For several decades and under the control of both Republicans and Democrats, Tennessee has been known for its fiscally conservative budgeting. Years of limited spending and low taxes have kept hundreds of millions of dollars in the pockets of Tennessee taxpayers that might otherwise have gone to government bloat. In fact, according to the Tax Foundation, Tennessee residents pay less in taxes than anyone in the country.

But future good times are no guarantee—and that’s why, whether in good or bad times, Tennessee families practice priority-based budgeting, making tough choices on how to spend their hard-earned dollars, especially while inflation is at the highest rate in decades. With the federal government and Federal Reserve pumping trillions of dollars into the economy, Tennesseans are looking to their state government for solutions. While solutions have mostly focused on one-time relief such as sales tax holidays, by continuing to control spending, Tennessee policymakers can ensure that state government does not grow faster than taxpayers’ ability to pay for it. Further conservative budgeting would allow state policymakers to implement more permanent tax cuts, providing relief in a time of rising prices and fostering further economic growth and prosperity. The Conservative Tennessee Budget sets the cap of growth of the state’s budget at population plus inflation growth to make this prosperity a reality.

Originally at Beacon Center of Tennessee.

A nation emerging from a significant pandemic and an economic downturn awaited President Joe Biden in early 2021. President Warren G. Harding inherited a similar situation after winning the 1920 election in a landslide. But Harding overcame it by getting government out of the way. The economy recovered quickly—whereas Biden enacted bad progressive policies that have resulted in a double-dip recession with 40-year high inflation.

Biden should learn from Harding and his successor President Calvin Coolidge to correct government failures and allow markets to heal so that we can enjoy abundant economic prosperity again.

In the aftermath of the Great War, the U.S. suffered a severe economic downturn. The late economist Milton Friedman described this as one of the most “severe on record.” The depression of 1920-1921 is often forgotten because it was short-lived, but it offers policy lessons that can be applied to our current situation.

Prior to and during the Great War, President Woodrow Wilson led a massive expansion of the federal government, which included the creation of the Federal Reserve and personal income tax system. After the war, markets corrected from those government failures throughout the economy triggering a steep economic downturn.

The business and agriculture sectors were hit particularly hard by the depression of 1920-1921, which led to bankruptcies and farm foreclosures. Unemployment was estimated to be about 12% and the nation was hit buffered from deflation. Americans were hurting.

During the presidential campaign of 1920, then-Sen. Warren G. Harding pledged a “return to normalcy” against Wilson’s progressivism. During the campaign, Harding argued that the nation needed to return to sound money, less spending, lower taxes, less debt, and limited government.

This was the fiscal policy blueprint of the “normalcy” agenda. Harding understood that to revive business confidence and lower high income tax burdens, the federal government must get its fiscal house in order.

In 1921, Congress passed the Budget and Accounting Act, which under the leadership of Bureau of the Budget Director Charles Dawes and later his successor, Herbert Lord, worked to reduce federal spending. Dawes would compare the task of cutting spending to having a “toothpick with which to tunnel Pike’s Peak.”

Harding also understood that to lower the high tax rate, spending had to be addressed first. “The present administration is committed to a period of economy in government…There is not a menace in the world today like that of growing public indebtedness and mounting public expenditures…We want to reverse things,” explained Harding.

Reducing spending was not easy.

As an example, Harding vetoed a popular bonus for veterans of the Great War. Overall, Harding’s commitment to economy in government resulted in an estimated 50% reduction in federal spending. Harding also relied on Secretary of the Treasury Andrew Mellon, who also shared his views regarding limiting spending.

Mellon would serve as the lead architect for Harding’s tax reform policies. The top income tax rate was over 70% and Mellon’s goal was to lower the rate. Through a series of tax reforms, the high rate would eventually be cut to 25% during the Coolidge administration.

Harding and Coolidge’s fiscal conservatism of lowering spending and tax rates and paying down the national debt resulted in a quick economic recovery. The Federal Reserve also tightened the money supply. The historian Paul Johnson wrote “Harding had done nothing except cut government expenditure, the last time a major industrial power treated a recession by classic laissez-faire methods…”

After the death of Harding in August 1923, Coolidge continued and strengthened the economic policies of Harding. President Coolidge, along with Secretary Mellon, continued to lower spending and tax rates. The federal budget was $3.14 billion in 1923. By 1928, when Coolidge left, the budget was $2.96 billion.

Altogether, spending and taxes were cut in about half during the 1920s, leading to faster real economic growth and productivity that contributed to budget surpluses throughout the decade. The decade had started in depression and by 1923 the national economy was booming with low unemployment.

And that continued throughout much of the decade. This would have continued but government expanded again. In particular, the Hoover administration ran deficits and raised taxes and the Federal Reserve had too loose and then too tight money supply. This led to the Great Depression—a phenomenon that was avoidable and was exacerbated by President Roosevelt’s large expansion of government.

It’s unlikely that President Biden will follow the pro-growth economic policies of Harding and Coolidge, nor will the Fed tighten the money supply enough to reduce inflation.

Published at Real Clear Policy with John Hendrickson

While a stagnating economy with high inflation is what economists usually call stagflation, the current situation is worse, as the real economy is declining. So there’s much less to go around for everyone—making us poorer in the process.

This inflation-recession could be resolved by Washington reversing course, but President Joe Biden and Democrats in Congress are doing the opposite. Their new bill, called the “Inflation Reduction Act” (IRA), will spend more, raise taxes, increase debt, and contribute to more inflation, resulting in a deeper recession.

The IRA includes estimated hikes in taxes with a new 15% corporate minimum tax rate, 87,000 new Internal Revenue Service (IRS) agents to audit more taxpayers, and new closure of “carried interest loophole.” These are each bad policies, but especially during a recession. These add up to an estimated tax hike of about $730 billion compared with current policy over the next 10 years.

The main tax hike is the new alternative minimum tax (AMT) of 15% on book income for corporations with net income exceeding $1 billion. This proposal has a rosy revenue projection of $313 billion. But businesses don’t pay taxes; they just submit them. People pay them, through higher costs, lower wages, and fewer jobs. The dynamic effects will result in less tax revenue collected from this hike.

According to a recent study by the Tax Foundation, this tax hike alone would contribute to killing 23,000 jobs, a 0.1% cut in wages, and 0.1% less in economic output. If we consider other provisions like the tax hikes on carried interest and reinstatement of the federal Superfund program, the total number of jobs killed is 30,000 with every income group having a reduction in after-tax income.

Clearly, this wouldn’t reduce inflation or help the economy recover. But there’s more.

While the IRA is aimed at taxing the rich and corporations more, the Congressional Joint Committee on Taxation finds that every income group except those with income between $10,000 to $20,000 per year would face a higher average tax rate. This would mean President Biden’s pledge to not tax anyone earning less than $400,000 per year would be broken, with about half of the burden falling on those earning less than $200,000 per year.

And the $80 billion in additional funding for 87,000 new IRS agents to increase tax enforcement and compliance is expected to bring in a phony amount of about $200 billion over a decade. But this will just increase more bureaucracy in an already overly bureaucratic federal government that will make Americans’ lives worse as they put more costs on taxpayers. Specifically, there could be 1.2 million more individual audits per year, and you can bet when the IRS doesn’t increase tax collections from legal tax returns they will come after every tax group, not just those making more than $400,000 per year.

On the spending side, the IRA provides tax incentives and subsidies for unreliable wind and solar energy, an expansion of Obamacare subsidies until 2025, and other expenditures to the tune of about $430 billion. Using these rosy assumptions, there is a projected deficit reduction of $300 billion over 10 years.

However, more conservative estimates suggest that the IRA will have less deficit reduction and will likely increase the deficit.

The Tax Foundation, Penn Wharton Budget Model (PWBM), and Congressional Budget Office (CBO) calculate a $178 billion, $247.8 billion, and $101.5 billion in deficit reduction over the next decade, respectively. But assuming the Obamacare subsidies are extended over the full 10-year period for an apples-to-apples comparison, the PWBM estimates that would bring that deficit reduction down by $158.9 billion to just $88.9 billion over the decade, which is the same amount of the deficit in just June 2022.

But recall that these estimates are compared with current policy assumptions over the next decade, which already have massive deficits because of reckless spending, so the IRA will most likely make the deficit worse.

Spending will be permanent and is on the front end of the bill, while taxes will likely be temporary and are more on the back end—so the deficit will be higher in the first few years, which will give the Federal Reserve more debt to purchase thereby creating more inflation.

And the higher taxes, more debt, and more inflation will stifle economic growth so a deeper recession will result.

The IRA does the opposite of what the name implies. This is now too common with Democrats in Congress as they like to keep redefining things that don’t match their narrative. They should instead name this bill the “Inflation Recession Act” because we will get more of both.

This far-left agenda must be rejected. Kill the bill.

