are a burden that is forced upon all taxpayers with little means of working around it.
It would work—and result in fully funding schools based on the state’s school finance system.
Economists of the Baker Institute at Rice University studied the economic effects of replacing property taxes with sales taxes over time. They found that just a 3.6% decrease in school district M&O property taxes could contribute to a $14.3 billion increase in economic output and 217,000 new jobs after just the first year of reforms and more thereafter. Imagine if we eliminated that burden!
By combining property tax reductions and reform with spending limitations, Texas could shift to a more efficient and fairer sales tax system. In this way, Texans can be assured meaningful, lasting, property tax relief and an improved Texas Model that will sustain economic prosperity for generations.
Texas’s economy continues improving from the challenges of the COVID-19 pandemic and forced business shutdowns by government since spring 2020. This includes robust job creation in March 2021 as state restrictions ended on March 10, which should further improve economic growth and job creation this year.
To help overcome the challenges still facing many struggling Texans and the assault on prosperity by those in D.C., Texas should commit to the Foundation’s Responsible Recovery Agenda.
More on the data and how Texans can get back to work as quickly and safely as possible ⬇️
A recent Wall Street Journal article highlighted the devastating mental health effects of the pandemic on children. Kids have been subjected to stifling lockdowns even though there has been overwhelming evidence that children are at low to no risk of experiencing severe symptoms or transmitting COVID-19. While the article is certainly correct to emphasize the terrible state of America’s youth, it wrongly places the blame—the pandemic did not do this to our children. Government-imposed lockdowns did.
Isolation has taken its toll on everyone, but most especially the very young and very old.
A study conducted at a pediatric emergency department in Texas found that suicide ideation among 11- to 21-year-olds as well as suicide attempts are up significantly from 2019. Mental health-related emergency department visits for minors jumped 11.3% in the first quarter of 2020 and then another 44.1% through October 2020. Remote learning has negatively affected the mental and emotional health of one in four children.
Instead of normal, healthy human interaction, children have been left to their own devices—literally. These include phones, tablets, gaming consoles, and computers, all of which are poor substitutes for human relationships and interpersonal connections.
But the toll on children goes beyond deteriorating mental health and retrograding social skills. Children are falling behind in the classroom, especially in math. Remote learning and so-called hybrid learning have proved a poor substitute in educating many of the young.
Almost half of parents in a study of low-income families reported experiencing food insecurity. Given the sky-high unemployment caused by government-imposed lockdowns, this is not surprising, especially because low-income earners were more heavily affected by this forced unemployment. Parental angst due to economic issues adds to a child’s already increased anxiety.
Like the isolation imposed on children, the source of the nation’s unemployment also has not been a virus, but government-imposed lockdowns.
The proof of this is the comparison between states that implemented lockdowns and those that did not. The lowest unemployment rates are found in states that have essentially returned to normal, or never imposed restrictions in the first place. The highest unemployment rates are found in states that implemented the harshest lockdowns.
While the tightest lockdowns were all in Democrat-run states, this is not strictly a political issue. Among all Republican trifecta states, (where Republicans control the entire legislature and the governorship) Texas has the worst unemployment, as Texas imposed some of the tightest and longest restrictions. Texas must now catch up to states like South Dakota and Florida, which both returned to normal long before Texas.
Just as unemployment has been highest in states with harsher lockdowns, school closures have been the worst in those same states. And yet, despite the severe costs which the lockdowns have imposed upon children, those lockdowns were seemingly ineffective at slowing the spread and reducing the death rate of COVID-19. (New cases and deaths in Texas are continuing their downward trend since the statewide mask mandate was lifted on March 10.) In fact, the chart below shows a slightly positive, although statistically insignificant, relationship between government-imposed lockdowns and state death rates.
In contrast, there is a strong relationship between the severity of government-imposed lockdowns and both school closures and state unemployment rates. Unsurprisingly, the states that forced businesses and schools to close suffered, and continue to suffer, the highest unemployment.
So, while the government-imposed lockdowns failed to achieve their primary stated objective, those lockdowns succeeded in crashing the best economy in half a century and inflicting our children with low-quality educational experiences and mental-health afflictions. Sadly, even after the government-imposed lockdowns end, children are more likely to have depression and anxiety because of this artificial isolation.
The lockdowns were a mistake, but where do we go from here?
