Those states that practice more free-market capitalism with limited government tend to have better economic performance, providing an economy and civil society with opportunities to help the neediest among us achieve long-lasting prosperity. Key points – Comparing institutional frameworks in states and their outcomes provides key factors that encourage thriving states, families, and entrepreneurs. – Measures of economic freedom and government burden are useful indicators of which states have growing economies and more jobs over time. – The results for these states demonstrate how institutions that encourage individual liberty, free enterprise, and civil society support prosperous outcomes, particularly in relieving poverty. – States ought to pursue policies that advance more of these lessons to provide a robust economy and flourishing civil society that will best help the neediest among us. Original post at TPPF.
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Dec. 15, 2022 - 4:24 - Former chief White House Budget Office economist Vance Ginn addresses the nation's rising debt issue as the Fed continues to raise rates on 'Cavuto: Coast to Coast.'
Vance Ginn sits down with Newsmakers to discuss the battle against inflation and the rising interest rates the Fed is imposing yet again. He touches on major economic benchmarks and explains what the numbers are really showing.
Watch here: https://www.youmaker.com/video/482a32b6-d37b-47bb-b6db-0ed3d975f04f Is the flat income tax revolution underway across the states enough? No, but it must be advanced.
This extraordinary feat includes four states passing a flat personal income tax in 2022 after only four did over the last century. Now 14 states have or will soon have flat income taxes. But if you consider how the nine states without personal income taxes outperform, on average, the nine states with flat income taxes in economic growth, domestic migration, and nonfarm payroll employment over the last decade, more is necessary. While flattening income taxes is important, eliminating them is best. And this should be tied to spending restraint to avoid the infamous Kansas problem of excess spending while cutting taxes. The five states always with a flat income tax were Massachusetts (1917), Indiana (1965), Michigan (1967), Illinois (1969), and Pennsylvania (1971). The next four states initially with progressive income taxes before improving to a flat income tax were Colorado (1987), Utah (2007), North Carolina (2014), and Kentucky (2019). The four states that passed a flat income tax in 2022 were Idaho (starts in 2023), Mississippi (2023), Georgia (2024), and Iowa (2026). After a recent court decision, Arizona will also have a flat income tax in 2023 at the lowest rate in the nation at 2.5%. This will support greater economic growth as progressive personal income taxes disincentivize people to work and live in those states. This is happening in California, where even its wealthy citizens are fed up with sky-high personal income taxes that will worsen when the top marginal tax rate rises to 14.4% in 2024. According to the American Legislative Exchange Council’s 15th edition of the Rich States, Poor States report that compares the economic performance of the 50 states, the nine states already with a flat income tax rank mostly in the middle of the pack from 2010 to 2020. This includes an average overall ranking for those nine states of 24th based upon three key economic variables with average rankings of 23rd in state gross domestic product (GDP), 29th in absolute domestic migration, and 22nd in nonfarm payroll. The highest overall rankings for these states are Utah (2nd) and Colorado (6th), lowest are Illinois (43rd) and Pennsylvania (45th). States should seek better outcomes that ultimately help people flourish. The nine states without a personal income tax are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. These states have average rankings in ALEC’s report of 19th overall, 22nd in GDP, 14th in migration, and 21st in jobs. The highest overall rankings are Florida (3rd) and Washington (5th), with Texas (8th) and Tennessee (10th) also in the top 10, and lowest are Wyoming (41st) and Alaska (49th). Historically, the nine states with the highest personal income tax rates, including California (ranks 19th) and New York (36th), have underperformed in these economic measures and have dire outlooks ranking 48th and 50th, respectively, in ALEC’s report. Progressive, high-income tax structures produce undesirable outcomes, and states should work toward eliminating personal income taxes. Other taxes and policies matter. The Tax Foundation’s latest report on state business tax climates shows how other taxes influence business activity, and thus economic performance. States without a personal income tax or lower tax burdens overall rank the highest in business tax climate with Wyoming (1st), South Dakota (2nd), Alaska (3rd), and Florida (4th) leading the way. And those states with the highest personal income rates perform worst with California (48th), New York (49th), and New Jersey (50th) being last. What many of these states without personal income taxes tend to use to fund their spending are consumption-based taxes. The least burdensome form of taxation tends to be a flat final sales tax with the broadest base and lowest rate possible. Whatever you tax, you get less of it. Taxing consumption results in less consumption but more savings, which can support greater capital accumulation and economic growth while taxing the underground economy, such as drug dealers and undocumented workers. But the ultimate burden of government is not how much it taxes but how much it spends. Jonathan Williams, who is a co-author of the ALEC report, correctly noted, “There are nine states with no income taxes, and they spend substantially less per capita than states with an income tax.” When there’s already heavy headwinds imposed by policymakers in Washington and across many states, it’s time to build on the flat tax revolution by cutting or even freezing state budgets, strengthening state spending limits, and eliminating personal income taxes. Original post at EconLib. The 2024–25 Conservative Texas Budget limits the state’s budget to be passed by the Legislature in 2023 so that the average taxpayer can afford it and historic tax relief can happen. Key points
Original post at TPPF. Many cities across the nation are facing a fiscal crisis. While pandemic-related problems that were self-induced or otherwise play a part, many of these issues have plagued cities for a long time. A serious cultural shift concerning finances among local governments is critical if people want to flourish in cities.