Published at TPPF with Daniel Sanchez-Pinol

With extensive economic pressure facing the U.S., progressive lawmakers in Washington believe they have found a new solution: taxing and spending. This failed fiscal framework has become an easy sell for each new progressive administration. But this time the Biden administration has placed America in a high-inflation recession, and looks to do more harm with the “Inflation Reduction Act.”

But there’s an overlooked concern of hundreds of billions of taxpayer funds redistributed by the federal government to state and local governments for supposedly COVID-relief efforts and even more in the recent “infrastructure” bill over the last two years.

These excessive federal funds should be used wisely in order to not hinder Texas’ economic prosperity. That could mean public-private partnerships, which increase transparency and efficiency.

Texas’ nonfarm employment has increased in 25 of the last 26 months, bringing record high employment in eight consecutive months. Compared with a year ago, total employment was up by 778,700 (+6.2%) in June with the private sector adding 761,800 jobs (+7.1%) and the government adding 16,900 jobs (+0.9%).

Texas also ranks fifth best in a Georgia Center for Opportunity study that compares the ratio of employment to an estimated pre-shutdown recession trend in each state. That’s a huge feat given how many jobs were lost during the costly shutdowns. And Texas is now headquarters for more than 10% of all Fortune 500 companies.

Texans and all Americans are struggling with economic uncertainty due to a 40-year high in inflation and a recession from mostly bad policies out of D.C.

Texas has been allocated about $116 billion between COVID 19-related funds and the “Infrastructure Investment and Jobs Act” (IIJA) since March 2020.

This includes $79 billion from several bills from March 2020 to March 2021. A major chunk of that figure was $24.5 billion from the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020 that was primarily for COVID 19-related provisions, including for health care, public education, childcare, and worker safety.

The other was $40.3 billion from the American Rescue Plan Act (ARPA) in March 2021 that was for specific projects like broadband, water, and infrastructure along with $15.8 billion of those funds available for various recovery purposes. Fortunately, the state separated the ARPA funds in Article XI of the budget so that there is less comingling of federal with state funds to avoid considering these as an ongoing funding source.

The rest was $36.3 billion from the IIJA to be used primarily for projects related to broadband, transportation, and water.

Ultimately, these funds must be spent responsibly—if at all—and only for one-time items to avoid a fiscal cliff when these funds go away. If not, there will be wasteful spending that will unnecessarily grow the state’s budget, leading to higher taxes and distortions throughout the economy and less prosperity.

Since the massive expansion of federal assistance to states began in the 1960s with President Johnson’s “Great Society,” the burden of federal funding in states has continued to grow. Texas usually has about one-third of its total budget funded by taxpayer dollars collected at the federal level.

We need a new approach. These one-time federal funds must be spent on on-time expenditures.

Next, public-private partnerships (P3) should be considered.

They’re contractual agreements between a government and private entities. The state provides funding with oversight of a new project while a private company does the work. They can transfer risk, bundle projects, and increase efficiency through a design-build approach.

Ultimately, most projects should be left to the private sector, where the best productive projects happen because of profit-loss decisions. But the opportunity to use P3s with these one-time federal funds should be carefully considered to reduce waste and inefficiency on projects.

While there are legitimate concerns about corporate welfare to private businesses through picking winners and losers, the use of these one-time federal funds allocated for projects makes sense—though careful consideration should be made now and later.

Given the poor track record of excessive federal funds and the success of P3s, Texas should look to set a precedent for fiscal responsibility and more market-oriented solutions by employing P3s with the federal funds recently received rather than resorting to the failures of too many government-run projects.

Published at TPPF with Nathan Evenhar

​Over the last decade, major Montana local governments have grown their budgets faster than population growth plus inflation, burdening taxpayers with millions in excessive spending .

The 2023 Real Local Budgets demonstrate the need for government spending restraint and an improved budget process to protect taxpayers.

City and county officials should focus on holding the growth of expenditures to less than population growth plus inflation to ensure that the cost of government stays within the bounds of the average taxpayers’ ability to pay for it.

Published at Frontier Institute with Kendall Cotton

​With its vibrant cities, relatively cheap cost of living, and thriving industries like manufacturing,
healthcare and hospitality, it’s obvious why South Carolina is one of the fastest growing states in
the nation. To keep its competitive edge and protect the interests of taxpayers, it is imperative
that state government spending – which has seen significant growth in recent years – be brought
under control.

For that reason, SCPC has partnered with the Texas Public Policy Foundation (TPPF) for a new
project: the South Carolina Sustainable Budget. This introductory report compares the last
decade of state appropriations with what spending would have looked like under a sustainable
budget. A future report will provide sustainable budget spending recommendations for fiscal
year (FY) 2024.

Published at South Carolina Policy Council with Bryce Fiedler and Video discussion here.

On July 15, Austin City Manager Spencer Cronk laid out a proposed $5 billion city budget for fiscal year 2023. While introducing the mammoth 971-page document, Cronk said: “We are always mindful of our impact on the pocketbooks of Austinites. At the same time, we firmly believe that effective city government is critical to the success, financially and otherwise, of our whole community—and we will endeavor to continue to strike the right balance.”

But while balance may have been the intent, big government spending was the result. It’s time for a Responsible Austin Budget that puts taxpayers first.

Under the guise of worker shortages and a perceived inability to meet core government services, such as law enforcement or emergency services, the budget focuses on increasing pay and benefits to city employees on the back of taxpayers.

Specifically, it proposes increasing their minimum wage from $15 to $18 per hour and giving a $1,500 stipend for employees serving at least one year. It also creates at least 200 new positions, an interesting choice given the city’s difficulty retaining its current employees and its many vacancies.

These increases, along with other priorities such as reducing greenhouse gas emissions and homelessness with large city-funded programs, come at a high, irresponsible cost. No government spending is “free,” as every dollar comes from taxpayers.

Cronk presented the budget as a positive step after fears last year that economic strain would lead to drastic budget cuts and layoffs, and attributed this gain to the city’s fiscal management and economic recovery after COVID-19.

However, much of the city’s fiscal position could well be attributed to the pro-growth policies at the state level and huge influx of federal aid, which could create big problems for taxpayers later, if not handled properly. Once one-time federal monies expire, officials will be tempted to maintain programs indefinitely through tax and fee increases.

It doesn’t matter if it comes out of the left or right pocket, this excessive spending will put even greater pressure on Austin taxpayers.

To be fair, the proposed budget does provide for a property tax rate reduction, moving the current rate from $0.541 to $0.4519 per valued $100 , a 16.5% cut. However, this is being done in large part to compensate for soaring real estate valuations and in order to stay under the newly-imposed 3.5% revenue limit, so depending on how much appraisals are up this could still be a tax hike.

To counter the growth of taxes and spending, TPPF has proposed a Responsible Austin Budget. Over the last 10 years, the city of Austin has passed a budget that grew 14.3 percentage points faster than population growth plus inflation, increasing the cumulative cost of funding spending for an average family of four by more than $9,000.

The FY 2023 RAB sets a maximum budget of $4.93 billion based on population growth plus inflation of 5.75% to help improve Austin’s affordability crisis in an already economically costly time. The proposed city of Austin budget exceeds this limit by $70 million, a staggering amount when you consider that prices at the gas pump and grocery store are by far the biggest concern of American adults today. The Federal Reserve raised its federal funds rate target today, creating more concern about the high cost of operating businesses, taking out loans, and maintaining essentials of everyday life.

In all, given rising inflation and economic uncertainty from mostly the bad policies out of D.C., but also those from the city of Austin, local officials should be responsible in maintaining budget limits. Not generous in creating new positions and raising wages which will unduly burden taxpayers.

The Austin City Council should amend the budget before final approval, maintaining a Responsible Austin Budget, instead of doing more harm by exceeding it. That will help Austinites weather this economic storm.

Published at TPPF with Caroline Welton

​As most of the country struggles with the effects of stagflation and is either in or will soon be in a recession, Texas has been an economic leader. The Texas Model of economic freedom with the strongest state spending limit in the nation, no personal income tax, sensible regulations, and a relatively low cost of living have helped sustain this leadership.

No wonder 54 of the Fortune 500 companies call Texas home—most of any state. But excessive local spending and taxing must be addressed to improve ways to let people prosper.

Net nonfarm jobs in Texas increased by 74,200 in May, resulting in increases in 24 of the last 25 months and the 7th consecutive month of record-high employment. Compared with a year ago, employment was up by 762,400 (+6.1%) with the private sector adding 733,900 jobs (+6.9%) and the government adding 28,500 jobs (+1.5%). Compared with February 2020 before the pandemic-related shutdown, the state’s labor force participation rate is higher at 63.7%, employment-population ratio is close at 61.1%, and private sector employment is up 410,000 jobs.

