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.
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.
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.
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.
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.
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.
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.
Latest on Texas budget.
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.
Approve a Sustainable Michigan Budget: Spending limits on government can boost economic growth and opportunities
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.
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.
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.
“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.
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.
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.
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.
There’s a saying, “The road to hell is paved with good intentions.” If that’s true, the recent passage of the Biden administration’s “infrastructure” package just added an express lane.
The massive $1.2 trillion bill, called the Infrastructure Investment and Jobs Act (“Jobs Act”), balloons the $29 trillion national debt on what’s largely a green energy boondoggle while sending states like Texas more money when they’re already flush with cash.
The share in the Jobs Act allotted to roads and bridges and other items typically considered infrastructure could be at best 20% while the details indicate it could be as low as 10%. Talk about a waste of taxpayers’ money that could be better used in their pocket.
Collectively, the Jobs Act may have had some good intentions, but it will leave Americans and Texans hurting.
And this doesn’t include the Democrat’s next reckless spending bill called the “Build Back Better Act” that recently passed in the U.S. House on a partisan vote. This $5 trillion big government bill would substantially increase dependence on government, thereby reducing families’ opportunity for self-sufficiency and threatening state sovereignty.
In short, Congress could soon spend about $12 trillion since the costly shutdowns by governments in response to the COVID-19 pandemic, sending us down the road to serfdom that Americans don’t want and can’t afford.
In Texas, the threat of government dependency may grow as the Jobs Act could allocate $35 billion over five years in federal funds for infrastructure-related projects.
According to a White House state fact sheet for Texas, $26.9 billion will be allocated for federally aided highway apportioned programs, with $537 million for bridges. And $3.3 billion will be used to improve and provide public transportation, despite only 8.6% of the U.S. population lacking access to a personal vehicle and the wasteful projects as fewer and fewer people using public transit because of its location and more remote work.
The electric vehicle producing company Tesla and its principal owner Elon Musk now call Texas home with an ever-expanding portfolio of products soon to come off the assembly line in Austin. The Jobs Act includes $408 million for the expansion of EV charging stations in Texas with possibly up to an additional $2.5 billion. Despite Washington’s effort to “electrify” Texas, state legislators declined to advance an EV infrastructure bill in 2021, indicating voter displeasure with subsidizing unreliable energy sources, while Musk recently admonished federal subsidies.
The Jobs Act would also send at least $100 million for broadband, though state legislators already approved $500 million for it from the American Rescue Plan Act (ARPA) funds, potentially making the added funds duplicative and wasteful.
To limit rising dependence on the federal government and given the state already has the potential for a combined $24 billion in state surplus and the rainy day fund, how can Texas use this money responsibly?
First, lawmakers must reject unneeded funds, given the state has a massive surplus.
Second, they must prioritize transparency like the state did for the $16 billion appropriated from Congress’ ARPA funds. This includes posting funds on the Legislative Budget Board’s website, using funds for only one-time expenditures, and keeping them separate to avoid misuse and a fiscal cliff. And strict oversight of contracts is essential given the potential for abuse.
Second, legislators should swap out any Jobs Act funds with general revenue funds already for infrastructure. The state currently appropriates $26.5 billion in the current budget cycle for infrastructure projects, though some of that could be what was expected from typical formula funding from the federal government as passed in the Jobs Act.
Finally, if it’s possible to make more general revenue funds available, lawmakers must provide much-needed substantial, broad-based property tax relief. Specifically, the state should return surplus taxpayer dollars by reducing school district maintenance and operations property taxes like HB 90 during the third special session of 2021. With tens of billions of dollars available, Texas should seize the opportunity of the Foundation’s bold strategy to eliminate property taxes.
The state’s infrastructure needs a tune up. Any Texan who spends time on Interstate 35 believes they are already on the road to hell.
The real question is whether in tuning up our infrastructure, Texans wish to take the route filled with more strings and less flexibility or the route with more certainty and accountability.
The choice is important.
The two sides of a coin are typically regarded as opposites. In the case of President Biden’s $5 trillion Build Back Better bill, the two sides are actually the same. Both the revenue and expenditure provisions of this agenda will cause substantial decreases in employment. The only difference will be how.