First and foremost, we need to return to normal, and not some kind of Orwellian “new normal.” Families need to be allowed to practice personal responsibility rather than be told how to act by politicians or bureaucrats.
Second, our children will need more mental and emotional support, which starts with healthy and robust families, and is buttressed by private organizations (both for-profit and non-profit) that cater to these family issues at the local level.
Finally, this last year has been a massive case study demonstrating why educational freedom is essential. Giving parents more options in how their children are educated is a powerful way to improve educational outcomes because of the competition that arises when students are not forced to attend a particular school but rather choose one that meets their unique needs.
None of these strategies involve growing government or bureaucracy. In fact, they involve limiting or reducing the roles of governments by strengthening institutions and freeing local communities to help children and families prosper. And given how far many children have fallen behind in the last year, they need all the help we can give them.
A decade ago today, I was a graduate student in the PhD program at Texas Tech University and had just finished judging an undergraduate research poster competition. I was riding the bus back to my apartment when I received a horrible phone call from my mom. She said my dad has passed away in his sleep from SUDEP (Sudden Unexpected Death in Epilepsy: http://www.epilepsy.com/learn/impact/mortality/sudep).
We will come back to that. But first let me tell you about this remarkable person and how he got to this point.
One day in 1972 when my dad was 17 and had just left a place in Brookshire, Texas, my dad was in a terrible traffic accident. He was a passenger in a truck that was struck by what we believe was a drunk driver who had seemingly run a red light. The result was that he had a severe head injury. Little did he know it would change his life forever.
After weeks in a coma and after the doctors telling his family he may not live, my dad woke up and worked every day to live a "normal" life.
Without any memories before the wreck (amnesia) and short-term memory loss thereafter, he battled not knowing anyone in his classes, not knowing he was class president, not knowing he was president of his school's National Honor Society, not knowing he was a football player, and much more. To this day, I still don't know much about him before the wreck.
He once shared a story with me of how he was sitting in class after he returned to school and the principal called someone over the loudspeaker. His friend tapped him on the shoulder and told him that he was just called—he periodically didn't know his own name. He was taken to a room for a National Honors Society meeting and told he should sit at the head of the table. He asked why. They said he was the president and would lead the meeting. Of course, he was unable, but the level of respect he had at Royal High School in Brookshire, TX is remarkable.
This is one of many similar stories. Let me tell you more.
Time passed and he went to school at Sam Houston State University for three years to study drafting before his memory declined so much he started making Bs, Cs, and eventually failing classes, all of which were the first time, I believe, that he earned less than an A. He had to drop out but took what he learned to be a productive draftsman. He would eventually sometimes work two jobs to pay the bills for the family. He later worked at a gas company, Entex, in Houston checking gas meters.
He fell in love with my mom while they were living in Brookshire, TX, and they soon married. They were happy and lived life like any other newly married couple would. My dad acted a little strange from time to time, which is why his nickname was "Weird Harold," but not much else seemed wrong.
Then in the mid-1980s, something started to change.
He started having small petit mal seizures (he would stare into space without being able to speak and would smile big for no reason). No one paid attention the first few times. Eventually, he started having grand mal seizures (features a loss of consciousness and violent muscle contractions; it's the type of seizure most people picture when the person falls to the ground and convulses). He was in and out of hospitals after having grand mal seizures twice per month or even more frequently.
After a couple years and wrecking three cars, one while working at Entex (now Reliant Energy), he reluctantly filed for disability in 1987 and never worked or drove again.
This crushed him and the numerous drugs he was on and lack of ability to remember things put pressure on his psyche and my parent's marriage—they eventually got divorced, remarried, and divorced again when I was young. He lived off and on with us to help pay bills or with his mom, mainly with my granny during most of my childhood.
When he was at home, we would play baseball in the backyard or at Wilson Park and basketball in the front yard for hours. I have so many great memories of those times. He would go over my schoolwork with me while I was in home school. He was a math guru and taught me tricks along the way. He listened to me beating on the drums when I had little clue how to play and later would go to my rock concerts when I was in the band Sindrome.
I remember picking him up from his mom's and taking him to the neurologist, Dr. Neumark, at St. Luke's Hospital in Houston's Medical Center for years. I learned much about epilepsy, and how it can affect someone's life from reading books, watching my dad have hundreds of seizures over my lifetime, and talking with him about the struggle he had to deal with his situation.