States with limited government better support opportunities for people to gain self-sufficiency and flourish. Erik Randolph at the Georgia Center for Opportunity calculates that Texas’ private sector employment is 98.9% of its pre-shutdown trend, which ranks sixth best nationwide. Overall, 22 of the 25 best-performing states are red-leaning states and 12 of the 14 worst performing states lean blue.

These data are insightful because only Republican governors, with the exception of Louisiana, ended the enhanced supplemental unemployment payments that contributed to some people receiving more payments than while working well before the payments expired in September 2021. Texas ended these enhanced payments in June 2021.

Clearly, incentives matter.

In fact, the positive effects of this decision and more well-paid jobs in Texas helped increase personal income by an annualized 4.6% in the first quarter of 2022 even as many federal safety-net payments without work requirements expired.

But Texas faces challenges.

Bad policies primarily out of Washington have contributed to stagflation. Recent data show that Texas’ inflation-adjusted economic output declined by 2.6% on an annualized basis in the first quarter of 2022, more than the 1.6% decline nationally. This was after Texas led the way with 10.1% growth in the fourth quarter of 2021. The decline in the first quarter indicates that elevated inflation, less investment, and other factors are reducing economic activity.

This stagnating economic growth hasn’t hit the labor market yet, which has a 4.2% unemployment rate, but the labor market is a lagging economic indicator. Fortunately, Texas has been doing better than many states as people and businesses move to the Lone Star State.

Texas must do more to combat Washington’s irresponsible policies and remain a leader.

The affordability crisis of a 40-year high inflation, record-high home values, and skyrocketing property taxes are hurting Texans. While Texas can’t directly influence the inflation rate—which is driven by excessive money printing by the Federal Reserve fueled by out-of-control spending by Congress, it can help with the housing affordability issue by reducing local zoning restrictions and reducing property taxes.

Texas is expected to have about $30 billion in extra taxpayer dollars available next session. As Governor Greg Abbott recently tweeted, “We must use a substantial portion of this money to cut property taxes in Texas.” We agree as there is a need to cut school district maintenance and operations (M&O) property taxes, which is about half of most Texan’s property tax bill and part of a renters’ rent.

The Legislature ought to hold spending growth below population growth plus inflation as it has in the last four initial biennial budgets, and even more so now given less spending equals more money in struggling Texans’ pocket. Then use the surplus to dramatically cut school district M&O property taxes while funding core services.

But the Foundation’s recent report shows how many local governments have been spending excessively. They should pass responsible budgets that spend less than this metric to be consistent with the state’s fiscal prudence and help Texas be more affordable statewide. Doing so will give many local governments the opportunity to compress their own M&O property taxes and fund essential provisions.

Texas ought to strengthen its successful model by reducing and ultimately eliminating arcane M&O property taxes that hinder people from keeping or ever actually owning their home. There is a historic opportunity to at least lower property tax bills next session if governments limit spending and rightly make taxpayers the priority.

Published at TPPF with Nathan Evenhar

​Nearly every major city and county government in Texas spends well beyond what the average taxpayer can afford, according to a series of new research papers on local government spending by the Texas Public Policy Foundation. As a result, over the last decade the typical family of four has paid thousands of dollars in taxes over what the state considers to be a reasonable increase.

(Individual reports linked below)

“Major cities and counties in Texas are spending huge sums that are wildly out of step with what many taxpayers can afford to pay,” said Dr. Vance Ginn, TPPF’s Chief Economist and co-author of the series. “The data should be a huge red flag that we are heading toward unsustainable spending growth and tax increases that kill jobs, punish families, and drive people and businesses out of the state.”

TPPF defines reasonable spending growth as no more than population growth plus inflation. The state of Texas has followed this spending limit for state budgets for several biennia and officially adopted most of it into state statute in the last legislative session. City and county budgets are currently under no obligation to follow this reasonable spending limit.

“Responsible Local Budgets (RLB) would promote efficiency and prudence with taxpayer money, creating less need for higher taxes and fees, but still provide all the funding needed for critical government functions,” said James Quintero, TPPF’s Policy Director for the Government for the People campaign and co-author of the research. “Taxpayers would love to see local governments voluntarily adopt these spending limits, but, as long as cities and counties continue their spending binge, it may be necessary for state lawmakers to impose strict parameters to protect taxpayers.”

Over the last decade, Dallas has been the worst offender among cities, spending more than 34% above a responsible spending growth limit. In that time, the average family of four in Dallas paid more than $10,000 in excess taxes. The cities of San Antonio and Austin spent over 16% and 14% higher, respectively, than the average taxpayer’s ability to pay.
Spending growth in Texas’ major counties has been eye-popping. Lubbock County’s spending has grown 66% above a responsible limit, Bexar County by 52%, Travis County by 43%, Dallas County by 40%, and Tarrant County by 27%. Only Brownsville spent under the growth limit during the decade.

Harris County takes the prize as the worst of all local governments by exceeding a responsible spending limit by 114%.
“Now it is time to rein in excessive government spending growth at the local level,” Ginn and Quintero write. “We urge local governments to voluntarily adopt these taxpayer protections. Because some may not, we recommend that the Texas Legislature pass a spending limit for all other local governments that includes all spending from any revenue source, restricts expenditure growth to a maximum of state population growth plus inflation from the prior year, and requires a two-thirds supermajority vote by the local governing body to exceed the limit.”

“Limiting the growth of these budgets to population growth plus inflation with the RLBs outlined here will help ensure these localities can be vibrant places for people to prosper.”

https://www.texaspolicy.com/press/tppf-local-governments-spending-beyond-the-average-taxpayers-ability-to-pay

​The economic shock from the shutdowns in response to the COVID-19 pandemic were unprecedented. Never had state governors imposed stay-at-home orders that cut people off from their lives and livelihoods. Those costly policies were bad enough, but then came historic increases in deficit spending and money creation.

While these may have been well-intentioned policies early on, their repercussions—amplified by misguided macroeconomic policy since January 2021—continue to plague many Americans. The antidote is pro-growth policies.

There was a vibrant economy on the eve of this shock. In fact, about three quarters of the flows of people into employment were Americans returning to the workforce—the highest on record.

For context, 2.3 million prime-age Americans—people between the ages of 25 and 54—returned to the labor force during Trump, after 1.6 million left during the Obama recovery. This happened with a robust private sector providing many opportunities because the Trump administration focused on removing barriers by getting the Tax Cuts and Jobs Act of 2017 through Congress and providing substantial, sensible deregulation.

We often hear that these tax cuts were “trickle-down economics” or “tax cuts for the rich and big business.” But the change in real (inflation-adjusted) wages was positive across the income spectrum. The bottom 10% of the wage distribution rose by 10% while the top 10% rose half as fast. And real wealth for the bottom 50% increased by 28%, while that of the top 1% increased by just 9%.

The results show those tax cuts weren’t designed for the “rich.”

In 2019, the real median household income hit a record high, and the poverty rate reached a record low. Poverty rates fell to the lowest on record for Blacks and Hispanics, and child poverty fell to 14.4%—a nearly 50-year low. Clearly, Americans were doing well across the board, especially those who had historically been left behind.

These stellar results were from reducing barriers by government in people’s lives—a stark contrast to what happened by state governments during the pandemic and exacerbated thereafter by Biden’s big-government policies.

While there were similar spending bills passed into law during both administrations, it’s comparing apples and oranges.

Trump supported congressional efforts in March and April 2020 when huge swaths of the economy were shut down, 22 million Americans were laid off, and 70% of the economy faced collapse. In contrast, Biden substantially increased regulations immediately and passed a nearly $2 trillion spending bill in March 2021—an amount equal to approximately 10% of the U.S. economy, at a moment when the U.S. economy was already 10 months into recovery.

Another difference was that Trump introduced sunsets for emergency pandemic provisions so that they would expire. But Biden continued and expanded many of them, increasing dependency on government.

Through March 2022, employment is back up 20.4 million but remains 1.6 million below the peak in February 2020. While Biden touts the most jobs gained in one year in 2021, more jobs were recovered in just the two months of May and June 2020 than in all 12 months of 2021, and nearly two-thirds of this jobs recovery was during Trump. Moreover, job gains of 6.7 million in 2021 were far less than the glorified projections coming from the White House of around 10 million.

Just think if Biden had practiced the pro-growth policies of Trump.

Instead, inflation is at a 40-year high and looks to continue to soar, fueled by a host of self-imposed costly policies in Washington.

This includes Biden’s over-regulating of the oil and gas sector, massive unnecessary spending bills, and attempts to drastically raise taxes. And the Federal Reserve has more than doubled its balance sheet over the last two years, purchasing a majority of the $6 trillion increased national debt in that period, which is a 25% increase to $30 trillion.

These policies, which simultaneously boost demand while constraining supply, have brought the prospect of stagflation—high inflation and low growth—back for the first time since the late 1970s.

Rather than directly addressing the crisis, Biden has consistently deflected the issue by first doubting the reality of inflation to now falsely blaming it on corporate greed or Russian President Vladimir Putin. But the causes and consequences fall at his feet.

