Strengthening the Successful Texas Model
Texas continues to recover from the shutdown recession of 2020. The state has made strong progress toward a full recovery, especially compared to other states. But it has much room for improvement by many metrics before we’ll see the robust pre-shutdown prosperity.
In February 2020, Texas had low unemployment and relatively high labor force participation. The unemployment rate was just 3.7%, which some economists consider to be full employment. That basically means the state’s labor resources were being used as efficiently as possible and there was no cyclical unemployment, which occurs when the economy is in recession or growing too slowly.
Likewise, a large portion of the population was participating in the labor market. In February 2020, the labor force participation rate was 64% and the employment-to-population ratio was 61.6%.
That then changed drastically with the COVID-19 pandemic and government-imposed shutdowns in March 2020. By April 2020, those numbers had dropped to 60.2% and 52.4%, respectively, the private sector lost 1.4 million jobs (12.8% decline), and the unemployment rate skyrocketed to 12.9%.
Since then, Texas has regained its lost private sector jobs, plus another 105,200 jobs, and the unemployment rate is back down to 5%.
These data tell an important story about the effect this had on Texans. The best path to prosperity is a job, as work brings dignity and hope to people by allowing them to earn a living, gain skills, and build social capital that endures. Public policy that affects the labor market is so important because it affects people’s livelihoods and their sense of dignity.
Last year, the federal government gave extra unemployment payments on top of normal payments. Together, these payments often resulted in recipients receiving more money than they might have made working. This, of course, incentivized them not to work.
About half the states, including Texas and mostly red states, rightly ended this program early and those states have been recovering faster than the states which continued the program. The states that discontinued the program before its nationwide expiration in September 2021 have averaged lower unemployment rates. They have also recovered jobs faster, relative to the number of jobs they had before the shutdown recession.
Of the 10 states with the highest proportion of private sector employment to pre-pandemic levels, nine are in red states, including Texas. Conversely, six of the 10 states and D.C. with the lowest proportion are in blue places. In general, conservative policies have been more conducive to job growth and overall recovery because they tend to get government out of the way so that people can make the decisions that are best for themselves and their families.
Texas is one of just seven states that have recovered all the private sector jobs lost in the shutdown recession. That is an achievement, but the state is still far behind (3% below) the pre-shutdown trend and other measurements of the labor market’s health show that Texas has more work to do.
The labor force participation rate is still 1.3 percentage points below its pre-pandemic level, meaning that some people have left the labor market, such as those who have given up looking for work. The employment-to-population ratio is also down 2 percentage points from its pre-pandemic level. It’s important to get these figures back to normal.
In November, Texas had 884,000 unfilled job openings and just 770,000 unemployed. That is 114,000 more job openings than workers available to fill them. To fill these jobs, Texas needs more of its people to rejoin the labor market. Achieving that goal starts with responsible government policies.
The Texas Model of lower taxes, no personal income tax, less spending, and sensible regulation is necessary to unlock poverty and let people prosper. Texas’ free-market-focused institutions helped the state outpace the national average both in economic growth and income growth in the latest data for the third quarter of 2021.
Because the 87th Legislature followed many of the Foundation’s recommendations, especially by passing the strongest spending limit in the nation, these successes for the state and Texans will hopefully continue. But we can do better.
Texas can build upon its past success in the upcoming 88th Legislature by further limiting government spending, ensuring opportunities to earn a living, eliminating property taxes, and advancing education freedom.
Such efforts will help families flourish, keep Texas Texan, and make Texas the leader for the rest of the nation.
2023 Responsible Alaska Budget
Alaska’s economy and Alaskans’ livelihoods were hit particularly hard by the government shutdowns associated with the COVID-19 pandemic, and Alaskans are struggling to recover. But businesses are now open, employment is slowly improving, and oil prices are up, which has resulted in the state’s Department of Revenue substantially increasing its revenue forecast by $2.2 billion over fiscal years (FY) 2022 and 2023. As a new legislative session begins, policymakers must ensure fiscal restraint by not overspending. A repeat of the enormous spending in the early 2010s would harm, not help, Alaska’s economy and Alaskans’ opportunity to work to improve themselves and their families every day.
