Read the full paper here.

Here's the original post by the Pelican Institute.

Pelican Institute reform plan would flatten personal and corporate taxes, boost jobs in first year.
Baton Rouge — As candidates for Louisiana governor debate the future of the state, a new poll shows Louisiana voters strongly support phasing out the state’s income tax while ushering in fiscal responsibility. Today, the Pelican Institute has released a new tax reform plan that would do just that—transform the state, make it more competitive, pave the way for more and better jobs, and launch Louisiana’s comeback.

By a wide margin, 58% of Louisiana voters support phasing out the state income tax (only 20% oppose), and 66% want leaders to prioritize responsible budgeting and limiting the growth of state spending to bring fiscal stability to state government (only 9% oppose). Voters also strongly back education freedom; 62% support giving Louisiana parents the ability to use state funds to select the school of their choice for their child’s education (only 25% oppose). The poll, which was conducted by Cor Strategies in partnership with the Pelican Institute, can be seen here.

In Louisiana’s Comeback: A Tax Reform for Our Brighter Future, the Pelican Institute identifies the state’s significant tax problems and proposes a path to set the state in a brighter direction, including flattening the personal and corporate income taxes to 3.5% rates, reducing the number of tax preferences, eliminating the corporate franchise tax and the inventory tax, and reforming the budget to limit the growth of spending, among other changes.

“If we are to write Louisiana’s comeback story, we first have to get our fiscal house in order and fix our broken tax code that has, for far too long, landed Louisiana at the bottom of every good list and the top of every bad list,” said Daniel Erspamer, Chief Executive Officer of the Pelican Institute. “Louisiana families are suffering, and too many of our best and brightest are leaving the state to find opportunity elsewhere. It’s time to embrace a bold vision for tax reform proven to bring jobs and opportunity – not to mention our kids and grandkids – back to our state.”

Louisiana suffers under a tax system that is brutally punishing for families and businesses. It is painfully progressive, thereby increasing tax rates as more income is earned—and that disincentivizes greater earnings, reduces productivity, and slows economic growth. Meanwhile, tax preferences create exemptions and deductions that make compliance costly, pick winners and losers, and narrow the tax base. That, in turn, requires an even higher tax rate to collect needed revenue for funding limited government. On top of that, Louisiana’s taxes on businesses are particularly burdensome, including a triple taxation on profit, investment, and inventory, that together stifle economic growth.

The Pelican Institute’s tax plan solves these problems with a proposal that will kickstart the economy into immediate growth and increase the number of available jobs in the state in the first year. The plan is the latest part of the Pelican Institute’s Comeback Agenda released in March of this year, which lays out a series of policies critical to the state’s future, including tax and budget reform, guaranteeing universal education freedom, enhancing public safety, and reducing regulatory barriers to work.

A two-page guide to the reform can be read below and a one-pager below that.​

Government Spending Is The Problem
The late, great economist Milton Friedman said, " The real problem is government spending."
​
This is true as spending comes before taxes or regulations. In fact, if people didn't form a government or politicians didn’t create new programs, then there would be no need for government spending and no need for taxes. And if there was no government spending nor taxes to fund spending then there would be no one to create or enforce regulations.

​While this might sound like a utopian paradise, there are essential limited roles for government outlined in constitutions and laws. Of course, most governments are doing much more than providing limited roles which preserve life, liberty, and the pursuit of happiness. This is why I have long been working diligently to get a strong fiscal rule of a spending limit enacted in all states and at the federal level promptly under my calling to "let people prosper," as effectively limiting government supports more liberty and therefore more opportunities to flourish.

Fortunately, there have been multiple state think tanks that have championed this sound budgeting approach through what they've called either the Responsible, Conservative, or Sustainable State Budget.

When Did It Begin?
I started this approach a decade ago with my colleagues at the Texas Public Policy Foundation with work on the Conservative Texas Budget which began in 2013. The approach is a fiscal rule based on an appropriations limit that covers as much of the budget as possible, ideally the entire budget, with a maximum based on the rate of population growth plus inflation and a supermajority (two-thirds) vote to exceed it. A version of this approach was started in Colorado with their taxpayer's bill of rights (TABOR), which was championed by key folks like Dr. Barry Poulson and others.  (picture below is from a road sign in Texas)

Why Population Growth Plus Inflation?
​While there are other measures to use for the growth limit, this metric provides the best reasonable measure of the average taxpayer's ability to pay for government spending without excessively crowding out their productive activities. It is important to look at it from the taxpayer’s perspective rather than the appropriator’s view given taxpayers fund every dollar that appropriators redistribute from the private sector. Population growth plus inflation is also a stable metric reducing uncertainty for taxpayers (and appropriators) and essentially freezes inflation-adjusted per capita government spending over time.

​The research in this space is clear that the best fiscal rule is a spending limit using the rate of population growth plus inflation, not gross state product, personal income, or other growth rates. Given the high inflation rate more recently, it is wise to use the average growth rate of population growth plus inflation over a number of years to smooth out the increased volatility. And this rate should be a ceiling and not a target as governments should be appropriating less than this limit, ideally freezing or cutting government spending at all levels of government to provide more room for tax relief, less regulation, and more money in taxpayers' pockets.

Overview of Conservative Texas Budget Approach
Figure 1 shows how the growth in Texas’ biennial budget was cut by one-fourth after the creation of the Conservative Texas Budget in 2014 that first influenced the 2015 Legislature when crafting the 2016-17 budget along with changes in the state’s governor and lieutenant governor. And the 8.9% average growth rate of appropriations since then was been below the 9.5% biennial average rate of population growth plus inflation over the latter period, which this was drive substantially higher after the latest 2024-25 budget that is well above this key metric (before this biennial budget the growth rate was 5.2% compared with 9.4% in the rate of population growth plus inflation). 