It’s time to return to the proven, pro-growth policies that worked during the Trump administration, along with an essential missing factor then of spending restraint by Congress. Doing so will provide a solid foundation for more opportunities to let people prosper.

This commentary was based on the remarks by Mr. Ginn and Mr. Goodspeed on a panel at the Texas Public Policy Foundation’s 2022 Policy Orientation.

https://www.texaspolicy.com/biden-should-pivot-to-trumps-pro-growth-policies/

​Overview

• Over the last 20 years, property taxes have increased 81% faster than the average taxpayer’s ability to pay for them, contributing to too many Texans struggling to pay bills and keep their home.
• Our Lower Taxes, Better Texas plan will help Texans by eliminating local maintenance and operations (M&O) property taxes in a revenue neutral way by no later than 2033.
• This balanced solution will give Texans the relief they demand while continuing to fund critical services, like public safety and education.
• After eliminating the M&O property taxes, which represent 80% of all property taxes in Texas, constitutional changes should prohibit re-imposing these taxes.
• Texas governments ought to embrace this fiscal framework to ensure all Texans can flourish and deliver real peace of mind to Texas homeowners in a timely way.

​When Uvea was 9, Oregon’s foster care agency couldn’t find a placement in-state, so it sent her to Montana—to a poorly supervised facility where she was drugged, physically restrained and verbally abused by facility staff.

“Can I say the two words she called me?” Uvea asked a lawmaker during a later legislative hearing. “They made me feel very uncomfortable. She called me a pervert and a prostitute.”

Remember, she was 9 at the time. Untold damage was done to the young girl—but one thing came of it that will benefit all Oregon foster children. Her story sparked an effort to reform Oregon’s child welfare programs, beginning with an efficiency audit. Following the audit, every single child placed out-of-state was brought back to Oregon without increasing the number of foster homes, simply because the state learned how to use its resources more efficiently. And that Montana facility has been shut down.

Today, Uvea is 11 years old and living in what she recently told state lawmakers is “the best foster home” she’s ever been in.

Too many government programs aren’t achieving their intended purpose. This doesn’t serve the intended recipients—like Uvea—or the taxpayers well. Next session, the Texas Legislature can utilize effective and powerful independent efficiency audits to determine how programs, including Child Protective Services, are performing, where waste can be cut, and what outcomes can be improved.

While traditional financial audits can uncover evidence of malfeasance, they only look at the money trail. An efficiency audit goes even further, investigating whether funds are being used for their intended purpose and whether they’re being spent efficiently toward desired outcomes. Bringing in an independent, private sector auditor, rather than the state’s auditor, prevents a potential collusive situation between government entities and provides a fresh perspective that can identify innovative solutions, counteracting the myopic tendencies of government bureaucracy.

Last session, the Texas Public Policy Foundation identified the need for independent efficiency audits of the Temporary Assistance for Needy Families (TANF) program and the Department of Family and Protective Services (DFPS), which contains CPS. Both TANF and DFPS have had problems achieving their intended goals.

DFPS is a major recipient of TANF dollars in Texas, which is intended to help strengthen families and promote self-sufficiency. DFPS is also responsible for administering the state’s foster care system. In response to the ongoing foster care crisis, the Legislature increased appropriations to the agency. Our internal analysis of corresponding DFPS expenditures raised significant concerns regarding the appropriateness and efficacy of those dollars spent.

Specifically, our analysis found that a significant portion of these funds were not getting to the families most in need. Rather, one third of the roughly $1 billion annually in TANF funds are allocated to DFPS, yet half of that third goes to administrative and overhead expenses—things like staff salaries and IT services. That’s money that could have otherwise been used towards its stated intent to help needy Texans.

Why was this happening?

TANF is primarily funded through a block grant from the federal government, with the rest funded by the state. States have flexibility in how they administer and distribute that funding. While this flexibility can be helpful, DFPS used TANF dollars to fill budget gaps rather than meet its goals. This misuse of TANF dollars by the department revealed a need to investigate whether other agencies were engaging in similar behavior.

When we advocated for the use of an independent efficiency audit, we specifically sought to investigate how well both TANF and DFPS were doing at achieving the intended goals of helping Texas families move from dependence to self-sufficiency.

Under the new laws passed in 2021 (HB 1516 and HB 2374), that question must be answered every four years before the start of a legislative session. Doing so allows legislators to critique agency appropriations requests more knowledgeably and to ensure taxpayer resources are generating intended outcomes.

Because these audits must stay within the bounds of current resources available to each department or agency, taxpayers are assured these efforts will not be used to grow government, but rather evaluate how government could be improved, reformed, or cut. Identifying opportunities to consolidate efforts across separate agencies for example, or when a governmental function might be performed more successfully by a community provider, can provide legislators and the public with solutions that will lead to better services to beneficiaries at lower costs to taxpayers.

Oregon, Wyoming, and Kansas are states that have made great strides because of their respective efficiency audits. Louisiana, likewise, recently did an internal efficiency audit of TANF, which the legislative auditor found much needed improvement to achieve the intended goals.

Texas Legislators should bring efficiency audits to every aspect of government to generate better outcomes and save taxpayer resources. Little children like Uvea are counting on them.

https://www.texaspolicy.com/efficiency-audits-arent-about-saving-money-theyre-about-saving-lives/

Americans have less money than they had last year—though taxes haven’t been raised. So what’s the problem? Inflation, which has increased at a 40-year high annual pace of 7.9%. It acts as a hidden tax because we don’t see it listed on our tax bills, but we sure see less money on our bank accounts.

In fact, inflation-adjusted average hourly earnings for private employees are down 2.8% over the last year. This means a person with $31.58 in earnings per hour is buying 2.8% less of a grocery basket purchased just last February. “For a typical family, the inflation tax means a loss in real income of more than $1,900 per year,” stated Joel Griffin, a research fellow at The Heritage Foundation.

The hidden tax of rapid inflation has been avoided for four decades. But that’s understandable because we haven’t seen these sorts of reckless policies out of Washington since the Carter administration.

The policies from the Biden administration’s excessive government spending and the Federal Reserve’s money printing must correct course now before things get worse.

What’s causing inflation is being debated.

One claim is “Putin’s price hikes” stem from the Russian president’s invasion of Ukraine.

While this has contributed to oil and gasoline prices spiking recently, these prices—and general inflation—were already rising rapidly. This was because of the Biden administration’s disastrous war on fossil fuels through increased financial and drilling regulations, cancelation of the Keystone XL pipeline, and more.

Specifically, the price of West Texas Intermediate crude oil is up about 110% since Biden took office, yet only up 21% since Russia invaded Ukraine. And to think, the U.S. was energy independent in the sense that it was a net exporter of petroleum products in 2019.

Another claim is the supply-chain crisis.

For example, the global chip shortage has contributed to a large shortage and subsequent increase in the average price of new vehicles—to a record high of $47,000, up 12% over the last year. This contributed to buyers switching to used cars, which has pushed the average price up to nearly $28,000, about 40% higher.

These two claims will likely be transitory price increases, though not sufficient to drive down overall inflation to what we’ve experienced for the last year-plus.

Inflation is persistent because of rampant government spending and money printing.

Larry Kudlow, who served as the director of the National Economic Council for President Trump, stated that inflation “is destroying working folks’ pocketbooks and devaluing the wages they earn, and the root cause of the inflation is way too much government spending, too many social programs without workfare, and vastly too much money creation by the Federal Reserve.”

Both political parties share the blame for too much government spending, which has caused the national debt to balloon to $30 trillion. Just over the last two years, the debt has increased by 25% or $6 trillion.

While some of that may have been necessary during the (inappropriate) shutdowns in response to the COVID-19 pandemic, much of the nearly $7 trillion passed in spending bills was not, especially the trillions by the Biden administration far after the pandemic had slowed and people were returning to work.

Laughably, Speaker of the House Nancy Pelosi recently argued that government spending is helping inflation and President Biden argued that he’s cutting the deficit. Both are false.

Government spending doesn’t change inflation because it just redistributes money around in the economy. And the deficit would only be rising from Biden’s big-government policies but he’s taking advantage of an optical illusion: one-time COVID-19 relief funding drying up and tax revenues rising partially from the effects of inflation.

Ultimately, the driver of inflation is from discretionary monetary policy by the Federal Reserve as it monetizes much of the $6 trillion in added national debt since early 2020.

The Fed did this to keep its federal funds rate target from rising above the range of zero to 0.25% by more than doubling its balance sheet to $9 trillion. More money is fueling the ugly government spending and bubbly asset markets that’s resulting in dire economic consequences.

Instead, we need to learn what Presidents Harding and Coolidge realized a century ago. This would mean a return to sound fiscal policy, monetary policy, and the dollar that built on the principles of America’s founding.