Need for the Responsible Alaska Budget
Alaska Policy Forum is releasing its second annual Responsible Alaska Budget (RAB), now for FY 2023, to help effectively limit state spending thereby restraining the ultimate burden of government. The RAB represents a strong fiscal rule in the form of a spending limit which should eventually be passed and added to the state’s constitution for spending restraint now and into the future, as has been done in other states. Fiscal restraint allows the state to prioritize the needs of Alaskans without excessively growing the size of government, thus limiting the burden on the private sector where productivity advances improve opportunities for people to prosper today and for generations to come. Given the need to overcome the economic challenges over the last couple of years and excessive spending from 2004 to 2015 in Alaska, the RAB is an essential maximum limit for legislators this session to correct past excesses and leave the state’s savings accounts untouched.
Responsible Alaska Budget Calculation
The 2023 RAB sets a maximum threshold on the upcoming state appropriations based on the summed rate of the state’s resident population growth and inflation, as measured by the U.S. consumer price index (CPI), over the year before the legislative session. This threshold is an upper limit for the enacted budget for all state funds, excluding federal funds, the Permanent Fund Dividend (PFD), and fund transfers.
Figure 1 provides the FY 2023 RAB amount of $6.55 billion from a 4.77% increase based on the key metric in 2021 above the FY 2022 base of $6.25 billion. The rate of growth is from a 0.03% increase in the state’ resident population and 4.73% increase in CPI inflation.
The FY 2022 enacted budget was $6.25 billion (2.05% increase), which was $70 million more than the 2022 RAB threshold of $6.18 billion (based on a 0.92% increase in the key metric), meaning it was not a responsible budget. This should be corrected in the FY 2023 budget. Due to higher price inflation over the past year in the U.S. and a small increase in the state’s resident population, the FY 2023 RAB grew by 4.77%.
In addition to high inflation, Alaskan policymakers will also be dealing with the temptation of a high revenue forecast, due to increased oil prices and a well-performing Permanent Fund. Alaska’s Department of Revenue estimated a FY 2023 revenue of $8.33 billion (excluding federal funds), which does include revenue for the PFD, an appropriation we do not include in our maximum threshold calculation. A responsible budget passed by legislators will not have additional appropriations simply because of the large revenue number. Instead, limiting the growth of government spending to keep more money in the productive private sector will support increased opportunities for Alaskans to achieve their hopes and dreams while helping those struggling to gain the dignity of work by earning a living.
Historical Alaska Budget Trends
Figure 2 shows the Alaska budget trends since FY 2004. During the period from 2004 to 2015, the average annual budget increased by 12%, which was nearly four times faster than the key metric of population growth plus inflation. Since then, the budget has declined annually by 6%, on average, while this key metric increased by 2.4%, meaning that the recent cutting of the Capital Budget has helped to correct for prior spending excesses. Additionally, these budget numbers are only the enacted budgets, not total state spending.
From FY 2004 to FY 2022, the budget grew on an average annual basis by 5%, which was substantially higher than the key metric. Figure 3 illustrates state funds appropriations over this period and the appropriations that would have happened if they had followed population growth plus inflation over time.
The excesses in the earlier period (2004-15) and the adjustments in the later period (2016-22) have compounded over time to result in an inflation-adjusted state budget per capita in FY 2022 that is 9.4%, or $2.26 billion, higher than otherwise. While the FY 2022 budget is just $537 million above where population growth plus inflation would have it, this translates to the state spending an additional $733 per Alaskan than if the state had followed this key metric. This excessive spending has resulted in a bloated state government that reduces private sector economic activity and opportunities for people to prosper.
Alaska Policy Foundation’s FY 2023 RAB sets a maximum budget threshold that will help bring the state budget in check at a state appropriation of $6.55 billion, representing a 4.77% increase based on population growth plus inflation in 2021. Working to enact a budget less than this maximum amount will help immensely in reducing the cost of funding limited government. Policymakers should pass a FY 2023 budget that is less than the Responsible Alaska Budget and put this spending limit in law. Doing so will move the Last Frontier into the future, with a strong, steady economy and a vibrant population with opportunities for Alaskans across the income spectrum to flourish.