The Build Back Better bill would deliver a double blow to an already disrupted labor market. Most of the explicit tax increases in the agenda directly disincentivize investment, which reduces capital, wealth, wages and employment. Meanwhile, the creation of new (and the expansion of existing) employment-tested and income-tested benefits would increase the implicit tax on working.
The tax increases on both corporate and pass-through business income would reduce wage growth by shifting investment out of the business sector, reducing competition and overall investment, and contributing to lower employment. The tax increases on capital gains, as well as increased corporate taxes on foreign profits, would exacerbate these effects.
The expansion of Affordable Care Act subsidies and paid medical-leave mandates would also reduce employment levels by tying benefits to not working. This and other provisions are gifts to unions, helping them achieve the goal of higher wages through reduced labor supply.
The bill would expand the child tax credit for households that earn no income for a full calendar year. Perhaps the bill’s authors are too young to remember the 1996 welfare-reform law, which demonstrated how sensitive single mothers’ work behaviors are to such disincentives.
Additional subsidies for food, along with medical coverage and housing, decrease as a household earns more income, providing more disincentive for working. The implicit employment and income taxes from a total of 13 such measures would add almost eight percentage points to the marginal tax rate on labor income. Other parts of the bill further reduce the purchasing power of wages by educing competition and raising costs in telecommunications, energy and other products and services, increasing prices in those industries.
After separately estimating the effects of Mr. Biden’s tax hikes, we find large costs to the supply side of the economy. One of us (Mr. Ginn), along with Steve Moore and E.J. Antoni, finds that the explicit tax increases on income, investment and wealth will cost five million jobs over a decade compared to baseline growth. The other (Mr. Mulligan) finds that implicit tax increases on work will cost nine million jobs.
While these two effects may overlap, the Build Back Better agenda is a jobs killer. Pushing these programs further into the budget window may change the headline spending number, but it won’t change the economic damage they will do to the nation.
The president’s plan would be the largest tax-and-spend increase—and disincentive to work—since the introduction of the income tax. It would tax those who produce and subsidize those who don’t. It would encourage dependency on government and punish self-sufficiency. Wealth taxes could exceed 70%, and marriage penalties on small-business owners could exceed $130,000. Families could be hard-pressed to keep farms and businesses after the original owner dies. And the real median household income would fall by $12,000. Meanwhile, lower-income households would see their generous government assistance decline rapidly in the event of even a modest increase in earned income.
Increasing the implicit tax on working has the same effect as a statutory tax increase on income, investment and wealth: decreased employment. With inflation-adjusted private investment having declined for the first two quarters of this year, the nation doesn’t need direct—or indirect—tax increases, especially on investment.
Likewise, with a near-record high 10.4 million job openings in August, the same month there were 8.4 million unemployed, the nation doesn’t need additional disincentives to work. The Build Back Better agenda would hamstring a labor market that remains five million nonfarm jobs below its February 2020 levels and potentially reverse the economic recovery.
Nobel laureate James Tobin was a leading Keynesian economist and key adviser to President Kennedy. He described high-implicit-tax situations as causing “needless waste and demoralization. . . . It is almost as if our present programs of public assistance had been consciously contrived to perpetuate the conditions they are supposed to alleviate.”
The hidden tax of inflation prevents people from getting out of poverty. Inflation isn’t just an inconvenience; it’s a huge obstacle to prosperity for the vulnerable and low-income. And even if Congress and the Fed have good intentions, their next steps could make the current bad situation worse.
The latest inflation data from the consumer price index shows an increase of 6.2% over the last year. This means that Washington took this out of your paycheck from no fault of your own or without you sending them a check.
This sleight of hand is caused by the Federal Reserve built on the excessive spending by Congress and it crushes the hopes and dreams of many, especially the poor.
If you received a raise recently, say around 8%, then about three quarters of it is not real—it’s inflation. The purchasing power of goods and services through your raise is cut by higher prices. If your raise was about 6%, normally a healthy increase, then your purchasing power doesn’t change. At this pace, prices are set to double in less than 12 years, but will your paycheck?
People with lower incomes tend to receive smaller raises, and those on fixed incomes receive no raises or raises that just match inflation, such as those on Social Security. For them, inflation is the harshest of taxes and they can’t avoid it. Families with lower incomes have few assets like corporate stocks that can grow as prices rise.
