More Stimulus? No Thanks
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.
Iowa, beware of tax rate complacency
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.
The Ginn Economic Brief: March 2021
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 Texas! Help is Here!
“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.
Iowa Needs A Conservative Budget
Iowa Gov. Kim Reynolds and the Republican-led legislature have mainly been following fiscal conservative principles of limiting spending and reducing tax rates. Gov. Reynolds even received an “A” grade from Cato Institute’s 2020 Fiscal Policy Report Card on America’s Governors for her fiscal conservatism.
As a result of conservative budgeting practices, Iowa’s fiscal house was not only prepared for the economic emergency caused by the COVID-19 pandemic, but it remains in strong condition. Iowa’s budget has a $305 million surplus, and over $770 million in reserves.
Still, there is room for improvement.
Families across Iowa, whether in good or bad economic times, practice priority-based budgeting. Families must make decisions, often difficult ones, on how best to spend their hard-earned dollars. The same is true for small business owners across Iowa who must prioritize their spending to not only keep their doors open but meet payroll and provide for themselves.
As households across Iowa prioritize spending, governments should do the same, and even more so given it’s not their money. This results in a sound reason for government to practice priority-based budgeting or zero-based budgeting, whereby legislators take a close look at how every taxpayer dollar is spent.
Gov. Reynolds has proposed an $8.1 billion budget for Fiscal Year 2022. Although this increase from the $7.77 billion FY 2021 budget does not seem like much, this growth is more than the average taxpayer’s ability to pay, as appropriately measured by population growth plus inflation.
This would compound the higher taxes that Iowans are paying to fund their government.
From 2013 to 2020, Iowa’s budget has grown 1.6 times faster than population growth plus inflation. This means that the cost of government is increasing at a faster rate than the average taxpayer’s ability to pay for government. This does not include the high property tax burden placed on taxpayers by local governments or the $9 billion in federal funds that Iowa received in FY 2019.
If the budget had matched population growth plus inflation over that period, it would have saved a family of four, on average, $430 per year. This may not appear to be a large savings, but for most families an extra $430 is a vehicle payment or extra money to place in savings. Either way, it is more choices of how to spend their hard-earned dollars.
Both Gov. Reynolds and legislative leaders have voiced their concern that Iowa needs a more competitive business tax climate, which the Tax Foundation ranks 40th in the nation. Taxes and spending are two sides of the same coin and Iowa’s high individual and corporate income tax rates will not be reduced if spending is not limited.
Controlling spending will take discipline.
Iowa’s budget has a 99 percent spending limitation in law, which means that the legislature must spend at least 1 percent less than projected revenues. Strengthening the spending limit with a constitutional amendment and limiting spending to no more than population growth plus inflation would help keep spending in line with the average taxpayer’s ability to pay. This is an important measure because it accounts for more people paying taxes and higher wages that are highly correlated with inflation.
The Tax Education Foundation’s Conservative Iowa Budget sets the maximum threshold on appropriations based on population growth plus inflation over the last year. Specifically, the maximum threshold on 2022 General Funds is $7.88 billion after an increase of 1.38 percent. Achieving this feat will help keep more money in Iowans’ pockets so they have abundant opportunities to prosper.
Controlling spending is the most difficult thing for a government to achieve because the demands on government continue to grow. Numerous special interests are also applying pressure on the legislature for greater spending, which often crowds out the voice of taxpayers.
History has demonstrated that governments cannot spend and tax their way to prosperity. Iowa only needs to look at our neighbors in Illinois to see the consequences of out-of-control spending.
Policymakers should consider the Conservative Iowa Budget and work to further limit spending. Keeping spending levels low will not only serve the taxpayers’ interests, but it will also make Iowa more economically competitive so that they have more opportunities to achieve their hopes and dreams.
John Hendrickson is policy director at Tax Education Foundation of Iowa and 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.
The COVID-19 pandemic has changed our routines, but it doesn’t change the laws of economics. Yet it seems government is in the business of doing something when it really should do nothing, such as the recent proposals by President Biden and Congress to spend more and raise the federal minimum wage in the name of pandemic relief.
