AUSTIN – Texas Public Policy Foundation Economist Dr. Vance Ginn today gave invited testimony before the Texas Senate Finance Committee on an interim charge to study the economic benefits of phasing out the franchise tax and public testimony on an interim charge to improve budget transparency.
“Simply put, businesses don’t pay taxes; people do in the form of higher prices, lower wages, and fewer jobs available,” said Dr. Ginn. “No matter how you evaluate the franchise tax, commonly called the margin tax, it fails to be a simple tax, fails to meet revenue expectations, and fails to allow Texans the opportunity to reach their full potential. Texans would be best served by eliminating this onerous tax so that they will have available billions more in new personal income and thousands of new private sector jobs. Given the economic and fiscal uncertainty with the current state of the economy, a valuable path to elimination could be to phase it out over the next two budget periods, preferably by reducing the tax rates. For a more prosperous Texas, last session’s progress of cutting this business tax by 25 percent should be continued by putting the margin tax on a path to elimination.
“Regarding budget transparency, it is reasonable to expect the Legislature to provide transparency and accountability of taxpayer dollars. A great way to do this is for the Legislature to convert from a strategy-based budget format to a program-based budgeting layout and provide budget information online in real time throughout the budget process. These would be great steps toward improving budget transparency so Texans can better evaluate how their dollars are spent.”
Simply put, businesses don’t pay taxes; people do in the form of higher prices, lower wages, and fewer jobs available. Given that taxes exist to fund essential government services, the least burdensome taxes should fund conservative budgets, which grow by no more than population growth plus inflation.
The full testimony can be found here: http://www.texaspolicy.com/content/detail/testimony-eliminate-the-margin-tax-to-reach-texans-full-potential
Here's my interview at the link below on these issues and more that starts at the time 14:20.
NEW TEXAS JOBS REPORT SHOWS UNEMPLOYMENT RATE AT OR BELOW THE U.S. AVERAGE FOR 110 CONSECUTIVE MONTHS
AUSTIN – The Texas Workforce Commission on Friday released Texas labor market information for February 2016. The Texas Public Policy Foundation’s Economist Dr. Vance Ginn issued the following statement:
“Job creation in Texas keeps percolating along as February marks the 10th straight month of positive nonfarm jobs created, bringing the tally to 64 of the last 65 months,” said Dr. Ginn. “This job growth has contributed to the state’s 4.4 percent unemployment rate that remains at or below the U.S. average for 110 consecutive months. Although the mining and manufacturing sectors have lost a combined 97,700 jobs during those twelve months, there’s been a healthy mix of job growth in other sectors bringing the private sector total to 142,800 jobs added in that period. Slower job creation is somewhat expected this far into an economic expansion, but Texas remains America’s job creation leader with 34 percent of all U.S. jobs created here since December 2007. These data provide further evidence that limiting the size and scope of government allows free markets to provide the best path towards prosperity.”
This presentation highlights Texas’ economic and fiscal challenges and how legislators can help the state weather these headwinds by limiting the size and scope of government.
Presentation: Can Texas Weather Economic and Fiscal Challenges?.
By Dr. Vance Ginn & Kiara Pillay
Several states legislatures passed tax relief last session. Those that included a substantial tax cut, whereby there was a net decrease in taxes during the budget cycle and were applied broadly and neutrally were included in the American Legislative Exchange Council’s (ALEC) latest State Tax Cut Roundupreport. Chart 1 shows the states that qualified to be included in the report.
Chart 1: States that had major tax changes in 2015
Source: State Tax Cut Roundup
Slower economic growth from higher levels of taxation is historically consistent among states. One can see this clearly by looking at the four largest states, as outlined in this Texas Public Policy Foundation report. Texas and Florida are two relatively low-taxing states, while California and New York are two of the highest.
