Background

Texas looks to receive roughly $40 billion in taxpayer money provided by Congress through the American Rescue Plan Act (ARPA). This includes $11.2 billion already released to public schools and soon to be released $10 billion to local governments and $4 billion to infrastructure projects (i.e., only water, sewage, and broadband projects). And $15.8 billion in more flexible funding to the state in one payment given Texas’s unemployment rate is more than 2 percentage points above the pre-pandemic rate.

Approach Given Restrictions

The U.S. Treasury recently released guidance (Fact Sheet) for the restrictions on how state and local governments can use the ARPA funds. There will now be a 60-day period for public comments on these restrictions before additional clarity will be provided. In the meantime, it appears that the state cannot use these funds for deposits into pension funds or direct or indirect state tax cuts, except for special cases that don’t seem to apply in Texas while local tax cuts by state or local governments seem legitimate and advisable. Given strings attached, if the state accepts ARPA funds, there should be a pro-growth, long-term strategy to strengthen Texas while assisting struggling Texans from the pandemic and shutdowns.

Recommendations

The strategy should strive to return these funds to taxpayers by reducing and keeping taxes lower than otherwise, funding only one-time expenditures, and rejecting all or most ARPA funds with strings attached. This strategy would help avoid expanding government, reduce the impact on state sovereignty, mitigate the rising burden of the federal government’s high spending and debt, and provide relief to families. Texas would recover faster and better withstand the Biden administration’s onerous policies by using the $15.8 billion in more flexible funding on the following options to Keep Texas Texan.

If Texas accepts some or all the funds, consider the following:

Provide Texans with Relief

$9 billion for federal unemployment trust fund loan and replenish state fund to avoid tax hike.
$5.1 billion for border wall completion and border security to provide relief of border crisis.
$1.7 billion for a 2-cent compression of local school M&O property taxes to provide relief.
Ensure Accountability and Transparency

No ARPA funds for ongoing expenses to avoid fiscal cliffs (e.g., pub ed “cuts” after ARRA).
Place funds in separate Article from base budget like TPPF’s Conservative TX Budget
Publish receipts and outlays of funds on Comptroller’s or LBB’s website.
Replace general revenue with federal funds for only one-time items.
Support Reform—May be restricted but possibly by swapping general revenue appropriations

Fund Other Post-Employment Benefits (OPEB) with reforms for sustainability.
Swap with GR to pay down state debt with a high interest rate.
Use to fund defined-contribution retirement accounts or similar reforms for new employees.
Swap with GR to fund expanded special education microgrants created during COVID.
Swap with GR to fund market-based healthcare with direct primary care and other options.
Texas should consider rejecting some or all the funds, particularly those with strings attached that could create fiscal cliffs in subsequent sessions, eliminate tax relief opportunities through December 31, 2024, generate school finance problems, and more.

https://www.texaspolicy.com/keep-texas-texan-path-for-covid-relief-funds/

Many Americans are recovering from the recession that began in March 2020 due to the COVID-19 pandemic and forced business closures by state and local governments. The economic expansion that began in the second half of 2020 continued in the first quarter of 2021 as many of those governments removed or reduced restrictions on the private sector. However, employment has slowed lately as some governments are still imposing restrictions and the federal government continues giving unemployment ‘bonuses,’ causing many people to choose unemployment over work. This has created a record number of 8.1 million unfilled job openings. Nevertheless, the economy is still growing, and more pro-growth policies should be implemented to support the tangible prosperity experienced until March 2020.

More in the brief below: 
​https://www.texaspolicy.com/an-insiders-insight-on-todays-economy/www.texaspolicy.com/an-insiders-insight-on-todays-economy/

By Vance Ginn, Ph.D. and Quinn Townsend

Families in Alaska, whether in good or bad economic times, practice responsible, priority-based budgeting. They must make decisions, often difficult ones, on how best to spend their hard-earned dollars. The same is true for small business owners who must prioritize their spending to keep their doors open, meet payroll, and provide for themselves.

Alaska’s government should do the same, and even more so given it’s not their money.

The way to do this is for the state to practice priority-based budgeting, whereby legislators take a close look at how every taxpayer dollar is spent. By doing so, state officials can allocate funding so that it doesn’t exceed the state’s ability to pay for it, as appropriately measured by population growth plus inflation.

Considering Alaska budget trends over the last two decades, there has been an improvement since 2016. During the period from 2001 to 2015, the average annual budget increased by 9.9%, which was three times faster than population growth plus inflation. Since then, the budget has declined annually by 7.3%, on average, while this key measure increased by just 1.6%, meaning that the recent growth of state government has helped to correct for prior excesses.

 



From 2001 to 2021, the budget grew on an average annual basis by 4.7%, which was nearly double that of population growth plus inflation. The excesses in the earlier period compounded over time to result in an inflation-adjusted state budget per capita in FY21 that is 10.9%, or $601 million, more than this key metric.



