The growth of the economy, as measured by Montana’s population growth plus inflation, provides a measuring stick for fiscal responsibility by accounting for potential changes in economic conditions indicating the demand for government services and the cost of providing them. This benchmark also helps account for more people and higher wages, which, combined, provide resources for taxpayers’ ability to pay to fund government expenditures.
Montana leaders have pointed to the growth of population growth plus inflation as the fairest measure for government growth.
Texans will never experience the peace of mind that comes with owning their home until property taxes are eliminated. Until then, Texans are simply renting their home from the government, always with the fear that taxes could become so exorbitant they can no longer afford to stay. For decades, TPPF has been providing strategies to give Texans the relief they demand while also providing the community with the tax revenue it needs for critical public services like education. Our Lower Taxes, Better Texas plan will eliminate property taxes for every Texan by 2033, while also making structural changes to our system that prevent year-to-year spikes in tax bills and reins in irresponsible local governments.
www.texaspolicy.com/reconciliation-bill-is-an-assault-on-marriage-and-families/Marriage is already tough enough; fewer and fewer Americans are even attempting it, and while divorce rates are down slightly, that may only be a temporary side effect of the pandemic. Yet the evidence is clear—marriage is the not-so-secret ingredient for success in life, for men, women and especially for children.
But marriage is about to become even harder. Congress’ massive reconciliation bill, clocking in at more than $5 trillion, is riddled with provisions that undermine society’s most fundamental institution—the family. From multiple marriage penalties to taxes that will prevent parents from passing businesses and farms down to their children, to lower household incomes paired with higher prices (financial stress is still the primary cause of divorce), the bill makes marriage more expensive and even cost-prohibitive in some cases.
We’ve long known that fiscal policies can have a big effect on marriage rates. Chief among these policies are welfare programs.
“A safety net marginally reduces the costs of single parenthood, nonmarital childbearing, and divorce,” a U.S. Congress Joint Economic Committee report said in 2020. “It also can create a significant tax on marriage because the addition of a spouse with income typically reduces safety net benefits, and if he has only modest earnings or unsteady employment, the trade-off may not be worthwhile.”
But Congress and the Biden administration are doubling down on such policies. If the reconciliation bill passes, marriage will be even less advantageous to couples and to children.
Let’s look at a few examples of how.
First, multiple marriage penalties are found in the bill. A marriage penalty occurs when tax liability for a couple increases after the wedding because of differences in tax bracket thresholds, deduction limitations, and other aspects of the tax code. Some couples could find nearly all of one spouse’s income now subject to a higher tax rate. Marriage penalties in the proposed structure can total $130,200 annually in higher taxes.
Estate taxes are another way the reconciliation bill chips away at a family’s opportunities. Family businesses and family farms will be severely penalized upon the death of a parent. The federal estate tax, also known as the death tax, currently applies only to estates valued over $11.7 million, with the top marginal rate at 40%. Democrats would lower the exemption by $8.2 million and increase the top marginal rate to 65% while also introducing a tax on unrealized capital gains. The total tax rate on an estate can easily climb over 70%, even on relatively modest estates.
One former Democratic senator says hiking the estate tax is a mistake. “I’m trying to sound the alarm, both economically and politically, for Democrats that this is not a path to walk,” says Heidi Heitcamp of North Dakota. “The disruption that it would create for small family business and farmers and family assets is not worth the pain.”
The bill will also result in fewer jobs and lower household incomes. Our analysis shows that the “Build Back Better” plan (as the Democrats are now euphemistically calling it) will reduce employment by the equivalent of 5.3 million full-time jobs.
And it will reduce incomes. Despite the Biden administration’s repeated promise to not raise taxes on those earning less than $400,000 a year, there are many implicit and even explicit tax increases on that group. Aside from the bottom quintile, those who earn under roughly $20,000 a year, all income groups will see their after-tax incomes decline as a result of the Democrats’ tax agenda, through a combination of direct and indirect taxation, as well as reduced income from lower economic growth.
Combined with runaway inflation due to the Democrats’ love of modern monetary theory, the pressures on married couples and other families will only intensify.
As historian Will Durant pointed out, “The family is the nucleus of civilization.” It’s our most basic institution. We can’t build back better on top of its ruins. Congress must reject the reconciliation bill.