For example, Texas and Florida don’t have personal income taxes, but California (13.3 percent) and New York (12.7 percent) have the two highest nationwide. From 1990-2014, Texas has outpaced California and New York in personal real income growth. With personal income growth of 125 percent in Texas compared with California’s 62 percent and New York’s 41 percent, it’s easy to see that a low tax environment contributes to economic prosperity.
Chart 2: Texas outperforms California and New York in personal income growth, 1990-2014
Source: State Tax Cut Roundup
Texas legislators pushed for tax reform during the last session. They ultimately voted to eliminate annual professional fees, which resemble a tax, helping about 600,000 workers save a total of more than $125 million. In addition, they passed a massive $3.8 billion dollar tax relief package. This package included a reduction in the business franchise tax, also called the margin tax, and an increase in the homestead exemption for school districts to provide some property tax relief.
Finally, Texas Legislators eliminated or reduced misleading taxes that were previously labeled fees. These fees made it difficult to enter professional fields. Some examples of these taxes include delivery fees of petroleum products and elimination of multiple $200 professional licensing fees.
Overall, Texan’s will have about $4 billion more dollars in their pockets during the 2016-17 budget period by this tax and fee relief. With more money in their pockets, Texas is sure to experience greater economic prosperity than otherwise.
It’s nice to see Texas made it in the ALEC report this year. Let’s make sure that it’s in there again after the 2017 Legislature by continuing to put the margin tax on a path to elimination.
Found here: http://www.texaspolicy.com/blog/detail/texas-makes-it-in-the-state-tax-cut-roundup-after-major-tax-relief
By Dr. Vance Ginn & Kiara Pillay
What is Texas the best at nationally?
One could argue that Texas is the best in many areas. They would be correct. According to a recent report published by the Federal Reserve Bank of Dallas, one area that Texas has been a leader in is job creation, especially in the technology sector as more companies move to the Lone Star State.
With Texas’ economy increasing at three and a half times the U.S. rate from 2006 to 2014, this contributed to average annual job creation of 1.9 percent that’s substantially higher than the nation’s 0.4 percent rate during that period.
The mining industry, which is dominated by oil and gas activity and comprises 15 percent of the state’s real private economy, has contributed much to the state’s remarkable growth. Texas is the nation’s production leader in crude oil with 37 percent of the U.S. total and in natural gas with 28 percent. Meanwhile, the technology sector, which includes IT and telecom, continues expanding. Employment in this sector increased by 10 percent from 2006 to 2014 and now comprises 5 percent of the workforce.
With major companies such as Google and Facebook, as well as other technology companies, having large campuses in Austin, technology is an increasingly important part of the state’s economy. This technology boom statewide has helped to offset the oil and gas production slowdown from lower energy prices.
Much of this is benefited by Texas’ low taxes, low cost of living, and sensible business regulations compared with states like California. According to theDallas Morning News, 1,510 companies left California from 2008 to 2014 with about 15 percent of those companies settling in the Lone Star State. Chart 1 shows that this has contributed to a conservative estimate of 37,553 new jobs and $6.5 billion in new investment in Texas.
Chart 1: Texas Rapidly Steals Businesses From California
Source: The Dallas Morning News
This Dallas Fed report provides more evidence that while the Texas economy has a large base of oil and gas activity, economic diversification, especially with the expansion of the technology sector, continues to help Texas weather economic headwinds. The pro-growth fiscal policies of low taxes, sensible regulations, and others that contribute to a low cost of living and prosperous business climate must be continued for Texans to have the greatest opportunity to achieve their hopes and dreams.
This commentary originally appeared in the San Antonio Express-News on March 13, 2016.
Union officials and liberal activists are, again, agitating in the Alamo City for a dramatically higher minimum wage for public employees. Their target this time: the San Antonio Independent School District.
Community activist groups, such as COPS/METRO and the Southwest Workers Union, reportedly showed up at a recent SAISD board meeting to push for a proposal “raising the wage floor to $13 per hour next fiscal year and $15 per hour within three years.” Their message was apparently well-received by some.