This inflationary blight on low-income earners is the Fed’s doing, but Congress gives the Fed the means to do it and it looks poised to double-down on its bad decisions.
Congress has already authorized $7.2 trillion in spending since the shutdown recession, including much of the waste in the recent $1.2 trillion “infrastructure” bill. Now, the House’s Build Back Better Act would increase spending by $5 trillion, after appropriately excluding budget gimmicks, and increase the bloated national debt by another $3 trillion more than without it over a decade.
This spending would likely be more expensive because the policies would destroy an estimated 7 million jobs by paying people not to work per economist Casey Mulligan’s estimates and reducing entrepreneurs’ investments based on the Tax Foundation’s assessment. And these job losses would most likely be concentrated among those with lower incomes. Increasing unemployment over time would make more people dependent on government, which may be a feature of the bill instead of a bug.
Other proposals, like “green energy” projects and “incentives,” would increase the cost of living for everyone and hurt those with low or fixed incomes most because they’re least able to absorb it. And while the Congressional Budget Office could soon release their cost estimates for the BBBA, we should take them with a grain of salt as they could be too rosy because its static estimates have long been problematic, which is why it should move to more realistic dynamic scoring.
Though Congress’ boondoggle spending doesn’t directly cause inflation, it provides the fuel to the Fed’s fire of printing more money. These progressive policies in Washington are crushing the poor, even as they’re providing tax cuts for the “rich,” and there doesn’t seem to be an end in sight—unless this this latest big-government bill appropriately fails.
Impolitic government programs, like those in President Biden’s agenda, incentivize dependency on government and create cycles of poverty. Few things are more harmful than this because it cuts the rungs out of the ladder that many people use to climb out of poverty and better their lives, both financially and otherwise. These rungs of the ladder start with a job. Work is the only way to permanently earn more over time and improve human dignity that comes with financial self-sufficiency, community, and social capital.
If Congress really wants to give people a hand up—and not just a handout—then it should focus on repealing those programs which disincentivize work and remove the tax hikes that disincentivize investment that goes to hire more workers.
Likewise, if the Fed intends to improve the economy, it should focus on reining in inflation which it controls, not lecturing on diversity. These measures would help take the costly pressure off people, especially low-income earners instead of crushing them based on the president’s progressive agenda.
We’d be wise to remember what Milton Friedman correctly said: “One of the great mistakes is to judge policies and programs by their intentions rather than their results.”
Gov. Kim Reynolds and Republican legislative leaders are making tax reform a priority for the upcoming 2022 legislative session. The path to keeping government from excessively burdening people with taxes and allowing for pro-growth tax reform starts with conservative budgeting.
Fortunately, Iowa has been practicing prudent budgeting. Iowa will end the current FY 2021 with a $1.24 billion budget surplus in its general fund, which is substantially larger than last year’s surplus of $305 million.
Iowa state leadership deserves credit for their recent prudent spending and tax relief. As a result, Iowa was prepared fiscally for much of the costs related to the government shutdown in response to the COVID-19 pandemic. Truth in Accounting’s Financial State of the States 2021 report ranks Iowa in the top 10 (9 out of 50) of fiscally stable states.
In addition, the legislature has been careful to avoid using the billions in COVID-19 related federal funding on ongoing expenses. The $1.24 billion surplus is not a result of these federal dollars, but rather the fiscal conservativism that has spurred economic growth.
Nevertheless, policymakers will need to continue this approach to strengthen the state’s improving fiscal foundation by keeping spending from excessively burdening taxpayers to provide needed tax relief.
This is a reason that the Iowans for Tax Relief (ITR) Foundation recently released the Conservative Iowa Budget (CIB) for FY 2023. This conservative budget approach helps limit spending by setting a maximum threshold on the state’s general fund based on the rate of the state’s resident population growth plus inflation. Given the 2021 rate of 4.51% and a base of $7.1B, excluding $1 billion provided in tax relief this year, the FY 2023 budget should be less than $7.44 billion.
This fiscal rule of a spending limit on the general fund provides a reasonable limitation that essentially freezes inflation-adjusted spending per capita. This helps to lessen the crowding out of private sector activity and helps to stabilize expectations over time.
