​With the Texas economy reeling in the wake of the COVID-19 pandemic and the resulting statewide shutdowns, economic recovery will be the top issue for the upcoming legislative session. Key to any attempt at recovery will be determining how much the state should spend.

The prosperity of many Texans at stake and the Texas Legislature ought to consider fiscal savings to cover any shortfall in the current budget period and pass a responsible budget in the upcoming session that starts in January.

The Texas economy has taken a beating from the COVID-19 pandemic and associated lockdowns by state and local governments. Many Texans are struggling. And a recent national poll found  65% of voters say it will take more than a year for the U.S. economy to recover.

As Texas continues to recover, the necessity of keeping the government’s hands out of the taxpayer’s pockets is as important as ever. As the economy recovers, the natural inclination is to spend as much as necessary to support Texans reeling from the effects of COVID-19.

However, the old adage that there is no such thing as government funds, only taxpayer funds, should be at the front of legislators’ minds as they attempt to address the fallout from the pandemic.

With that spirit in mind, we at TPPF recently released our latest 2022-23 Conservative Texas Budget (CTB) that sets a maximum threshold on appropriations at $246.8 billion.

This amount is the result of increasing the 2020-21 appropriations by 5% growth rate, which was calculated using the state’s population growth plus consumer price inflation to capture taxpayers’ ability to pay for their government. These appropriations exclude extraordinary funds that shouldn’t go into the baseline budget because they’re one-time costs, such as funds to Hurricane Harvey recovery and property tax relief last session and those explicitly to COVID-19 efforts.

The CTB has been a success in the sense that it has helped give state officials a maximum benchmark with which to hold appropriations to within taxpayers’ ability to pay for it. By limiting growth in the budget, legislators have helped strengthen the Texas Model of low taxes and more freedom by cutting the business margins tax and property taxes by billions of dollars since the 2015 session when TPPF created the CTB.

Specifically, the average growth of the two-year state appropriations fell from 12% during the five budgets from 2004 to 2015 to an average of just 5.5% during the last three budgets. And after appropriations grew well above population growth plus inflation of 7.3% in the earlier period, the more recent growth was below this key metric of 6.3%.

This fiscal responsibility in the last three budget cycles must be continued because the excess in the earlier period has compounded to put more pressure on taxpayers’ budgets.

For example, if the state had adhered to this metric every budget period since the 2004-05 budget, appropriations would be $37.3 billion less, saving families of four, on average, about $2,500 per year—savings which would have been invaluable with the lockdowns’ lost wages and jobs.

Texas Comptroller  Glenn Hegar recently reported that state sales taxes were down a whopping 6.1% in September over the prior year. This has contributed to a projected $4.6 billion deficit by the end of fiscal year 2021. Any attempt to raise appropriations above population growth plus inflation or raise taxes fails to take into consideration this deficit because it will detrimental to the recovery. The responsible action now is to cut spending as much as possible to make up the shortfall.

And to help put Texans on the best path to a full recovery from this unprecedented situation is to consider cutting wasteful and unnecessary appropriations at the very least not appropriate more than the Conservative Texas Budget in the upcoming session. Doing so will improve the proven successful Texas Model so more people have the chance to fully recover much faster than anticipated.

After the year we’ve had, we need a clear conservative fiscal approach in the upcoming session.

https://www.texaspolicy.com/nows-the-time-plan-for-a-conservative-texas-budget/

​Today the Texas Public Policy Foundation released the threshold number for the 2022-23 Conservative Texas Budget in a live event and released a paper on the topic. The Conservative Texas Budget is an approach to the state budget limiting its growth so spending doesn’t outpace Texans’ ability to pay for it. Measured in terms of population growth plus inflation, the Conservative Texas Budget establishes a maximum threshold for growth in the state’s initial appropriations.

For the 2022-23 state budget that percentage is 5% for a total appropriation of $246.8 Billion.

“The Conservative Texas Budget is an effective maximum threshold for prioritizing the taxpayer in the state budget process as every dollar spent comes out of the pocket of Texans,” said TPPF’s Chief Economist Vance Ginn, Ph.D. “Since this approach was implemented ahead of the 2015 legislative session, budgets have grown less than half the rate of the five prior state budgets. This trend should continue for the 2022-23 Texas budget especially as many families are recovering from the recession due to COVID-19 and government lockdowns.”