Build Back Broker, or Better Yet…
America is back at the brink—Congress has borrowed as much as it can legally, and House Speaker Nancy Pelosi says if it doesn’t raise the debt ceiling, the U.S. will be forced into default.
But the truth is that the full faith and credit of the U.S. is at stake because of excessive spending in Washington. Republicans should demand changes that rein in spending, the real danger to our economy, made much, much worse by the Democrats’ latest $5 trillion for part of the so-called “Build Back Better” plan allocated to “human infrastructure” spending (the reconciliation bill).
As our friend Stephen Moore highlights, the Democrats own this crisis—and in the last six months, they’ve proposed $11 trillion of spending. Their spending, especially as outlined in the reconciliation bill, would further bankrupt the U.S. and fundamentally transform our nation—and not for the better.
From its privileged perspective over on K Street in D.C., the Washington Post opines that “this is not Ronald Reagan’s Republican Party.” It cites past debt ceiling battles and claims that congressional Republicans “are inviting economic calamity.”
It’s true that Republicans have raised the debt ceiling in the past. But in key instances, such as the 1985 Gramm-Rudman-Hollings Act (under Reagan himself), raising the ceiling was accompanied by a plan to reduce the deficit. Deficit hawks leveraged the debt ceiling vote to force the big spenders in Congress to face the facts—deficits add up, as our current $28.8 trillion national debt shows. They haven’t achieved this every time—there have been far too many “clean” debt ceiling bills that included no reforms—but enough to show us the way now.
That’s why it’s unreasonable for Speaker Pelosi to suddenly rediscover bipartisanship, as she calls for Congress to “come together” to enable her profligate spending. The GOP members of Congress who watched her rip up President Trump’s speech in 2020 know that the Speaker Pelosi of 2021 will not even listen to their concerns about the ceaseless printing of money at the Federal Reserve, about the inflation pressing us all, or about the future generations who will have to pay all of this back.
What should Republicans do? Stand fast. Be firm. Don’t bend. And support reforms that save America. The Democrats don’t have a great track record on their apocalyptic warnings, so the GOP shouldn’t fall for this one. There are three possible outcomes here, and the biggest disaster would be Republican acquiescence.
First, the Democrats can raise the debt ceiling themselves—they have the votes, in theory. They might have to convince their saner members, such as Sen. Joe Manchin of West Virginia, but with Vice President Kamala Harris breaking a tie, they would have the 51 votes they need.
From a GOP perspective, this would have advantages. As my colleague Wesley Coopersmith points out, Democrats would then completely own the deficit, and every dollar they make rain on their pet projects would weigh against President Biden’s legacy.
A second possible outcome is what Sen. Machin could force—a “strategic pause” of the reconciliation bill. As Sen. Manchin points out, “making budgetary decisions under artificial political deadlines never leads to good policy or sound decisions.” The political calculus is changing, and Democrats in leadership know this. In these circumstances, a pause can sometimes be as good as a “no.”
The third outcome would be Republicans caving to the pressure from Speaker Pelosi and Senate Majority Leader Chuck Schumer, voting to increase the debt ceiling and thereby taking some ownership in not only the higher debt limit, but also the massive spending it will enable.
So let the Democrats fight it out themselves. In the meantime, Republicans should sign on to our Responsible American Budget—a key cure for what’s wrong in Washington right now.
Irresponsible government spending damages the productive private sector through redistribution of resources, higher taxes, higher price inflation, and higher interest rates, reducing Americans’ real incomes, job opportunities, and prosperity.
At the state level, Texas has addressed runaway spending with the Conservative Texas Budget. Its main premise is that government shouldn’t grow any faster than the average taxpayer’s ability to pay for it. To provide a bright line marking the limit, we use a proven, simple formula: population growth plus inflation.
The Responsible American Budget would use this success as a model to help save America. Because high taxes and debt are always and everywhere a government spending phenomenon, this proposal is a valuable step toward limiting the footprint of government, allowing Americans more opportunities to flourish.