He took roughly 12 pills per day and had a vagus nerve stimulation surgically implanted near his chest that would send electronic impulses to his brain to help him have fewer seizures. It helped reduce the seizures over time from two per month to about one every 3 or 4 months. He would keep track of all his seizures and I remember how proud we were when they were less frequent.
Each time he had one he would be exhausted for several days. He was always energetic and in a fairly good mood, so after he had a seizure, it was very unlike him to sit around most the day and not talk much.
During my days at Tech, I visited home, South Houston, about twice per year (9-hour drive is too long to visit often). While I was home, I would take dad out as much as possible and play pool, watch Astros games, and have fun. Without the independence to drive and few friends to take him anywhere, he spent most of his time at home and I tried my best to get him out and enjoy the world.
He never complained about his situation. He did voice frustration that he couldn't drive or do things others could do, but for the most part, he lived a normal life and could do anything he wanted.
Years passed and he moved in with a friend and me in a townhouse in Lubbock on June 1, 2008. It was my second year of graduate school. We would go eat breakfast in the mornings when I didn't have class. We would go for long walks and talk about my research, politics, and the meaning of life. That was how he relaxed; he would go on long walks. There was nothing better for him than being with family or alone with nature. He could get away from the thought of being disabled or feeling trapped in a body that kept him from doing the things he wanted.
After I moved in with Emily, dad got an apartment in the same complex about 30 yards away. It was the first time he ever lived on his own and had a sense of independence since that cloudy day in 1972 when his life changed forever.
We would barbecue together and he would visit us often. I am so thankful he had the opportunity to know Emily and she will have memories to tell our sons, Bricen Wayne, who is named after my dad Harold Wayne, Cooper Thomas, and our future children.
Dad and I had many great memories together in Lubbock. He had some complications with his epilepsy and I stayed in the hospital with him for a week as they did a number of tests to see if they could surgically repair the place on his brain that caused the seizures. They determined it was too risky because it was near the part of your brain that controls your speech and he went on with his life.
After two and a half years (in December 2010) living near me in Lubbock, dad moved to Houston to live with my sister, Tiffany, and her family. He was excited about living with them and being around his grandkids, but he was upset about leaving his life in Lubbock. Although I missed him every day, I knew he was happy and everything seemed fine.
Then that day came in 2011 when I was on the bus that I received the phone call from my mom. My mom said Tiffany had checked on dad after he seemed to be sleeping unusually late. She found him lying there, not breathing. My first reaction was to my mom telling me he wasn’t breathing was: Why not? What are you doing about it? Is he at the hospital?
My mom had few answers other than: Vance, he passed away.
It was the first time that I had someone close to me die. The person that I did not live with much growing up, didn’t know much about his childhood, but had got to know much more during the previous two-plus years had suddenly, without any warning, passed away!
I was crushed. I screamed uncontrollably at the front of a packed bus and ran off the bus to my truck as soon as it stopped. I sobbed driving home and frantically paced back and forth around my apartment when I made it home.
My dad, one of my best friends, and the person I learned so many lessons from was taken from me. How could I go on? So many things raced through my head and I hoped that I would soon wake up from this nightmare. A truly life-changing event challenged me in ways that I’ve never been challenged. To this day, that moment still gives me chills and makes me teary-eyed.
Dad died from what is known as SUDEP (Sudden Unexplained Death in Epilepsy).
My sister said that he went to sleep the night before without signs of anything wrong. The best explanation from doctors that we have is that he went to sleep, had a seizure, and his organs shut down. It was not painful and he probably did not know anything was going on. Doctors say that even if he was in the hospital there would be little chance they could have saved him. There is little known about SUDEP and what triggers it, which is why we allowed an autopsy and continue donating to the Epilepsy Foundation today.
Somehow, someway, God has a mysterious way of working in our lives.
Prayer, family, and friends helped me through the hurt. Days, weeks, months, and years later I find myself weeping over the loss of my dad. To this day, I feel deep sorrow. However, I think about the numerous lessons I learned from my dad during my 29 years around him and treasure the many memories.
He loved music. He would sing to classic rock songs and loved Journey, Elton John, and many others. He would snap his fingers when dancing and would clap when listening to music. Music helped him release his worries, along with walking. He also loved playing pool.