​And this approach was mostly put into state law in Texas in 2021 with Senate Bill 1336, as the state already has a spending limit in the constitution. The bill improved the limit to cover all general revenue ("consolidated general revenue"), base the growth limit on the rate of population growth and inflation, and raise the vote to three-fifths of both chambers to exceed it. There are improvements that could be made to SB 1336, such as adding it to the constitution and improving the growth rate to population growth plus inflation instead of population growth times inflation calculated by (1+pop)*(1+inf). But this stronger limit is likely the strongest in the nation as historically the gold standard for a spending limit of the Colorado's Taxpayer Bill of Rights (TABOR) has been watered down over the years. 

My Work On The Federal Budget In The White House
From June 2019 to May 2020, I took a hiatus from state policy work to serve my country as the associate director for economic policy at the White House's Office of Management and Budget. There I learned much about the federal budget, the appropriations process, and the economic assumptions which are used to provide the upcoming 10-year budget projections. In the President's FY 2021 budget, we found $4.6 trillion in fiscal savings and I was able to include the need for a fiscal rule which rarely happens.

Work With Other States
When I returned to the Texas Public Policy Foundation in May 2020, as I wanted to get back to a place with some sense of freedom during the COVID-19 pandemic and to be closer to family, I started an effort to work on this sound budgeting approach with other state think tanks. This contributed to me working with many fantastic people who are trying to restrain government spending in their states and the federal levels.

​My hope is that if we can get enough state think tanks to promote this budgeting approach, get this approach put into the state's constitution and statute, and use it to limit local government spending as well, there will be plenty of momentum to provide sustainable, substantial tax relief and eventually impose a fiscal rule of a spending limit on the federal budget.

This is an uphill battle but I believe it is necessary to preserve liberty and provide more opportunities to let people prosper.

Responsible State Budget Efforts Across The Country
Here are the states (in alphabetical order) and state think tanks which I'm working with in some capacity or will be soon along with information on how this process is going in that state, which I will update periodically, with the successful versus not successful budgeting attempts being 17-5.

1. Americans for Tax Reform will soon release a map with every state's Responsible Budget based on this approach.
2. Alaska: Alaska Policy Forum released its third Responsible Alaska Budget, with the first two unsuccessful but the most recent being successful as it helped define the narrative about sound budgeting.
3. Colorado: Independence Institute will release its first Sustainable Colorado Budget soon.
4. Florida: James Madison Institute recently released its first Conservative Florida Budget, still waiting on results.
5. Iowa: Iowans for Tax Relief Foundation released its third Conservative Iowa Budget, and the first three have been mostly successful.
6. Kansas: Kansas Policy Institute released its second Responsible Kansas Budget, with the first two not being successful but improvements are being made to help rein in even more spending.
7. Louisiana: Pelican Institute recently released its first Responsible Louisiana Budget, with the first being unsuccessful.
8. Michigan: Mackinac Center released its second Sustainable Michigan Budget, with the first not being successful but the second one being successful in reining in excessive spending in a tough political situation.
9. Mississippi: Mississippi Center for Public Policy recently released its first Responsible Mississippi Budget and was successful.
10. Montana: Frontier Institute released one Conservative Montana Budget and one report on Responsible Local budgets, which has resulted in two successful CMBs and improved local budgets.
11. South Carolina: South Carolina Policy Council released its first South Carolina Conservative Budget and was successful.
12. Tennessee: Beacon Center released its second Conservative Tennessee Budget, with the first two being successful.
13. Texas: Texas Public Policy Foundation released its fifth Conservative Texas Budget, with the first four of five (2024-25 budget wasn't) being mostly successful, and the recent release of Responsible Local Budgets.
14. Federal: The Responsible American Budget to rein in federal government spending to support fiscal sanity in D.C., which is essential for the future of our country.

​
If you're interested in doing this in your state, please reach out to me.

P.S. Good write-up on this issue here by Dan Mitchell at International Liberty.​

Fitch Ratings downgraded the US credit rating from AAA to AA+ because they expect fiscal deterioration over the next few years. While the diagnosis seems delayed, they’re right. Irresponsible bipartisan  spending for decades is the culprit. With the national debt approaching $33 trillion, the American economy appears unlikely to recover its AAA status any time soon. 

Republicans and Democrats have consistently increased spending more than tax revenues, leading to massive debt and unsustainable deficits. 

Increased spending under President Biden made a dire situation even worse. For instance, in just five weeks since suspending the debt ceiling, the deficit rose by $1 trillion. Inflation soared once the current administration took office, and still hasn’t leveled off. Real wages are just now catching up with inflation after falling behind for more than two consecutive years. The US dollar’s value has waned. 

America is not a safe investment, thus the downgrade.

Fitch Ratings predicts slower economic growth in the coming years due to high regulations, increased taxes, and demographic changes affecting productivity and population. This slower growth means less tax revenue for the federal government. Also, mandatory spending on Social Security and Medicare, which make up the bulk of federal spending, is projected to grow rapidly, contributing to rising deficits that will soon have just net interest payments exceed spending on national defense.

Americans can expect their wallets to be tangibly affected soon. 

The downgrade will contribute to even higher interest rates than otherwise, which will have a domino effect on various aspects of the economy, including the stock market. Unless severe corrective measures are taken, the situation will likely deteriorate further, impacting people’s prosperity and perpetuating a debt and stagflationary situation.

