Ginn Economic Brief on Texas - December
Texans continue to recover from the shutdown recession. There have been challenges like business closures, skyrocketing local property taxes, and anti-prosperity fiscal and monetary policies out of Washington. Fortunately, the Texas economy was (finally) fully opened on March 10, 2021, and the third wave of COVID-19 is now behind us with better results than after prior waves without statewide mandates of masks, closures, or vaccines—as these should always be voluntary. The 87th Texas Legislature mostly helped support the recovery with passage of many sound policies like a Conservative Texas Budget, a stronger state spending limit, and independent efficiency audits. However, there were missed opportunities like permanent, broad-based property tax relief. Given other states are drastically cutting or even eliminating taxes, Texas must remove government barriers so it can support more opportunities to prosper, remain an economic leader, and withstand bad policies out of Washington.
Build Back Bankrupt How the Latest U.S. House’s Build Back Better Act Spends Nearly $5 Trillion Americans Can’t Afford
The U.S. House of Representatives’ Build Back Better Act (BBBA) is filled with policies that will burden Americans and benefit special interests. Everything from childcare to gasoline will increase in price, on top of general price inflation. The BBBA will slow the economy, cut jobs, and turn inflation into stagflation.
Economic Freedom Lets Texans Prosper
The Texas Model of relatively less spending, no personal income tax, and sensible regulation continues to support improved economic freedom with more opportunities to flourish. But there’s room for improvement for the state recently ranked as the fourth most free nationwide.
Canada’s Fraser Institute recently released the Economic Freedom of North America 2021 report that scores states for economic freedom based on government spending, taxation, and labor market regulation. Economic freedom essentially is the freedom for people to use their property with minimal government interference. These scores are based on the latest available data for all jurisdictions in 2019, so they don’t include the effects of the shutdowns yet.
Based on these scores, they separate states into four quartiles. In the most-free quartile, the average per-capita income was 7.5% above the national average while the least-free quartile was 1% below it. Additionally, people tend to be richer when economic freedom is greater.
Economic freedom is essential to human flourishing.
Texas was the most economically free state in 1981 when the first score was reported. This was when the state had more conservative Democrats before party realignment with a political trifecta—control of the governor, house, and senate. But that ranking fell as they started to impose big-government policies that lowered it to seventh in 1991. The Lone Star State then dropped further and bottomed out at ninth in 1993. Through the late 90s and early 2000s, the more progressive Democrat-controlled House continued to restrict economic freedom which kept our ranking stubbornly low.
The first Republican trifecta was in 2003. The new leadership helped weather the storm of a fiscal crisis during a severe recession by overcoming a $10 billion shortfall through spending restraint. This new direction for limited government helped improve the ranking to fourth in 2006, rising to as high as second in 2008, while falling to no lower than fifth since then. This is quite impressive given these rankings can move depending on the relative ranking of states, and other states attempted to follow what worked in Texas.
The stronger commitment to the more successful Texas Model in recent years with a more conservative Republican trifecta especially since 2015 has helped support more economic freedom and prosperity.
Comparatively, Texas’ economic freedom ranks considerably better than other large states like California’s 49th, which has ranked in the bottom five states since 2002, and New York’s 50th, which has been in the bottom three states since 1981. Texas trails New Hampshire, Tennessee, and Florida, but the state’s score of 7.75 is near the leaders. It is only 0.08 points behind the top-ranked New Hampshire and 0.03 behind third-ranked Florida.
This comparison indicates the difference in governing philosophy.
For example, more conservative Texas and Florida rank 13th and 6th best, respectively, in state and local spending per capita compared with progressive California and New York ranking 48th and last, respectively. Of course, lower spending means less taxation, as Texas and Florida rank fourth and eighth best, respectively, in state and local tax burden per capita, while California and New York rank 43rd and last, respectively.
And Texas and Florida are right-to-work states while California and New York are not. Texas continues to reduce barriers to work by removing unnecessary and harmful regulations, especially relating to occupational licensing—though there’s still too many. And Texas keeps its minimum wage at the federal mandate of $7.25 per hour, though the real minimum wage is always $0.
