​Today, I'm honored to be joined by Amity Shlaes, who has written four NYT bestsellers, chairs the board of the Calvin Coolidge Presidential Foundation, is winner of the Manhattan Institute's Hayek Book Prize, and serves as a scholar at the King's College.

We discuss:

1. How Calvin Coolidge blazed a trail of balanced budgets, reduced taxes, and common sense economics;
2. Why the popular idea that Coolidge caused The Great Depression is a misconception, and what truly fueled the disaster and what it means for the economy today; and
3. More valuable lessons to be learned from Coolidge and the great work of The Calvin Coolidge Foundation and its Coolidge Scholarship, which is currently the most competitive college scholarship in the nation.

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You can watch this interview on YouTube or listen to it on Apple Podcast, Spotify, Google Podcast, or Anchor. Please share on social media, subscribe to your favorite platform and my newsletter, like it and leave a 5-star rating.

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• Amity Shlaes is the author of four New York Times bestsellers, The Forgotten Man: A New History of the Great Depression, The Forgotten Man: Graphic, a full length illustrated version of the same book drawn by Paul Rivoche, and Coolidge, a full-length biography of the thirtieth president, which debuted at number three on the Times list and The Greedy Hand: How Taxes Drive Americas Crazy. National Review called the Forgotten Man “the finest history of the Great Depression ever written.” The Economist wrote of Coolidge that the book “deserves to be widely read” and made it an editor’s choice for 2013.
• Miss Shlaes is also the author of Great Society: A New History, a comprehensive account of the Johnson administration’s most notable legacy. Former Chairman of the Federal Reserve Alan Greenspan praised Great Society as an “accurate history that reads like a novel.”
  Miss Shlaes chairs the board of the Calvin Coolidge Presidential Foundation, a national foundation based at the birthplace of President Coolidge. The Foundation’s goal is to share Coolidge with Americans, by hosting debate and events at the Coolidge site and through newer media. She is especially interested in education.
• Miss Shlaes is winner of the Hayek Prize and currently serves on the jury for the prize, sponsored by the Manhattan Institute. She has twice been a finalist for the Loeb Prize in commentary. In 2002 she was co-winner of the Frederic Bastiat Prize, an international prize for writing on political economy, and later chaired the jury for that prize. In 2003, she was JP Morgan Fellow for finance and economy at the American Academy in Berlin. In 2004, she gave the Bradley lecture at the American Enterprise Institute. Her lecture, titled “The Chicken vs the Eagle” looked at the effect of the National Recovery Administration on the entrepreneur in the New Deal. In 2021, Miss Shlaes was awarded the Bradley Prize. Over the years she has served at the Council on Foreign Relations (as senior fellow in economic history) and the George W. Bush Presidential Center, where she was one of four directors, working on its Four Percent Growth Project.
• Many readers know Miss Shlaes from the Wall Street Journal, where she served on the editorial board, writing on foreign policy, taxation and other topics, or from the Financial Times and Bloomberg, each of which carried her syndicated column over the years. Currently Miss Shlaes appears in print Forbes and in National Review. A magna cum laude graduate of Yale College, Miss Shlaes is married to fellow journalist and editor Seth Lipsky. The Lipskys have four children.

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There’s much discussion in Baton Rouge about how to best allocate scarce taxpayer money that’s overflowing the state’s coffers. A problem with $3 billion in the state’s savings accounts is that everyone has their hands out to receive some of it. But the ones who should be remembered first are the taxpayers.

In this discussion, one of the bright spots is tax reform, particularly eliminating the state’s corporate franchise tax.

The corporate franchise tax is levied annually on the taxable capital of corporations, including capital stock, surplus, and undivided profits. Unlike corporate income taxes, which are levied on a company’s profits, these taxes are imposed on a company’s net worth. Therefore, the tax penalizes investment and requires companies to pay the tax regardless of whether they make a profit. While it’s just three percent of the state’s revenue, it’s a large burden on businesses as only 16 states have one and two of them (i.e., Connecticut and Mississippi) are phasing theirs out.

Louisiana should eliminate its corporate franchise tax, too.

There were improvements to the franchise tax in the state’s 2021 tax reforms that reduced the rate and increased the minimum amount needed to begin paying the tax. Those reforms also included revenue triggers which would reduce personal income taxes and corporate franchise taxes if three revenue targets are hit.

This tax could be reduced substantially this session.