The government should focus on fiscal responsibility and better budget management to avoid a deepening spending crisis, exacerbating Americans’ existing economic burden. 

First, an approach of zero-based, performance-based budgeting should be implemented throughout the government to identify and eliminate ineffective programs. 

Second, independent audits by private entities of government spending for programs would provide transparency and guide decision-making regarding which programs to retain, modify, or cut. 

Third, but likely most important, implementing a fiscal rule that has worked at the state level, such as population growth plus inflation for a maximum budget growth rate, could cap the government’s debt accumulation and support more economic growth. Had such a rule been adopted over the last two decades, the national debt increase would have been significantly lower, by just $500 billion instead of the actual $19 trillion, allowing for better debt management.

The US credit downgrade should be a sobering wake-up call that urges Congress and the administration to prioritize fiscal responsibility. 

As the nation faces economic challenges and increasing debt burdens, it is crucial to adopt prudent measures to put America back on a path to prosperity. Only through concerted efforts to control spending, implement effective budgeting practices, and consider the long-term economic impact of policy decisions can America chart a sustainable and prosperous course for the future.

Otherwise, buckle up. It’s going to be a bumpy ride.

​Originally published at AIER.

​Texas Governor Greg Abbott (R) recently signed into law the tax relief compromise by the Legislature’s second special session. This relief is historic with the country’s largest tax cut and the largest net tax cut in Texas history. 

But it falls short of what Texans were promised of the largest property tax cut in the state’s history, as it’s instead the state’s second largest property tax cut because of the largest spending increase in Texas history.

​Rather than providing substantial relief and simplifying the property tax system, the package presents a burdensome approach that could hinder the state's progress. By overspending and adopting a convoluted tax relief strategy, Texas risks falling behind states rather than leading the way in addressing real property tax concerns.

The deal provides $12.7 billion in new property tax relief out of the nearly $33 billion surplus as the Legislature increased the upcoming 2024-25 biennial budget by more than 30% in state funds. This is the largest increase in Texas history and well above the the key rate of population growth plus inflation of 16% over the last two years. 

The major target for property tax relief was reducing school district maintenance and operations (M&O) property taxes.

These property taxes are essentially a statewide property tax, which is prohibited by the state’s constitution, as they are partially determined by the state’s school finance system that includes redistribution of property taxes from school districts with high-valued property to districts with lower-valued property.   

Of the nearly $33 billion in state surplus funds and tens of billions more in new revenue available, the state allocated just $7.1 billion for a modest 10.7-cent reduction per $100 valuation in those property tax rates, called “compression,” which provides long-lasting relief and benefits everyone. 

The other $5.6 billion is for raising the homestead exemption by $60,000 to $100,000 for the appraised value of primary residences to determine how much is paid for school district property taxes. But this will be short-lived as valuations rise quickly and has failed to provide long-lasting relief the last three times it’s been tried in Texas since 1997 while benefitting only only homeowners.

The $12.7 billion over the next two years will hardly alleviate the burden of property taxes on Texans and is a far cry from eliminating them altogether as Gov. Abbot initially set out to do. 

The package also includes a pilot project of an appraisal cap on non-homestead property at 20% per year for three years. This property doesn’t have a cap on it today so this will benefit some but will mean that local governments will just ratchet up property tax rates to bring in the tax revenue they desire to grow spending. There will also now be three elected officials added to county appraisal boards.

Texans are left with this compromise package that unnecessarily complicates the tax system and obstructs efforts to eliminate school M&O property taxes, enabling the government to pick winners and losers. In this case, renters would undoubtedly be among the losers, and they are nearly 40% of households across the state. 

A more robust approach is necessary soon to achieve significant, long-lasting property tax relief for Texans. 

The best path being discussed is to buy down school district M&O property tax rates with surplus funds starting with limiting government spending, which was lacking this session after years of an improving budget picture. Ways to improve this overall package would have been by institutionalizing the buy-down plan and imposing spending limits on local governments.

The final part of the package is $600 million to raise the exemption of gross receipts to pay franchise taxes from $1 million to $2.47 million, which is important but doesn’t help reduce property taxes and is less effective than cutting the franchise tax rates until they’re zero.

This brings the total amount of new tax relief to $13.3 billion. This amount is lower than the $14.2 billion that the Legislature provided to buy down school property taxes in 2008-09, which would be about $21 billion to have the same purchasing power today. And even if you include the state maintaining its property tax rate reduction in 2019 of $5.3 billion in this year’s budget for a total of about $18.6 billion, it would not equal $21 billion. 

But that 2008-09 relief was done by raising bad taxes of the franchise tax, sales tax on motor vehicles, and cigarette tax which this time no taxes are raised as the taxpayer funds come from surplus money. So, this 2023 tax relief package can be called the “largest net tax cut in Texas history” but not the “largest property tax cut,” and is the largest tax cut in the country.

But Texans could have had more relief if the state hadn’t spent so much. 

Eliminating school property taxes is a crucial next step for Texans to truly own their homes instead of renting from the government forever. And this will be achieved faster when politicians stop spending so much. So while this historic relief is much appreciated, there’s much more to do next session for Texans to stop renting and start owning.

Originally published at Real Clear Policy.