These measures matter for human flourishing when you consider Texas has a lower cost of living (ranks 15th lowest in the state compared with Florida ranking 32nd, California 49th, and New York 48th) and better labor market outcomes, including lower income inequality and poverty.
Less economic freedom contributes to people fleeing California and New York for greener pastures. Over the last decade, the populations have grown more than two times faster in Texas and Florida compared with California and New York, and Texas’ population has grown 9.3% faster than Florida’s.
But Texas needs improvement.
One area is excessive local property taxes from too much government spending. The Texas Legislature provided limited relief this year, but much more is needed.
The state should build on its recent success of passing the strongest state spending limit in the nation this year by using use surplus funds to cut school district property taxes. And lawmakers should use the same approach for other local governments. These actions, along with redesigning the tax system, can result in eliminating property taxes by 2033.
By continuing to build on past successes and remove government barriers, Texas can be the most economically free state to best let Texans prosper.
The shutdown recession from February to April 2020 was devastating. There must be a return to the dignity and permanent value of work instead of dependency on government from Washington’s big government agenda and mandates related to COVID-19. The U.S. labor market has been improving more slowly than expected even though Washington has tried “stimulus” time and again. Congress has authorized spending $7.2 trillion since the recession above the normal budget. The next bad policy from D.C. could be the $5 trillion Build Back Better Act that could add $3 trillion to the bloated $29 trillion national debt, ballooning the debt owed per taxpayer by $23,800 to $110,900.
Fear and uncertainty over the pandemic are rising again as the first U.S. case of the Omicron variant of COVID-19 was found in a patient in California and has been spreading across the nation. But let’s not panic and jump to solutions. While this could contribute to the second consecutive winter wave, our new research shows why state governments shouldn’t overreact. Instead, we must steer clear of the devastation caused by mistaken shutdowns over the last two years.
Recently, Federal Reserve Chairman Jerome Powell told a U.S. Senate committee that this new variant poses “downside risks” to our country’s economic recovery and inflation headed into 2022.
But if recent history is a guide, the economic consequences of Omicron—or future variants—would be mostly from bad policies out of Washington and state capitols.
Congress is already running up massive deficits with excessive spending and misguided policies. The Fed has monetized much of that debt issuance, creating too much money that’s chasing too few goods, hence the highest inflation in 39 years. That inflation rate is challenging for the middle class, but it’s devastating to the impoverished who struggle to afford spiking prices of groceries, gasoline, and more.
But what’s too often missed is the effect that states had on making what could have been a slowdown or minor recession in response to the pandemic into a severe downturn.
Our new research, commissioned by the Georgia Center for Opportunity, finds that the overreaction by states to previous waves did substantial damage without much benefit in reducing the effects of the coronavirus.
The research shows a statistical correlation between how severe state governmental actions were in shutting down their economies and negative impacts on employment more than a year after the pandemic began in America. This was the case even after controlling for a state’s dependence on tourism or agriculture, population density, and the prevalence of COVID-19 infections and hospitalizations.
Our research found no correlations between the severity of shutdowns imposed by state governments and the rate of reported COVID-19 hospitalizations or deaths.
What we do know is that nationally, there are 3.3 million fewer people employed in the private sector since February 2020, a month before the shutdowns in most states. But the job loss is not spread evenly across the country.
Our study did not settle for simply comparing the job loss as measured from February 2020, the month before the pandemic hit. Instead, we ran more than 200 ARIMA model forecasts to capture pre-pandemic trajectories in an effort not to skew the results. Not all states had upward trajectories, and job growth rates varied from −0.8% to 2.9% for the 12 months prior to the pandemic.
States like Hawaii, New York, California, and New Mexico that imposed harsher economic restrictions generally have greater job losses even today than those states that were less harsh, such as South Dakota, Iowa, Nebraska, Missouri, and Utah. For example, New York was 10.2% below its trajectory in October 2021 while Nebraska was just 2.4% below.
Policies need to be implemented in a way that preserve jobs.