The 2022-23 Conservative Texas Budget sets a maximum threshold for the state’s budget that will be passed during the 2021 Legislature so government grows by less than taxpayers’ ability to pay for it.
Key points:

• Texas’s state government budget has often grown considerably faster than Texans’ ability to pay for it.
• Fortunately, growth in the budget has been better aligned with Texans’ financial ability since we created the Conservative Texas Budget in 2015 based on the growth in population plus inflation.
• Limiting the budget’s growth to not exceed the CTB, and even reducing it as Texas families have done with their budgets during the recession, will give Texans more opportunities to flourish.

​Production of crude oil and natural gas has historically fluctuated based on many market-driven and geopolitical factors. Because the Texas Legislature collects severance taxes from this volatile production to primarily fund the state’s rainy day fund, the purpose for and use of the ESF must be worthy.

On Saturday, August 8, President Trump signed four executive actions in response to a Congressional stalemate on the next round of COVID-19 relief. This brief covers the memorandum deferring some employees’ payroll taxes to Social Security without affecting the program.

Background on payroll taxes:

There are two types of payroll taxes:

Social Security rate is 12.4% on wages capped at $137,700—half is paid by the employer, half is paid by the employee (though employers typically pass on this tax in the forms of lower wages and higher prices).
Medicare rate is 1.45% for both the employer and employee with no wage cap.
Employee payroll taxes are withheld by employers and paid on their behalf.

The CARES Act (March) deferred payments of employer payroll taxes until either 2021 or 2022.

Details of the August 8 memorandum on deferring payroll taxes to Social Security:

Defers employee payroll taxes to Social Security from September 1 to December 31or until an unspecified later date, without penalty, interest, or additional tax.

Applies only to those earning before tax less than $4,000 biweekly ($104,000 annually).

Requests that the Secretary of the Treasury “explore avenues, including legislation” to permanently eliminate these deferred payroll taxes.

The stated intention of this action are to:

“put money directly in the pockets of American workers”
“generate additional incentives for work and employment”
Economic effects questionable from increased uncertainty & fiscal effects are uncertain:

This is effectively a no-interest loan from the government (i.e., taxpayers) to workers, with uncertainty about if, and when, it will be repaid.

The change doesn’t affect incomes for unemployed workers and may not increase disposable incomes of employed workers who will likely save any income increase or the employer with withhold the funds to eventually repay the payroll taxes, unless they’re forgiven by Congress.

The action could add about $150 billion to the FY21 budget deficit, which weighs on the economy, depending on whether Congress cuts the payroll taxes owed, as funds will be transferred from the General Fund to cover the reduction in payroll taxes to Social Security.

There is much uncertainty from the memorandum by employers about how they will handle the employee payroll tax deferral. It’s not clear when the deferred taxes are due or how they will be paid (directly by employees or through employers). These questions should be resolved soon, as Secretary Mnuchin recently indicated employers can choose whether to withhold the taxes.

The memorandum doesn’t change the cost of hiring employees, so it will not increase the number of jobs available. That is inherently constrained by limited business activity from government-mandated lockdowns.

Recommendations to improve the economy and the livelihoods of Americans:

Safely reopen society by ending state and local government-mandated lockdowns.

Get businesses operating and workers working again, such as with TPPF’s Recovery Act.

Eliminate wasteful programs to rein in excessive government and end unnecessary regulations.​

https://www.texaspolicy.com/overview-of-executive-action-on-deferring-employee-payroll-taxes/

​Congress should scrap what’s currently being discussed in the next round of COVID-19-related recovery efforts. Instead, it should focus on getting businesses operating and workers working again after governments’ lockdowns severely disrupted the lives and livelihoods of Americans.

This can be done with the Foundation’s proposal of the Rehire America Workplace Recovery Act that includes the essential component of the free enterprise system: private property rights.

The proposal focuses on giving people the dignity of work by compensating businesses for cash losses incurred due to governments’ shutting down of society due to COVID-19. These net operating losses by businesses were realized from government lockdowns (beyond prior voluntary social distancing measures).