​For at least a decade before the pandemic, Tennessee leaders have practiced conservative budgeting, keeping increases in state spending below population growth plus inflation. This saved Tennessee taxpayers billions of dollars, allowing for further pro-growth tax cuts. As the state is finally spending the last of its federal relief funds, it is more important than ever that Tennessee leaders practice conservative budgeting and fiscal restraint, correct for those excesses, and return to pre-pandemic spending trends.
​
The Conservative Tennessee Budget ensures that the burden on Tennessee families to fund the state government will not increase beyond their ability to pay for it. For the upcoming FY 2025 budget, that maximum threshold would be $59.45 billion. By appropriating below that amount, Tennessee policymakers will continue to give taxpayers the best opportunity to prosper and live their version of the American dream. Finally, Tennessee should make this CTB approach the law of the land by improving the state’s current spending limit with this stronger limit to best let people prosper.

Originally published at Beacon Center. 

​Louisiana’s 2023 Regular Legislative Session ended on June 8th with a bang. Amid much arguing and a lot of untransparent, last-minute maneuvering, the Legislature passed a big-spending budget that busted through its own limits on spending extra taxpayer dollars (also known as the “spending cap” or the “expenditure limit”).

When the dust settled, the legislature spent approximately $2.2 billion in extra revenue this year and nearly $1 billion more than was originally expected in fiscal year 2024 (FY 24). In doing so, they missed a critical opportunity to save for the future, pay down debt, and put Louisiana on a path toward a comeback.

Louisiana’s Weak Expenditure Limit Is A Problem
When the government takes in more tax dollars, politicians tend to spend it. Unfortunately, as budgets grow year after year, that spending keeps getting higher and higher. That might seem OK in good times, when more money is coming in. But when bad times come, revenue drops, and taxpayers are stuck paying for an unsustainable budget. That’s why a spending cap is important.

Think of it this way. If you get a raise at work and have more money to spend, you might decide to go on a spending spree and buy a new car or a bigger house. But if you lose your job (and don’t have money saved up), you’re going to struggle to pay your bills. That’s what’s happening with Louisiana’s budget.

Over the last few years, tax increases, personal income growth, and massive infusions of federal dollars led to an influx of cash. In other words, these are “good times” from a fiscal perspective, and more money has been coming into the state’s coffers. Unfortunately, Louisiana’s spending cap is weak, ineffective, arbitrary, and inconsistent—and it allows legislators to keep busting through its limits. This year, the legislature decided to irresponsibly raise the limit by $1.4 billion to $17.9 billion—12.7% higher than the original limit in FY 23—so they could go on a spending spree.

Where Did the Extra Money Come From?
In FY 23, there was an additional $2.2 billion more than was originally appropriated to fund the state government. This included $726 million remaining from FY 22 (called a surplus) and an additional $1.5 billion in revenue and budget savings in FY 23 (called an excess). Fiscal conservatives in the legislature presented an option to spend this money wisely, without busting the spending cap, by saving for a rainy day, triggering tax relief for all taxpayers, paying down costly debt, and improving dilapidated infrastructure. However, as the carrot was waved in front of many legislators to “bring home the bacon,” many caved to the pressure and voted to raise the spending cap and spend all the available money.
​
The FY 24 budget as passed by the Legislature totals a record-breaking $51 billion and added roughly $800 million in new, recurring spending (spending that must continue year after year). This budget is nearly double what was spent just ten years ago. This budget growth is unsustainable and beyond the ability of the average Louisiana taxpayer to pay.

*FY 23 budget as of 12/1/2022
** FY 24 appropriations as passed by the Legislature

Where was the money spent?
With the influx of more than $2.2 billion in tax revenue above and beyond what was needed to run an already bloated state government budget, plus an additional $1 billion for the following year, lawmakers used a series of budget bills to appropriate these funds that exceeded the expenditure limit in both years and grew the budget irresponsibly for future years when revenues are predicted to decline.

• $473 million to pay down debt for state employee retirement and $50 million to teacher retirement debt.
• $181 million required deposit to the Rainy Day Fund.
• $505million to the Department of Transportation and Development for various state priority road projects.
• $409 million for general infrastructure projects, such as ports, airports, state buildings and local projects such as water/sewer systems, buildings, roads, and parks.
• $147 million to the Coastal Protection and Restoration Authority.
• $260 million on what’s commonly referred to as “member projects,” including $59 million to non-governmental organizations.
• $193 million to Higher Education institutions.
• $288 million to K-12 and early childhood education.
• $144 million to the Department of Health for various initiatives and increased funding for services, after the $100 million reduction to the department during the conference committee negotiations.
• Over $700 million in new, recurring spending was added to the budget for FY 24 that will need to be continued in future years, including the addition of more than 100 new employees and at least five new programs.

Amid this flurry of spending, what is missing? Responsibility.
A mere $60 million more deposited into the Rainy Day Fund–instead of some of the above favored member projects–would have triggered tax relief for millions of Louisiana taxpayers. It would have been modest, to be sure, but it was promised by the legislature in 2021 that if revenues exceeded a certain growth rate, taxes would be lowered by that amount. And revenues did exceed a very generous growth rate, but because not enough money was placed in the savings account, the trigger wasn’t met. In other words, lawmakers actively chose to spend a modest portion of the $2.2 billion total that was intended for tax relief on other favored projects.

While there was much debate and discussion, very little was given to paying down debt. The $473 million to LASERS debt is just half of what was originally planned in the House passed version of the budget bills, which would have freed up over 8% of employee benefit costs for the state. In the end, only $50 million, which was the required payment, went to TRSL, the teacher’s retirement system. That’s a drop in the bucket compared to the $600 million proposed by the House for teachers and $800 million for state workers. The total owed on public employee retirement debt totals more than $19 billion and total debt owed by the state is more than $29 billion, this payment represents pocket change. The $525 million in debt payments that made it through the entire process is helpful, to be sure, but frees up very little and does not improve the outlook much in the long-run.