The first two triggers are already hit so the Legislature simply needs to add about $55 million to the rainy day fund to hit the final one and there could be at least a 50 percent cut in the corporate franchise tax rate. And State Senator Bret Allain’s SB 1 could help make this phase out more certain. Eliminating this tax would result in increased productivity, faster economic growth, higher consumption, and greater investment.
​
We’ve been working with the Economic Research Center to examine the economic effects of eliminating this tax. Their model estimates the dynamic effects of tax changes on economic variables. Table 1 includes the dollar values reported in millions of 2012 inflation-adjusted dollars and are based on the estimates in the Congressional Budget Office’s February 2023 economic projections. Employment is represented by full-time equivalent non-farm jobs, in thousands of jobs.

​Removing this tax on capital would support more investment and economic output over time with the largest effect in the first year. Their results show that eliminating the costly corporate franchise tax would result in gross domestic product (GDP) increasing by $330 million, with employment increasing by at least 1,000 jobs, consumer spending increasing by $30 million, and investment jumping by $170 million in 2024.

And the inflation-adjusted value of a $212 million franchise tax cut would result in just $170 million in reduced total tax revenue because the increased economic growth, employment, and investment contributes to higher collections in other taxes, such as the personal income tax because there are more people working.

Of note, the temporary reduction in tax revenue won’t affect the state’s budget.

Over the last three fiscal years, the state has seen a boom in corporate income and franchise tax revenues, such that, according to law, anything collected over $600 million in this category automatically goes into a savings account—the Revenue Stabilization Fund—to help offset future decreases in revenue. This money is not even in the state’s operating budget, so it won’t be missed.

Louisiana is hemorrhaging people and businesses as they move to other nearby states with better tax systems. The Legislature has a chance to stop the bleeding so the state and Louisianans can heal and become more prosperous over time.

There’s a great opportunity to do so now. Lawmakers can pass a responsible budget, activate  revenue triggers for tax relief, and set the state on a path toward ending this punishing tax so our state can be competitive.

Originally published by Pelican Institute. 

​Key Point: Louisianans aren’t reaching their full potential primarily because of bad public policies but that can change with the Pelican Institute’s “Comeback Agenda.”
 
Louisiana’s Labor Market: Table 1 shows Louisiana’s labor market over time until the latest data for April 2023 from the U.S. Bureau of Labor Statistics.

​The establishment survey shows that net total nonfarm jobs in the state increased by 8,200 jobs last month (+0.4%), bringing total jobs to 33,700 jobs below the pre-shutdown level in February 2020. Private sector employment was up by 5,900 jobs (+0.4%) and government employment increased by 2,300 jobs (+0.7%) last month. Compared with a year ago, total employment was up by 48,400 jobs (+2.5%), with the private sector adding 41,400 jobs (+2.6%) and the government adding 7,000 jobs (+2.3%).
 
The household survey finds that the working-age population declined by another 920 people last month, down 11,077 people over the last year, and down 33,212 people since February 2020. But the civilian labor force rose by 6,260 people last month, 16,090 people over last year, and 24,592 people since February 2020. These figures result in a labor force participation rate of 59.5%, which is up from 58.9% from last year and up from 58.3% since pre-shutdown but well below the 61.2% rate in June 2009. While the unemployment rate of 3.6% is substantially lower than the 5.2% rate in February 2020, a broader look at Louisiana’s labor market shows that Louisianans still face challenges (see Figure 1). These challenges include the continued decline in the working-age population which weighs on the labor-market shortage and long-term economic growth and comparisons with neighboring states based on several measures indicate concerns.

​Economic Growth: The U.S. Bureau of Economic Analysis (BEA) recently provided the real (inflation-adjusted) gross domestic product (GDP) and personal income for Louisiana and other states in Figure 2. 

​Table 2 shows how U.S. and Louisiana economies performed since 2020. The steep declines were during the shutdowns in 2020 in response to the COVID-19 pandemic, which was when the labor market suffered most. The increase in real GDP of +2.2% in Q4:2022 ranked 26th in the country, resulting in an annual decline in economic output by -1.8% in 2022 which was the second worst in the country.

​The BEA also reported that personal income in Louisiana grew at an annualized pace of +6.0% (ranked 32nd) in Q4:2022 (below +7.4% U.S. average). This resulted in personal income growth of 0.0% in 2022, ranking 50th of the states, driven by the negative $10 billion (-4.0-percentage points) in transfer payments from a decline in safety net payments as the expanded child tax credit expired and more people found jobs, but increases in net earnings by $8.4 billion (+3.4-percentage points) and other income by $1.6 billion (+0.6-percentage point). Personal income per person in Louisiana increased by 0.08% to $54,622 last year, which ranked 42nd in the country but the increase was well below inflation.
 