I recently interviewed Mark Moses who is a municipal government expert and author of the recently published book The Municipal Financial Crisis: A Framework for Understanding and Fixing Government Budgeting. He contends that “many local governments are on track for bankruptcy.” And this downward trajectory can be expected to continue as municipalities fail to restrain their spending and overreach, crowding out opportunities for the private sector to work. We’re seeing this play out in places like New York City, where city-funded expenses have been asked to be cut by 3% and on track to be slashed more in response to their recently reported $10 billion deficit. Moses says that “there’s a lack of economic understanding in lots of municipalities.” This absence of understanding often results in collecting more taxes to fund more “solutions” as a band-aid to the broken system and struggling local finances. As he puts it, “local governments give up trying to balance budget sheets.” But failing to assess and address the tangled economic approach that’s led them to a place where more taxes and regulations seem like the only answer leads to long-term issues and a path that’s difficult to leave. Local governments must limit their scope and focus on core issues. That means letting new initiatives and departments take a back seat while they get spending under control. This is difficult, however, especially after the 2021 American Rescue Plan Act that gave $45.6 billion to municipalities, which temporarily and artificially inflated local finances. More money under lousy management is a weak fix. And now, with rising inflation and energy costs, these municipalities are ill-equipped to thrive in a recession that wasn’t helped by the huge bailout package. A good start to overcoming these challenges would be to get government out of the way in most cases so that the the private sector can solve key issues, which has proven to be the best antidote for most problems throughout history. Overinflating their role instead of sticking to limited governing, such as property rights and a few public goods, is a trap that many cities fall into and that comes at a huge cost. But philanthropic and other private-led solutions tend to be crowded out through higher taxes and regulations when city hall makes promises they can’t fulfill. Moses describes this as municipalities “seeing themselves as an end to themselves,” which is why many local governments resist spending limits or find ways around them. This is an ongoing issue in Texas which is contributing to an affordability crisis. Texas is blessed to have constitutional amendments against state-controlled personal income taxes or property taxes, so all property taxes are local in Texas. While there have been attempts recently by the state to limit their growth, property taxes have increased by 169% in the past 20 years compared with an increase of 104% in the rate of population growth plus inflation. This indicates that property taxes are growing well above the average taxpayer’s ability to pay for them. Some argue that Texas has high property taxes because it has no personal income taxes. But the reality is that it is really from excessive local government spending. For example, Texas has the 6th most burdensome residential property tax according to the Tax Foundation but other states without a personal income tax like Florida and Tennessee rank 26th and 36th, respectively. This is because the latter two states do a better job restraining spending. The best way to get budgets and taxes back on a fiscally conservative track is through a strict spending limit that covers the entire budget and grows no more than the rate of population growth plus inflation. This would help cities, and all local governments, stick to just addressing what’s in their purview. A city’s scope shouldn’t be evaluated from one council meeting to the next but should be assessed in the long term if its local government hopes to see future success and a prosperous economy. The same principles of economic success apply to all government institutions; people flourish where liberty is preserved, and that’s best achieved under limited government whereby politicians’ interventions remain inside their limited scope so that free markets and free people can innovate and thrive. Just as we’re witnessing with this recession, there’s always a trade-off to overspending and unbalanced budgets. The sooner local governments realize that and reel in their spending, which is the ultimate burden of government, the sooner financial crises will be averted. Originally published at EconLib Americans are facing a housing affordability crisis – and Texans are no exception.