To add insult to injury, no forethought was given to the types and locations of infrastructure projects in the state, primarily taking shape in the form of pork barrel projects to local governments for local parks, roads, water systems, and the like, rather than a comprehensive, thoughtful plan put forth that maintained current state roads and built new capacity to move Louisiana forward in the future.

Better Budgeting for the Future
There should be a better guardrail placed on budget growth which sets a maximum that can be appropriated each year. This will provide an easy, transparent way to see if responsible budgeting occurs throughout the session. Of course, a spending limit should ultimately be based on spending, but using appropriations gives taxpayers a better way to see how their money is being used throughout the legislative process. And there is a better metric to use that represents the average taxpayer’s ability to pay for government spending in the rate of population growth plus inflation.

This is why the Pelican Institute released the proposed Responsible Louisiana Budget (RLB) earlier this year which limits state funds to less than the average rate of population growth plus inflation over the last three years. The method is being recommended in more than 10 other states to help rein in out of control spending with mixed results. For the FY 24 RLB, the growth rate was 4.1% over FY 23 appropriations for a maximum of state funds appropriations of $21.4 billion. This amount is different from the state’s current expenditure limit as there are different amounts covered and the amount should be the largest part of the budget possible, which is why we started with state funds, but more would be preferable.

The following chart shows the recommended RLB and what the actual budget looks like, which is $2.4 billion higher than the RLB.

​Therefore, this is an irresponsible budget and is unsustainable given the ongoing expenditures throughout the budget. There was some good use of funds to pay down debt, but otherwise this growth in the budget will mean greater spending restraint or higher taxes will be necessary to keep these services, activities, and projects funded in the future. And this is not the time to do this given that more people are leaving Louisiana than moving in and there are economic headwinds on the horizon. We need a comeback story now. This budget is a tremendous, missed opportunity and actually hurts that effort. Our state’s leaders must do better going forward.

This year, lawmakers had a unique and significant opportunity to make a real difference for the future of Louisiana. But that opportunity was squandered by Louisiana politics at its finest. The state had a historic opportunity to pay down debt and save for the future, setting Louisiana on a path to fiscal responsibility and sustainability. Lawmakers also had an opportunity to provide much needed tax relief amid record-breaking inflationary times to help families across the state, and they had the opportunity to address the astronomical backlog of infrastructure needs in a responsible and organized fashion. Instead, lawmakers followed the path of least resistance, to “bring home the bacon” and continue to increase local government dependence on the state, while also continuing to grow state government in an unsustainable way.
​
It is very likely lawmakers in the new term will be faced with similar decisions in the 2024 Legislative Session. Will Louisiana voters continue to elect leaders who will continue down the path of unsustainability, or will they elect leaders who will make the responsible decisions to put Louisiana on a path to a Comeback Story?

Originally posted at Pelican Institute with co-author Jamie Tairov.

​Thank you for reading the Let People Prosper newsletter, which today includes the 12th episode of "This Week's Economy,” where I briefly share insights every Friday on key economic and policy news across the country.
​
Today, I cover:
1) National: New Pew Research poll reveals that inflation is the top concern for Americans on both sides of the political aisle, Fed needs to do more, and financial markets remain loose;
2) States: New state-level jobs report and which states are leading and breakdown of the largest spending increase in Texas history and why it's not good for keeping the Texas Model strong; and
3) Other: The importance of educating young audiences on capitalism and socialism and my experience teaching with a "minimum wage" game to a group of high school students.

​You can watch this episode and others along with my Let People Prosper Show on YouTube or listen to it on Apple Podcast, Spotify, Google Podcast, or Anchor. Please share, subscribe, like, and leave a 5-star rating!
​
For show notes, thoughtful insights, media interviews, speeches, blog posts, research, and more, check out my website (https://www.vanceginn.com/) and please subscribe to my newsletter (www.vanceginn.substack.com), share this post, and leave a comment.

​Today, I'm honored to be joined by Patrick Gleason, Vice President of State Affairs at Americans for Tax Reform.
​
We discuss:
1) How the state flat tax revolution has swept across the country over the last two years, which states have joined, and why it is a beneficial change for more flourishing;
2) Misconceptions about flat taxes, Kansas as an example of how to make tax relief fail, and the need for responsible state budgets; and
3) Patrick's current work on tax and school choice reform across states.

​Gleason’s bio:

• Mr. Patrick Gleason is vice president of State Affairs at Americans for Tax Reform, a Washington-based advocacy and policy research organization founded in 1985 at the request of President Ronald Reagan. His writing and commentary have been published in The Economist, Reuters, Politico, and the Wall Street Journal, among others. He covers the intersection of state & federal policy and politics.

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. Find show notes, thoughtful economic insights, media interviews, speeches, blog posts, research, and more at my website and my Substack newsletter.

​​But those calculations use fuzzy math as they're based on inflating the 2022-23 base budget of general revenue not dedicated by the constitution and consolidated general revenue with more spending then increasing it by the rate of population growth times inflation of 12.33% (determined by the average of population growth times inflation over the last two years and the upcoming two years) compared with 2024-25 appropriations which will be higher later when the supplemental bill passes. These calculations are then spending-to-appropriations which are like comparing apples with oranges, not appropriate accounting.

Even with these calculations, the Legislative Budget Board shows that there is $10.7 billion in tax revenue remaining, $1.6 billion available under the constitutional spending limit using general revenue not dedicated by the constitution, and $11.8 billion available under the 2021 spending limit using consolidate general revenue using general revenue and dedicated general revenue.