Protecting the rights and opportunities of workers to earn a living is obvious. Equally important are the psychological benefits that come with the dignity of work. And there are socio-economic benefits from work that positively impact everyone, such as building social capital and gaining skills, which are especially important for those in marginalized communities who were most impacted by the pandemic.
As the states prepare to deal with the Omicron variant (and we’re sure there are more to come), it is paramount that they consider the empirical evidence and not impose burdensome restrictions—such as business closures, stay-at-home orders, school closures, gathering restrictions, and capacity limits—on economic activity that will likely end up doing more harm than good.
Instead, the policies need to be crafted more carefully to expand opportunities for the poor and preserve jobs in an open economy in which entrepreneurs can solve problems while taking measures when necessary to protect vulnerable populations.
These are the policies that should have been done all along to avoid the severity of the shutdown recession and the effects on lives and livelihoods thereafter. Let’s not make another mistake when so many are already suffering.
Mr. Randolph who authored the study, is the Director of Research for the Georgia Center for Opportunity. Mr. Ginn, who sat on the advisory panel for the study, is chief economist at the Texas Public Policy Foundation, served as associate director for economic policy at the White House Office of Management and Budget, 2019-20.
Americans are being crushed by the highest inflation in 39 years. An entire generation has never seen prices rise this fast and they’re feeling the pain in their wallet. But the Build Back Better Act (BBBA) passed by the U.S. House of Representatives will only compound this pain with new spending, taxes, and debt.
Americans are already being heavily taxed by inflation. Inflation is fundamentally a way to transfer to the federal government without explicitly raising taxes, while robbing people of their purchasing power. It means everything from groceries to housing is more expensive. The most vulnerable among us are hit the hardest by inflation, especially those with fixed and low incomes. Americans need relief.
Instead of relief, the BBBA will make things worse.
Despite the White House’s assertions, the BBBA will not reduce inflation. Rather, this legislation spends records amount of money that we don’t have. Americans simply cannot afford to pay for the elephantine BBBA.
Without the House’s budgetary gimmicks, the Congressional Budget Office’s price tag for the legislation balloons to nearly $5 trillion over the next decade, with $3 trillion added to the deficit. After increased interest costs, the effect on the already bloated $29 trillion in national debt would be even larger. Estimates by the University of Pennsylvania’s Wharton Budget Model and the Committee for a Responsible Federal Budget both arrived at similar figures.
To put this new reckless spending in perspective, it would load another $24,000 in debt on the back of every American taxpayer, who would then owe a grand total of $111,000 each.
Runaway government spending is crowding out private prosperity and tethering American taxpayers to a cycle of poverty. It is nothing less than a modern-day financial servitude, in which we are all hopelessly indebted to the government, which allegedly spent the money on our behalf, but not to our benefit.
These massive deficits will have to be paid for, one way or another.
Taxes would have to be raised or other spending cut to cover the future costs of this big-government socialist bill. Congress can explicitly raise taxes, or the Federal Reserve can implicitly tax Americans by buying more Treasury bonds that would elevate inflation. Either way, it will compound the pain.
While these are bad, the BBBA is also flawed because of how the money is spent.
Despite its vastness, it’s difficult to find any productive spending in this bill. Instead, there are green energy boondoggles, and other special-interest giveaways. There are also tax breaks for high-income earners in primarily blue states.
These are just a few examples of the bill’s payouts to the political donor class, but there are no benefits for most other Americans.
Instead, Americans will suffer the : lower wages, less return on investment, fewer job opportunities, and even higher prices. To add insult to injury, the bill also provides for a newly hired army of Internal Revenue Service agents who will be monitoring your bank account, so you better keep every receipt.
The bill collects and spends money in such a way that it seems intended to cause economic harm.
Our research has shown that many tax provisions in the legislation will cost millions of jobs and reduce wages. There are also steep penalties on work and new costly entitlement programs, such as paid leave and universal preschool, which will incentivize millions of people to
For those with kids who choose to work, they could see their wallet hit hard from childcare costs more than doubling. And the BBBA would add new marriage penalties to the tax code, compounding the pain of married couples.
Sadly, this progressive agenda functions like an attack on families, individual liberty, and prosperity; it must die in the Senate.