This proposal contrasts with much of the approach in Congress today that would prolong any economic weaknesses.

Handing out stimulus checks (some of which are erroneously sent to dead people) doesn’t get people working again. Extending overly generous unemployment benefits that exceed what 68% of Americans were earning disincentivizes work. And saturating profitable businesses with taxpayer dollars while letting too many small businesses go under fails, too.

The result of most of the current programs in Congress will be prolonged unemployment and weak growth. But our proposal would strengthen and shorten the recovery to let people prosper.

The COVID-19 economy has been one of records set in both directions.

The many disruptions during March and April plunged the country into a deep recession. The economy shed 22.2 million jobs, with the unemployment rate jumping from its historic low in February of 3.5% to 14.7% in April.

Though official second quarter GDP figures have yet to be released, analysts are expecting a 30-plus percent annual rate of contraction. By any comparison, the U.S. economy has never experienced such a quick reversal in its economic condition.

Though these numbers paint a bleak picture, there are more recent signs of optimism.

The U.S. labor market in May and June added 2.7 and 4.8 million jobs, respectively. Both figures were record highs. More hiring drove the unemployment rate down to 11.1% in June.

If this momentum continues, one would expect third quarter GDP to rebound from its projected second quarter low. Existing home sales rebounded in June, increasing by a record 20.7% providing additional evidence we’re likely in the beginnings of an economic recovery.

The Recovery Act’s compensation strategy would assist this rebound. It provides funding to help employers keep current employees and to rehire those laid off due to cost-cutting associated with the COVID-19 shutdowns.

It also conveys a core principle of effective programs in that it is self-terminating and temporary. A recipient’s participation in the program automatically ends once it’s no longer suffering cash losses or at the end of the program.

That’s the goal of the Recovery Act — to stabilize business operations to provide confidence for firms to retain and rehire employees. In fact, it places a compensation premium of 20% on rehiring furloughed workers. By compensating businesses for cash losses (including employee costs), this proposal aligns with an improving economy.

One of us estimated the economic and fiscal effects of this proposal depending on the duration from July to either September 2020 or February 2021 above the base case recovery over the next year. It would contribute to an extra $498 billion to $1.4 trillion in GDP, between 1.8 and 5.6 million new jobs, and cost taxpayers from $450 billion to $1.3 trillion.

Though a hefty price tag for the longer duration, the $1.3 trillion cost looks to be within what Congress has authorized but not disbursed yet from prior phases of economic aid so no new spending may be necessary if reallocated. If that’s not an option, the Act’s benefits outweigh the cost and would repay itself under six years. These results seem much better than the major packages considered by Congress.

The spirit of the Recovery Act is in a recent bipartisan bill called the Small Business Recovery Comeback Act so there’s a way to get this done for Americans. It could be improved by including more of the aspects that we’ve outlined above to make it cost-effective and time-constrained.

We need Congress to take a fresh start rather than funding the same flawed programs and principles. The Recovery Act is grounded in a free enterprise system. This is both an economic argument and a moral imperative to recover Americans’ livelihoods.

​https://www.texaspolicy.com/how-to-recover-americans-livelihoods/

​Today, Texas Comptroller Glenn Hegar revised the Certification Revenue Estimate (CRE) to project a fiscal 2021 ending shortfall of $4.58 billion which Hegar attributed to the COVID-19 pandemic and recent volatility in oil prices.

“Today’s update by Texas Comptroller Hegar on the budget shortfall shows the importance of reining in government spending without raising taxes as families across the state are struggling financially from the COVID-19 situation,” said TPPF’s Chief Economist Vance Ginn, Ph.D. “Fortunately, state leaders have already asked some agencies to find 5% savings to cover part of this shortfall, and we recommend that every agency use all efforts, including zero-based budgeting to find additional savings up to 15% by cutting wasteful and unnecessary spending. This would also alleviate the need for any more state bailouts from the federal government. By safely reopening Texas and getting people back to work and students in schools, the state will be best positioned to deal with any tax receipts shortfall while providing the best opportunities for Texans to flourish.”

