This commentary was originally featured in The Gilmer Mirror on February 27, 2018.
Critics often claim Texas’ prosperity is based on abundant oil and natural gas production.
Others suggest it’s a “miracle.” Evidence, however, proves the Texas model, based on conservative fiscal policies, that ranks second best in economic freedom according to the Fraser Institute supports sustained human flourishing.
With less than 10 percent of the U.S. population, Texans have created 26 percent of all jobs added nationwide since December 2007. Texas’ two million new jobs exceed the combined populations of Wyoming, North Dakota, and Vermont.
This historic job creation has contributed to a near record low unemployment rate of 3.9 percent rate in December 2017. That rate marked the 42nd straight month of an unemployment rate at or below 5 percent, which some economists consider full employment.
There’s no doubt oil and gas played a role.
History shows Texas’ economy boomed when oil prices spiked in the 1970s, then bust when they collapsed in the 1980s. But Texas’ economy is more resilient to oil price fluctuations today.
The mining sector, dominated by oil and gas activity, accounted for roughly 20 percent of real private output and 5 percent of workers in the 1980s. Now, oil and gas activity directly represents only about 10 percent of output and employs just 1.8 percent of the labor force.
The drop in oil prices from nearly $110 in 2014 to around $60 today should have led to a severe recession in Texas had critics been correct. Instead, Texas’ real private economy grew by an annual average of 3.3 percent amidst the oil bust helping almost single-handedly pull the U.S. average growth up to 2.3 percent.
Contributing to Texas’ resiliency is diversification into healthcare, financial, and other professional sectors with high-paying jobs. Jobs in the lowest wage quartile increased by about 33 percent while the top two wage quartiles each increased by 25 percent in Texas from 2005 to 2014 according to the Federal Reserve Bank of Dallas. Comparatively, Texas’ job creation exceeded that for the rest of the nation in each income quartile, rebutting critics’ arguments that Texas creates only low-wage jobs.
The free enterprise system in Texas provides jobs for workers with all skill levels and experience — a key to individual prosperity.
Some point to Texas’ nearly worst ranking in the Census Bureau’s official poverty measure as evidence of a failed model. That measure, however, doesn’t include regional variations such as cost-of-living differences or non-cash government benefits, like housing and food assistance. The Bureau’s new Supplemental Poverty Measure does correct for these exclusions, putting Texas’ poverty rate instead at the national average of 14.7 percent, down from 14.9 percent in the previous report.
The Texas model has performed well over time.
The last major federal tax reform before what Congress just passed was in 1986. Since then Texas has practiced more fiscally conservative policies. A result was Texas’ real private economy quadrupling from 1987 to 2016. This translates to a compounded annual growth rate of 4.9 percent, which was 40 percent faster than the rest of the nation’s 3.5 percent rate.
The Texas model of reducing government barriers to competition lets people prosper more—a big reason why more people move here. In 2017 alone, Texas’ population increased by almost 400,000 from births and migration from other countries and states, particularly those from big government states noted by recent U-Haul migration trends.
Texas has taken strides to limit government’s growth and empower Texans in recent years. But there’s more to do.
The Foundation has launched the Texas Prosperity Promise (www.texasprosperitypromise.com/) campaign to promote and sustain the prosperity of all Texans by focusing on areas ripe for major reform. These areas include property taxes, education, spending restraint, government accountability, and self-governance.
But let’s not fool ourselves as we cast our ballots for folks offering a path towards greater prosperity, Texas is prime evidence that freedom works.
Texas ranks the 2nd most economically free state, tied with Florida, in the U.S. according to the Fraser Institute. This ranking is based on levels of taxes, government spending, and labor market freedom. Figure 1 shows states that rank in each quartile of economic freedom.
Research finds that higher economic freedom is overwhelmingly linked to a variety of economic benefits, which is why Texas cannot rest on its laurels but rather continue to free Texans from unnecessary economic barriers to competition.
Here are three of the many findings:
Last week the Texas Public Policy Foundation held the 16th Annual Policy Orientation. This three day event included a number of keynote speeches and panels on key policy issues (watch YouTube Channel for all panels).