​The charts below are more accurate ways to evaluate the budget growth from an appropriations-to-appropriations approach for an apples-to-apples comparison.

Understanding that any growth in the budget means an expansion of government, there are two strong arguments:

1) Freezing the budget in inflation-adjusted per capita terms using the rate of population growth plus inflation (i.e., Conservative Texas Budget and responsible budget approach in other states), which was 16% over the last two fiscal years,  is appropriate as it grows slower than the economy over time. This approach excludes $13.3 billion in COVID-related funding in the first biennium and excluding new and old property tax relief amounts of $6.2 billion ($100 million in new relief) in the first period and $17.6 billion ($12.3 billion in new relief and $5.3 billion in old relief) in the second period to not include one-time federal funding and amounts that don't grow government. 

Using the CTB approach above, here's how the budget has improved since implementation of the CTB started with the 2016-17 budget. This looked much better before the current 2024-25 budget, but the massive growth of the current budget raised the growth of initial appropriations even as the rate of population growth plus inflation rose slightly during the latter five budget period. If the growth of the budget is not controlled, it will soon surpass the rate of population growth plus inflation like it did during the prior six budget periods.

​Both of these approaches show that while the general revenue-related (GRR) funds amount is below the rate of population growth and inflation (either plus or times) for the CTB approach, the broader measures of state funds and all funds that better represent the burden of government spending on taxpayers are well above either metric. And when using the Frozen Budget approach, the only budget amount below either rate of population growth and inflation is federal funds.

​In other words, they are using fuzzy math when it comes to the budget and property tax relief. This looks much more like what would be done in California rather than Texas. This is not what Texans want or expect from their elected officials. If this continues, Texas will be California soon.

There’s time to turn some of this around with at least passing more for property tax relief that does it correctly (here's why) for everyone through compression of school M&O property taxes on their path to zero. It would be great if they could get to $21B in new relief, which is the $14.2 billion in property tax relief provided in 2008-09 adjusted for inflation, instead of the $12.3B currently discussed but that looks unlikely now so it won’t be the largest property tax relief in Texas history.

The red state of Texas must not sit back on its laurels. The populist trend must not continue. Do what's in the best interest for everyone which is limiting or cutting government spending, taxes, and regulations so that there's more freedom for people to do what's in their best interest and let people prosper.

​The debt ceiling fiasco is over, and with it, the costly Inflation Reduction Act, or as I like to call it, the Inflation Recession Act, was unfortunately left mostly intact. Congress’s lackluster attempt to curb spending will matter even less considering this, as new calculations show. The time is ripe for a reassessment and elimination of at least the ill-advised tax credits contained within the IRA before irreversible damage is inflicted on our already suffering economy. 

Last year, the Congressional Budget Office (CBO) estimated that the IRA would cost $391 billion from 2022 to 2031. But with updated data and Treasury rules, new cost estimates show it to be three times higher at $1.2 trillion. 

During my recent testimony before the U.S. House Ways and Means Committee, I noted the need for a re-estimate of the IRA’s cost for tax credits that subsidize manufactured battery cells and modules for electric vehicles (EV). The CBO’s estimate of these tax credits was $30.6 billion, but new calculations have it at nearly $200 billion–or nearly seven times higher.

Battery cells can receive a $35 tax credit for every kWh of energy the battery produces, while battery modules can receive $10 per kWh, or “$45 for a battery module that does not use battery cells.” 

The CBO’s assessment was conducted prior to the Treasury’s release of draft guidance in March that relaxes mineral sourcing standards to produce EV batteries. And since the IRA passed, there’s more evidence that incentives matter as EV manufacturers substantially increase production to get the tax credits well above CBO’s estimates. 

Look no further than Tesla for a real-time example of how these tax credits will cost us. 

Maker of the most-sold EVs in America, Tesla moved its battery production from Germany to Texas after the tax credits were announced. And its Model Y emerged as the best-selling EV in the U.S. last year, with a total of 234,834 units sold. Its battery starts at 75-kWh, so for those sales, Tesla could have received more than $616 million in tax credits had the tax credits been in place. For 2023, Tesla expects to manufacture 2 million EVs, resulting in possibly $5 billion in annual tax credits for batteries. 

Meanwhile, Ford, which had the second-highest EV sales last year, plans to triple production for its F-150 Lightning, targeting 150,000 units by the end of 2023. The battery size for this model starts at 98-kWh, and assuming Ford meets its goal, that would cost taxpayers $514 million in tax credits.

If Tesla and Ford can collectively receive at least $1 billion in tax credits in 2023, it’s easy to see how the CBO’s estimate over the next decade for all EV batteries is too low. 

This difference between the estimates and the growth of the EV market is concerning in this post-pandemic economy, verging on a recession where more than 60% of Americans are estimated to be living paycheck to paycheck. More government spending, like what’s allotted in the IRA, and more debt, like what’s allowed under the debt ceiling deal, is the last thing America needs. 

As government spending increases, so do taxes, leading to less work, lower productivity and growth, and, subsequently, less tax revenue. These measures contribute to even higher budget deficits that stifle economic growth, increase poverty, and exacerbate multi-decade high inflation. 

While the IRA’s green energy initiatives, massive tax hikes, and excessive spending should have been enough reason to reject it initially, Democrats forced it through based on CBO’s massive underestimates of tax credits and other initiatives.
Now, taxpayers will suffer the aftermath of this expensive legislation, which is why these costs should be reevaluated and ultimately eliminated before this weak economy is made worse for struggling Americans. 