A man with what some could consider so little left to live for had so much courage to take on the world. No complaining and no handout. He would work every day if he could. Love others unconditionally and never give up is what I take from his life.
There are too many who have less and live with many more problems than we do. If my dad can take on the world with his faith in God and his ability to see the sun shining with so many clouds around, it is easy to find hope and find beauty in this world. There is so much for us to be thankful.
Ten years have passed. Years that I will not be able to tell him the wonderful things that have happened in my life and those in the family.
However, I have faith that he knows. I believe he is still watching over us and that we will see him again someday. I believe he is with Bricen and Cooper always. His bright smile is the picture in my head that I see and it fills the hearts of all those who knew him. Years pass in a flash, but my dad's memory will live on.
Harold Wayne Ginn was a wonderful father, pepaw, and hero. He will always be our family's hero. There is so much to say. His life is a testimony that I hope will bring joy and a stronger faith for others. I know it does for me.
I know he was a Godly, kind, smart, generous, loving, sweet, caring, empathetic, and more man. Thank you, Dad! I love you.
Free-market capitalism is the best path to prosperity.
The Tax Code should not pick winners and losers but rather fund limited roles for government.
Unfortunately, Chapter 313 property tax abatements do pick winners: Big businesses are favored over small businesses.
Businesses that may not be in operation for the long term receive long-term tax breaks.
Nearly two thirds of Chapter 313 projects are for renewable energy, which would likely locate in Texas anyway given Texas’s geography of open lands, a lot of sun, and wind in specific regions.
A third of those renewable energy projects are for foreign companies, like those affiliated with French and Chinese governments.
These agreements can result in increased property values in certain areas, which reduces housing affordability, and decreased property values in others.
Chapter 313 tax breaks socialize the cost of those local school districts’ deals to the rest of the state’s taxpayers by holding school districts harmless.
Many Americans continue recovering from the recession that began in March 2020 due to the COVID-19 pandemic and forced business closures by state and local governments. The economy had expanded in the second half of 2020 as many of those governments removed or reduced restrictions on the private sector. However, the growth stalled a little at the beginning of 2021 as many governments re-imposed restrictions as cases and hospitalizations spiked.
Fortunately, those governmental restrictions have been reduced again and the economy looks to have picked up, helping Americans regain the tangible prosperity experienced until March of last year. We need more openings and pro-growth policies to let people prosper.
Let’s start with a simple fact: It’s not economic “stimulus” when someone comes along, takes money from your right pocket and puts some of it back in your left pocket (keeping much of it for “other uses”). That’s sleight-of-hand, not stimulus, which is a reason the government can’t stimulate anything other than more government.
That’s more and more true when less and less of the funds go back in your pocket. And make no mistake, President Joe Biden’s plans for a third “stimulus” bill—eclipsing the previous two—isn’t about helping struggling Americans hit hard by the pandemic and the shutdowns. Instead, it’s a massive, pork-laden bill that seeks to keep many of his lavish campaign promises and shore up support among key constituencies.
And nowhere is this more evident than in the area of climate activism.
According to CNBC, “The recovery plan, to be unveiled this week, will likely involve installing thousands of electric vehicle charging stations and building millions of new energy-efficient homes.” (Note to President Biden: Out-of-work Americans can’t afford new electric vehicles.)
Biden’s plan to “Build Back Better” also “supports his broader goal to achieve carbon-free power generation by 2035 and net-zero emissions by 2050”—an impossible goal that, even if it was achievable, would have little effect on global temperatures.
But that’s not all.
The Washington Post reports that it would spend “hundreds of billions of dollars to repair the nation’s roads, bridges, waterways and rails. It also includes funding for retrofitting buildings, safety improvements, schools infrastructure, and low-income and tribal groups, as well as $100 billion for schools and education infrastructure.”
And he plans a slew of massive tax hikes to help pay for it.
He could raise the corporate tax rate from 21% to 28%, which would destroy hundreds of thousands of jobs, and raise taxes on American individuals. These actions and others would undo key parts of the Tax Reform and Jobs Act of 2017 that combined with deregulation helped launch tangible economic prosperity until the global pandemic.
Each of these initiatives—climate activism, massive “infrastructure” spending and tax hikes—is bad economic policy in and of itself. Together, they’re a trifecta of terrible, guaranteed to overburden our economy and saddle us and future generations with more government, more debt and less opportunity.