By Quinn Townsend, policy manager at Alaska Policy Forum, and Vance Ginn, Ph.D., chief economist at Texas Public Policy Foundation in Austin, Texas. Ginn served as the associate director for economic policy at the White House’s Office of Management and Budget (OMB) during the Trump administration, 2019-20.
“May you live in interesting times,” goes an old saying—usually meant as a curse. When it comes to economics, “interesting” usually means the sky is falling.
Inflation reached 7% at the end of 2021, a rate not seen in 40 years. The Federal Reserve’s balance sheet more than doubled to $8.8 trillion since early 2020. And Uncle Sam’s fiscal house is in shambles. The 2021 budget deficit was almost $2.8 trillion, putting the national debt at $28.5 trillion—nearly 130% of U.S. gross domestic product.
To call this imprudent would be a massive understatement. We need fiscal and monetary rules now.
Money mischief and fiscal follies are intimately related. This isn’t because deficit spending causes inflation—things aren’t that simple. Instead, profligate spending and careless money-printing reinforce each other.
When politicians and bureaucrats have too much leeway, they pursue short-run benefits at the expense of long-run viability. Whether it’s easy money from the Fed or stimulus checks from Congress, papering over unsustainable financial practices is easier than enacting sustainable reforms. To improve Americans’ livelihood, we must break the cycle. Because policymakers have demonstrated they can’t be trusted with discretion, it’s time to give binding rules a try. We can’t reform fiscal or monetary policy alone. Economic flourishing for Americans depends on tackling both.
In the past two years, the Fed purchased more than $3.3 trillion in government debt. Over that same period, Uncle Sam’s deficit totaled almost $6 trillion. That means our central bank indirectly covered more than half of the federal government’s fiscal splurge. Also, Congress authorized spending of roughly $7 trillion since the pandemic started. Even the latest $1.9 trillion American Rescue Plan Act, sold to Americans as a “stimulus,” merely promoted more government. These programs contributed to fewer jobs added last year than the Congressional Budget Office’s baseline. All that wasteful spending drags down the economy.
This is worryingly close to what economists call “fiscal dominance”—monetary policymakers paving the way for spending binges with cheap liquidity. Adam Smith, the godfather of economics, wrote about the continuous cycle of deficits, debt accumulation, and currency debasement that ruins nations. We should work diligently and quickly to ensure the U.S. doesn’t follow.
The solution is a rules-based approach for fiscal and monetary policies. We need strong guardrails around runaway spending and money-printing. A rules-based framework can ensure fiscal and monetary policies work better, both independently and with each other.
For example, we should consider a spending limit that covers the entire budget, capping spending increases at population growth plus inflation. This essentially freezes per capita government spending. By limiting total expenditures, we can minimize the burden on current and future taxpayers. Had this been in place from 2002 to 2021, the cumulative effect on the budget would be a net surplus (debt decline) of $2.8 trillion. This is in stark contrast to the $19.8 trillion in net debt we actually got.
Cutting the national debt means the Fed would have fewer assets to purchase in its open market operations, thereby reducing its ability to manipulate markets and the overall economy. It could then focus on what it can control: price stability. A rule should help achieve this. The Fed drifted off course by needlessly broadening its inflation rule in August 2020. The Fed’s mandate currently includes price stability, maximum employment, and moderate interest rates. But the second and third of these are beyond the competence of central bankers. It’s time to focus the Fed on controlling the dollar’s value.
Congress and the Fed harmed the vibrancy and robustness of the U.S. economy by their poor decisions. Unfortunately, there’s been a bipartisan consensus for irresponsible fiscal and monetary policies in recent years. It’s time for this to change. We need rules-based fiscal and monetary policy to get our economic affairs in order and leave post-pandemic malaise behind for good.
We were promised job growth—after all, that was the main selling point for the March 2021 American Rescue Plan Act (ARPA) from President Biden and the congressional Democrats. Promise made—promise broken.
In February 2021, the Congressional Budget Office (CBO) issued its economic outlook and projected 6.252 million jobs would be added in 2021 without ARPA. The White House then projected ARPA would add 4 million additional jobs for a total of 10.252 million more jobs in 2021.