For a better path forward, we need more pro-growth policies and less government spending, not bad debt deals and corporate welfare to large businesses on the backs of taxpayers. 

Originally published at Econlib. 

Texas Governor Greg Abbott then tweeted that his plan is the plan outlined by the Texas Public Policy Foundation which uses state surplus dollars for compression of ISD M&O property taxes each session until they are zero.

I’m very familiar with this plan as I co-authored the original version with my former colleagues at TPPF in 2018. The plan has been through multiple iterations. My July 2021 co-authored paper looked at this buy-down approach of using 90% of state surplus dollars above a stricter spending limit of population growth plus inflation to compress school M&O property taxes until they are zero within about a decade or a tax reform that would broaden the sales tax base to eliminate those taxes immediately without raising the rate based on a dynamic economic model. And the latest was a December 2022 co-authored paper where we address the affordability crisis in Texas and how the buy down plan would help with this while providing more economic growth.

​I also wrote a 2023 paper updating this based on how quickly this could be done if a frozen budget with zero growth was used to provide more surplus funding to eliminate these property taxes. And I also wrote another 2023 paper noting how there is no need to fear about a recession or reduced revenue as there would be the need for spending restraint or cuts, plenty of money in the rainy day fund, or excess reserves held by school districts to address any shortfall to maintain the relief and fund public education. ​

Two professors at Rice University also studied different reforms in 2018 of the buy down approach and the sales tax expansion approach to eliminate school M&O property taxes and they found that these would provide substantial benefits to the state.

Houston
​The following charts are for Houston with similar results for each of the scenarios. ​

Dallas
The following charts are for Dallas with similar results. 

It should be noted that compression will help renters. The Texas Comptroller's report (see figure below) finds that 26% of school property taxes are passed along to renters, and businesses submit 52% of those taxes but people pay for them through higher prices, lower wages, fewer jobs, and higher rent.

Simple supply and demand shows that the property taxes would rotate the private market supply of housing leftward thereby raising rents and lowering the quantity supplied compared with the free market. In other words, the market does set the rents but that market is distorted by property taxes so removing those school taxes would help push down rents through competition.

When the landlord has a vacancy and is paying lower property taxes, then she will lower the rent given lower cost to attract tenants. It may not happen overnight but it will as that’s how competition works, and those biz that don’t will by forced out of the market through losses.

Texas’ 88th regular legislative session, sine die as of Memorial Day, will be remembered as the one that got Texas closer to looking like California and less like the leading pro-market and limited government Lone Star State.

Instead of the desired “largest property tax cut in Texas history,” school choice, and spending restraint that would best let people prosper, legislators passed the largest increases in spending, corporate welfare, and safety nets in state history.

Texas taxpayers can only hope that Gov. Greg Abbott’s (R) just-called special session will help with property tax relief but there will need to be more special sessions for universal school choice and other pro-prosperity priorities.

The newly passed total budget for the upcoming two-year period amounts to $321 billion, which is a 21.3% increase from what was initially appropriated in the prior period. Excluding federal funds, state funds increased by 31.7% to $219.1 billion. These are the largest increases in recent history and likely ever. And both are substantially above the rate of population growth plus inflation of 16% over the last two fiscal years.

In short, legislators passed massive budget increases which aren’t conservative or responsible and will make it difficult to sustain these expenditures over time. Making matters worse, the Legislature provides over $10 billion in new corporate welfare, the largest amount in state history.

This includes renewal of property tax abatements by school districts, HB 5, that had died in December 2022, money for the governor’s Texas Enterprise Fund, and subsidies for natural gas projects, movie production, broadband projects, water projects, state parks, and more.

And much of this will be on the ballot this November to create new funds to spend on these efforts, which voters should reject. Instead, these expenditures should be done in the normal budget process as constitutionally dedicating these taxpayer dollars will remove them from under the constitutional spending limit, allowing the state to spend even more.

Texans were quick to celebrate the movement toward new property tax relief efforts, which is a major burden for property owners across the state. And with a surplus of $33 billion, there was the opportunity to do so by rightfully returning these over collected taxes.

But those cuts never materialized in the wake of less effective solutions of appraisal caps and homestead exemptions taking precedence over the previously promised historical property tax cut.

The gold standard for relief of school district maintenance and operations property taxes is through compression, which means that the state uses mostly sales taxes to buy down those property tax rates and thus tax collections by the most possible. And the amount should be about $21 billion, or 25-cent compression, in inflation-adjusted dollars to have the same purchasing power today as what was the largest property tax cut of $14.2 billion in 2008.

This is a critical path to eliminating nearly half of the property tax burden in Texas so people can truly own their property instead of renting from the government forever.

Still, any relief provided is made much less effective with the passage of HB5, which is just Chapter 313 revamped.

HB5 gives more corporate welfare to big businesses by allowing school districts to give tax breaks to companies for new buildings, thereby choosing winners and losers among school districts affected. As school districts lose property tax funds at the hands of HB5, state funds must compensate for the loss on the backs of taxpayers across the state.

These big spending, big corporate welfare, and no tax relief represent a potential turning point in the wrong direction that harms a robust economy.

In the first called special session this week, there has already been a bill passed by the Texas House that would provide that opportunity by compressing school district M&O property taxes by 16.2 cents per $100 valuation with $12.4 billion. The Texas Senate has a proposal that would compress those taxes by 10 cents per $100 valuation and raise the homestead exemption by $60,000 to $100,0000 with $12.1 billion.