Texans’ livelihood is improving after much destruction from forced business shutdowns by governments in response to COVID-19. Recently, some normalcy returned as the Texas economy was fully opened on March 10, 2021, contributing to less unemployment and an improved civil society. The regular and second special sessions of the 87th Texas Legislature supported this normalcy, with wins of sound fiscal and regulatory legislation, more paths to opportunity, and another Conservative Texas Budget. More successes may be realized during the third special session called by Gov. Greg Abbott by advancing more pro-growth policies to spend responsibly and eliminate property taxes thereby supporting the recovery and withstanding Washington’s anti-growth policies.
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At least in baseball, you’re out after the third strike. Baseball is merciful. The Texas Legislature, not so much. At least the fourth legislative session—the third special—gives lawmakers a chance to appropriate money sent to the state by Congress through the $1.9 trillion American Rescue Plan Act (ARPA) of 2021.
The Legislature has kept spending in check so far this year, but these funds present a new temptation. Lawmakers must resist—and spend the ARPA money wisely.
They’re off to a good start.
The Legislature passed the 2022-23 state budget well below TPPF’s Conservative Texas Budget (CTB), which sets a maximum threshold on the budget based on the average taxpayer’s ability to pay for it (as measured by population growth plus inflation). And lawmakers left $12 billion in the state’s rainy day fund.
Staying fiscally conservative while meeting the needs of taxpayers is nothing new for Texas. The last four budgets since 2015 passed by lawmakers have averaged growth under the CTB limit, helping keep more money in taxpayers’ pocket.
Let’s keep that going with the ARPA money. Here are some priorities Texas legislators should consider.
ARPA funds by Congress to state and local governments in Texas totaled $41 billion, with $25.2 billion either already released or allocated for specific purposes. Nearly $16 billion in more flexible funding will head to the state in one payment because Texas’s unemployment rate is more than 2 percentage points above the pre-pandemic rate. This part is 13% of the state’s annual budget for legislators to determine what’s best for Texans.
Remember, this is a one-time payment. It’s not an excuse to irresponsibly add nearly $16 billion in additional appropriations in the next biennium. Given that this is allocated wisely, we will exclude this amount from the CTB limit so that the budget is not inflated for excess spending later while catching ongoing spending in the next budget cycle if necessary.
We should use the majority of this to pay off our outstanding balance with the U.S. Treasury’s Unemployment Trust Fund. Texas holds the third largest balance, behind only New York and California. We’re $6 billion in the hole and we need to replenish $2 billion in credit the state had prior to the pandemic. The outstanding balance continues to accrue interest, costing Texans millions of dollars that could otherwise be used elsewhere.
Depending on the amount needed, we should use about $5 billion in ARPA funds directly or those swapped out with state general revenue to complete the border wall—providing relief to Texas taxpayers who have been paying for the rising cost of the crisis along the border for the rest of the nation.
And with burdensome local property taxes continuing to climb, we should be finding ways to eliminate them as quickly as possible. A good way would be to add what was done in 2019 and maintained in the 2021 regular session by using the remaining amount to compress school district M&O property taxes in the 2022-23 school year for additional tax relief.
Adding what could be billions more in surplus funds after appropriations in the second special session, including $100 million in property tax relief to some Texans, there’s an opportunity to provide even more compression so that Texans receive a lower property tax bill.
Since property taxes are technically local taxes, this could be a way to navigate around the unwise restrictions imposed by Washington.
To ensure accountability and transparency within the Legislature, the flexible ARPA funds should be separated from the base budget to avoid it being buried within future appropriations.
This would limit any possibility of a repeat from Democrats who argued there were “cuts” to education following Obama’s one-time “stimulus” funds. Regardless of whether these measures are taken, all related ARPA spending should be posted on the Comptroller’s or Legislative Budget Board’s website.
There are other good ideas on how to use ARPA funds, but they may be restricted due to federal regulations—which is why there should be more clarity from the Treasury.
This fourth session gives lawmakers the opportunity to allocate the ARPA funds; they should be spent wisely.
Economic freedom hit a record high in 2019—but then came 2020. That’s when government shutdowns limited economic freedom, with devasting impacts to people’s lives and livelihoods.
According to the 2021 Economic Freedom of the World Report, which measures economic freedom according to a number of economic variables, the global average for economic freedom hit a new high at 7.04 out of 10 in 2019, the most recent comprehensive data. But that’s going to fall in 2020 data from COVID-related restrictions and sky-high government spending.
Let’s first consider the benefits of economic freedom.