ARPA was said to be necessary for the labor market recovery. Without it, job growth would slow, but with it, job growth would blossom. ARPA promised to get Americans back to work, get COVID-19 under control, and return the country to normal.
None of this happened.
According to the U.S. Department of Labor, the economy added just 6.116 million jobs in 2021, 136,000 fewer jobs than the CBO estimated without ARPA. At a cost of $1.9 trillion, ARPA was expensive from the start as it was added to an already bloated national debt. Now it appears the law added no jobs to the economy, and possibly cost jobs. It was not just expensive, it was also a detriment to the recovery.
The marketing behind ARPA was nothing new; many spending bills have been sold to the American people as stimulus measures. But labeling government spending as “stimulus” is a misnomer. When the government spends money, it usually only stimulates more government, not productive activity in the private sector.
This is partly because the government has no money of its own and it must get resources from the private sector before it can spend or redistribute them. That means any government spending has a cost which is often ignored by political pundits—but must be paid for all the same.
Whether government spending is financed through taxes, borrowing, or inflation, it represents a burden on the private sector. Whatever alleged benefits are to be derived from government spending must be weighed against the cost of first acquiring the resources needed for that spending.
The more government spends, the greater the burden on Americans.
This was evident in the 2008-09 Great Recession and the slow recovery that followed. Despite record spending by the federal government (once again called stimulus), the economy recovered at the slowest pace since the Great Depression of the 1930s. While total output lagged, employment lagged even more when compared to other recessions.
The labor market has now bogged down again.
Despite 10.6 million job openings, the economy is still missing 3.6 million jobs as compared to before the pandemic and there are still 6.3 million people unemployed.
Instead of supercharging the labor market recovery, trillions of borrowed dollars in new spending are hindering it. Because of direct cash payments, welfare expansions, unemployment “bonuses,” and other government transfer payments, many people are rationally choosing not to return to work. And while some of these programs have expired, their costly effects on people and the federal budget persist.
On top of those pressures, exaggerated fears of the omicron variant along with mixed messaging from government health officials have made some people afraid to go back to work. Other people, particularly in the health care industry, have been hesitant to take a COVID-19 vaccine and have consequently been forced out of their jobs because of ill-advised mandates.
The common factor in these examples is bad policy on the part of the government. Whether it is excessive regulation or spending, these public sector mistakes impact people’s lives in a very real—and negative—way.
ARPA failed to deliver on its promise of growing jobs and instead grew government, especially government debt, which now stands at a mind-boggling nearly $30 trillion, far exceeding the entire U.S. economy.
That debt is like an anchor weighing down future economic growth because it constantly requires interest payments, which sap the nation’s economic growth, meaning fewer jobs and less income. In FY 2021, taxpayers funded the second highest interest payment on the national debt—to the tune of a whopping $562 billion, with no end in sight.
ARPA is just the latest in a long line of massive government spending programs that were billed as stimulus for the economy, but only stimulated more government. That is something to keep in mind the next time Washington promises us more jobs.
Texans will never have the peace of mind of owning their home until property taxes have been eliminated. Until then, Texans are renting from the government, always living with the fear that exorbitant taxes could take their home away. The Foundation has developed a balanced solution to give Texans the relief they demand while also funding the needs for critical services like public safety and education. Our Lower Taxes, Better Texas plan will eliminate a significant portion of Texans’ property taxes by 2033 and make structural reforms that limit local government over-spending to prevent annual spikes in tax bills.
Twenty-one states rung in the New Year by raising their minimum wage, to as high as $15 per hour in California, thinking it will benefit employees in those states. But the minimum wage does the opposite of helping workers, especially for those who need it. Fortunately, 20 states, including Texas, haven’t raised theirs in more than a decade.
Proponents of the minimum wage claim the law helps hard-working people with a “living wage.” But that’s not what the policy does. Economist Art Laffer put it succinctly: “A high minimum wage is extremely damaging to the poor, the minorities, the disenfranchised, and the young.”
As with most policies, the effects of a policy matter more than the best intentions of those who champion the policy’s cause.
