House Speaker Nancy Pelosi set Halloween as the deadline for passing multiple reckless budget increases. The latest new framework announced recently by President Biden has a claimed cost of $1.75 trillion ($1.85 trillion when you include $100 billion for “immigration”). That number may sound frightful, but the monster under the mask is ghastlier—the real figure likely remains closer to $5 trillion over the next decade.
The scary specter of the president’s “Build Back Better” agenda seemed dead, a victim of the political infighting among the Democrat Party. But now, the monstrosity has been exhumed from the graveyard in a costume betraying its true cost.
The expenditures from the original bill are reported to have been reduced not by cutting wasteful programs but by budgetary gimmicks. For example, the new costs of the expanded Earned Income Tax Credit and Child Tax Credit is counted for only one year; universal pre-K and child-care subsidies are counted for only six; and extended Obamacare and Medicaid subsidies are tallied through only 2025 instead of scoring them over the normal decade as part of reconciliation. Meanwhile, the tax increases are all counted for the next ten years.
This was one of the tricks on taxpayers that got Obamacare passed in 2010, and that program has been haunted by substantial cost overruns.
This latest Washington tax-and-spending drama has morphed into a horror show.
With a recalcitrant Republican Senate minority disavowing a December debt-ceiling increase, Democrats are attempting to corral nearly their entire caucus—in both chambers—into supporting this new framework and the other $1.2 trillion “infrastructure” bill.
Amid the White House’s rush to announce an agreement before the president leaves for Europe that didn’t get done, we should ask: What would be the effects of passing this agenda? The recent skeleton bill gives little meat to provide a thorough comparison of how close it is to previous incarnations of the president’s 10-year plan but what’s available remains scary.
While Senators Kyrsten Sinema and Joe Manchin likely approve of this lower-topline-number facade, the radical progressives want it larger. The self-proclaimed socialists want their $5 trillion spending spree and have said they will not support anything less.
Our analysis of the entire “Build Back Better” agenda illustrates the true cost of pushing big-government socialism onto Americans that we don’t want and can’t afford.
Compared to baseline growth, the broader agenda will slow the economy by $3.7 trillion, including $663 billion in lost private investment. Job growth will decline by 5.3 million over that time, about 4.3% of the latest employment figures. Meanwhile, the nation will add $4.5 trillion more to the national debt, even after $1.7 trillion in tax increases.
These are spooky figures, but the worst effects are the financial injuries inflicted on hard-working Americans. This agenda will crush the middle class, as we estimate that real median household family income could lose about $12,000 compared with baseline growth. Biden’s promise to not raise taxes on those earning less than $400,000 a year is repeatedly broken, implicitly and even explicitly.
The new 15% corporate minimum tax is just one example. Despite the White House press secretary’s assertions, businesses do indeed raise prices when corporate taxes increase. Businesses also reduce wages and cut hours for workers, while Americans see a lower return on their investments.
The new IRS “investment” is another frightful facet. The administration has repeatedly advocated for spying by the IRS on everyday Americans—not just the wealthy—to collect $400 billion more in taxes over a decade. Virtually everyone with a direct deposit paycheck could find themselves under audit.
Nearly all the tax increases proposed by Democrats this year are heavy taxes on investment. Contrary to what the Biden administration believes, tax rates matter because people respond to incentives. Higher tax rates disincentivize investment, which in turn reduces the nation’s capital stock, real wages, and economic output.
Besides the horde of proposed tax increases, there are expansions of welfare programs and the removal of work requirements. Instead of obliging people to earn at least some income before receiving a refundable tax credit, these bills would redistribute dollars from productive activity to handouts for people to not work. The last year shows that is a proven recipe for disaster in people’s livelihood and the economy and economist Casey Mulligan, senior fellow at the Committee to Unleash Prosperity, notes this could cost 9 million jobs over the next decade.
Neither Biden’s American Jobs Plan nor the American Families Plan that constitute the Build Back Better agenda have been passed, which is fortunate because both of their monikers seem to detail the things they attack.