Einstein once called compound interest “the most powerful force in the universe.” But just as gains compound on one another, so do losses. The BBBA will only compound the existing pain inflicted by inflation.
The better choice is monetary and fiscal rules, like the Foundation’s Responsible American Budget, combined with pro-growth polices to support human flourishing.
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.
There’s a saying, “The road to hell is paved with good intentions.” If that’s true, the recent passage of the Biden administration’s “infrastructure” package just added an express lane.
The massive $1.2 trillion bill, called the Infrastructure Investment and Jobs Act (“Jobs Act”), balloons the $29 trillion national debt on what’s largely a green energy boondoggle while sending states like Texas more money when they’re already flush with cash.
The share in the Jobs Act allotted to roads and bridges and other items typically considered infrastructure could be at best 20% while the details indicate it could be as low as 10%. Talk about a waste of taxpayers’ money that could be better used in their pocket.
Collectively, the Jobs Act may have had some good intentions, but it will leave Americans and Texans hurting.
And this doesn’t include the Democrat’s next reckless spending bill called the “Build Back Better Act” that recently passed in the U.S. House on a partisan vote. This $5 trillion big government bill would substantially increase dependence on government, thereby reducing families’ opportunity for self-sufficiency and threatening state sovereignty.
In short, Congress could soon spend about $12 trillion since the costly shutdowns by governments in response to the COVID-19 pandemic, sending us down the road to serfdom that Americans don’t want and can’t afford.
In Texas, the threat of government dependency may grow as the Jobs Act could allocate $35 billion over five years in federal funds for infrastructure-related projects.
According to a White House state fact sheet for Texas, $26.9 billion will be allocated for federally aided highway apportioned programs, with $537 million for bridges. And $3.3 billion will be used to improve and provide public transportation, despite only 8.6% of the U.S. population lacking access to a personal vehicle and the wasteful projects as fewer and fewer people using public transit because of its location and more remote work.
The electric vehicle producing company Tesla and its principal owner Elon Musk now call Texas home with an ever-expanding portfolio of products soon to come off the assembly line in Austin. The Jobs Act includes $408 million for the expansion of EV charging stations in Texas with possibly up to an additional $2.5 billion. Despite Washington’s effort to “electrify” Texas, state legislators declined to advance an EV infrastructure bill in 2021, indicating voter displeasure with subsidizing unreliable energy sources, while Musk recently admonished federal subsidies.
The Jobs Act would also send at least $100 million for broadband, though state legislators already approved $500 million for it from the American Rescue Plan Act (ARPA) funds, potentially making the added funds duplicative and wasteful.
To limit rising dependence on the federal government and given the state already has the potential for a combined $24 billion in state surplus and the rainy day fund, how can Texas use this money responsibly?
First, lawmakers must reject unneeded funds, given the state has a massive surplus.
Second, they must prioritize transparency like the state did for the $16 billion appropriated from Congress’ ARPA funds. This includes posting funds on the Legislative Budget Board’s website, using funds for only one-time expenditures, and keeping them separate to avoid misuse and a fiscal cliff. And strict oversight of contracts is essential given the potential for abuse.
Second, legislators should swap out any Jobs Act funds with general revenue funds already for infrastructure. The state currently appropriates $26.5 billion in the current budget cycle for infrastructure projects, though some of that could be what was expected from typical formula funding from the federal government as passed in the Jobs Act.
Finally, if it’s possible to make more general revenue funds available, lawmakers must provide much-needed substantial, broad-based property tax relief. Specifically, the state should return surplus taxpayer dollars by reducing school district maintenance and operations property taxes like HB 90 during the third special session of 2021. With tens of billions of dollars available, Texas should seize the opportunity of the Foundation’s bold strategy to eliminate property taxes.
The state’s infrastructure needs a tune up. Any Texan who spends time on Interstate 35 believes they are already on the road to hell.
The real question is whether in tuning up our infrastructure, Texans wish to take the route filled with more strings and less flexibility or the route with more certainty and accountability.
The choice is important.
Vance Ginn, Ph.D.