I had the honor of moderating the following panels dealing with the Center for Economic Prosperity:
Please watch and share as you see fit. This is truly one of my favorite times of the year. May you enjoy and learn as much from these videos as I did.
This content was originally featured in the Houston Chronicle on February 5, 2018.
Students across Texas enjoyed a rare snow day - or even two - last week, as ice and snow kept campuses closed from Houston to Tyler to Austin. For most, it was a welcome break, though they knew there would be work to make up when they return.
One critical topic they'll need to address is education.
Although most of the debate has centered on how much money has been or should be spent, the focus should not be on taxpayer dollars spent, but on how to spend that money equitably and effectively. The facts show that Texans need more education for their money, not more money for education.
Texans can prosper by revamping the school finance system through education freedom, not by pouring more money into a broken system. Student-centered funding will ensure that dollars flow to the child and the classroom, not to bureaucratic bloat and infrastructure.
Critics say, as they have always said, that we must spend more. They even contend that Texas has cut funding for public education.
But when the dollars are adjusted for inflation, we see that Texas spends billions more on public education now, on a per-student basis, than the 2004-2005 school year. In fact, education spending is on the rise.
Critics often point to a couple of years - 2008 to 2010 - to show that the Legislature has "cut" school funding. But that's misleading.
It's true that per-student spending was higher, but that was because of a massive, one-time infusion of funding from the federal stimulus bill – the American Recovery and Reinvestment Act.
School district budgets in 2008 also benefited from another phenomenon.
Following a Texas Supreme Court ruling that declared the school finance system unconstitutional, lawmakers enacted a new business margins tax to pay for a reduction in property taxes. But any relief that Texas property owners saw from that cut was short-lived, as appraisals kept their tax bills high.
And that's why it's disingenuous to use 2008 - a high-water mark for education spending in Texas - as the standard. A broader view shows that Texas is spending $23.4 billion more for education than it was in 2004-2005.
But are we getting sufficient education for our money? The evidence says we are not, and the reason is clear. Education spending in Texas is not focused on the students; it's focused on the school system.
In the 2015-16 school year, for example, Texans spent $12,257 per student, with a standard classroom of 20 students receiving roughly $245,000. But teachers - the biggest factor in the quality of education - received only 21 percent of that per-classroom expenditure. The average teacher salary was $51,891.
Where did the money go? In large part, it went to administration.
Since 1993, the number of students in Texas has increased by 48 percent, while the number of staff has increased by 61 percent. Yet the number of administrators and other staff employees, not including teachers, has increased by 66 percent. Our public schools grew rapidly, but their administrations grew more rapidly still.
One study shows that if school districts had kept the growth of non-teaching staff to the same rate as the increase in students, Texas' public education system could have saved $2.2 billion annually or increased each teacher's benefits by $6,318.
What's the solution? We must refocus Texas education on the consumers - students and their families.
The courts have consistently found that Texas education is inequitable on a per-student basis. So that's what our approach should be - equity for students. We should move to student-centered funding, which lets money follow the student and allows parents to decide the best way to meet their children's needs.
Last year, the Legislature created the Texas Commission on Public School Finance. That group has the opportunity to recommend real reform - increasing educational freedom through a student-centered funding model, the kind that research shows will improve educational outcomes.
And when lawmakers are called back from their long break, they'll have the opportunity to make these reforms real, for the benefit of Texas.
BY VANCE GINN AND DREW WHITE, OPINION CONTRIBUTORS
Original can be found at The Hill
The good news keeps coming. Since the passage of the Tax Cuts and Jobs Act, announcements about increased investment in the U.S. and various companies offering employees bonuses haven’t stopped.
The vast majority of Americans will prosper from the Tax Cuts and Jobs Act. As an economist and policy analyst, we’ve been skeptical of the Trump administration’s direction on some issues, like NAFTA renegotiations, but we’re encouraged by the results of regulatory and tax reforms because they let people prosper, the flipside of what’s been stifling us.
This first major rewrite of the federal tax code in a generation is a historic moment for our republic. The institutional framework that stifled Americans can again work for We the People instead of for bloated governments.