But these scary specters have returned in this latest amorphous outline—and the devil is always in the details. Speaker Pelosi and Senator Majority Leader Chuck Schumer now must flesh out the monster and try to secure enough of their own party’s votes to revive the beast.
It is still possible that Congress passes some form of this legislation—a veritable Frankenstein’s monster. We will have to wait and see what kind of scary surprise Washington has in store for the rest of America. But the details we do have are Americans’ worst nightmare with this latest budget-busting that should die—and stay buried this time.
J. Antoni, Ph.D., is an economist, and Vance Ginn, Ph.D. is chief economist, at the Texas Public Policy Foundation. Dr. Ginn also served as Associate Director for Economic Policy at the White House’s Office of Management and Budget, 2019-20. Stephen Moore is an economist at Freedom Works and co-founder of the Committee to Unleash Prosperity where Dr. Antoni is a visiting fellow.
Since 1920, Texas’ economy has been hindered by a little-known protectionist law called the Jones Act. In fact, Wayne Christian, the current chairman of the Railroad Commission of Texas, noted in a 2018 letter that this act hurts Texas and the nation and should be reevaluated. At a time when energy prices are soaring and economic activity is souring from bad policy in Washington, ending this antiquated act would be a big boost to Texans and all Americans.
The Jones Act mandates that only ships built, owned, and crewed by Americans can transport goods between U.S. ports. But such vessels are relatively more expensive to build and operate because of the lack of competition due to government restrictions. As a result, it can often prove cheaper for Americans to purchase products made in other countries.
In times of national disaster, presidents, regardless of political affiliation, have provided aid to coastal states and U.S. territories by granting waivers of the Jones Act so the assistance can arrive efficiently.
The act especially harms states like Alaska and Hawaii, as well as U.S. territories like American Samoa, Puerto Rico, and Guam. Because of the added surcharges associated with shipping goods on an approved vessel, artificially high prices become the norm for most of the goods shipped to those places and result in billions of dollars of lost revenue for U.S. businesses — and thus American workers and consumers.
The Jones Act is even more burdensome on energy producers, especially here in Texas. Currently, Texas produces half of America’s natural gas output — but instead of shipping gas domestically, we are being forced to export our natural gas. Texas continues to ramp up liquefied natural gas (LNG) production, but the Jones Act has made it impossible to sell some domestically. In fact, there are only 96 American-made, Jones Act-compliant ships and no eligible ships capable of carrying LNG. Because of this, it’s more economically viable for some coastal states and territories to import from foreign nations rather than buying LNG produced in Texas. Repealing this protectionist measure would remove this obstacle and help lower energy prices. Currently, foreign nations with large reserves of natural gas and crude oil have greater incentives to enter U.S. markets because the act puts American energy producers at a disadvantage.
Last year, the U.S. exported LNG to 37 countries, with the Dominican Republic purchasing over half of its LNG from the U.S. Meanwhile, the Dominican Republic’s island neighbor of Puerto Rico found it cheaper to import most of its LNG from Trinidad and Tobago instead of mainland America. The difference is that the Dominican Republic is a foreign nation and is not limited to more expensive approved ships to buy from the United States.
Proponents for the Jones Act claim that it “bolsters” our national defense, but instead it increases energy dependence on foreign imports, often from unfriendly countries.
Another unintended consequence of protectionist shipping laws is one of the largest — and most dangerous — commercial challenges for ships that navigate the narrow connection in the Houston Ship Channel as they sail towards the Gulf of Mexico from near Houston.
Jokingly nicknamed the Texas Chicken, this hair-raising encounter in which oncoming ships steer almost directly at one another has become the norm for ship captains because Houston simply doesn’t have a wide enough channel to safely accommodate two-way traffic at normal distances. This is due to another costly protectionist measure called the Foreign Dredge Act of 1906. It prohibits foreign-built ships from dredging in the U.S. In addition to these risky maneuvers, the U.S. Army Corps of Engineers has talked at length about the channel’s inefficiencies and environmental concerns because of flawed assumptions that restricting certain ships benefits Americans.