SAISD board President Patti Radle expressed her support: “We are in this together. This board is anxious to pay decent wages to its employees,” according to a report in the San Antonio Express-News.
The problem with this, of course, is that it’s feel-good economics that’s neither sound nor prudent. Basic economics explains how we act to satisfy our desires given scarce resources.
Given that money is scarce, employers in the private and government sectors have limited resources to pay workers. This is why it’s essential for employees to be paid based on their merits and not on the failed approach of across-the-board government-mandated raises.
Research shows that a minimum wage most hurts those it’s intended to help, particularly the young, low-skilled and less-educated, as they have fewer job opportunities. This reduces their lifetime earnings potential with less on-the-job training, promotions and experience, which are the foundations of the more productive path of merit-based pay raises.
A minimum wage also tends to redistribute income from low- to high-skilled workers. If a low-skilled worker is too costly at a higher minimum wage, an employer will likely find a technology to replace that worker. A new technology, such as a kiosk replacing a person keeping track of students and others at a school, will be invented, built and maintained by higher-skilled, higher-paid workers.
Another way a higher SAISD minimum wage would be costly: If less productive workers are kept on staff, then higher taxes and fees must fund those expenditures. Higher wages that are artificial would also put more pressure on the state’s retirement systems as those wages correlate with higher defined benefits after retirement.
For those interested in the livelihood of the poor and income inequality, the minimum wage fails to deliver a brighter future. To put it bluntly, minimum wage increases are bad public policy because they don’t incentivize productivity and they unnecessarily burden taxpayers.
Beyond the fact that minimum wage policies violate the tenets of sound economics, there’s also a big fiscal problem. That is, SAISD is deeply in debt.
The Texas Bond Review Board’s latest figures show that San Antonio ISD’s debt totals $1.1 billion, or roughly $20,250 per student. The district’s deluge of red ink has swelled by more than $204 million since last year and by almost $365 million since 2010.
The district’s big and fast-growing debt has not been without consequence. SAISD taxpayers bear an elevated property tax burden, which could be one of the reasons that families are leaving the district, causing a steady decline in student enrollment.
According to the Texas comptroller, SAISD’s student population shrank by 4.9 percent between the 2004-05 and 2013-14 school years. In contrast, enrollment statewide surged by 14.6 percent during the same period.
The district’s high debt and shrinking student enrollment strengthen the economic arguments against a higher minimum wage and make clear that SAISD should soundly reject this kind of policy.
If the district wants to reward high-performing employees with additional pay, then it should explore other ways, like finding savings within its budget — made easier by the fact that there are fewer students to service — and redirect those dollars to workers as merit raises. This would allow the district to achieve its stated goal in a responsible manner.
TEXAS EMPLOYMENT REPORT SHOWS THE UNEMPLOYMENT RATE HAS BEEN AT OR BELOW THE U.S. AVERAGE FOR 109 CONSECUTIVE MONTHS
AUSTIN – Today, the Texas Workforce Commission released Texas labor market data for January 2016. The Texas Public Policy Foundation’s Economist Dr. Vance Ginn issued the following statement:
“Texas’ diversified economy continues to create jobs in multiple industries with 31,400 net nonfarm job increase in January; another positive number for all but two of the last 64 months,” said Dr. Ginn. “This brings the total for the last twelve months of data to 187,400 net job gains, contributing to keep the state’s 4.5 percent unemployment rate at or below the U.S. average for 109 straight months. Although the mining and manufacturing sectors have lost a combined 97,900 jobs during those twelve months, which is driven by low oil prices and slow global economic growth, the manufacturing sector added 4,300 jobs in January.
“There are certainly major headwinds facing the Texas economy, but the mining sector directly employs only 2.5 percent of the private labor force and combined with manufacturing is 11 percent. The positive job gains have been primarily in the private service sector with 236,500 jobs added during the last twelve months across multiple industries that range from high wage to low wage jobs for all Texans. While hurdles remain, the Texas model is a time tested combination of limited government and individual responsibility that helps weather the jumps no matter the distance.”