Bottom Line: More Louisianans gained jobs in April, but their pay hasn’t been keeping up with inflation in a stagnant economy. Economic freedom matters to human flourishing, but Louisiana ranks relatively low among the states in economic freedom and other measures. While the state improved its tax code in 2021, there’s a historic opportunity to ensure prosperity by doing more this session. The combination of spending restraint, not busting the spending caps, paying down debt, and putting money in the rainy day fund for tax relief now are essential. These steps would improve the state’s poor business tax climate, help curb the net outmigration of Louisianans, and help mitigate the 19.6% poverty rate that ranks second highest in the country. State and local policymakers should work to reverse this trend by passing pro-growth policies.
 
Which pro-growth policies should be pursued? Refer to the Pelican Institute’s “Comeback Agenda” for policy recommendations related to the state’s budget and taxes, K-12 education, public safety, social safety nets and workforce development, technology and innovation, and reducing regulatory barriers. 

Originally published by Pelican Institute.

​Key Point: Texas is a leader in job creation over the last year and since February 2020 (Figure 1 by @SoquelCreek). But Texas will struggle to compete with other states or prosper more as the 88th Legislature passed the largest budget increase in the state’s history, passed the largest corporate welfare increases in the state’s history, passed the largest safety net increases in the state’s history, didn’t pass property tax relief, and didn’t pass school choice. Governor Greg Abbott called a special session to tackle property tax relief and border security with more special sessions likely to come. 

​Overview: Texas has been a leader in the country’s economic recovery since the costly shutdown recession in Spring 2020. This includes reaching a new record high in total nonfarm employment for the 19th straight month. The current 88th Legislature ended the regular session on May 29 with a record surplus but chose to pass the largest spending and welfare increases in the state’s history without passing tax relief or school choice. This was a huge, missed opportunity for Texas that will set up a fiscal cliff with so much spending, less competition with fiscally conservative states, and less opportunity to let people prosper which combined will stop the Lone Star State from being a leader in the country. Fortunately, Governor Abbott called what is likely the first of multiple special sessions to tackle property tax relief (and border security).
 
Labor Market: The best path to let people prosper is free-market capitalism as it is the best system that supports jobs and entrepreneurship for more people to earn a living, gain skills, and build social capital. Table 1 shows Texas’ labor market for April 2023.

​The establishment survey shows net nonfarm jobs in Texas increased by 33,300 last month, resulting in increases for 35 of the last 36 months, to bring record-high employment to 13.8 million. Compared with a year ago, total employment was up by 534,600 (+4.0%)--second fastest growth rate in the country to Nevada (+4.2%)—with the private sector adding 476,800 jobs (+4.2%) and the government adding 57,800 jobs (+2.9%).
 
The household survey shows that the labor force participation rate is higher and employment-population rate is slightly lower than in February 2020, but the former is well below June 2009 at the trough of the Great Recession. The state’s unemployment rate of 4.0% is higher than the U.S. rate of 3.4% but this is weak indicator as it’s highly volatile based on changes in the labor force. There is also continued declining inflation-adjusted average earnings in Texas.
 
Economic Growth: The U.S. Bureau of Economic Analysis (BEA) reported the real gross domestic product (GDP) by state for 2022. Figure 2 shows Texas had the fifth fastest real GDP growth of +3.4% to $1.9 trillion (above the U.S. average of +2.1% to $20.0 trillion). 

​The BEA also reported that personal income in Texas grew by 5.3% to $1.9 trillion in 2022 which was the third highest in the country. This is behind Idaho (+6.2%) and Colorado (+5.4%) but well above the U.S. growth rate of 2.4% (to $21.8 trillion). Figure 3 shows personal income growth across the country.

​Bottom Line: As Texans struggle from high inflation and high property taxes and an uncertain future with the U.S. economy likely in a deepening recession, they need substantial relief to help make ends meet. Other states are cutting, flattening, and phasing out taxes, passing responsible budgets, and passing school choice, so Texas must make bold reforms to support more opportunities to let people prosper, mitigate the affordability crisis, and withstand destructive policies out of D.C. Figure 4 provides a comparison of the size of government, economic freedom, and economic outcomes among the four largest states and nearby Louisiana. While Texas does relatively well, there is much more to do for more liberty and prosperity. Unfortunately, the Texas Legislature failed to achieve these needed policy objectives in the regular session of 2023 so Governor Greg Abbott is calling them back where the Legislature should spend less, provide more in property tax relief, pass school choice, and reduce or eliminate corporate welfare and expansions of safety net programs.