The minimum wage reduces jobs and increases poverty. People even move from states with a high minimum wage to states with a lower minimum wage because there are more jobs and more opportunity. That is especially true for young people and others without much experience, on-the-job training, or education.
If you want to know which policies people prefer, see how they vote with their feet. The latest Census Bureau data shows that more than 1,000 people each day moved to Texas in 2021. But the Lone Star State is not alone in attracting new businesses, jobs, and people. Other states with low minimum wages attracted more people than average while states with high minimum wages—California, New York, Illinois—are hemorrhaging people at an alarming rate.
The real minimum wage for employees is always $0. If an employee adds only $8 of value per hour to a business, but the minimum wage is $15, then that person will be unemployed, hence a $0 wage.
As many states have arbitrarily pushed their minimum wages higher for political reasons, low-wage workers are slowly being replaced by machines. This is the classic labor-capital tradeoff forced by government coercion through a labor market regulation rather than through voluntary negotiations by people.
For example, some fast-food restaurants are replacing cashiers with kiosks, which tends to reduce hiring of lower-paid workers while oftentimes increasing higher-paid workers who create, build, and maintain the kiosks. This process increases income inequality, which is something proponents often find concerning.
Although it is never a good idea to raise the minimum wage, now would be a particularly bad time.
Businesses are already facing record-high cost increases from price inflation and a government-mandated minimum wage increase would just be adding insult to injury. The latest data show there are 10.6 million unfilled jobs in the U.S. which is far exceeds the 6.3 million unemployed people. While this precarious labor market situation has many causes, a high minimum wage is certainly not helping.
By eliminating some low-skill jobs, the minimum wage reduces the opportunity for many people to climb the ladder of success. Without that entry-level job, many people never escape the cycle of government dependency and poverty, never gain skills, and never become eligible for higher-skill jobs. That creates a mismatch in the labor market for better jobs.
Some of the compensation people receive in their first job isn’t even monetary; it’s learning skills, dignity, and purpose. A first job teaches a person how to work hard, the value of showing up on time, and how to work with others.
Low-wage jobs are not designed to support a family; they’re an important first step on the ladder of success to better jobs with higher pay. Governments raising the minimum wage eliminates many of these jobs, and that cuts out the first rung on the ladder for those who are most vulnerable.
Opportunity and work provide the best path to a successful, self-sufficient, rewarding life. Eliminating this pathway segregates those individuals and confines them to dependency on government.
This disproportionately affects those groups (young, part-time workers, unmarried, and without a high school diploma) who rely on a low-wage first job to give them a hand up out of poverty.
If we truly want a level playing field for all employees and equal opportunity for all, the last thing we want is a higher government-mandated minimum wage.
A Responsible Kansas Budget
The state of Kansas has experienced what are arguably excessive monthly tax collections over the past year. Last month alone exceeded expectations by 7.8%. This comes as a backdrop for the upcoming legislative session where ideas such as eliminating the sales tax on food and offering a $250 tax rebate have been pitched by Governor Laura Kelly. Beyond these proposals for this year, legislators have an opportunity to approach the budgeting process differently with this excess cash.
Kansas has an opportunity to cement strong budgeting practices. Kansas Policy Institute is releasing the Responsible Kansas Budget in conjunction with our colleagues at the Texas Public Policy Foundation. This aims to be a model which limits the growth of government spending to the sum of the state’s population growth and inflation. In 2021, Kansas’ CPI inflation increased 2.36%. At the same time, Kansas’ population growth declined .04%. The sum of these values, a 2.32% increase, would serve as the maximum growth rate for All Funds appropriations in FY 2023. Since Kansas’ All Funds budget for FY 2022 is $20.5 billion, the RKB in FY 2023 would make the budget a maximum of $21.0 billion.
Limiting the growth of spending limits the growth of taxation. After the implementation of policies similar to the RKB as part of the Texas Public Policy Foundation’s Conservative Texas Budget, the growth of total spending between 2016 to 2023 in Texas was less than half of the average growth of the prior six budgets. This is important because lowering taxation, and by extension lower spending, gives Kansas families more opportunities to choose what they want to do with their money. Lower taxation is key to a healthy business environment with job creation and new wealth entering the community. Controlling spending is about keeping money in Kansans’ pockets.