History demonstrates that despite the promises of a Green New Deal, new green jobs prove elusive—and the ones that are created are very, very expensive, which requires more government spending of our hard-earned tax dollars that reduces growth and jobs in the process.
Here’s what President Obama said in his 2008 acceptance speech at the Democratic National Convention: “I’ll invest $150 billion over the next decade in affordable, renewable sources of energy—wind power, and solar power, and the next generation of biofuels—an investment that will lead to new industries and 5 million new jobs that pay well and can’t be outsourced.”
That never happened.
Obama himself later acknowledged that “Shovel-ready was not as shovel-ready as we expected.” That went for both the climate jobs (his policies sent solar panel manufacturing to China, for example, and other companies simply misled the government, took the money and declared bankruptcy) and for infrastructure jobs.
The good news is that we know what works. We can truly support more self-sufficiency, dignity, and human flourishing by fully opening the economy up.
Americans aren’t clamoring for a Green New Deal (when they’re told what it will cost), but they sure would like to dine out, see family members again and open up their businesses without the heavy-handed pandemic measures imposed by governments at every level.
It begins with Congress rejecting the third “stimulus” boondoggle. States should also reject some if not all of the latest round of bailout money to keep from unnecessarily expanding government programs and losing some independence to the federal government. And Congress should instead adopt the Texas Model of less spending, lower taxes and more reasonable regulation.
A great next step would be for the Biden administration to lift its “halt” on new oil and gas permits on federal lands and in federal waters.
That action alone would achieve all three of Biden’s stated goals for his “stimulus”: It would reduce emissions by allowing access to cleaner-burning natural gas, it would support many new and existing high-paying jobs for Americans (instead of outsourcing them to other countries, which we’ll be forced to buy our petroleum from), and it would support infrastructure improvement through the taxes producers pay for their use of our roads and bridges.
Another step would be to rein in excessive government spending that is bankrupting our country.
Ultimately, we can regain the prosperity we had before the pandemic—but not with Biden’s progressive plan.
Toyota Financial Services recently announced that as a result of consolidating customer service centers, the Cedar Rapids facility will close and cut 600 jobs, due in part to the private sector employing 5% fewer people than a year ago. The consolidation of customer service centers is a loss for Iowa and a win for other states, such as Texas. Businesses are responding to both economic climates and the new work environment brought about by the COVID-19 pandemic.
States with high tax rates are seeing an exodus of both people and businesses while those with lower rates are seeing them arrive in droves. This is yet another example of how people vote with their feet when the burden of government becomes excessive.
Iowa has made progress in recent years by lowering the individual and corporate income tax rates, but policymakers should beware of becoming too complacent, and they should work to continue reining in spending and lowering rates to attract people and businesses.
Many states have or are gradually lowering their personal and corporate income tax rates. This happened at the federal level during the Trump administration and many people had tangible prosperity that they’d never experienced. But the Biden administration may soon reverse those gains if progressives in D.C. have their way, which makes more competitive tax systems in Iowa and other states essential.
Legislatures in Arizona, Mississippi, and West Virginia are currently considering bills to phase-out their state income tax. For Iowa to remain economically competitive, it must follow suit. Iowa’s tax rates matter because we are in direct competition with 49 other states for businesses, jobs, and people. For example, South Dakota, Iowa’s neighbor, does not tax individual or corporate income, making it far more economically competitive.
Texas, another no-personal-income tax state, is a national leader in terms of economic growth and attracting both people and businesses. Iowa could also learn from Texas’s recent property tax reform in 2019, which limited growth in property taxes without voter approval to 3.5 percent for local governments and to 2.5 percent for school districts. They are even considering improving their tax system by eliminating nearly half of their property taxes.
Higher tax rates not only deter economic growth, but they also penalize hard-working individuals, families, and businesses. Taxes on income are considered the most harmful of taxes as they discourage productivity, hiring, and investing in Iowa.
In 2018, Governor Kim Reynolds and the Republican-led legislature passed pro-growth tax reform that lowered income tax rates and broadened the sales tax base. Reducing tax rates and practicing responsible spending policies is making Iowa more competitive and economically strong.