​Free-Market Solutions: The Texas Legislature should improve the Texas Model by:

• Passing pro-growth policies to:
  • Spend Less: Lower state government spending and pass responsible local spending limit.
  • Tax Less: Start eliminating local property taxes with historic surpluses at the state and local levels.
  • Regulate Less: Improve workforce development, remove barriers to work, reduce occupational licensing, reform safety nets, and enact school choice.
• Strengthening the Texas Model, which recently ranked as the 4th best in economic freedom, will help Texans better resist D.C.’s overreach and flourish more for generations to come.

​State leaders promised “historic” property tax relief this session, but though it is near the finish line, it will not make it past the checkered tape before the body adjourns sine die on Monday.

Last summer, Gov. Greg Abbott called on the Legislature to appropriate “at least half” of the then-$27 billion projected budget surplus to provide “the largest property tax cut ever in the history of Texas.” The comptroller’s January Biennial Revenue Estimate increased that total to $32.7 billion in the state treasury and $27 billion in the Economic Stabilization Fund, also known as the state’s savings account.

That’s a lot of tax dollars to disburse, and number one on Abbott’s list was property taxes — which was also high on the list of both chambers.

But after a lengthy, attention-grabbing impeachment proceeding against Attorney General Ken Paxton on Saturday afternoon, the clock ticked on toward the midnight deadline to distribute the conference committee report for the last-remaining property tax proposal.

And then, some Sunday evening scrambling on a last-minute deal turned out to be more smoke than fire — the House conferees announced the signing of a deal last night, and posted a picture of them waiting for the Senate’s conferees to come sign it, but that ultimately did not happen. Details of that blueprint have not been disclosed as both sides have kept their cards close to their chest.

The Texan can confirm that plan included the $12 billion for rate compression, a $70,000 standard homestead exemption, a $100,000 elderly and disabled homestead exemption, and a 7.5 percent appraisal cap on all real property.

After a hastily convened meeting with Lt. Gov. Dan Patrick and Abbott, Speaker Dade Phelan (R-Beaumont) made a beeline for the House dais and adjourned the body until Monday morning with no deal announced on marquee property tax relief.

Discussions continued into Monday morning but no deal was struck — appraisal caps being the point of insurmountable disagreement. Abbott tacitly weighed into the debate, gesturing at putting rate compression above all else, but it did little to move the needle one way or the other.

The Texas House passed a revamped version of Senate Bill (SB) 3 on May 19 — a plan that included $12 billion for new rate compression and the 5 percent appraisal cap on all property from its original plan. But it also included a $100,000 homestead exemption, double what the Senate included in its proposal.

Ultimately, the two sides could not coalesce on a compromise; the House dug its heels in for an appraisal cap reduction and extension, while the Senate dug its heels in against it. The ramped-up homestead exemption was not enough to entice the upper chamber to swallow the appraisal cap pill. Lt. Gov. Dan Patrick has maintained it to be a total non-starter in the upper chamber.

As passed by the House, SB 3 would have amounted to $16.3 billion in property tax curtailment, plus the $5.3 billion already in the budget to maintain previous levels of compression.

Because of this stalemate, and the emphasis Abbott has placed on it, property tax relief is sure to be on the list of issues for the coming special session — expected, but not yet confirmed, to start Tuesday. Property tax relief was on the governor’s list of emergency items at the beginning of the session.

Even with the appraisal reform stalemate, there is a starting point of common ground between the chambers. The 2024-2025 state budget, approved by both chambers over the weekend, earmarks $17.3 billion for rate compression — $5.3 billion to maintain previous levels and $12 billion to add to it.

The budget has no line item for homestead exemption increases and the appraisal cap extension would not require any financial injection. When the two bodies reconvene, it’s unclear how this stalemate could be resolved other than both just throwing up their hands and moving forward only with the rate compression — the aspect they both agree on.

The previous record for the largest property tax cut is $14 billion in the mid-2000s. Both chambers of the Legislature have said their plans surpass that line — including the $5.3 billion to maintain current levels.

Critics of that claim — such as Vance Ginn, former chief economist for the Texas Public Policy Foundation — have set the line at $20 billion in today’s dollars accounting for inflation, and also say that the entire sum of dollars going toward property tax relief should be allocated to compression.

On top of this, add in the fact that to maintain levels of compression next biennium, the state will have to allocate the same amount of money toward it. Otherwise, tax bills will jump.

Before the House adjourned sine die, Lt. Gov. Dan Patrick issued a letter asking for Abbott to include the Senate’s property tax plan — a $70,000 standard homestead exemption, $30,000 elderly and disabled homestead exemption, a $25,000 business personal property tax exemption, and a business inventory tax credit — among a litany of other priorities.

Despite the appraisal stalemate running out the clock on this session, the Legislature will quickly have another go at the issue and the chance to fulfill the promises made before and during the 88th regular session.

Originally published by The Texan.