The top quarter freest nations have annual GDP per person over $50,000 (purchasing power adjusted), compared to under $6,000 in the quarter least free nations. The average income of the poorest 10% in the freest nations is more than $14,000, compared to the least free nations at under $1,600. In the least free nations, one out of every three people lives in extreme poverty ($1.90 a day) compared to less than 1% in the most-free nations.
And economically free nations have increased life expectancy, better health care, more educational achievement, and higher levels of happiness. Research has shown that happiness is driven even more by economic freedom than the increased prosperity it generates. People care about self-sufficiency, and the opportunities to attain it are more plentiful in places with more economic freedom.
During the financial crisis of 2007-2008, economic freedom declined globally. Governments responded with increased spending (as they would later respond to the COVID-19 pandemic), though with noticeable differences between advanced and emerging economies. For example, from 2007 to 2010, advanced global spending increased by 16% compared to 53% in other economies.
As the financial crisis receded, economic freedom recovered and moved to new heights. In 2007, the average economic freedom score was at its highest level ever, 6.90. It fell to 6.86 in 2009 as governments expanded their powers and spending in response to the crisis. By 2011 it had recovered to 6.93, edging out the score at the beginning of the crisis, and continued to increase.
Global growth resumed as economic freedom recovered.
While comprehensive 2020 data aren’t available yet, fiscal projections by the International Monetary Fund (IMF) indicate economic freedom took a huge hit from the extraordinary actions by governments.
Excessive government spending reduces economic freedom by crowding out people’s decisions in the productive private sector. To fund deficits now or later, governments consider raising taxes or just printing more money. Unfortunately, these actions make the problem worse, especially to the neediest among us, as the answer should be more opportunities to prosper through less spending—the true burden of government.
The IMF’s data show advanced economies being more profligate than other economies in spending this time around. Average spending increased by 28% between 2019 and 2021 in advanced economies while developing economies lagged at 12% for a world average of 21%.
Overall, government deficits increased by 280% in the advanced world, and 71% elsewhere, doubling global deficits. Gross government debt rose from 104% of GDP to 123% in advanced economies and from 54% to 64% elsewhere. These results threaten human flourishing worldwide.
In the U.S., America had a record low poverty rate and record high median household income in 2019. This was a result of increased economic freedom from the last administration’s deregulatory and tax cutting efforts. The unemployment rate reached new lows for almost every demographic and the overall rate was at 3.5% in February 2020.
As shutdowns happened across the country, the national unemployment rate skyrocketed to 14.8% in April 2020 and remains higher at 5.2% today. And many of those who have a job have seen their purchasing power fall due to higher inflation. Costly shutdowns and excessive spending have hit Americans’ lives and livelihoods hard, and these will have long-lasting effects.
Clearly, control by government through shutdowns over the last year caused much economic destruction. The already-passed $6 trillion in spending since the shutdown recession started is more spending than every economy except the U.S. and China. And this excess spending already contributed to a tripling of the deficit to $3.1 trillion in 2020.
After the Biden administration passed its excessive $1.9 trillion American Rescue Plan Act, it’s calling for an additional $6 trillion in “infrastructure” proposals (something Americans can’t afford).
Fortunately, we have a sound blueprint of what works well for increased opportunities to let people prosper: economic freedom through free-market capitalism. We need more of it now.
These data provide overwhelming evidence that the Texas Model of inclusive institutions with a relatively low tax-and-spend burden, no individual income tax, and sensible regulation provides an institutional framework supporting more job growth, higher wages, lower income inequality, and less poverty than in comparable states and the U.S., in most cases. Other states and D.C. would be wise to consider adopting Texas’s inclusive economic and political institutions that champion individual liberty, free enterprise, and personal responsibility. This is a path to providing an economic environment that allows entrepreneurs the greatest opportunity to thrive and for prosperity to be generated for the greatest number of people, especially the neediest among us.
Despite this success, improvements are needed to keep the Texas Model competitive and create even more opportunities for all to flourish. These improvements to Texas’s institutional framework include limiting the growth in government spending at all levels, eliminating the state’s onerous burdens of property and franchise taxes, reducing barriers to international trade, relieving people from burdensome occupational licenses, and reforming safety nets.