As a result of the 2018 law, this year Iowa’s corporate tax rate fell from 12 percent, the highest in the nation, to 9.8 percent—matching Minnesota’s. Even at 9.8 percent Iowa still has the third high corporate tax rate in the nation.
In 2023, the income tax is scheduled to be reduced to 6.5 percent—making it more competitive in the region. The caveat is, for the rate reduction to occur, it must meet two stringent revenue triggers.
First, state revenues must surpass $8.3 billion. Second, revenue growth must be at least 4% during that fiscal year. The use of revenue triggers in state tax policy can be a good idea but creating a high threshold can unnecessarily delay tax rate reductions and reduce the necessary restraint on government spending—the driver of higher tax burdens.
Lowering income taxes should not be hindered by the 4% growth trigger, so repealing it to use any revenue above $8.3 billion for cutting the income tax would reduce a major roadblock to tax relief and provide taxpayers with more certainty they can use to plan for their more prosperous futures.
Gov. Reynolds continues to stress the importance of making Iowa’s tax code more competitive. The Iowa Senate has passed legislation that will repeal both revenue triggers and phase-out the obsolete inheritance tax. Both measures would place taxpayers first and make the state’s tax code more competitive.
Iowa can look to states such as Texas, Indiana, North Carolina, among others that are creating pro-growth tax codes and practicing fiscal restraint. To be an economic leader in the Midwest—and to let people prosper—Iowa cannot afford to become complacent.
Texas’s economy continues improving from the challenges of the COVID-19 pandemic and forced business shutdowns by government since spring 2020. More on the data and how Texans can get back to work as quickly and safely as possible ⬇️
“Hey Florida! Help is Here.”
That’s how Vice President Kamala Harris recently put a 21st Century spin on Ronald Reagan’s famous quote, “The nine most terrifying words in the English language are: I’m from the Government, and I’m here to help.”
What does this have to do with the Texas budget and House Bill 3548? Let me explain.
The premise of the Vice President’s tweet is that government’s job is to swoop in and solve all of our problems. The premise of Reagan’s quote is that too often, government is the problem—or at least standing in the way of solutions. Reagan was right, of course; government fulfills some necessary functions, but in most cases, more government means less freedom.
That’s why we at the Texas Public Policy Foundation have labored for years to chisel the idea of a Conservative Texas Budget into the hard granite at the Texas state capitol. Our reasoning is clear — people don’t need more government; they need more opportunity. And our simple formula reflects that: The state’s total budget, which is the footprint of government funded by taxpayers, ought not to grow faster than our population growth plus price inflation. This spending limit is reflected in Rep. Matt Krause’s committee substitute for HB 594, which has been referred to the House Appropriations Committee.
Growth beyond that equation is an excessive growth of government—meaning bigger state agencies, which inevitably assume more and more regulatory powers to themselves. And a bigger budget also means more taxes, since states (unlike the federal government) can’t hide behind deficit spending. Government shouldn’t grow faster than the citizens’ ability to pay for it.
Now, state Rep. Greg Bonnen, who chairs the House Appropriations Committee, has had his HB 3548 referred to that committee. And Sen. Kelly Hancock, a member of the Senate Finance Committee, has the companion SB 1336 that will be heard before the Senate Finance Committee (of which he is a member). This legislation would improve the state’s current weak spending limit by expanding the base to all general revenue funds and by changing the growth limit to one closely related to ours of population growth times inflation.
It’s important to note that the Conservative Texas Budget is a ceiling, not a floor. It’s a limit on how much the budget can increase, not a target. There’s no limit on shrinking government, cutting taxes and reducing regulations. That course would be best for Texans, and TPPF has outlined many ways in which lawmakers should do so. Our top 10 legislative priorities for this Session, which we call our Liberty Action Agenda, provides a clear path for legislators to shift power and prosperity back to the people of Texas.
While Chairman Bonnen’s and Sen. Hancock’s legislation would set an improved formula closer to ours into stone and ensure that future Legislatures comply, we are pleased to see that both the House’s and the Senate’s introduced (proposed) budgets fit within our guidelines. Our math says that a total of $246.8 billion in all funds for 2022-2023 would represent a 5% increase over the last biennium, matching the growth in population plus inflation. Both proposed budgets came in under that number after excluding $6 billion toward maintaining property tax relief from last session instead of growing government.