Iowa’s Revenue Estimating Conference (REC) estimated that revenues will increase for both FYs 2022 and 2023. The REC is estimating $8.9 billion in revenue for FY 2022 and $9.1 billion for FY 2023. This projection is a healthy improvement from the previous year. These optimistic projections by the REC make it prudent to continue using budgetary caution to fund only limited roles for government instead of spending every taxpayer dollar.
Therefore, it is important to keep spending reined in and will require legislators to prioritize every taxpayer dollar, which is difficult as many special interests will be arguing for either new funding or expansion of their previous allocations.
Already public education (K-12, community and technical colleges, and higher education) along with Medicaid comprise 79% of the general fund budget. This creates additional pressure because spending on these items continue to increase and crowd out other priorities.
Many families and businesses, especially during the pandemic and now as inflation reduces their purchasing power, must prioritize their spending. Government should also focus on priorities, even more so than families and businesses – because it is not the government’s money.
Fiscal rules that limit spending help achieve this goal. While Iowa currently has a 99% spending limit in code, this limitation must be strengthened.
The spending limit should be strengthened by passing a constitutional amendment or changing it in the code to be based on a maximum rate of population growth plus inflation. This is an important measure because it accounts for more people paying taxes, higher wages – which are highly correlated with inflation over time, and economies of scale.
Policymakers have a historic opportunity to enact pro-growth tax reform that will benefit all Iowans and make the state more competitive. To achieve this goal policy makers must continue to practice sound budgeting by passing a Conservative Iowa Budget.
The Conservative Iowa Budget helps limit government spending so that there are more opportunities for tax relief and for widespread prosperity for Iowans now and for generations to come.
The path to keeping government from excessively burdening people with taxes and allowing for pro-growth tax reform starts with conservative budgeting. Iowa Gov. Kim Reynolds and the Republican-led legislature have fortunately been following a policy of prudent budgeting. Iowa will end fiscal year (FY) 2021 with a $1.24 billion budget surplus in its general fund, which is substantially larger than last year’s surplus of $305 million. The large surplus is a direct result of fiscal conservatism. Nevertheless, policymakers will need to continue this approach to correct for past excesses and strengthen the state’s improving fiscal foundation to provide needed tax relief. This can be achieved by keeping government spending from excessively burdening taxpayers.
The Iowans for Tax Relief (ITR) Foundation’s Conservative Iowa Budget (CIB) for FY 2023 (see Figure 1) helps do this by setting a maximum threshold on the state’s general fund based on the rate of the state’s resident population growth plus inflation, as measured by the U.S. consumer price index (CPI). This fiscal rule of a spending limit on the general fund based on population growth plus inflation provides a reasonable limitation that essentially freezes inflation-adjusted spending per capita. This helps to lessen the crowding out of private sector activity and helps to stabilize expectations over time.
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. Conservative budgeting has not only helped Tennessee taxpayers, but it also positioned the state to enter the COVID-19 crisis with a relatively strong “rainy day fund” of $1.1 billion, or seven percent of the state’s general fund expenditures. Tennessee remains in a strong financial position as its economy has bounced back stronger than the national average post-pandemic. Conservative budgeting and sound policy during the pandemic contributed to such strong tax revenues that the state had an unprecedented $2.1 billion surplus in the latest fiscal year despite the crisis.
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. If Tennessee is to remain an economic powerhouse, policymakers must also continue to make fiscally conservative choices, resist the temptation for excessive spending, and not make it overly difficult for Tennessee taxpayers to fund their state government.
Ron Shultis, Director of Policy and Research for the Beacon Center, commented about the report: “Tennessee has been a fiscal leader for decades but it is important that we not rest on our laurels or take that for granted. The Conservative Tennessee Budget sets the standard for staying a national leader. By ensuring spending doesn’t grow more than population plus inflation, state government won’t become more of a burden on taxpayers.”
Vance Ginn, chief economist at the Texas Public Policy Foundation and co-author of the report, stated, “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 why the Conservative Tennessee Budget is essential for continued opportunities that best let people prosper. We have seen the success of this approach in Texas for a number of years so I’m excited to partner with the Beacon Center in this fruitful endeavor to keep Tennessee a great place to raise a family and start a business.”