Some in Alaska have argued that there is no more fat to trim from the budget, that the state has cut everything it can since the highest spending years. But because the enacted budget, year after year, allocates more state funds than the state is able to sustain, it’s clear that difficult decisions are necessary. Just like a family or business prioritizes their budget based on necessities before wants, Alaska must be responsible and do the same.

This is why a fiscal rule of a responsible spending limit on state funds in Alaska is essential. This can be achieved by capping state appropriations to growing no more than population growth plus inflation every year.

As noted above, if the budget had matched population growth plus inflation over the last two decades, the state could have saved about $800 per Alaskan this year. This means the state would be budgeting about $600 million less in FY21 thereby helping to avoid its current attempt to dig itself out of a fiscal crisis and would probably not have drained its savings accounts either.

But we can’t change the past, only learn from our mistakes and do better. Much better. This will take responsibility and discipline, two things common to Alaskans.

Alaska Policy Forum’s Responsible Alaska Budget sets the maximum threshold on state appropriations based on population growth plus inflation over the last year, similar to what a meaningful spending cap should do.



Specifically, our maximum threshold on FY22 state appropriations is $6.18 billion after an increase of 0.92%. Achieving this feat and working to increase the budget less than this amount will help immensely in reducing the cost of funding government.

History has demonstrated that governments cannot spend and tax their way to prosperity. Alaska’s spending over the past two decades has proven that.

Policymakers should consider Alaska Policy Forum’s Responsible Alaska Budget and work to further limit spending. Keeping spending levels lower will not only serve Alaskans’ interests, but it will also make Alaska more economically competitive so that residents have more opportunities to achieve their hopes and dreams.

Vance Ginn, Ph.D., is chief economist at the Texas Public Policy Foundation based in Austin, Texas. He is the former chief economist of the White House’s Office of Management and Budget (OMB) during the Trump administration.

Quinn Townsend is the Policy Manager at Alaska Policy Forum based in Anchorage, Alaska. Previously, Quinn worked as the Economic Research Analyst at The Buckeye Institute. She completed her M.S. in Resource Economics and Management at West Virginia University.

https://www.texaspolicy.com/its-time-for-a-responsible-alaska-budget/

​The substantially weaker than expected U.S. jobs report was unfortunate for struggling Americans, but it should have been expected given the disastrous policy out of D.C. Fortunately, states can fix it.

Milton Friedman said that if the federal government oversaw the Sahara Desert, within five years there would be a shortage of sand. So inefficient and feckless is D.C. that we should never underestimate its ability to ruin good times and make bad times worse.

The 2020 recession and the current anemic recovery are a prime example.

State government-imposed shutdowns destroyed the greatest American economy in recent memory. Sure, the novel coronavirus played a role, but it was primarily imprudent policies which annihilated the best labor market in over half a century. On top of wounding that labor market so severely, the federal government then proceeded to poison the patient, ensuring a languid recovery.

The poison of choice? “Bonuses” for the unemployed.

At first glance, this hardly seems like an economic sedative. Why would it be harmful to help the unemployed? If anything, it sounds humane. The unemployed need assistance until they can find another job, and unemployment insurance (UI) payments partially or completely fills that temporary need, especially for those with little or no savings.

While that is true, new UI bonuses by the federal government haven’t been humane.

UI payments normally provide about half of what you earned while employed. However, in 2020—amid all the other decisions in D.C.—the federal government initiated a weekly bonus of $600 to everyone on unemployment. There were numerous reasons given for this enhancement, but they were all rather nebulous.

The actual effect was more people became unemployed and stayed unemployed.

Adding a weekly bonus to UI payments on top of what the unemployed already receive from the state frequently created the bizarre scenario wherein a person received more on unemployment than while working. Between April and July of 2020, 69% of those who lost their jobs had higher after-tax income on unemployment. (UI payments are not subject to Social Security tax, Medicare tax, nor income tax in some states.) Half of the unemployed were receiving at least 134% of what they earned while working.

If you are receiving more on unemployment than you did while working, why would you go back to your job? It’s one thing to expect people to be rational, but another to expect them to be saints.

Even after the $600 weekly bonus expired, D.C. instituted a $400 bonus, and now a $300 bonus. While the deleterious effects of the bonus have diminished with its size, the negative effect on unemployment is still potent. Some 6 million people are staying on unemployment because of all the government handouts they receive.

And although the businesses that didn’t fold during the lockdowns are finally able to reopen their doors with the lifting of government lockdowns in some states, those businesses are struggling to find people willing to work.

Unlike before the government shutdowns when the economy was roaring and businesses could not find enough workers because commerce was so busy, now businesses are contending with Uncle Sam’s generous handouts—an uphill battle to be sure.

There is now a chronic labor shortage of almost 7 million workers (and that number is rising) amidst massive unemployment. The incompetence of the federal government was worse than Milton Friedman predicted—in less than a year, it has produced this surreal and terrible scenario.