Texas families struggle to make ends meet with high inflation, stagnating wages, and rising mortgage rates. Add high property taxes to the equation, and it is not difficult to see why 1-in-2 Texans reported that they were behind on rent or mortgage payments and that eviction or foreclosure in the next two months is likely. Property tax relief is needed more than ever to help homeowners, renters, and businesses during these challenging times. For this purpose, the Texas Public Policy Foundation proposes a way to cut local property taxes substantially next year, and cut them nearly in half over the next decade. In Texas, the housing market is cooling as there were three months of supply of homes for sale relative to demand in September 2022, which is the highest since May 2020 after a couple of years of a very tight housing market. This cooling of the housing market resulted from mortgage rates topping 7%, a 20-year high that dramatically raises borrowing costs and monthly payments. Another contributing factor to the affordability crisis in Texas is high and rising local property taxes. Texas is blessed to have constitutional bans against a personal income tax and a statewide property tax. But while Texas has a costly gross receipts-style tax called a franchise tax, which should be eliminated, the most burdensome taxes discussed during soccer practices or business events are local property taxes. These taxes have nearly tripled over the past 20 years. And it’s wrong to think that property taxes are high because there is no personal income tax, as other states like Florida and Tennessee have much lower property tax burdens. The problem is excessive local government spending that requires more taxes. Property taxes are regressive. The Texas Comptroller’s office estimates that the lowest 20% of income earners will pay 6.9% of their total income in property taxes compared with 1.9% for the highest income quintile in 2023. Moreover, the Tax Foundation ranks Texas 11th in property tax collections per capita, 6th for its burden on homeowners, and 13th most burdensome to businesses, which is ultimately passed to consumers. Consequently, property tax relief is a top priority to help relieve some of the housing affordability issues. Reducing property taxes for Texans would keep more money in their pockets to satisfy their desires during a rising affordability crisis. To do so, the Foundation proposes eliminating nearly half of total property taxes. The proposal uses state general revenue-related funds to replace the maintenance and operations (M&O) property taxes partially funding independent school districts (ISD), which is about $60 billion per biennium. Specifically, most, if not all, surplus general revenue-related funds, which the Legislature has the most control over, above the state’s new state spending limit based on the rate of population growth plus inflation would be used to replace the ISD M&O property taxes each period until they’re eliminated. We calculate that this could happen in a decade. We use the average two-year growth rates over the last decade from 2012 to 2021, given that the state has a biennial budget for general revenue-related funds of 9.3% and a rate of population growth and inflation of 6.7%. We then use a reasonable 90% of this 2.6-percentage points surplus each biennium and half of the latest 2022-23 surplus of $27 billion to find this is achievable while fully funding public schools based on the current state-determined school finance formulas. With a record $27 billion expected surplus and another $14 billion likely in the state’s rainy day fund, the state has plenty of taxpayer money to fund limited government provisions within the normal taxes collected while returning surplus money to Texans. This is a historic opportunity to provide substantial property tax relief and more opportunities for businesses to move to Texas without costly incentive deals. The result would be Texas having a more robust economy, more job creation, more investments, and more opportunities to prosper so that Texans can be more able to afford their desired livelihood. Originally published at The Center Square In a desperate attempt to garner public favor before the midterms, President Biden set his sights on a new target to distract Americans from the pressing inflation problem: overdraft fees. Those low-percentage charges issued by banks to customers who use more money than they have in their accounts are apparently dire.