Historically, lawmakers have been too ready to increase the Texas budget and grow government. But in 2015, we introduced the Conservative Texas Budget, giving legislators a clear bar. Prior to this, the average growth rate of the biennial budget from 2004 to 2015 was 12%. With the Conservative Texas Budget in place, the average growth rate was just 5.5%. More importantly, before 2015, the average growth rate of appropriations exceeded that of population plus inflation by almost 5 percentage points, while since then, growth has been limited to an average of almost a full percentage point below population and inflation.
The Conservative Texas Budget provides a path toward responsible state spending. It has proven to be successful at restraining excessive growth in government in the past, and it will continue to do so in the future if followed each session.
That’s why Chairman Bonnen’s and Sen. Hancock’s legislation, which codifies much of the Conservative Texas budget, is so important. It’s the help Texas families truly need.
“Stimulus” checks are in the mail to many (but not all) Americans, and the news is awash in stories about the best ways to spend that $1,400, and even speculation about whether we’ll see a “stimmy rally” on Wall Street.
But Texans are smart enough to know that no check from the government comes without strings attached.
President Joe Biden’s $1.9 trillion monstrosity is filled with a progressive “wish list;” only about 9% of the funds have to do with the pandemic.
Additionally, it will add substantially to the national debt, saddling us and our kids and grandkids with the tab while moving toward another redistribution recession as these funds reduce incentives to work, open states, and move off of government dependence.
And to make things worse, President Biden is already planning huge tax hikes to pay for more that would ultimately be paid by workers.
It’s no different for the states, which will also be receiving ARPA funds soon. There’s no such thing as free “stimulus” money; there are always strings attached. That’s why Texas’s leaders must be very careful with the roughly $43 billion from the American Rescue Plan Act (ARPA) they’re slated to receive. We must use the money wisely, and possibly, not to use it at all.
Some of the money is already earmarked. As for the more flexible funding the state will receive, Texas can expect about $17 billion to state government and $10 billion to local governments.
The Texas Attorney General’s Office, along with its counterparts in 20 other states, are already questioning the biggest string attached to the funding—Congress’ stipulation that it not be used “to either directly or indirectly offset a reduction in the net tax revenue.”
They rightly argue in a letter to Treasury Secretary Janet Yellen that this provision oversteps the federal government’s authority and could be used to prevent any state from cutting any tax. We need answers from her as soon as possible, especially as legislative sessions in Texas and elsewhere are quickly coming to an end.
On Monday, White House Press Secretary Jen Psaki seemed to confirm this interpretation of the bill. “The original purpose of the state and local funding was to keep cops, firefighters, other essential employees at work and employed, and it wasn’t intended to cut taxes,” she said.
The best strategy for the Texas leadership would be to follow a pro-growth course that lets people prosper without government interference. This approach would seek to keep taxes lower than otherwise, reduce debt obligations and fund only one-time expenditures. And Texas should reject all or most funds with strings attached.
We don’t need to adapt our approach to taxes and spending to fit the vision of progressives in Washington; we already have the successful Texas Model, thank you very much.
We must ensure that we don’t spend taxpayer money in ways that will create fiscal cliffs later on. Boosting public education funding with ARPA, for example, would result in public education “cuts” once that money is gone, and those “cuts” would be met with loud demands for more money from Texans, as was the case after receiving President Obama’s “stimulus” funds in 2009.
We must stick with one-time purchases, or paying off things, if possible, like loans to the federal unemployment insurance trust fund of at least $6.6 billion, paying down state debt that was borrowed at a high interest rate, better funding and reforming other post-employment benefits, or funding startup costs for market-based options in education and health care.
And we would like to see a high level of transparency and accountability. Ideally, all spending related to ARPA would be separated from the rest of the state’s budget and documented clearly on a government website.
But we have something even bolder to suggest: Texas should use some of the funding to extend the border wall, addressing another growing crisis.
The best way to help Texans recover from the economic devastation wrought by the government’s response to the pandemic is simply to let them return to work. ARPA ignores this. Instead, it’s a distraction from the onerous hikes in taxes, spending, and regulation by the Biden administration.
So, if Texas is going to accept this money (and rejecting it in full or in part should be strongly considered given the many restrictions and strings attached), let’s use this taxpayer money wisely, and ensure it goes to help keep Texas Texan.
Vance Ginn, Ph.D.