Even with these needed improvements, the historical data overwhelmingly show it has not been a miracle in Texas, but rather abundant prosperity generated by Texans from a proven institutional framework called the Texas Model.
OVERVIEW: Governments’ forced business closures and mandates in response to COVID-19 since March 2020 resulted in much economic destruction during the “shutdown recession.” A return to normal is essential for the recovery of economic growth and, more importantly, for the flourishing of people’s lives and livelihoods. However, more government
intervention in response to the Delta variant and reckless fiscal and monetary policies out of D.C. are hindering the recovery. The labor market has been improving more slowly than expected even though Congress has authorized
$6 trillion since the pandemic started and may soon authorize another $6 trillion, while the Federal Reserve has doubled its balance sheet to $8.4 trillion. The federal unemployment “bonuses,” which finally ended recently, and even more
in handouts, which have reduced incentives to work, resulted in the record high number of job openings exceeding the number of unemployed and added to the recovery’s uncertainty. Instead, we need a pro-growth approach.
The economic success of the Texas Model’s limited government framework demonstrates that institutions matter for prosperity. But Texas must improve to remain competitive and support greater flourishing
Texas owes $7 billion to the U.S. Treasury’s Unemployment Trust Fund.
Lawmakers here in Texas can pay off that balance entirely, without any interest charges, and without using any state funds. The only catch is that the Texas Legislature and governor would need to do so by Sept. 6, so that’s unlikely—but they can keep the cost low if they take action soon.
Unemployment insurance is a surprisingly complicated, convoluted program.
Few people understand how it works, who pays for it, how benefits are calculated for the unemployed, or who even qualifies for benefits. Congress has added even more complexities and confusion to the program over the last year and a half with bonuses, extensions, and more. There are also substantial differences between states.
While the full details of the entire unemployment insurance program could fill a textbook, here are the basics.
Businesses pay payroll taxes which finance a trust fund for each state held at the U.S. Department of the Treasury. The program is overseen by the U.S. Department of Labor. States then use this trust fund to help pay their unemployment claims. As states’ balances in the trust fund rise and fall, the individual states adjust their business tax rates to try and maintain an adequate volume of funds with the U.S. Treasury.
If a state’s account runs dry, as can happen in a severe recession, the Treasury will loan the necessary funds to that state at a variable interest rate. The state must then repay the borrowed funds, along with the interest charged to its account. Furthermore, the state must also replenish the previous balance with additional funds.
The government-imposed shutdowns over much of the last 18 months, along with other misguided policies, created sky-high unemployment in many states, including Texas. Unemployment claims skyrocketed and this quickly depleted the state’s $2 billion trust fund account. After those savings were expended, Texas had to borrow billions of dollars from the Treasury to continue paying claims.
The Lone Star State has the third largest outstanding balance with the Treasury. New York, despite having fewer people, managed to dig itself an even deeper hole, racking up more than $10 billion of red ink in its ledger with the Treasury at the time of this writing. California is in even worse shape, by a large margin. The Golden State owes a massive $25 billion to the Unemployment Trust Fund.
Fortunately, the Texan economy has improved, and the state has not borrowed additional funds from the Treasury for months. With the bleeding stopped, it is now time to address the $7 billion hole along with replenishing the $2 billion credit that the state had with the Unemployment Trust Fund before the pandemic. That is a grand total of $9 billion which should be allocated to this problem.
In normal times, Texas would have no choice but to drastically increase taxes on businesses to raise the needed revenue to cover this hole. But these are not normal times.
Congress has allocated $41 billion for Texas as part of the American Relief Plan Act (ARPA) and the Treasury Department has issued guidance to the states that the funds can sent to the Unemployment Trust Fund. Texas has the money to fund this problem—state lawmakers only need to appropriate the ARPA funds.
Time is of the essence because the Treasury has temporarily waived all interest on outstanding balances with the Unemployment Trust Fund, but that is set to end Sept. 6. Even a low interest rate will still create millions of dollars in interest charges because the state’s balance is in the billions of dollars.
While the second called Special Session just ended, the upcoming third called Special Session is when the Legislature should immediately allocate the roughly $9 billion out of the almost $16 billion in the flexible ARPA funds available.
Delaying this payment past Sept. 6 will unfortunately cost taxpayers millions of dollars, which could otherwise go to tax cuts, roads, or education.