Biden tweeted: “My Administration is making clear that charging Americans for a bounced check they deposit or an overdrafted bank account isn’t just wrong. It’s illegal.” In the official White House statement, he refers to these charges as “hidden fees,” discounting that bank account holders voluntarily sign off on the possibility of overdraft fees when they open an account. Unlike Biden, most people understand that what’s illegal is using someone else’s funds without permission, not issuing a penalty for doing so. Eliminating overdraft fees would disempower personal responsibility through government overreach and reduce the opportunity for some to open an account. Charges are a practical price for using an institution’s capital to support money mismanagement, and an underreaction, one could argue, to theft. As it turns out, nothing is free, including using the bank’s money when you’ve overspent yours. This is bad enough, as people have begun to think that scarce things are free, but Biden says he isn’t stopping at overdraft fees. He’s also going after what he’s branded as “surprise” fees, such as family seating fees issued by airlines, switch fees from internet and cable services, and service fees from concert and sporting venues. Notably, he claims that these charges are more menacing than typical add-on fees and that “firms should be free to charge more to add mushrooms to your pizza.” So, what’s more menacing about concert venues charging a service fee to cover operational costs than Pizza Hut charging for extra toppings so they can still turn a profit? There isn’t a difference. What’s malicious is that Biden wants to penalize businesses for trying to stay profitable in a recession that he’s prolongingby addressing “problems” like these instead of the 40-year high inflation that’s removing purchasing power from consumers and hurting families. Biden insists that these “junk fees” are undetectable by consumers and therefore unfair, and that this makes it impossible for people to compare the real costs between service providers. Those seeking to promote more government involvement in businesses,almost always undermine individual agency. The reality is that consumers can fight against fees, take their business elsewhere, or choose to pay them if they think it’s worth it. That’s what prices in a free-enterprise system of capitalism are all about: allowing people to improve their lives. There are always trade-offs in life, and if the Biden administration successfully removes all these fees, we can expect to see another kind of trade-off instituted in its place. Nothing scarce is free. Every decision we make gives up something else, which economists call opportunity costs. Politicians too often think they can ignore this fact, but they do so at the peril of the people whom they serve. This kind of overreach isn’t just insulting to Americans, it’s harmful to a free-market system that operates best with limited government. By convincing people that they’re powerless to manage their money or find the best service provider because they’re helpless against “big scary businesses,” the government creates enough public concern to justify stepping in where they have no business doing so. The economy is suffering enough under Biden’s overregulation, Congress’ overspending, and the Fed’s overprinting; the last thing it needs is another barrier to growth and organic competition. Biden can quit trying to kid the American public that overdraft fees, which make up less than one percent of annual household spending, are the culprit for this lackluster economy. Instead, he should scrap his failed policies and promote free-market solutions that let people prosper. Originally published at AIER Frankie Johnson, a college-educated single mother from Washington, D.C., moved to Atlanta to distance herself and daughter from an abusive husband. Without a job or place to live, she sought government assistance for childcare and transitional housing. While she waited for this assistance, she was offered a job paying $70,000.
She turned it down. Why? Because as much as Frankie needed work, she didn’t want to lose the benefits of housing and childcare when she took the job. Too often government safety-net programs don’t lift people out of poverty for long because they provide specific resources without growth opportunities or flexibility for recipients. In many cases, individuals struggle without the dignity and stable income of work and the cost of “benefit cliffs,” whereby recipients lose more in assistance than they do in income gained from work, due to varying income thresholds across existing safety-net programs. Unfortunately, Frankie’s story is all too common. Many people choose to keep the guaranteed payments from taxpayers over the uncertainty of working and losing those payments. But this tradeoff isn’t the only problem with the current safety-net system. Safety-net recipients often lack the financial literacy necessary to get out—and stay out—of poverty. Additionally, while many recipients are enrolled in multiple safety-net programs, each program is managed separately, burdening the taxpayer with costly administrative costs. And for a recipient, it can seem like a full-time job keeping up with the paperwork to remain enrolled. Making matters worse, too many people in poverty, and working families, are struggling from the highest inflation in 40 years. And the handouts of taxpayer funds by the federal government over the last two years artificially drove up savings and kept people not working longer than necessary thereby changing the calculus of whether to work or stay on safety nets. This is evident in the latest U.S. jobs report for August 2022 which showed that the reported unemployment rate rose slightly to 3.7%, which remains low, but it’s actually much higher as the labor-force participation rate remains well below the pandemic-related shutdowns in 2020. Considering the same pre-shutdown labor-force participation rate, America’s labor force is missing approximately three million workers. Many aren’t looking for work because of generous handouts contributing