We need binding fiscal and monetary rules to hold politicians and government officials in check of we hope to tame inflation and return to prosperity.

https://www.texaspolicy.com/the-tax-increase-thats-hidden-in-plain-sight/

​An MSNBC headline reporting on a recent interview of a White House economic advisor Jared Bernstein claimed that America has a “booming economy.” But that’s not what most Americans think about the economic situation.

The University of Michigan’s consumer sentiment index for March, which gauges how consumers feel about the economy, fell to a decade low at 59.4. This is a 5.4% drop from February and a 30% drop from March 2021.

The survey reveals Americans’ pessimism and uncertainty amidst the highest levels of inflation since the 1980s. Many Americans reported that they have had to reduce their quality of life and lower their living standards amidst the inflation crisis.

This crisis has been created by the Federal Reserve printing too much money to fund the overspending by Congress, and exacerbated by the Biden administration’s war against oil and gas that fueled higher energy prices and have been amplified by the Russia-Ukraine conflict.

The only positive news from the survey was slight optimism for the strengthening labor market. Survey statistics revealed that there was hope that the unemployment rate would continue to decline.

While there are reasons to be optimistic about the labor market’s increase in monthly nonfarm jobs—431,000 (with 426,000 in the private sector)—and the unemployment rate dropping to 3.6%, weaknesses remain.

For example, since the shutdown recession ended in April 2020, total nonfarm jobs are up 20.4 million but are still down 1.6 million from February 2020. This indicates that though the labor market is improving, but it’s not as strong as it was then.

And while the Biden administration touts the jobs created since he took office in January 2021, only 39% have been added since then while the other 61% were during the Trump administration.

Other unaddressed labor market weaknesses remain. Inflation-adjusted wages are down by 2.3% over the last year, a depressed prime-age (25-54 years old) employment-population ratio by 0.5 percentage point since February 2020, and a broader U6 underemployment rate of 6.9%.

Further adding to the concern in the labor market is a record high of 5 million more unfilled jobs (11.3 million) than unemployed people (6.3 million).

These ongoing weaknesses are shedding light on the impacts of big-government policies out of D.C., such as the “stimulus” checks, enhanced unemployment insurance, expanded child tax credits, and pandemic-related mandates, that have limited and are hindering the rebound of the American economy.

Instead, we must return to normalcy if we wish to give Americans more opportunities to prosper.

But that’s not happening. Paired with the inflation we’re dealing with stagnating economic growth, creating a period of stagflation for the first time since the 1970s.

Rising inflation is foreshadowing concerns of a future recession and economic crisis as American families are paying substantially more for products and services amidst reduced purchasing power.

Why is our economy out of control, and what can be done to mitigate the economic crisis?

The government imposed a “shutdown recession” from March to April 2020 that proved devastating. Amidst the shutdown, elected officials heightened Americans’ economic dependence on government through $6 trillion in deficit-spending that included programs which disincentivized working.

Two years later, there must be a return to the dignity and permanent value of work — instead of the dependence on the government that the Biden administration is promoting.

For example, the Biden administration’s irresponsible proposed budget of $5.8 trillion includes massive spending while raising and creating harmful taxes, such as the new “billionaire tax” that Sen. Joe Manchin already shot down. The result of this irresponsible budget would be an increase in the debt by 50% to $45 trillion over the next decade, which is highly optimistic given their unlikely rosy economic assumptions.

Given the likelihood of continued trillion-dollar deficits for the foreseeable future and the Fed keeping its target overnight lending rate low even as it raises the rate by printing more money means that more inflation and economic damage are to come.

But this doesn’t have to happen.

Congress should choose a different path, enacting pro-growth policies like those passed from 2017 to 2019, which will better provide Americans with opportunities to improve their lives and livelihoods. This should be paired with binding fiscal and monetary rules to stop Congress from overspending hard-earned taxpayer dollars and to stop the Fed from overprinting money that’s reducing families’ purchasing power.

We should stop the “booming economy” rhetoric and focus on how families are doing. The way to give them more opportunities to flourish is by removing obstacles imposed by government.

https://www.texaspolicy.com/booming-economy-not-if-you-ask-most-americans/

Watching the screen on a gas pump while filling your vehicle’s tank is liable to induce a panic attack. Paying for a used car almost requires taking out a second mortgage. Speaking of mortgages, members of the middle class are being priced out of the housing market as home prices march relentlessly upward. Many price increases are out of control.

How did we get here? A little over a year ago, and in the years before the Covid-19 pandemic, most prices were relatively stable. But more recently, general price inflation is at a 40-year high.

The late economist Milton Friedman helped explain the inflation and stagflation of the 1970s. His explanation helped shape the strong economic recovery of the 1980s, built on the principles of limited government, with sound monetary policy that resulted in a steep decline in what had been rampant, double-digit inflation.

Inflation Is a Monetary Phenomenon

Friedman pointed out that “inflation is always and everywhere a monetary phenomenon.” The seemingly force majeure is actually a manmade problem, caused by the Federal Reserve (Fed) creating too much money. These principles of money and inflation aren’t new.

But those lessons are being disregarded by some in the economics profession. People like Stephanie Kelton have been promoting Modern Monetary Theory (MMT), which is virtually a complete reversal of what Friedman espoused and history demonstrated. This theory contends that the federal government’s current deficit spending isn’t an issue — it can, and should, be solved by the Fed creating money to fund it without concern about inflation as long as the U.S. dollar is the world’s reserve currency.

President Joe Biden has not openly endorsed MMT, but he’s no fan of Friedman either. Instead, he seems content to have many mostly younger congressional Democrats advocate for MMT, which provides convenient and seemingly academic reasoning for financing more federal spending without explicitly raising taxes. It has a similar political appeal that Keynesianism presented almost a century ago, and MMT is just as flawed.

But proponents of MMT do get one thing correct — the Fed can create money to service the debt and avoid a default. But in real terms, meaning adjusting for inflation, this assertion is false. Creating money to service the debt devalues the currency. Investors then receive a lower real return on their holdings of federal debt.

Furthermore, everyone is hurt by inflation, whether they own government bonds or not. Inflation is essentially a tax, as it robs people of their purchasing power at no fault of their own. Everyone who received a 7.5 percent raise over the last year probably thought they would be able to afford more stuff, but they were deceived. Inflation rose just as much — so there was no real raise.

False Claims That Taxes Are the Solution

But MMT proponents claim that the massive budget deficits are what allow people to save money. Were it not for those deficits, they contend, people would have no cash to save. At first glance, the pandemic seemed to support that. People received transfer payments from the government and saved much of them due to uncertainty. But more recently, people’s savings are being depleted as this dependency on government dries up and prices soar.

Now that inflation is running amok, MMT adherents believe tax increases are the primary (if not only) cure. They claim inflation is not caused by the Fed creating too much money, but by people having too much money to spend; taxation will remove that excess liquidity and stop inflation.

However, MMT doesn’t explain why it’s only inflationary when people spend money, but not when the government spends it. Somehow the Fed creating money by purchasing government debt miraculously doesn’t bid up prices for scarce resources. The theory sounds more like a belief than science — something that must be trusted rather than demonstrated.

Specifically, MMT ideology is built on mathematical relationships between economic variables like private and public savings and debt rather than a strong theoretical construct, and breaks down quickly when analyzed with sound economic theory. Moreover, these relationships seem to be used to derive a funding mechanism for their big-government policy goals, such as a federal jobs guarantee, universal healthcare, and other costly initiatives.

How Taxation Might Stop Inflation

But MMT is not entirely wrong on using taxation to stop inflation. If those taxes are used to pay for deficit spending — which really should be done by spending less — rather than the Fed financing it, then higher taxes can lower inflation. But that is far too nuanced of an explanation for MMT, which paints in much broader brushstrokes.

Regardless, MMT cannot dispel the hard truths of monetary policy, which is inflation comes from one place — the Fed. When the Fed creates money faster than the real economy grows, prices will rise; it’s that simple.

To alleviate the uncertainty and distortions across the economy of bad policies in Washington, there should be binding fiscal and monetary rules based on sound economics instead of ideology. This should include changing government spending by less than the growth in personal incomes and only changing the money supply to keep prices stable.

Almost two years after President Biden declared “Milton Friedman isn’t running the show anymore,” the late economist is clearly the one with the last laugh. Perhaps next time, the president will think twice before speaking ill of the dead.

https://www.texaspolicy.com/the-real-cause-of-inflation-is-insane-government-spending/

The media is quick to explain away the runaway inflation that is squeezing American families and darkening the prospects of Democrats in the upcoming midterm elections.

“The U.S. economy has been hit with increased gas prices, inflation, and supply-chain issues due to the Ukraine crisis,” CBS News tweeted on Tuesday.

Its article went on to claim, “Although many Americans may prefer that the U.S. stay out of the conflict between Russia and Ukraine, the brewing violence and political fallout are already hurting their wallets.”