Vance Ginn, the chief economist at Texas Public Policy Foundation and co-author of the report, said, “The ultimate burden of government is how much it spends of taxpayer dollars. This is why any increase in the state budget should be less than the average taxpayer’s ability to pay for it, as measured by population growth plus inflation, which is what the Responsible Kansas Budget sets as a maximum threshold on the state’s upcoming budget. We have seen the success of this approach in Texas, resulting in increased opportunities for people to flourish for many years. I’m excited to partner with Kansas Policy Institute in ensuring Kansas is a great place to raise a family and start a business.”
Legislators have the power to control taxing and spending in an unpredictable economy. It is the government’s responsibility not to put an undue tax burden on citizens by controlling spending. Having a more responsible budget keeps more money in taxpayers’ wallets, promotes business investment, and helps slow government creep into peoples’ lives.
View the Responsible Kansas Budget in our report below.
Opportunity Overcomes Poverty
What’s the answer to poverty? I believe it’s opportunity—and hope.
I grew up in South Houston, Texas, an urban area of Houston in the 1980s and ‘90s. I lived in a lower-income, single-mother, two-child household. My mostly absent father was on disability due to epilepsy.
I had opportunities to attend private school, public school, and finished K-12 in home school. But those years were tough—in a loving yet chaotic home shadowed by traumatic events, budget troubles, and stints of living at my grandparents’ house.
Much of poverty is dependent on family structure and location.
Kids living with a single mother are much more likely to live in poverty than with a father and mother. And this is associated with less upward income mobility and higher incarceration rates. But some overcome this path by taking available opportunities, whether divinely or otherwise directed.
For my part, I made bad decisions in my late teenage years that could have devastated my future in ways that so many others suffer.
I started on the right track by working at 16. But I started straying the next year when I began living the “rock star” life as the drummer for a hard rock band. Over the next few years, I found myself walking close to the edge of life and the law.
Fortunately, God’s grace—evidenced through a life-threatening car accident—changed this trajectory from poverty, jail, or death to meeting my calling of helping others. I went on to college, earning a doctorate in economics. Then I found a fulfilling career and built a loving family.
At every juncture, a combination of grace and opportunity (also, in my view, a manifestation of grace), opened new paths to me.
One such opportunity allowed me to earn my high school diploma. Others helped me to start a full-time job, and to get married before having kids. Unknown to me at the time, this is what’s called the success sequence—and it put me in a better position to achieve prosperity. And this success sequence is clearly correlated with less poverty and better family outcomes.
But not everyone has the same opportunities I had—most often, because government gets in the way.
And that’s precisely why the Texas Public Policy Foundation is releasing its Alliance for Opportunity campaign. This campaign will work closely with similar efforts by the Georgia Center for Opportunity and Pelican Institute in Louisiana in releasing an online roadmap with practical ways to provide poverty relief.
The Alliance is working to move people off government dependency onto a path toward self-sufficiency, hope, community, and restorative justice.
Ronald Reagan was right when he said, “I believe the best social program is a job.” We need more opportunities for people to receive an education, training, and a job. That’s done by removing obstacles, mostly from government.
The need is clear. Nearly 42 million Americans were on food stamps in 2021, up 5.3% from the prior year, showing more people in poverty. Of course, rapid inflation from bad policies out of Washington has made matters worse. Fewer are working; the key labor market measure of the prime-age (25 to 54 years old) employment-population ratio remains depressed. And the misery index remains historically high even during the recovery. These troubling signs for Americans reject the White House’s claim of a robust economy.
Dependency and lack of community—of the institutions that give our lives meaning—have led to a rapid rise in deaths of despair. While many of these deaths may have been avoided without the mistaken shutdowns, the key to overcoming poverty’s lethal toll is more opportunities to flourish. Oftentimes government supports abundant opportunities while inhibiting others.
But there’s hope. Lives can be saved and improved with strong families, robust civil society, limited government, and free enterprise. Those are the things that make success stories like mine possible.
We have our work cut out for us. But I’m ready to go to work to help make the Alliance’s efforts to improve people’s lives more purposeful and prosperous. Join me.
Vance Ginn, Ph.D.