The projection is a decrease from the $2.89 billion positive year-end balance originally projected in the Oct. 2019 CRE.
​

https://www.texaspolicy.com/press/budget-shortfall-highlights-importance-of-reining-in-government-spending-without-raising-taxes

Many states are demanding more money from the federal government to deal with the COVID-19 situation.

But providing even more bailout money to states would mean inappropriately supporting years of poor fiscal management and incentivizing unnecessary government lockdowns.

Ultimately, bailing out states means less money in our pockets at a time when many of us are struggling financially — and fewer opportunities for entrepreneurs to help conquer the effects of the novel coronavirus.

Democrats in the U.S. House of Representatives recently passed the HEROES Act to spend more than $3 trillion in response to the COVID-based recession, with $1 trillion of that going to bailout states. And now the Republicans and the White House seem to be coalescing around a bill of about $1 trillion without state bailouts.

While we are discussing such large numbers, recall that the U.S. is $26 trillion in debt (roughly $80,000 owed by every American) or 130 percent of economic output, which is the highest since at least the Great Depression. Also, the federal government is likely to run at least a record of a $4 trillion deficit this fiscal year (about $10,000 per person).

In short, the government has no money to spend, and the House Democrats want to spend $3 trillion more that the federal government doesn’t have. And $1 trillion would be handed out to state and local governments, rewarding those who mismanaged their finances and the COVID situation.

Not only is this act a bailout — which is bad enough — but it far exceeds what’s needed.

According to the Tax Foundation, state governments are expected to have a tax receipts shortfall over this year and the next of at least $121 billion compared with a 2019 baseline due to the COVID-related recession.

In March, the CARES Act dedicated $150 billion to cover this potential shortfall. Total resources dedicated to state and local governments has been $1 trillion so far.

Fortunately, there are practical, responsible steps that states can take to weather this storm and to overcome potential shortfalls.

First, states must end lockdowns that force employers to close their business and workers to lose their jobs. Reopening society would revitalize the human ingenuity of entrepreneurs to not only better deal with the COVID situation through trial and error rather than one-size-fits-all policies but to also rehire workers. This would have the secondary effect of increasing tax receipts.

Second, states must restrain their spending, which is always and everywhere the primary source of budget shortfalls. This can be done by eliminating wasteful expenditures and freezing inflation-adjusted per capita spending to keep it within the means of taxpayers. Doing so will help the government from growing excessively and putting a higher tax burden on taxpayers, especially when they’re already struggling.

The other things that would provide a pro-growth environment to help Americans deal with this unfortunate health situation is for states to not raise taxes or regulations, and in fact, they should consider cutting them.

We can make it through this crisis without sacrificing the future. State and local leaders must make the hard choices for the good of their communities, and we must support and encourage them to be good stewards with our money.

And Congress should scrap their current strategy, which hasn’t worked well, and instead consider the Workplace Recovery Act to keep struggling businesses operating so employers and workers don’t lose their livelihoods while limiting excessive government spending.

By safely ending the lockdowns and responsibly budgeting our tax dollars, governments at all levels can help restore opportunities for us to pursue our hopes and dreams. Bailouts would only achieve the opposite.​

https://www.texaspolicy.com/heroes-should-congress-bail-out-states/

​(The Center Square) – Stimulus checks for Americans at the onset of the COVID-19 pandemic made sense, but a potential second round could prevent some recipients from working and prolong fiscal recovery, an economist says.

“Ultimately what we’re for is people going back to work,” Vance Ginn, chief economist at the Texas Public Policy Foundation (TPPF), told The Center Square. “We need to find a responsible way to end the shutdowns, and find ways for people to get back to work, instead of having incentives to not go back.”

Another stimulus check for individuals and families has been discussed as part of the next phase of federal coronavirus relief.


“There may have been good reason for stimulus checks during the major part of the pandemic outbreak, but we think that time is over now,” Ginn said. “The stimulus check payment was put in place when many people were forced out of work, but now we’re looking at how to get people back to work and having businesses open.”

There are other ways to help people pay their bills and expenses, said Ginn, who formerly served as associate director for Economic Policy in the Office of Management and Budget at the White House.

The $600 weekly unemployment benefit that Congress included in the CARES (Coronavirus Aid, Relief, and Economic Security) Act expires at the end of July, but people can still get state unemployment, which usually pays about 50 percent of what their weekly income was, Ginn said.