Simply expanding the channel would solve many of the bottleneck issues our state sees with energy exports and shipping in general. However, the costs associated with conducting this project are artificially high because of the two acts. Two of the largest sand-moving projects in Louisiana dredged about 24.6 million cubic yards of sand, costing a combined total of $334 million. In the Netherlands, a similar project was undertaken, costing just $55.5 million while dredging 14% more sand.
The economic costs of the Jones Act are clear and, as economist Milton Friedman said, “One of the great mistakes is to judge policies and programs by their intentions rather than their results.”
The Jones Act was created to protect domestic shipbuilding, but it has turned a once-thriving U.S. maritime industry into a dying, anti-competitive relic — an allegory of what irresponsible government regulation looks like. If waiving the Jones Act works during a crisis, why have it at all? We shouldn’t, and Texans and all Americans would be better off without it.
It’s playoff baseball time here in Texas—go ‘Stros! But baseball fans know everything depends on the umpires—as the great Bill Klem said, when asked whether a ball was fair or foul, “It ain’t nothing until I call it.”
It’s time for us to call fair and foul on the Texas Legislature; there were some homeruns, some wild pitches and even some unforced errors. And ultimately, it’s the taxpayers who either win or lose.
To begin with, lawmakers did well in remembering the taxpayer by maintaining a Conservative Texas Budget (CTB), which sets a maximum appropriations threshold based on the average taxpayer’s ability to pay for it (as measured by population growth plus inflation), and passing a stronger spending limit.
There was concern with Congress sending Texas $16.3 billion in mostly discretionary funding through the American Rescue Plan (ARPA). During the recently ended third special session, the Legislature appropriated $13.3 billion of it, with a positive of leaving $3 billion for possible tax relief later.
Another winning play is that the Legislature followed most of the Foundation’s recommendations for ARPA funds.
It sustained the CTB and used the funds for only one-time expenditures which will help avoid any fiscal cliffs like some claimed Texas had after Obama’s one-time “stimulus” funds in 2009. Legislators appropriately used $7.2 billion—about half of ARPA funds—for debt payment and replenishment of the state’s depleted unemployment trust fund after the shutdown recession to avoid a massive payroll tax hike on employers. And they ensured transparency and accountability by requiring that the uses of these funds be posted on a government website and put in a separate account, respectively.
While those actions benefited taxpayers, a botched play was in not providing substantial, broad-based property tax relief.
This could have been done, as there were surplus funds of $6 billion in general revenue and $3 billion in ARPA funds. All legislators needed to do was use surplus funds to reduce school district maintenance and operations property taxes, thereby continuing the path toward eliminating property taxes by 2033.
Instead, lawmakers raised the homestead exemption for school district property taxes by $15,000 to $40,000, funded by about $450 million in general revenue annually. And even this won’t happen unless voters approve this constitutional amendment in May 2022. If passed, more than 5 million homeowners would benefit from average savings of $176—excluding other higher local property taxes. So, no relief for business owners, landlords, apartment owners, renters, and those with secondary properties.
This compromise followed proposals in the Senate that would have provided at least $2 billion in general revenue to lower school district property taxes for everyone and in the House that would have provided $3 billion in ARPA funds for checks to only those with a homestead.
Clearly, the Senate’s version would have been broad-based, even though more could have been added to it. Combining it with HB 90 in the House that would have provided structural reform to eliminate property taxes over time, which died in House calendars, could have provided extraordinary relief. Instead, it appears that lobbyists for the public ed establishment pushed against this pro-taxpayer effort, resulting in little-to-no relief through the increase in the homestead exemption.
A huge unforced error was the wasteful spending of ARPA funds.
The decision to allocate $325 million in ARPA funds to support $3.3 billion in tuition revenue bonds for construction at higher education institutions is at the top of the fouls list. While tuition and student debt continue to rise, the quality of education is declining, and universities are already receiving billions of dollars, this provision is ill-advised.
It’s unfortunate that instead of providing tax relief these funds went to projects like student housing enhancements for the Marine Science Institute at the University of Texas at Austin and $100 million to two state university systems for institutional enhancements.