Texas is one of 14 state accounts with an outstanding Unemployment Trust Fund balance that together total more than $56 billion. West Virginia has repaid its balance with the Treasury and so will not pay any interest. Texas lawmakers can save their constituents millions of dollars in interest charges, but only if they act quickly.
While Sept. 6 will likely come and go without payment (though maybe action at the federal level could delay it further), this bill is coming due and Texas should plan accordingly.
If you’re poor and reside where there’s little economic freedom, then you have fewer opportunities to improve your livelihood compared with those living in more economically free places. The freedom to have the flexibility to control your future and leave a legacy to future generations with little influence by government supports human flourishing.
This too-often overlooked fact is supported by the just-released study, “Economic Freedom Promotes Upward Income Mobility,” published by Canada’s Fraser Institute and prepared by Justin Callais, Texas Tech University, and Vincent Geloso, George Mason University.
Income inequality continues to be a divisive economic issue, with opponents of freedom blaming free markets for it. Yet, income inequality is no more prevalent in economically free nations than nations dominated by government intervention.
But there is a crucial difference that separates economically free nations from others—one at the heart of fairness and equity. And that is opportunity. The Institute’s new research shows income and social mobility are significantly stronger in free than in unfree places.
The study looks at 82 nations, utilizing mobility data from the World Bank and World Economic Forum, and freedom data from the Institute’s “Economic Freedom of the World Index.” The conclusions match other data noting that prosperity is much higher and poverty much lower in economically free nations.
The average per-person output in a top-quarter economically free nation is more than $50,000 (purchasing power adjusted) compared to under $6,000 in the quarter of least-free nations. The average income of the poorest 10% in the freest nations is over $14,000, compared to the same numbers in the least free nations reported to be just 11% of the freest nations at under $1,600.
While the study examines income mobility internationally, economic freedom spurs greater income mobility among the U.S. states. The higher level of in-migration to economically free states is best explained by people moving to seek greater opportunity.
The Fraser index includes several factors necessary for economic freedom, but the two most important for income mobility are the rule of law and reasonable regulation. Since the rule of law is relatively—if not completely—uniform across U.S. states, regulatory burdens help tell the story of migration flows.
The U.S. ranks 6th most economically free among 162 jurisdictions considered worldwide. Rankings among the largest states in terms of population and economic output (California, Texas, Florida, and New York) reveal a stark difference.
Both Texas and Florida, with their approaches of more limited government, rank in the top four among U.S. states in terms of economic freedom, whereas California and New York, which choose a heavy-handed governing philosophy, fall in the bottom 4 states.
Narrowing down the broader ranking to just the regulatory burden, which the study finds influences income mobility, the rankings are similar for these states. Ranking near the top are Texas at second best and Florida at 10th while California is at 35th and New York ranks 44th. Government spending per person is also much lower in these red states.
Taking these factors along with better fiscal policy into consideration, and no wonder people are moving in droves for improved opportunities from these dark blue states to these dark red states. This has also meant increases in state income and wealth from migration. Interestingly, despite what’s commonly suggested, polling data show that this migration isn’t soon to flip Texas blue soon.
Regulations too often exclude people from work and opportunity. They may require workers to purchase occupational licenses or train to acquire credentials before they can work. This takes time and money, which lower-income earners may not possess, creating a barrier that prevents them from fully participating and advancing in the labor market.
Such regulations slow wage growth for lower-income workers. And particularly, occupational licensing tends to hurt income growth among the poor more than those with higher incomes. Onerous business and hiring regulations can also slam the door shut on poor entrepreneurs who simply do not have the resources to satisfy government’s many hurdles.
Yet, many seem to believe free markets victimize people. But that’s simply false. Free market capitalism best lets people prosper.
Just look around the world. Where would a person rather live, even if they were poor? In economically free places like the U.S., Canada, Denmark, Texas, or Florida or unfree places like Russia, Egypt, California, or New York, or socialist basket-cases, Venezuela and Cuba?
Free markets continue to face many challenges following the 2009 recession, the COVID-19 pandemic, expansion of government overreach, and the evidence-free imaginings of free-market critics. Hopefully, the facts like those in this report will win out—people are more prosperous, less poor, and blessed with opportunity where economic freedom prevails.
Vance Ginn, Ph.D.