These actions would not only make a bad economic situation worse, especially for the ones the policies are intended to help, but they would destroy the unity that the president says he wants.
We’ve already seen the devastation that government action can cause during the pandemic, as the broad U6 unemployment rate remains at an elevated 11.1% and almost 800,000 people are filing initial jobless claims every week. The government shutdowns are an unfolding tragedy, and we won’t know their full extent for years to come.
But, as usual, there’s another attempt to put a patch on the American economy with an unnecessary, poorly crafted monstrosity of a $1.9 trillion COVID-19 relief package, which includes raising the federal minimum wage from $7.25 to $15 per hour by June 2025.
This boondoggle sends taxpayer money to people through checks when real personal income reached a record high in 2020. Its higher unemployment payments will distort incentives to work. And it will bail out profligate state and local governments when they’ve already received nearly three times more in taxpayer funds than their estimated losses.
Collectively, this package could delay the needed reopening of our economy, the only real path to regain Americans’ taken prosperity.
The focus of a package—if it must be done—should be to get the vaccines out as quickly as possible to open America now so that people can regain their prosperity they had before the pandemic. Better yet, a pro-growth approach of spending restraint, tax relief, and deregulation would be a better federal response.
In fact, the latter two measures (tax relief and deregulation) were practiced by the Trump administration and it contributed to records of the highest real median household income and lowest poverty rate in 2019. And while President Trump’s budgets found more fiscal savings than any other president, Congress continued to spend excessively—thereby bankrupting us and our country in the process.
But what’s getting a lot of media attention recently without much consideration of its cost is the Raise the Wage Act that the Democrats in Congress are trying to push through. This arbitrary hike of the federal minimum wage would be a mistake as it would separate us in terms of economic status and further divide us as a nation. That’s not what I would consider as “unity.”
According to a 2019 Pew Research poll, about two-thirds of Americans supported increasing the minimum wage to $15. But at what cost, given that nothing is free?
For example, the Congressional Budget Office recently reported that passing the Raise the Wage Act could mean as many as 2.7 million workers lose their job and earn the real minimum wage of $0. This would also come at the cost of $54 billion more to the national debt, further bankrupting us. And while the number of people lifted up from poverty could be 900,000, many of them will face higher prices, higher taxes, and higher interest rates making it harder for even those lucky enough to not lose their jobs to make ends meet.
But this analysis misses two key points that should not be overlooked: 58.5% of Americans earning the minimum wage are between 16 to 24 years old, and costs of living vary greatly across states, with California being 50% more expensive than Texas.
This means that those who will be hit hardest by raising the minimum wage are those just trying to get their foot on the bottom rung of the economic ladder, and typically have other sources of income. In fact, raising the minimum wage can benefit high-wage, highly skilled people at the expense of low-wage, low-skill people as employers move from labor to capital in their operations. This actually increases income inequality.
And states that have done a good job in keeping the cost of living low, like Texas (due to more pro-growth policies resulting in increased economic freedom) are hit hardest compared with those that don’t, like California. We should let federalism’s system of “laboratories of democracy” continue to prove that people vote with their feet, as the number of Californians moving to Texas increased by 36% in 2018.
America may still be suffering through the chaos of COVID-19, but that doesn’t mean we need more of it. President Biden should give doing nothing a chance, especially his policies that will bankrupt the country and force increased unemployment.
Given the economic situation with many unemployed Texans struggling from business closures in response to the COVID-19 pandemic and government restrictions and following recent power outages, the Legislature should consider less spending, taxing, and regulating so Texans have more opportunities to prosper.
Invited testimony submitted to the Texas House Committee on Appropriations – S/C on Article II
Given the economic situation with many unemployed Texans struggling from business closures due to the COVID-19 pandemic and government restrictions and following recent power outages, the Legislature should consider less spending, taxing, and regulating so Texans have more opportunities to prosper.
Invited testimony submitted to the Texas House Committee on Ways & Means
Vance Ginn, Ph.D.