We admit that the bill isn’t perfect and encourage Congress to follow this massive $5.5 trillion gross tax cut with spending restraint. That’s especially important because without spending reductions roughly $500 billion could be added to the national debt in the next decade. Also, doing so will help keep the roughly $112 trillion in federal IOUs from requiring government to further infiltrate our lives.
We’ve experienced government’s overreach during the worst recovery since WWII of about two percent annual growth while the national debt almost doubled under the Obama administration’s high tax and spend policies. This reshaping of institutions increased barriers to prosperity through excessive regulations, like ObamaCare, and higher taxes that redistributed resources among people.
America voted for a new institutional direction in 2016.
Regarding regulations, the Trump administration has already repealed 67 of them while creating only three. Entrepreneurs can now budget lower costs longer which contributes to more investments in workers and capital. The result is faster economic growth with a three percent average annualized growth the last three quarters of 2017 matching GDP’s long-term average, which has lifted consumer sentiment.
The tax bill’s most sweeping changes include cutting the corporate tax rate and individual income tax rates for most Americans. Sixty percent of the gross tax cuts go to families while the rest goes to businesses.
As expected, critics claim these changes benefit the rich. Interestingly, the corporate tax rate cut once had bipartisan support, as President Obama proposed cutting it to 28 percent, and progressives passed and extended much of President Bush’s personal income tax cuts.
Regardless, permanently cutting the corporate tax rate from 35 percent, the highest in the developed world, to 21 percent, slightly below the worldwide average, drastically improves employment prospects.
Often missed in the discussion is that corporations simply submit taxes to the government because people pay them through higher prices, lower wages, and fewer jobs available. Cutting the corporate tax rate means corporations can pass those savings along to people.
Businesses are reporting they will pay bonuses and higher wages, immediate pay increases to let people freely prosper.
On the individual income tax side, most taxpayers will pay less tax until at least 2026. According to good tax policy, the tax bill doesn’t flatten as it leaves seven income tax brackets, but it broadens the base by eliminating many exemptions and deductions and simplifies the code by doubling the standard deduction.
Critics claim that these changes could increase income inequality. But history shows that the tax code is not the place to deal with supposed income inequality as it fluctuates whether taxes are high or low. By changing the institutional incentives through this tax bill, more people can move up the income ladder.
But, do only the rich get a tax cut? No. The Tax Foundation calculated the changes in tax liability for multiple households and found that each of them would pay less tax.
An individual earning $30,000 with no kids could pay $379 less in taxes. An individual earning $50,000 with two kids could pay $1,892 less in taxes. A married couple filing jointly earning $165,000 with two kids could pay $2,224 less in taxes. And a married couple filing jointly earning $2 million could pay $18,904 less in taxes.
All income groups receive a tax cut.
Higher income people pay fewer dollars than those with lower income, but that’s because they pay more in income taxes. For example, the top 10 percent of income earners pay 70 percent of federal income taxes collected. However, the share of income taxes paid could become more progressive under these tax changes.
It’s not just more money in people’s pocket, but doubling the standard deduction lets many people spend less time on their taxes and more time with their families. This is great news for working Americans.
Icing on the cake would be for Congress to restrain government spending, the ultimate burden of government.
Bipartisan welfare reform in the 1990s helped cut spending but more importantly improved the lives of many Americans as they returned to work or received better assistance. The amount of waste, fraud, and abuse in these programs along with too many dollars to bureaucracy and not to people make welfare a good place to start.
Reforms to the major drivers of Medicaid, Medicare, and Social Security must be on the table to restrain spending growth while improving them for the truly needy.
Until then, let’s celebrate the Trump administration’s new institutional direction that has long supported prosperity. Skepticism is healthy to provide proper checks and balances on government. But when pro-growth policies like regulatory and tax reforms improve human flourishing, we’re much more optimistic about the future.
Vance Ginn, Ph.D., is director of the Center for Economic Prosperity and senior economist and Drew White is senior federal policy analyst, both at the nonprofit Texas Public Policy Foundation.
Vance Ginn, Ph.D.