Americans know better—because each of these problems has been worsening ever since President Joe Biden took office in January 2021.

The West Texas Intermediate crude oil (WTI) price is up 98% since January 2021. Yet WTI is essentially flat since the White House warned that Russia would soon invade Ukraine on Feb. 11. On that day, WTI sold for $93 per barrel. On Tuesday, it closed at $92.

It just goes to show that the Biden administration (and its allies in the media) will try to blame anything except its own bad policies.

https://www.texaspolicy.com/you-cant-blame-ukraine-crisis-for-rising-inflation-gas-prices/

​Even though Sen. Joe Manchin says the Build Back Better Act is “dead,” we all know that spending plans in the D.C. swamp have a disturbing tendency to rise from the grave. There’s already speculation (on CNN and elsewhere) about what a new big-government spending bill will contain.

But with the national debt recently surpassing $30 trillion, we can’t allow even more irresponsible spending. The time for a Responsible American Budget is now.

Another big-government bill making its way down the pike is The America COMPETES Act of 2022, which the House passed last week. It contains up to $350 billion more in deficit spending, all in the name of making us more competitive with China.

This includes billions and billions of dollars in corporate giveaways, such as sending $50 billion in taxpayer money to the semiconductor industry, another $50 billion to the Energy Department as a slush fund for “science purposes” and $8 billion to the U.N. Green Climate Fund. That fiscal cost plus the bill’s regulatory cost will make the nation substantially less competitive.

The truth is, what Americans and Texans need is relief, not more debt and higher prices. The last two years have been increasingly difficult on our wallets. With inflation hitting a 40-year high, prices of everyday consumer goods continue to increase compared to years past, thereby reducing our purchasing power.

As the nation continues to recover economically, now is not the time to continue discussing increasing the burden of federal government spending and taxing on Americans. Should it pursue fiscal excesses like those included in the Build Back Better Act, each American would be saddled with an additional $24,000 of national debt, raising the total debt owed by each taxpayer to $111,000.

Over the past couple of years, we’ve seen major Texas metropolitan markets like in Dallas, Austin, and Houston become the new home to many companies in industries like technology and manufacturing. As quickly as Texas begins to see these new job opportunities, there is the potential for them to vanish should Congress raise taxes.

While the Tax Cuts and Jobs Act helped to increase the competitive advantage for businesses through cutting the corporate tax rate from 35% to 21%, there is movement to raise this rate and raise the global intangible low-taxed income (GILTI) rate on businesses. This would follow a disruptive trend of imposing a global minimum tax rate of 15% that was agreed to by more than 130 countries in October 2021, which would hit Texans hard.

Much like our business community, Texans could find themselves struggling to get by as they see things like their inflation-adjusted wages decline, making it difficult to afford things like childcare or increasing challenges in saving for retirement.

There should be a united voice in opposing additional hikes in spending and taxes and help refocus Congress toward supporting a stronger economy and more opportunities with fiscal restraint and deregulation that have been proven to work for all.

A good start is making the Trump tax cuts permanent. Of course, America doesn’t have a revenue problem, but a spending problem. So, the primary way to provide Texans and all Americans with relief is by passing a Responsible American Budget. This budget would freeze government spending per person so that there is less of a burden on taxpayers.

This budget approach has received high praise from members of Congress, top economists, state policymakers, and experts from across the country. Here are three of the many takes:

Art Laffer: “Government spending is taxation, and we cannot spend and tax our way into prosperity. The Responsible American Budget is a terrific way to rein in this government waste by imposing fiscal limitations on the profligate spenders in Washington.”

Steve Moore: “Spending in D.C. is simply out of control, and we have to act now to stop it. Fiscal restraints like the Responsible American Budget will go a long way to preserving our freedom and unleashing prosperity.”

Grover Norquist: “There has been success in reducing federal tax rates in recent years, which President Biden and congressional Democrats are now trying to undo. Where we’ve yet to make sufficient progress is reining in federal spending. With the Responsible American Budget, the Texas Public Policy Foundation has laid out plan to get federal spending under control.”

If we can have less spending, taxing, and regulating, we can compete and return to the real prosperity earned in 2019 rather than the increased dependency on government today. Otherwise, America can’t compete.

https://www.texaspolicy.com/the-u-s-needs-a-responsible-american-budget/

Latest on Texas budget. 

https://www.texaspolicy.com/txbudget/

​Government spending is at the heart of sound public policy. But out-of-control spending for decades has created substantial economic destruction and ongoing threats that must be remedied before things get worse. Fortunately, we have examples of how fiscal rules can solve this problem. We must put these rules into place before our economy gets any worse.

Excessive federal government spending has created mounting budget deficits that have driven the national debt to $30 trillion. This debt has given the Federal Reserve ammunition to use to excessively print money, resulting in the highest inflation in 40 years. And inflation destroys our purchasing power as it is a hidden tax that erodes our livelihood.

Controlling spending takes discipline, and applying fiscal rules can help.

Policymakers should follow the examples a century ago of Presidents Warren G. Harding and Calvin Coolidge, who demonstrated that controlling spending and cutting the debt is possible.

President Harding assumed office in 1921 when nation was suffering an overlooked severe economic depression. Hampering growth were high income tax rates and a large national debt after WWI. Congress passed the Budget and Accounting Act of 1921 to reform the budget process, which also created the Bureau of the Budget (BOB) at the U.S. Treasury Department (which was changed in 1970 to the Office of Management and Budget in the Executive Office of the President). President Harding’s chief economic policy was to rein in spending, reduce tax rates, and pay down debt. Harding, and later Coolidge, understood that any meaningful cuts in taxes and debt couldn’t happen without reducing spending.

Charles G. Dawes was selected by Harding to serve as the first BOB Director. Dawes shared the Harding and Coolidge view of “economy in government.” In fulfilling Harding’s goal of reducing expenditures, Dawes understood the difficulty in cutting government spending as he described the task as similar to “having a toothpick with which to tunnel Pike’s Peak.”

To meet the objectives of spending relief, the Harding administration held a series of meetings under the Business Organization of the Government (BOG) to make its objectives known.

“The present administration is committed to a period of economy in government…There is not a menace in the world today like that of growing public indebtedness and mounting public expenditures…We want to reverse things,” explained Harding.

Not only was Harding successful in this first endeavor to reduce government expenditures, his efforts resulted in “over $1.5 billion less than actual expenditures for the year 1921.”  Dawes stated: “One cannot successfully preach economy without practicing it. Of the appropriation of $225,000, we spent only $120,313.54 in the year’s work. We took our own medicine.”

Overall Harding achieved a significant reduction in spending. “Federal spending was cut from $6.3 billion in 1920 to $5 billion in 1921 and $3.2 billion in 1922,” noted Jim Powell, a Senior Fellow at CATO Institute. Harding and the Republican Party viewed a balanced budget as not only good for the economy, but also as a moral virtue.

Dawes’s successor was Herbert M. Lord, and just as with the Harding Administration, the BOG meetings were still held on a regular basis. President Coolidge and Director Lord met regularly to ensure their goal of cutting spending was achieved.

Coolidge emphasized the need to continue reducing expenditures and tax rates. He regarded “a good budget as among the most noblest monuments of virtue.” Coolidge noted that a purpose of government was “securing greater efficiency in government by the application of the principles of the constructive economy, in order that there may be a reduction of the burden of taxation now borne by the American people. The object sought is not merely a cutting down of public expenditures. That is only the means. Tax reduction is the end.”

“Government extravagance is not only contrary to the whole teaching of our Constitution, but violates the fundamental conceptions and the very genius of American institutions,” stated Coolidge.

When Coolidge assumed office after the death of Harding in August 1923, the federal budget was $3.14 billion and by 1928 when he left, the budget was $2.96 billion.

Altogether, spending and taxes were cut in about half during the 1920s, leading to budget surpluses throughout the decade that helped cut the national debt.

The decade had started in depression and by 1923 the national economy was booming with low unemployment. If this conservative budgeting approach—which was tied with sound monetary policy for most of the period—had been continued, the Great Depression wouldn’t have happened.

Officials at every level of government today should learn from this extraordinary lesson that fiscal restraint supports more economic activity as more money stays in the productive private sector.

With spending out of control at the federal level and in many states and local governments, the time is now for spending restraint and strong fiscal rules to set the stage for more economic prosperity today and for generations to come.

https://www.texaspolicy.com/learning-from-the-champions-of-fiscal-conservatism/

​While Michigan employs 205,200 fewer people than in February 2020, a 4.6% decrease, the state government’s budget continues to grow.

To keep the government from spending more and further crowding out the productive private sector, the Mackinac Center has created the Sustainable Michigan Budget. This plan would set a maximum limit on what lawmakers can spend, based on changes in population and inflation. The next state budget would be allowed to grow by 3.15% under this formula, limiting spending of revenue from state taxes and fees to $39.1 billion.