At least two states are telling D.C. that enough is enough. Montana Gov. Greg Gianforte will no longer accept the UI bonuses starting in June. And South Carolina Gov. Henry McMaster will do the same starting this week. However, these funds shouldn’t be used as a bonus to incentivize people to work as proposed in Montana, because nothing is free—whether it be handouts or precedence.

But regarding rejecting this federal expansion into the economic livelihood of Texas, Gov. Greg Abbott should do the same.

Texas currently has almost 1 million unemployed people—nearly twice the number from February 2020 before the pandemic—despite hundreds of thousands of unfilled job openings statewide. If the governor cancelled the federal unemployment bonuses, it would help alleviate this situation by removing the artificial incentive to remain unemployed.

This would not impact regular state-provided UI payments, so those who are truly struggling to find work will still receive those payments.

Opening the great state of Texas was the right decision, but it means little to businesses and economic prosperity if businesses are unable to find workers. Rolling back these injudicious UI bonuses will eliminate a reason for too many not to work and help Texas flourish once again while providing yet another model for the country.

https://www.texaspolicy.com/improve-the-labor-market-by-ending-federal-unemployment-bonuses/

​A recent Wall Street Journal article claimed “U.S. Debt Is at a Record High, but the Risk Calculus Is Changing.” But is that calculus really changing? According to some, the government can borrow and print all the money it wants without repercussions.

Modern Monetary Theory (MMT) advances the puerile notion that we have somehow moved beyond the antiquated restriction of scarcity under which our ancestors labored. This thinking is reminiscent of the childish fantasy that our actions will not have consequences, but realities like scarcity are inescapable.

What adherents of MMT have really done is determined their socialist agenda and then reconstructed the policy tools available to support the agenda. It’s a sneaky move but one not based on reality nor economics.

But our point is not to counter every flaw of MMT, but rather to note that similar bad economics is snake oil sold to us by those who supposedly have “better” economic theories.

The notion being peddled today is that D.C. can spend trillions of taxpayer dollars, run up massive deficits, fund most of it by the Federal Reserve through money creation, and voilà, no inflation—reminiscent of a bad magic trick. A growing body of political activists in economists’ clothing subscribe to this view. Inflation has become a dirty word, unbefitting modern discourse among intellectuals.

But ask yourself: Am I paying more for food and gasoline? Are home and rent prices going up, and property taxes with them? Are cars more expensive? Is lumber more expensive?

It seems everything is getting more expensive, and that is price inflation—a rise in the general price level of a basket of goods and services. But what exactly causes it?

You’ll hear all kinds of explanations. Some have blamed greedy businesses for raising their prices. Some have blamed grasping unions for demanding higher wages. Some have blamed the consumer-at-large for being a spendthrift.

Yes, businessmen are greedy—everyone is. Yes, unions are grasping—everyone is. Yes, the consumer is a spendthrift—everyone is. But they don’t cause inflation.

Inflation originates in one place: behind the façade of a Greek temple on Constitution Avenue in Washington, D.C.—at the Federal Reserve.

The Fed can create money out of nothing—or more technically, create money out of government debt. Only the Fed can churn out unlimited money, and that is why only it can cause inflation. Businessmen, consumers, unions, and investors do not have this magical printing press and so they cannot cause inflation.

But why does creating money cause inflation? Wouldn’t we be better off if we all had more money?

Imagine that Santa Claus writes you a check for Christmas equal to the amount of money you already have. You now have twice as much money! But imagine Santa does the same thing for everyone else. Shortly thereafter, the price of nearly everything you purchase would be about twice as expensive because there’s too much money chasing too few goods.

That is inflation—and the Fed has been playing Santa Claus.

As the big spenders in D.C. take the country further into debt, the Fed has been there to write trillion dollar checks to pay for it. Normally, the government would have to borrow money from the public—which doesn’t cause inflation but does crowd out private sector activity. But for more than a year now,  the Fed has kept its printing press in overdrive, thereby artificially holding down interest rates and distorting economic activity.

Initially, this appears to create an economic boom, as everyone thinks he’s better off with his government “stimulus” check and increased spending. But remember that nothing is free in a world of scarcity. Everyone discovers that others also have more money, and that prices are rising as more dollars chase fewer goods and services.

This inflation also acts as a tax on us as it reduces our purchasing power. Put simply, government uses inflation to confiscate a portion of your savings and your wealth.

If inflation averages just 2% per year (the Federal Reserve’s target), the government will have confiscated about half the value of your liquid wealth in just 36 years. For context, one measure of general price inflation was 2.6% for the 12 months through March 2021, but 4.1% in the first quarter of 2021 based on another measure. At a 4% average annual rate, the hidden tax of inflation will seize half of your money’s purchasing power in a mere 18 years.

Perhaps the Federal Reserve is not playing Santa Claus, but the Grinch. Instead of the massive spending boondoggles by the Biden administration and resulting costly repercussions, we need rules that limit excessive government spending and excessive money creation.

https://www.texaspolicy.com/a-tax-by-any-other-name-how-inflation-is-robbing-you-blind/