House Speaker Nancy Pelosi set Halloween as the deadline for passing multiple reckless budget increases. The latest new framework announced recently by President Biden has a claimed cost of $1.75 trillion ($1.85 trillion when you include $100 billion for “immigration”). That number may sound frightful, but the monster under the mask is ghastlier—the real figure likely remains closer to $5 trillion over the next decade.
The scary specter of the president’s “Build Back Better” agenda seemed dead, a victim of the political infighting among the Democrat Party. But now, the monstrosity has been exhumed from the graveyard in a costume betraying its true cost.
The expenditures from the original bill are reported to have been reduced not by cutting wasteful programs but by budgetary gimmicks. For example, the new costs of the expanded Earned Income Tax Credit and Child Tax Credit is counted for only one year; universal pre-K and child-care subsidies are counted for only six; and extended Obamacare and Medicaid subsidies are tallied through only 2025 instead of scoring them over the normal decade as part of reconciliation. Meanwhile, the tax increases are all counted for the next ten years.
This was one of the tricks on taxpayers that got Obamacare passed in 2010, and that program has been haunted by substantial cost overruns.
This latest Washington tax-and-spending drama has morphed into a horror show.
With a recalcitrant Republican Senate minority disavowing a December debt-ceiling increase, Democrats are attempting to corral nearly their entire caucus—in both chambers—into supporting this new framework and the other $1.2 trillion “infrastructure” bill.
Amid the White House’s rush to announce an agreement before the president leaves for Europe that didn’t get done, we should ask: What would be the effects of passing this agenda? The recent skeleton bill gives little meat to provide a thorough comparison of how close it is to previous incarnations of the president’s 10-year plan but what’s available remains scary.
While Senators Kyrsten Sinema and Joe Manchin likely approve of this lower-topline-number facade, the radical progressives want it larger. The self-proclaimed socialists want their $5 trillion spending spree and have said they will not support anything less.
Our analysis of the entire “Build Back Better” agenda illustrates the true cost of pushing big-government socialism onto Americans that we don’t want and can’t afford.
Compared to baseline growth, the broader agenda will slow the economy by $3.7 trillion, including $663 billion in lost private investment. Job growth will decline by 5.3 million over that time, about 4.3% of the latest employment figures. Meanwhile, the nation will add $4.5 trillion more to the national debt, even after $1.7 trillion in tax increases.
These are spooky figures, but the worst effects are the financial injuries inflicted on hard-working Americans. This agenda will crush the middle class, as we estimate that real median household family income could lose about $12,000 compared with baseline growth. Biden’s promise to not raise taxes on those earning less than $400,000 a year is repeatedly broken, implicitly and even explicitly.
The new 15% corporate minimum tax is just one example. Despite the White House press secretary’s assertions, businesses do indeed raise prices when corporate taxes increase. Businesses also reduce wages and cut hours for workers, while Americans see a lower return on their investments.
The new IRS “investment” is another frightful facet. The administration has repeatedly advocated for spying by the IRS on everyday Americans—not just the wealthy—to collect $400 billion more in taxes over a decade. Virtually everyone with a direct deposit paycheck could find themselves under audit.
Nearly all the tax increases proposed by Democrats this year are heavy taxes on investment. Contrary to what the Biden administration believes, tax rates matter because people respond to incentives. Higher tax rates disincentivize investment, which in turn reduces the nation’s capital stock, real wages, and economic output.
Besides the horde of proposed tax increases, there are expansions of welfare programs and the removal of work requirements. Instead of obliging people to earn at least some income before receiving a refundable tax credit, these bills would redistribute dollars from productive activity to handouts for people to not work. The last year shows that is a proven recipe for disaster in people’s livelihood and the economy and economist Casey Mulligan, senior fellow at the Committee to Unleash Prosperity, notes this could cost 9 million jobs over the next decade.
Neither Biden’s American Jobs Plan nor the American Families Plan that constitute the Build Back Better agenda have been passed, which is fortunate because both of their monikers seem to detail the things they attack.
But these scary specters have returned in this latest amorphous outline—and the devil is always in the details. Speaker Pelosi and Senator Majority Leader Chuck Schumer now must flesh out the monster and try to secure enough of their own party’s votes to revive the beast.