Vance Ginn, Ph.D. is an Economist in the Center for Fiscal Policy at the Texas Public Policy Foundation.
The Texas Public Policy Foundation is a non-profit, free-market research institute based in Austin, Texas.
This commentary, written by Dr. Vance Ginn and Kiara Pillay, originally appeared in Real Clear Policy on March 1, 2016.
The Census Bureau recently reported international trade data for 2015 that show imports exceeded exports by $532 billion, which is up 4.6 percent from 2014. Texas alone, while ranking first in exports at $251.1 billion, still imported $400 million more than it exported.
Some find these "trade deficits" worrisome. Intuitively, it seems bad that more money is leaving the country than is coming in. It also seems obvious that while exports support jobs here, imports support jobs abroad — justifying claims that a trade deficit represents jobs "lost" to places like China.
In reality, however, free trade is an enormous boon to human well-being, and the trade deficit is at most a minor concern. Some of the trade deficit does result from bad government policies, such as trade restrictions and currency manipulation. But efforts to fight those policies abroad could result in trade wars, which would do far more harm than good. The better approach is for each country, including the U.S., to focus on improving its own laws.
Free trade is based on an economic principle called "comparative advantage" that has revolutionized our lives. Since it’s practically impossible for a person to be entirely self-sufficient given the demands of daily life, individuals benefit from voluntary exchange. This allows division of labor and specialization to flourish: Someone who's good at farming grows enough food to feed many people, while someone who's good at fixing sinks becomes a plumber.
There’s something magical about trade between individuals in different countries — we no longer need to barter directly with our buyers and sellers. We trade goods and services with those in China to satisfy our desires while never meeting the people we transact with.
The data show that last year, the U.S. exported $2.23 trillion and imported $2.76 trillion in goods and services. We had trade surpluses with some countries, including Hong Kong and Singapore, and deficits with others, the largest being with China at $366 billion.
According to data collected from the Census Bureau but not yet fully publicly available, the two largest internationally trading states — Texas and California — represent almost 30 percent of total U.S. exports and imports. (They're just 20 percent of the U.S. population.)
Texas makes for an interesting case study, as it showcases a wide variety of trade phenomena. It's long been known as an oil exporter, but this year, exports of technological goods (28 percent of the total) surpassed petroleum-related goods (23 percent) for the first time. The benefits of exports are obvious enough: According to the International Trade Association, more than one-fourth of Texas’ manufacturing workers depend on them.
But what about the state's $400 million trade deficit? If having imports greater than exports really made people worse off, there would be widespread unemployment and poverty. This misconception goes back to the mercantilist argument that isolationism and government export supports are the keys to prosperity. Rejecting this ideology has led to massive prosperity.
Simply, free trade allows Americans the ability to satisfy their desires by purchasing goods and services of better quality or lower price elsewhere. If that happens to lead to more purchases from other countries than they purchase from us, and therefore a trade deficit, then so be it.
Imports support job creation and are an essential part of a well-functioning economy. By importing cheaper electronic equipment from China, for example, not only do consumers pay less for the things they want, but producers also pay less for the technology they need to run their businesses. Collectively, this generates more economic activity in the U.S. than there would be otherwise.
There are legitimate concerns about the loss of jobs from trade, especially when it results from government intervention through international trade barriers, currency manipulation, and domestic public policy. But the more politicians push to address things like these abroad, the more likely they are to incite trade wars, and everyone will lose in the process.
Instead, politicians should start looking internally for policy changes to those hindering economic activity and trade. For example, a higher minimum wage raises the cost of production, thereby incentivizing producers to purchase goods from countries with lower wages. The highest corporate income tax in the developed world incentivizes producers to move to less costly countries and export their products to the U.S.
The lessons of comparative advantage still apply. The best path forward is to allow free markets to work.
Vance Ginn, Ph.D.