​So far, Gov. Abbott has said that the call was only for compression but Lt. Gov. Dan Patrick (R) has been pushing back. At the end of the day, compression is best as it helps everyone, is long-lasting as a share of taxable value, and, more importantly, is the only way to eliminate these taxes.

But what’s still a problem is that these amounts are only about one-third of the $33 billion surplus, meaning the Legislature wants to spend more money than return to taxpayers. This is not the path to prosperity as at least $21 billion in new tax cuts is needed for this to be the largest property tax relief in Texas history.

Lawmakers should prioritize responsible relief measures that encourage job growth and support initiatives that promote long-term economic prosperity by reducing spending, cutting taxes, and supporting prosperity.

​Originally published by The Center Square.

Larry and Glenda Legler think the state should be using much of its nearly $33 billion surplus to give Texans a break on their property taxes.

Larry Legler said, "The state's got an ungodly amount of money that they need to do something with."

But after months of promises to do that, Republican leaders still can't agree on the way to provide relief. "That's what's getting frustrating."

Governor Greg Abbott prefers ending the school maintenance and operations or "M&O" portion of your property taxes over ten years.

That portion alone is about 42% of your property tax bill.

To make that happen, the state would shift sales tax, other state revenues, and surplus money to pay for public schools.

That would allow the state to gradually reduce the rate for M&O property taxes until they're eliminated altogether.

Vance Ginn, a conservative economist and president of Ginn Economic Consulting, has pushed this idea for years. "It's the only way that you can get to $0 school district property taxes is by buying down those rates because that rate can go to zero which zero out of a hundred-dollar valuation for a home is $0. And so that is still $0, and you've eliminated that tax."

But Lt. Gov. Dan Patrick and the Texas Senate have a different plan.

While it uses more state revenues and less property taxes to pay for schools, it would also increase homestead exemptions for most homeowners from $40,000 to $100,000.

And for homeowners over 65, it would raise homestead exemptions from $70,000 to $110,000.

Patrick said it would provide nearly double the savings for homeowners than the Governor's plan.

CBS News Texas asked Patrick earlier this week if he doesn't support eliminating the school property tax.

He said, "You can't get there. You only have sales tax to prop up a state of 30 to 35 to 40 million people the next decade. What happens when we have a decline and sales taxes go down? You'll have no money to pay your bills. You can't be a one-legged horse."

Ginn disagreed. "The Comptroller said we're going to have about $27 billion in the rainy-day Fund. The rainy-day fund is there to cover unforeseen revenue shortfalls which would be exactly this sort of situation."

Abbott said 30 business and other groups support his plan.

The Leglers said because they're seniors, they prefer the plan from Patrick and the Senate. "Everything's gone sky high and when people can't get the medications they need, which is not our case, but many people we know, or they can't afford groceries, a loaf of bread at the grocery store, we got a problem."

Both the House and Senate have approved different legislation, and until they pass the same bill, the Governor cannot sign it into law. 

Abbott will speak Friday about this, and other issues related to the regular and special legislative sessions. 

Originally published by CBS Texas.

On Wednesday night, the House passed what could be one of the worst debt ceiling deals in U.S. history, as it doesn’t provide the fiscal responsibility needed for suffering Americans. 

In fact, this deal perpetuates most of the same reckless policies that have contributed to stagflation, leaving Americans struggling financially. Despite what appears to be a relatively strong labor market, wages have failed to keep pace with inflation on an annual basis for more than two years. Homeownership has become unattainable for many, and higher prices have forced over half of the adult population to reduce their savings.

You would think that such widespread suffering would motivate Congress to reform its fiscal insanity, but apparently, that’s not the case. 

While 49 out of 50 states have a balanced budget amendment and most have a spending limit, there are no such rules at the federal level. The debt ceiling is the only mechanism, other than elections, that we have to keep Congress’ spending in check. 

By suspending the debt ceiling, we’re inviting more reckless spending, which is why our national debt has skyrocketed to a ridiculous amount of more than $31 trillion. The net interest on the debt alone will soon surpass $1 trillion.

The new debt ceiling bill allows politicians to kick the can further down the road of payment for the debt to our children and grandchildren to deal with later. By raising the debt ceiling for another two years and only imposing a one percent annual spending limit next year, there’s ample room for the debt and spending to continue to grow at an already bloated budget.
​
A more reasonable timeframe for suspending the limit would have been two months, giving Republicans and Democrats the opportunity to pursue essential spending restraint. Irresponsible spending is a bipartisan problem, but Republicans, with their majority in the House and a platform of fiscal conservatism, bear even greater responsibility to address this issue. 
Two years is an extensive period considering the adverse effects of the current national debt on inflation, interest rates, the U.S. dollar’s status, and the result of exacerbating the daily struggle of Americans to make ends meet, let alone pursue the largely destroyed American Dream.
Some argue that Congress should budget like a family. However, they should budget even more conservatively as Congress is entrusted with the hard-earned tax dollars of the public, not their own. Unleashing spending on out-of-control war efforts with the lack of major reforms and cuts where needed in the budget when our country teeters on the brink of financial crisis doesn’t promote individual liberty or economic growth.

​In the meantime, fiscal conservatives in Congress should continue advocating for a spending limit rule such as seen in the states to put an end to this crisis. A responsible budget that grows, if it grows at all, by less than the rate of population growth plus inflation, which represents the average taxpayer’s ability to afford spending, would be a great goal. 

Without substantial spending restraint, Americans can expect more suffering. As economist Milton Friedman once said, the ultimate burden of government is not how much it taxes but how much it spends. This debt ceiling bill was an opportunity to help reduce this burden, and we lost that. 

​Originally published by the Daily Caller. ​

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.