It is still possible that Congress passes some form of this legislation—a veritable Frankenstein’s monster. We will have to wait and see what kind of scary surprise Washington has in store for the rest of America. But the details we do have are Americans’ worst nightmare with this latest budget-busting that should die—and stay buried this time.
J. Antoni, Ph.D., is an economist, and Vance Ginn, Ph.D. is chief economist, at the Texas Public Policy Foundation. Dr. Ginn also served as Associate Director for Economic Policy at the White House’s Office of Management and Budget, 2019-20. Stephen Moore is an economist at Freedom Works and co-founder of the Committee to Unleash Prosperity where Dr. Antoni is a visiting fellow.
It’s playoff baseball time here in Texas—go ‘Stros! But baseball fans know everything depends on the umpires—as the great Bill Klem said, when asked whether a ball was fair or foul, “It ain’t nothing until I call it.”
It’s time for us to call fair and foul on the Texas Legislature; there were some homeruns, some wild pitches and even some unforced errors. And ultimately, it’s the taxpayers who either win or lose.
To begin with, lawmakers did well in remembering the taxpayer by maintaining a Conservative Texas Budget (CTB), which sets a maximum appropriations threshold based on the average taxpayer’s ability to pay for it (as measured by population growth plus inflation), and passing a stronger spending limit.
There was concern with Congress sending Texas $16.3 billion in mostly discretionary funding through the American Rescue Plan (ARPA). During the recently ended third special session, the Legislature appropriated $13.3 billion of it, with a positive of leaving $3 billion for possible tax relief later.
Another winning play is that the Legislature followed most of the Foundation’s recommendations for ARPA funds.
It sustained the CTB and used the funds for only one-time expenditures which will help avoid any fiscal cliffs like some claimed Texas had after Obama’s one-time “stimulus” funds in 2009. Legislators appropriately used $7.2 billion—about half of ARPA funds—for debt payment and replenishment of the state’s depleted unemployment trust fund after the shutdown recession to avoid a massive payroll tax hike on employers. And they ensured transparency and accountability by requiring that the uses of these funds be posted on a government website and put in a separate account, respectively.
While those actions benefited taxpayers, a botched play was in not providing substantial, broad-based property tax relief.
This could have been done, as there were surplus funds of $6 billion in general revenue and $3 billion in ARPA funds. All legislators needed to do was use surplus funds to reduce school district maintenance and operations property taxes, thereby continuing the path toward eliminating property taxes by 2033.
Instead, lawmakers raised the homestead exemption for school district property taxes by $15,000 to $40,000, funded by about $450 million in general revenue annually. And even this won’t happen unless voters approve this constitutional amendment in May 2022. If passed, more than 5 million homeowners would benefit from average savings of $176—excluding other higher local property taxes. So, no relief for business owners, landlords, apartment owners, renters, and those with secondary properties.
This compromise followed proposals in the Senate that would have provided at least $2 billion in general revenue to lower school district property taxes for everyone and in the House that would have provided $3 billion in ARPA funds for checks to only those with a homestead.
Clearly, the Senate’s version would have been broad-based, even though more could have been added to it. Combining it with HB 90 in the House that would have provided structural reform to eliminate property taxes over time, which died in House calendars, could have provided extraordinary relief. Instead, it appears that lobbyists for the public ed establishment pushed against this pro-taxpayer effort, resulting in little-to-no relief through the increase in the homestead exemption.
A huge unforced error was the wasteful spending of ARPA funds.
The decision to allocate $325 million in ARPA funds to support $3.3 billion in tuition revenue bonds for construction at higher education institutions is at the top of the fouls list. While tuition and student debt continue to rise, the quality of education is declining, and universities are already receiving billions of dollars, this provision is ill-advised.
It’s unfortunate that instead of providing tax relief these funds went to projects like student housing enhancements for the Marine Science Institute at the University of Texas at Austin and $100 million to two state university systems for institutional enhancements.
However, not all state legislators sought to rubber stamp additional funds to a declining higher education system. Rep. Matt Schaefer (R-Tyler) proposed an amendment that sought to connect the amount of money institutions can receive based on the rate of tuition increase. Unfortunately, the amendment didn’t pass, ending an opportunity to curb the fiscal bloat that plagues Texas universities, students, and taxpayers.