However, not all state legislators sought to rubber stamp additional funds to a declining higher education system. Rep. Matt Schaefer (R-Tyler) proposed an amendment that sought to connect the amount of money institutions can receive based on the rate of tuition increase. Unfortunately, the amendment didn’t pass, ending an opportunity to curb the fiscal bloat that plagues Texas universities, students, and taxpayers.
Putting this year’s legislative game in perspective there were many hits but also some strikeouts, especially on major property tax relief. But taxpayers did get relief from less government spending than what was available.
The Legislature left about $20 billion in total revenue, including $6 billion in general revenue, and $12 billion in the rainy day fund and $3 billion in ARPA funds on the table. Texas should return much if not all of these surplus funds to struggling taxpayers so they can recover from the shutdown recession, withstand the stagflation by the Biden administration, and actually own their property.
But as with baseball, there’s always next season.
Given Texas’s commitment to lower taxes and limited government, it’s not surprising that the economy here is booming. Allowing people and businesses to keep more of their hard-earned money is the not-so-secret reason Texas often leads the country in job creation, economic growth, and inbound domestic migration.
Unfortunately, Democrats in Washington are trying to enact a reckless $5 trillion spending bill that would also raise taxes by the most in at least fifty years while leaving a mountain of debt. This could be a crushing blow for the American economy, and Texas could be one of the states hardest hit.
Indeed, research from the Texas Public Policy Foundation shows that Biden’s “Build Back Better” plan could cost the U.S. economy a conservatively estimated 5.3 million jobs compared with baseline growth over the next decade—and 467,000 of those jobs would be lost in Texas. This should come as no surprise to anyone as Democrats are not only trying to raise taxes broadly on individuals and job creators, but are also taking aim at specific industries they don’t like. That’s bad news for Texas.
In their bid to end the use of fossil fuels, Democrats would hit oil and gas producers with punitive fee increases and potential tax changes that would make reliable energy production less competitive. This will directly impact Texas families, as 2.5 million Texans have jobs that are directly or indirectly supported by the oil and gas industry. And these additional government-mandated burdens will drive up prices on gasoline and fuel, as well as other everyday prices like food and clothing.
Americans deserve a healthy economy, not more burdensome tax measures and policies that will make the inflation situation worse.
Thankfully, a small but significant group of moderate Democrats, including South Texas Reps. Filemon Vela, Vicente Gonzalez, and Henry Cuellar have publicly expressed concerns with the reckless spending bill. These members wrote to Speaker Pelosi in late September and asked Democrat leaders to “reconsider some of the revenue raising provisions of this otherwise sound and critical effort,” and said they’re concerned about provisions that would “jeopardize U.S. energy independence, harm American jobs, raise energy costs, and increase global emissions.”
Their concerns are valid, and they are certainly correct that the Build Back Better plan would hurt American workers. However, despite their letter, in August these three representatives voted to allow the $5 trillion bill to move through the legislative process. If they truly have concerns about this disastrous bill—as they have publicly stated—then they should have voted “no” and forced Speaker Pelosi to hit the brakes. But it’s not too late. With a razor-thin Democrat majority in the House, these three members of Congress could flex their collective muscle and end this assault on Texans and all Americans.
Absent the political courage of these or other Democrats in Congress, Biden and Democrats will enact job-killing policies that place a heavy burden on taxpayers of nearly all income levels. For instance, if Biden gets his way and raises the corporate tax rate from 21 percent to 28 percent, $100 billion of this tax hike will be shouldered by taxpayers making $100,000 or less according to calculations by National Taxpayers Union. Despite his claim that only the wealthy will pay higher taxes, Congress’s Joint Committee on Taxation says that under Biden’s plan, people making just $30,000 and above will pay higher taxes starting in 2027.
Small businesses could also face higher tax burdens as Biden would increase their tax rates and place new restrictions on their ability to utilize the 20% tax deduction that was created in the Tax Cuts and Jobs Act. That’s just the tip of the iceberg: Biden’s plan also involves tax hikes on investors, property owners, and even cigarette and vape users—tax hikes that would further break his pledge to not raise taxes on anyone making less than $400,000 a year.