As short-term federal programs from the pandemic’s onset wind down, other proposals are under consideration to help businesses.

One is the Workplace Recovery Act, which addresses operational losses incurred during the government shutdowns.

“It would focus on replenishing net operating losses for businesses so they can stay in business,” Ginn said.

A payroll tax cut for employers and employees through the end of the year also would put more money in the pockets of workers, and incentivize businesses to grow because they would have lower costs and do more hiring, Ginn said.

Another key component to economic recovery is quelling fear.

“We need to deal with the pandemic situation in its full context,” Ginn said, “We don’t need to resort to lockdowns and closing society again because it would have a devastating effect on our lives and livelihoods.”

​https://www.thecentersquare.com/national/economist-going-back-to-work-will-lead-economy-forward-not-another-stimulus-check/article_de962a2a-bf8a-11ea-8319-ab8b6537a308.html

​As of February, the US is in a recession, and Texas is no different. While the cause is different than prior recessions, people’s financial struggles are the same.

With the voluntary social distancing and forced disruptions by state and local governments due to COVID-19, economic activity has collapsed, people have lost their jobs, and employers have lost their business. This economic recession means the state of Texas may face a shortfall in tax receipts compared with prior projections.

For example, the Texas Comptroller notes in a recent report that sales tax collections are the state’s biggest source of tax receipts, and they have declined greatly this year as many Texans are out of work, stuck at home, or simply adjusting their spending habits. The Texas budget will face a drop in oil-related taxes as well, as oil prices have fluctuated drastically in recent months.

When the Texas Legislature passed the 2020-21 budget last year, they could not have known the novel coronavirus and its effects. Now, Texas leaders must take action to adapt in these hard times.

In order to deal with a likely shortfall in tax receipts given the state’s balanced budget amendment, the state government can usually:

1) Raise taxes,
2) Use funds in the Economic Stabilization Fund (ESF), and/or
3) Lower government spending.

Raising taxes would only make the problems Texans face worse by raising the cost of living at a time when they’re already struggling financially.

Using the ESF is a viable option. However, with an expected total of $9 billion in the fund going into the 2021 Legislative Session and a sufficient fund balance needed for a high credit rating, there may not be too much to tap.

Therefore, the most responsible choice is to decrease government spending. Texas leaders have experience with this solution, and it can help to reignite the dynamic Texas economy.

In 2003, The Honorable Talmadge Heflin helped to navigate a $10 billion shortfall in tax receipts as Chairman of the Texas House Committee on Appropriations. Describing the success in 2003, Chairman Heflin wrote, “we dealt with the shortfall through targeted budget cuts and avoided raising taxes on already hard-pressed Texas families.” This is sage advice, and we would do well to follow it.

Then-Texas Governor Rick Perry adopted a budgeting strategy called “zero-based budgeting” that encouraged responsible spending. Further, the heads of state agencies and legislators worked together to find workable solutions for the budget gap. For example, 12 state agencies were consolidated into 5 agencies, and this effort saved taxpayers $1 billion.

Solutions are possible if our leaders are willing to work hard to make necessary changes.

While the big three Texas leaders have asked for some state agencies to find savings of 5% to cover some losses, the Foundation has called for all state agencies to find 15% in savings so there is shared sacrifice with Texas families, and their tax burden won’t increase.

There is a fourth consideration this time around as the U.S. Congress has provided federal funds to Texas through the CARES Act with $8.3 billion to state government and $3.1 billion to local governments. This means even more money is sloshing around, but the Legislature must not let federal funds be counted as permanent funds to the budget like some did in 2011 and then consider there to be cuts to government education or other programs when those funds dried up. There weren’t cuts to government education then but that false claim continues to scare people.

​We must work to rejuvenate the Texas economy and the lives and livelihoods of Texans by ending the government’s shutdown of society, rein in wasteful spending, and permanently roll back unnecessary regulations so families can flourish.

​https://www.texaspolicy.com/texas-can-weather-this-storm/

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This conversation goes on a little longer than normal, but it's one that you don't want to miss a moment! 

Thank you for watching and sharing it with your family and friends.

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