Spending restraints should make it easier for lawmakers to lower tax rates. If state revenues exceed what needs to be spent, lawmakers should let individuals keep more of their hard-earned income. This would encourage job growth, provide more opportunities for Michigan residents and make the state more competitive economically.

Over the past two years, 14 states have cut their tax rates — including Ohio, which now taxes income at lower rates than Michigan. Lawmakers in Indiana are also looking to cut income taxes and business taxes as well as eliminating two state utility taxes. Limiting spending can help the state compete with its neighbors while providing a better economic environment for residents.

When lawmakers limit spending, they can use the extra revenue raised by the state to improve Michigan’s financial prospects by paying down long-term debt. Lawmakers accidentally made school employees the state’s largest creditors by severely underfunding the school pension system. This is a disservice to teachers and expensive to taxpayers. Paying down this debt would save billions of dollars in interest costs over time.

Spending limits also encourage lawmakers to prioritize effective government programs. They must balance devoting state resources to their highest priorities while keeping government affordable to taxpayers. This increased prioritization can help ensure that residents receive more effective services from government each year, not just more expensive services.

Michigan’s initially approved FY 2021-22 budget included $37.9 billion in spending. U.S. CPI inflation was 3.32% in FY 2020-21, while Michigan’s resident population declined 0.17%. That comes to 3.15% in population growth plus inflation. Based on the Sustainable Michigan Budget, the FY 2022-23 budget should be no more than $39.1 billion.

The Sustainable Michigan Budget does not apply to the large amount of federal funds recently sent by Congress to Michigan, as these should be only one-time appropriations. This is because fiscal transfers to the state budget are made primarily by federal lawmakers for restricted purposes. The funds cannot be used to lower state taxes or pay down state debts, for instance.

It’s an appropriate time to limit state spending. Michigan suffered through a one-state recession in the 2000s and these losses affected the state budget. Since then, however, state revenue has steadily increased. Spending grew faster than the rate of population growth plus inflation for eight out of the past 10 years.

The Sustainable Michigan Budget would provide further protections than exist in the state’s current spending limit, which was put in place in 1978 by the Headlee Amendment. The current limit, based on personal income growth since 1977, would allow lawmakers to ratchet up spending by 35% before meeting this threshold. As such, it provides no real constraint on the size of the state budget.

Legislators find themselves with more taxpayer dollars at their disposal than ever before. They have been in the habit of spending every one of those dollars. As anyone who manages a household budget should know, that’s not a long-term, fiscally responsible practice. A Sustainable Michigan Budget would change this tendency. It would help ensure state funds are devoted to highest priorities, bolster the state economy, and, more importantly, ensure that residents have more opportunities to flourish in the productive private sector.

James M. Hohman is the director of fiscal policy at the Mackinac Center for Public Policy, a research and educational institute based in Midland, MI.

Vance Ginn, Ph.D., is chief economist at the Texas Public Policy Foundation, and served as the associate director for economic policy of the White House’s Office of Management and Budget during the Trump administration, 2019-20.

https://www.texaspolicy.com/approve-a-sustainable-michigan-budget-spending-limits-on-government-can-boost-economic-growth-and-opportunities/

Introduction

Alaska’s economy and Alaskans’ livelihoods were hit particularly hard by the government shutdowns associated with the COVID-19 pandemic, and Alaskans are struggling to recover. But businesses are now open, employment is slowly improving, and oil prices are up, which has resulted in the state’s Department of Revenue substantially increasing its revenue forecast by $2.2 billion over fiscal years (FY) 2022 and 2023. As a new legislative session begins, policymakers must ensure fiscal restraint by not overspending. A repeat of the enormous spending in the early 2010s would harm, not help, Alaska’s economy and Alaskans’ opportunity to work to improve themselves and their families every day.

Need for the Responsible Alaska Budget

Alaska Policy Forum is releasing its second annual Responsible Alaska Budget (RAB), now for FY 2023, to help effectively limit state spending thereby restraining the ultimate burden of government. The RAB represents a strong fiscal rule in the form of a spending limit which should eventually be passed and added to the state’s constitution for spending restraint now and into the future, as has been done in other states. Fiscal restraint allows the state to prioritize the needs of Alaskans without excessively growing the size of government, thus limiting the burden on the private sector where productivity advances improve opportunities for people to prosper today and for generations to come. Given the need to overcome the economic challenges over the last couple of years and excessive spending from 2004 to 2015 in Alaska, the RAB is an essential maximum limit for legislators this session to correct past excesses and leave the state’s savings accounts untouched.

Responsible Alaska Budget Calculation

The 2023 RAB sets a maximum threshold on the upcoming state appropriations based on the summed rate of the state’s resident population growth and inflation, as measured by the U.S. consumer price index (CPI), over the year before the legislative session. This threshold is an upper limit for the enacted budget for all state funds, excluding federal funds, the Permanent Fund Dividend (PFD), and fund transfers.

Figure 1 provides the FY 2023 RAB amount of $6.55 billion from a 4.77% increase based on the key metric in 2021 above the FY 2022 base of $6.25 billion. The rate of growth is from a 0.03% increase in the state’ resident population and 4.73% increase in CPI inflation.

The FY 2022 enacted budget was $6.25 billion (2.05% increase), which was $70 million more than the 2022 RAB threshold of $6.18 billion (based on a 0.92% increase in the key metric), meaning it was not a responsible budget. This should be corrected in the FY 2023 budget. Due to higher price inflation over the past year in the U.S. and a small increase in the state’s resident population, the FY 2023 RAB grew by 4.77%.

In addition to high inflation, Alaskan policymakers will also be dealing with the temptation of a high revenue forecast, due to increased oil prices and a well-performing Permanent Fund. Alaska’s Department of Revenue estimated a FY 2023 revenue of $8.33 billion (excluding federal funds), which does include revenue for the PFD, an appropriation we do not include in our maximum threshold calculation. A responsible budget passed by legislators will not have additional appropriations simply because of the large revenue number. Instead, limiting the growth of government spending to keep more money in the productive private sector will support increased opportunities for Alaskans to achieve their hopes and dreams while helping those struggling to gain the dignity of work by earning a living.

Historical Alaska Budget Trends

Figure 2 shows the Alaska budget trends since FY 2004. During the period from 2004 to 2015, the average annual budget increased by 12%, which was nearly four times faster than the key metric of population growth plus inflation. Since then, the budget has declined annually by 6%, on average, while this key metric increased by 2.4%, meaning that the recent cutting of the Capital Budget has helped to correct for prior spending excesses. Additionally, these budget numbers are only the enacted budgets, not total state spending.

From FY 2004 to FY 2022, the budget grew on an average annual basis by 5%, which was substantially higher than the key metric. Figure 3 illustrates state funds appropriations over this period and the appropriations that would have happened if they had followed population growth plus inflation over time.

The excesses in the earlier period (2004-15) and the adjustments in the later period (2016-22) have compounded over time to result in an inflation-adjusted state budget per capita in FY 2022 that is 9.4%, or $2.26 billion, higher than otherwise. While the FY 2022 budget is just $537 million above where population growth plus inflation would have it, this translates to the state spending an additional $733 per Alaskan than if the state had followed this key metric. This excessive spending has resulted in a bloated state government that reduces private sector economic activity and opportunities for people to prosper.

Conclusion

Alaska Policy Foundation’s FY 2023 RAB sets a maximum budget threshold that will help bring the state budget in check at a state appropriation of $6.55 billion, representing a 4.77% increase based on population growth plus inflation in 2021. Working to enact a budget less than this maximum amount will help immensely in reducing the cost of funding limited government. Policymakers should pass a FY 2023 budget that is less than the Responsible Alaska Budget and put this spending limit in law. Doing so will move the Last Frontier into the future, with a strong, steady economy and a vibrant population with opportunities for Alaskans across the income spectrum to flourish.

By Quinn Townsend, policy manager at Alaska Policy Forum, and Vance Ginn, Ph.D., chief economist at Texas Public Policy Foundation in Austin, Texas. Ginn served as the associate director for economic policy at the White House’s Office of Management and Budget (OMB) during the Trump administration, 2019-20.​

https://www.texaspolicy.com/2023-responsible-alaska-budget/

​“May you live in interesting times,” goes an old saying—usually meant as a curse. When it comes to economics, “interesting” usually means the sky is falling.

Inflation reached 7% at the end of 2021, a rate not seen in 40 years. The Federal Reserve’s balance sheet more than doubled to $8.8 trillion since early 2020. And Uncle Sam’s fiscal house is in shambles. The 2021 budget deficit was almost $2.8 trillion, putting the national debt at $28.5 trillion—nearly 130% of U.S. gross domestic product.

To call this imprudent would be a massive understatement. We need fiscal and monetary rules now.