The country is still recovering from the COVID-related shutdowns and dealing with economic problems like inflation that have taken a heavy toll on families across the country. After spending trillions of dollars over the past eighteen months, Congress shouldn’t be considering a costly tax-and-spend plan that would jeopardize the American recovery. Instead, members like those in south Texas should find ways to get our fiscal house in order by reducing spending. Killing this bill would be a good start.
Governments’ forced business closures and mandates in response to COVID-19 resulted in much economic destruction during what I am calling the “shutdown recession.” Returns to normal, to work, and to pro-growth polices are essential for the economic recovery and people’s flourishing. 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 $6.2 trillion, while the Federal Reserve has more than doubled its balance sheet to $8.4 trillion. The federal government has been paying people not to work thereby supporting labor market shortages and a near record high of 2.1 million more job openings than total unemployed. In August, there was a record high of 2.9% of job holders who quit their job, possibly due in part to the vaccine mandates. Congress should stop paying people not to work, reject the reckless Build Back Better agenda, and return to the pro-growth policies supporting vast opportunities to let people prosper.
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Texas and football go hand-in-hand. There is nothing like the two-minute drill at the end of a game with increased adrenaline pushing you on to victory. Texas lawmakers are likely feeling a similar jolt in an effort to appropriate the remaining $16 billion of the $40 billion that Congress sent to Texas in the American Rescue Plan Act (ARPA) earlier this year.
The Legislature has done a good job so far this year in keeping a responsible budget, but these federal funds could tempt lawmakers to spike the football early—allocating ARPA money that doesn’t help the Texas taxpayer while putting the nation further into debt. In fact, a responsible approach would lead Texas to reject these funds, given the state has a large budget surplus, though there’s likely no political will to do so.
Let’s return to the first quarter of the game.
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 parked $12 billion in the state’s rainy day fund.
This approach maintained the overall strategy that the Legislature has been operating under for the last four budgets. By staying within the CTB maximum threshold, and passing into law a stronger spending limit this year, lawmakers pledged to keep more money in taxpayers’ pocket.
Now the state is in the fourth quarter and is determining how to allocate the ARPA funds, which are your taxpayer dollars. The nearly $16 billion offers plenty of opportunity—both good and bad—for lawmakers to spend hard-earned taxpayer dollars.
The game plans in the Texas Senate with SB 8 and the House with HB 145 are largely the same, with just a $350 million difference. Most items appear to abide by the restrictions on the use of funds outlined by the U.S. Treasury’s interim guidance. So far, so good. But about $500 million is being set aside for university construction in both bills, which doesn’t count as infrastructure (the feds define infrastructure as sewer, water, and broadband). How is this a good use of taxpayer dollars?
In their current plans, both start strong with over $7.2 billion designated to pay the outstanding debt owed to the U.S. Treasury’s Unemployment Trust Fund and to replenish most of what was in the fund pre-shutdown. This is essential because without paying, this there would be a huge spike in employer taxes that support this fund. But we would recommend $7.8 billion for full funding to provide a better cushion.
The next strong play in both plans is to allocate $3.7 billion for public safety and criminal justice. These funds appear to be allocated to swap with general revenue funds already appropriated in the current budget cycle for border security and wall thereby not further growing spending. This could also free funds up later for property tax relief. This allocation provides serious relief to taxpayers as the state has been subsidizing the border crisis for the rest of the country because of the inept leadership on this issue in Washington.
These strong plays follow two-thirds of the Foundation’s winning strategy for ARPA funds. The third one is necessary to get Texas across the goal line—property tax relief.
Burdensome local property taxes continue to climb, forcing some Texans to delay major life decisions like marriage and home ownership. Using the rest of the ARPA funds to add to the at least $2 billion in SB 1 to reduce school district M&O property taxes for the 2022-23 school year would help lower tax bills at a time when many taxpayers are suffering from the effects of the shutdowns. This combination of plays along with HB 90 and other moves could eliminate property taxes by 2033. Three states have already started cutting taxes using ARPA funds so Texas shouldn’t delay.