Putting this year’s legislative game in perspective there were many hits but also some strikeouts, especially on major property tax relief. But taxpayers did get relief from less government spending than what was available.
The Legislature left about $20 billion in total revenue, including $6 billion in general revenue, and $12 billion in the rainy day fund and $3 billion in ARPA funds on the table. Texas should return much if not all of these surplus funds to struggling taxpayers so they can recover from the shutdown recession, withstand the stagflation by the Biden administration, and actually own their property.
But as with baseball, there’s always next season.
Given Texas’s commitment to lower taxes and limited government, it’s not surprising that the economy here is booming. Allowing people and businesses to keep more of their hard-earned money is the not-so-secret reason Texas often leads the country in job creation, economic growth, and inbound domestic migration.
Unfortunately, Democrats in Washington are trying to enact a reckless $5 trillion spending bill that would also raise taxes by the most in at least fifty years while leaving a mountain of debt. This could be a crushing blow for the American economy, and Texas could be one of the states hardest hit.
Indeed, research from the Texas Public Policy Foundation shows that Biden’s “Build Back Better” plan could cost the U.S. economy a conservatively estimated 5.3 million jobs compared with baseline growth over the next decade—and 467,000 of those jobs would be lost in Texas. This should come as no surprise to anyone as Democrats are not only trying to raise taxes broadly on individuals and job creators, but are also taking aim at specific industries they don’t like. That’s bad news for Texas.
In their bid to end the use of fossil fuels, Democrats would hit oil and gas producers with punitive fee increases and potential tax changes that would make reliable energy production less competitive. This will directly impact Texas families, as 2.5 million Texans have jobs that are directly or indirectly supported by the oil and gas industry. And these additional government-mandated burdens will drive up prices on gasoline and fuel, as well as other everyday prices like food and clothing.
Americans deserve a healthy economy, not more burdensome tax measures and policies that will make the inflation situation worse.
Thankfully, a small but significant group of moderate Democrats, including South Texas Reps. Filemon Vela, Vicente Gonzalez, and Henry Cuellar have publicly expressed concerns with the reckless spending bill. These members wrote to Speaker Pelosi in late September and asked Democrat leaders to “reconsider some of the revenue raising provisions of this otherwise sound and critical effort,” and said they’re concerned about provisions that would “jeopardize U.S. energy independence, harm American jobs, raise energy costs, and increase global emissions.”
Their concerns are valid, and they are certainly correct that the Build Back Better plan would hurt American workers. However, despite their letter, in August these three representatives voted to allow the $5 trillion bill to move through the legislative process. If they truly have concerns about this disastrous bill—as they have publicly stated—then they should have voted “no” and forced Speaker Pelosi to hit the brakes. But it’s not too late. With a razor-thin Democrat majority in the House, these three members of Congress could flex their collective muscle and end this assault on Texans and all Americans.
Absent the political courage of these or other Democrats in Congress, Biden and Democrats will enact job-killing policies that place a heavy burden on taxpayers of nearly all income levels. For instance, if Biden gets his way and raises the corporate tax rate from 21 percent to 28 percent, $100 billion of this tax hike will be shouldered by taxpayers making $100,000 or less according to calculations by National Taxpayers Union. Despite his claim that only the wealthy will pay higher taxes, Congress’s Joint Committee on Taxation says that under Biden’s plan, people making just $30,000 and above will pay higher taxes starting in 2027.
Small businesses could also face higher tax burdens as Biden would increase their tax rates and place new restrictions on their ability to utilize the 20% tax deduction that was created in the Tax Cuts and Jobs Act. That’s just the tip of the iceberg: Biden’s plan also involves tax hikes on investors, property owners, and even cigarette and vape users—tax hikes that would further break his pledge to not raise taxes on anyone making less than $400,000 a year.
The country is still recovering from the COVID-related shutdowns and dealing with economic problems like inflation that have taken a heavy toll on families across the country. After spending trillions of dollars over the past eighteen months, Congress shouldn’t be considering a costly tax-and-spend plan that would jeopardize the American recovery. Instead, members like those in south Texas should find ways to get our fiscal house in order by reducing spending. Killing this bill would be a good start.
Vance Ginn, Ph.D.