Money mischief and fiscal follies are intimately related. This isn’t because deficit spending causes inflation—things aren’t that simple. Instead, profligate spending and careless money-printing reinforce each other.

When politicians and bureaucrats have too much leeway, they pursue short-run benefits at the expense of long-run viability. Whether it’s easy money from the Fed or stimulus checks from Congress, papering over unsustainable financial practices is easier than enacting sustainable reforms. To improve Americans’ livelihood, we must break the cycle. Because policymakers have demonstrated they can’t be trusted with discretion, it’s time to give binding rules a try. We can’t reform fiscal or monetary policy alone. Economic flourishing for Americans depends on tackling both.

In the past two years, the Fed purchased more than $3.3 trillion in government debt. Over that same period, Uncle Sam’s deficit totaled almost $6 trillion. That means our central bank indirectly covered more than half of the federal government’s fiscal splurge. Also, Congress authorized spending of roughly $7 trillion since the pandemic started. Even the latest $1.9 trillion American Rescue Plan Act, sold to Americans as a “stimulus,” merely promoted more government. These programs contributed to fewer jobs added last year than the Congressional Budget Office’s baseline. All that wasteful spending drags down the economy.

This is worryingly close to what economists call “fiscal dominance”—monetary policymakers paving the way for spending binges with cheap liquidity. Adam Smith, the godfather of economics, wrote about the continuous cycle of deficits, debt accumulation, and currency debasement that ruins nations. We should work diligently and quickly to ensure the U.S. doesn’t follow.

The solution is a rules-based approach for fiscal and monetary policies. We need strong guardrails around runaway spending and money-printing. A rules-based framework can ensure fiscal and monetary policies work better, both independently and with each other.

For example, we should consider a spending limit that covers the entire budget, capping spending increases at population growth plus inflation. This essentially freezes per capita government spending. By limiting total expenditures, we can minimize the burden on current and future taxpayers. Had this been in place from 2002 to 2021, the cumulative effect on the budget would be a net surplus (debt decline) of $2.8 trillion. This is in stark contrast to the $19.8 trillion in net debt we actually got.

Cutting the national debt means the Fed would have fewer assets to purchase in its open market operations, thereby reducing its ability to manipulate markets and the overall economy. It could then focus on what it can control: price stability. A rule should help achieve this. The Fed drifted off course by needlessly broadening its inflation rule in August 2020. The Fed’s mandate currently includes price stability, maximum employment, and moderate interest rates. But the second and third of these are beyond the competence of central bankers. It’s time to focus the Fed on controlling the dollar’s value.

Congress and the Fed harmed the vibrancy and robustness of the U.S. economy by their poor decisions. Unfortunately, there’s been a bipartisan consensus for irresponsible fiscal and monetary policies in recent years. It’s time for this to change. We need rules-based fiscal and monetary policy to get our economic affairs in order and leave post-pandemic malaise behind for good.

https://www.texaspolicy.com/out-of-control-congress-and-fed-need-binding-rules/

​We were promised job growth—after all, that was the main selling point for the March 2021 American Rescue Plan Act (ARPA) from President Biden and the congressional Democrats. Promise made—promise broken.

In February 2021, the Congressional Budget Office (CBO) issued its economic outlook and projected 6.252 million jobs would be added in 2021 without ARPA. The White House then projected ARPA would add 4 million additional jobs for a total of 10.252 million more jobs in 2021.

ARPA was said to be necessary for the labor market recovery. Without it, job growth would slow, but with it, job growth would blossom. ARPA promised to get Americans back to work, get COVID-19 under control, and return the country to normal.

None of this happened.

According to the U.S. Department of Labor, the economy added just 6.116 million jobs in 2021, 136,000 fewer jobs than the CBO estimated without ARPA. At a cost of $1.9 trillion, ARPA was expensive from the start as it was added to an already bloated national debt. Now it appears the law added no jobs to the economy, and possibly cost jobs. It was not just expensive, it was also a detriment to the recovery.

The marketing behind ARPA was nothing new; many spending bills have been sold to the American people as stimulus measures. But labeling government spending as “stimulus” is a misnomer. When the government spends money, it usually only stimulates more government, not productive activity in the private sector.

This is partly because the government has no money of its own and it must get resources from the private sector before it can spend or redistribute them. That means any government spending has a cost which is often ignored by political pundits—but must be paid for all the same.

Whether government spending is financed through taxes, borrowing, or inflation, it represents a burden on the private sector. Whatever alleged benefits are to be derived from government spending must be weighed against the cost of first acquiring the resources needed for that spending.

The more government spends, the greater the burden on Americans.

This was evident in the 2008-09 Great Recession and the slow recovery that followed. Despite record spending by the federal government (once again called stimulus), the economy recovered at the slowest pace since the Great Depression of the 1930s. While total output lagged, employment lagged even more when compared to other recessions.

The labor market has now bogged down again.

Despite 10.6 million job openings, the economy is still missing 3.6 million jobs as compared to before the pandemic and there are still 6.3 million people unemployed.

Instead of supercharging the labor market recovery, trillions of borrowed dollars in new spending are hindering it. Because of direct cash payments, welfare expansions, unemployment “bonuses,” and other government transfer payments, many people are rationally choosing not to return to work. And while some of these programs have expired, their costly effects on people and the federal budget persist.

On top of those pressures, exaggerated fears of the omicron variant along with mixed messaging from government health officials have made some people afraid to go back to work. Other people, particularly in the health care industry, have been hesitant to take a COVID-19 vaccine and have consequently been forced out of their jobs because of ill-advised mandates.

The common factor in these examples is bad policy on the part of the government. Whether it is excessive regulation or spending, these public sector mistakes impact people’s lives in a very real—and negative—way.

ARPA failed to deliver on its promise of growing jobs and instead grew government, especially government debt, which now stands at a mind-boggling nearly $30 trillion, far exceeding the entire U.S. economy.

That debt is like an anchor weighing down future economic growth because it constantly requires interest payments, which sap the nation’s economic growth, meaning fewer jobs and less income. In FY 2021, taxpayers funded the second highest interest payment on the national debt—to the tune of a whopping $562 billion, with no end in sight.

ARPA is just the latest in a long line of massive government spending programs that were billed as stimulus for the economy, but only stimulated more government. That is something to keep in mind the next time Washington promises us more jobs.

https://www.texaspolicy.com/government-stimulus-didnt-stimulate-job-growth/

The state of Kansas has experienced what are arguably excessive monthly tax collections over the past year. Last month alone exceeded expectations by 7.8%. This comes as a backdrop for the upcoming legislative session where ideas such as eliminating the sales tax on food and offering a $250 tax rebate have been pitched by Governor Laura Kelly. Beyond these proposals for this year, legislators have an opportunity to approach the budgeting process differently with this excess cash.

Kansas has an opportunity to cement strong budgeting practices. Kansas Policy Institute is releasing the Responsible Kansas Budget in conjunction with our colleagues at the Texas Public Policy Foundation. This aims to be a model which limits the growth of government spending to the sum of the state’s population growth and inflation. In 2021, Kansas’ CPI inflation increased 2.36%. At the same time, Kansas’ population growth declined .04%. The sum of these values, a 2.32% increase, would serve as the maximum growth rate for All Funds appropriations in FY 2023. Since Kansas’ All Funds budget for FY 2022 is $20.5 billion, the RKB in FY 2023 would make the budget a maximum of $21.0 billion.

Limiting the growth of spending limits the growth of taxation. After the implementation of policies similar to the RKB as part of the Texas Public Policy Foundation’s Conservative Texas Budget, the growth of total spending between 2016 to 2023 in Texas was less than half of the average growth of the prior six budgets. This is important because lowering taxation, and by extension lower spending, gives Kansas families more opportunities to choose what they want to do with their money. Lower taxation is key to a healthy business environment with job creation and new wealth entering the community. Controlling spending is about keeping money in Kansans’ pockets.

Vance Ginn, the chief economist at Texas Public Policy Foundation and co-author of the report, said, “The ultimate burden of government is how much it spends of taxpayer dollars. This is why any increase in the state budget should be less than the average taxpayer’s ability to pay for it, as measured by population growth plus inflation, which is what the Responsible Kansas Budget sets as a maximum threshold on the state’s upcoming budget. We have seen the success of this approach in Texas, resulting in increased opportunities for people to flourish for many years. I’m excited to partner with Kansas Policy Institute in ensuring Kansas is a great place to raise a family and start a business.”

Legislators have the power to control taxing and spending in an unpredictable economy. It is the government’s responsibility not to put an undue tax burden on citizens by controlling spending. Having a more responsible budget keeps more money in taxpayers’ wallets, promotes business investment, and helps slow government creep into peoples’ lives.

​View the Responsible Kansas Budget in our report below.
https://www.texaspolicy.com/a-responsible-kansas-budget/

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.

​https://www.texaspolicy.com/imprudent-policies-compound-the-pain-of-biden-agenda/