In addition to using ARPA funds for the plays above to move the down the field, the Legislature should use best practices with these funds for transparency and accountability for taxpayers. Any use of ARPA funds must be for only one-time expenditures, which will help avoid a fiscal cliff like that after Obama’s one-time “stimulus” funds in 2009 dried up. ARPA funds should also be separated from Texas’ base budget. And lawmakers should post the allocation and distribution of funds on a website.
The Legislature is in the final two minutes of the fourth quarter. This is where champions are made. Let’s ensure Texas taxpayers win the day with a responsible game plan, rather than irresponsibly spending ARPA fund.
Reversing the Recovery: How President Biden’s “Build Back Better” Plan Raises Taxes, Kills Jobs, and Punishes the Middle Class
Congress is attempting to force through massive tax, spending, and debt hikes that would fundamentally transform America into something it is not and cannot afford.
I don’t know the story behind the clean two-story home on Goldfinch Lane in Montgomery County. But I know enough. Soon, attorneys will sell the property on the fourth floor of the Commissioners Court Building in Conroe. In this white-hot real estate market, it will likely to go investors.
What it means is that at some point, a family couldn’t keep up with the property taxes. And now the foreclosed home, valued at $171,180, will go to the highest bidder in the county’s monthly tax sale. Did it involve an illness? A death? It doesn’t matter now.
This is a threat that hangs over every homeowner in Texas—and every business owner who holds the title to the property they do business on. Texans will never experience the peace of mind that comes with owning their homes until property taxes are eliminated. Until then, Texans are simply renting their homes from the government, always with the fear that taxes could become so exorbitant they can no longer afford to stay.
But we have a plan. Our “Lower Taxes, Better Texas” plan will eliminate property taxes for every Texan by 2033 (or sooner), while also making structural changes to our system that prevent year-to-year spikes in tax bills. At the same time, we’ll rein in irresponsible local government spending.
Texans need and want real property tax reform. In recent polls, 82% of Texans said property taxes are a serious issue and 7 out of 10 said they would be upset if the current legislative session ended with nothing done to lower their property tax bill.
Even the media agrees.
“Older Texans on fixed incomes, even those with senior exemptions and freezes, too often end up being priced out of their homes,” a recent Dallas Morning News editorial noted. “Young first-time homebuyers are priced out of homeownership and stay in apartments where monthly rents are rivaling monthly mortgages.”
How does our Lower Taxes, Better Texas plan work? It’s a three-pronged approach.
It begins with controlling the driving force behind tax hikes—increased spending. The Legislature has already enacted a new spending limit based on a formula using population growth and inflation, and any surplus general revenue must first be used to reduce property taxes. This surplus can be used to buy down school district maintenance and operations (M&O) taxes.
And that’s the second prong: Lawmakers now must pass Senate Bill 1 and House Bill 90, which will ensure that those surpluses are used to buy down property taxes now, and in the future. SB 1 would spend the current surplus on property taxes, and with this precedent, HB 90 would require that future Legislatures allocate at least 90% of any future surplus to the same cause.
Finally, legislators should pass House Bill 91 (with a few key amendments). We must redesign the state’s tax code so that local governments are funded primarily by sales taxes. This redesign would broaden the base of goods and services covered by the sales tax while lowering the rate. The result would be to finally eliminate school M&O taxes after years of cutting them.
Critics say lower-income Texas families would be hurt by reliance on sales taxes, but they fail to consider that we all pay property taxes—even if we’re renters. Higher property taxes get passed along—property owners aren’t in the rental business to lose money. And a slight broadening of the sales tax base will allow us to keep the exemptions—such as food and medicines—that make sense for Texas families.
Besides, once property taxes are eliminated, that surplus can then used to buy down sales taxes.
In September, Texas Gov. Greg Abbott added property tax reform to the third Special Session agenda. Legislators can act now to ensure Texans can keep their homes for generations to come.
I’ll probably never know why that Montgomery County home sits empty. But by itself, it tells a story—one we must work to ensure doesn’t get repeated again and again. Let’s stop taxing Texans out of their homes.
Vance Ginn, Ph.D.