to the labor shortage problem and reducing their gains from the dignity of work. With these challenges in the labor market and the effects that the current recession will have on people over time, we must improve our safety-net system for recipients and taxpayers alike. Americans have already spent about $25 trillion (adjusted for inflation) on more than 80 federal safety-net programs since 1965. While there have been some successes in helping people out of poverty, there is a need for a more effective program that doesn’t just give people fish but teaches them to fish. This is what our new, holistic approach called empowerment accounts (EAs) would do. EAs would condense and replace overstretched, wasteful safety-net programs (excluding Social Security, Medicare, and Medicaid, for now) into one consolidated, effective program with funding provided monthly via a debit card tied to a financial app and time-limited to a maximum of one year. To qualify, people would work at least part-time while meeting regularly with a community navigator. The program also helps teach the Success Sequence, whereby 97% of people aren’t in poverty if they graduate high school, get a full-time job, and marry before having kids. And savings are incentivized by the recipient being able to keep extra funds after the limited program period, which will help to reduce the benefits cliff. By helping reduce bureaucratic bloat and streamlining payments to recipients instead of waste and other programs, EA recipients would have more flexibility to spend the money on approved items across the current safety-net items and foster financial independence. When implemented, EAs will provide a crucial 21st century reform to our troubled safety-net system and help rein in governmental budgets as people have less need for safety nets because they find a well-paid job and ways to provide for their families. The improvements to recipients using EAs—incentivizing financial literacy, finding dignity through work, building social capital, and mitigating benefits cliffs—will help Frankie Johnson and others achieve long-term self-sufficiency. Originally posted at TPPF For several decades and under the control of both Republicans and Democrats, Tennessee has been known for its fiscally conservative budgeting. Years of limited spending and low taxes have kept hundreds of millions of dollars in the pockets of Tennessee taxpayers that might otherwise have gone to government bloat. In fact, according to the Tax Foundation, Tennessee residents pay less in taxes than anyone in the country. But future good times are no guarantee—and that’s why, whether in good or bad times, Tennessee families practice priority-based budgeting, making tough choices on how to spend their hard-earned dollars, especially while inflation is at the highest rate in decades. With the federal government and Federal Reserve pumping trillions of dollars into the economy, Tennesseans are looking to their state government for solutions. While solutions have mostly focused on one-time relief such as sales tax holidays, by continuing to control spending, Tennessee policymakers can ensure that state government does not grow faster than taxpayers’ ability to pay for it. Further conservative budgeting would allow state policymakers to implement more permanent tax cuts, providing relief in a time of rising prices and fostering further economic growth and prosperity. The Conservative Tennessee Budget sets the cap of growth of the state’s budget at population plus inflation growth to make this prosperity a reality. Originally at Beacon Center of Tennessee. A nation emerging from a significant pandemic and an economic downturn awaited President Joe Biden in early 2021. President Warren G. Harding inherited a similar situation after winning the 1920 election in a landslide. But Harding overcame it by getting government out of the way. The economy recovered quickly—whereas Biden enacted bad progressive policies that have resulted in a double-dip recession with 40-year high inflation.
Biden should learn from Harding and his successor President Calvin Coolidge to correct government failures and allow markets to heal so that we can enjoy abundant economic prosperity again. In the aftermath of the Great War, the U.S. suffered a severe economic downturn. The late economist Milton Friedman described this as one of the most “severe on record.” The depression of 1920-1921 is often forgotten because it was short-lived, but it offers policy lessons that can be applied to our current situation. Prior to and during the Great War, President Woodrow Wilson led a massive expansion of the federal government, which included the creation of the Federal Reserve and personal income tax system. After the war, markets corrected from those government failures throughout the economy triggering a steep economic downturn. The business and agriculture sectors were hit particularly hard by the depression of 1920-1921, which led to bankruptcies and farm foreclosures. Unemployment was estimated to be about 12% and the nation was hit buffered from deflation. Americans were hurting. During the presidential campaign of 1920, then-Sen. Warren G. Harding pledged a “return to normalcy” against Wilson’s progressivism. During the campaign, Harding argued that the nation needed to return to sound money, less spending, lower taxes, less debt, and limited government. This was the fiscal policy blueprint of the “normalcy” agenda. Harding understood that to revive business confidence and lower high income tax burdens, the federal government must get its fiscal house in order. In 1921, Congress passed the Budget and Accounting Act, which under the leadership of Bureau of the Budget Director Charles Dawes and later his successor, Herbert Lord, worked to reduce federal spending. Dawes would compare the task of cutting spending to having a “toothpick with which to tunnel Pike’s Peak.” Harding also understood that to lower the high tax rate, spending had to be addressed first. “The present administration is committed to a period of economy in government…There is not a menace in the world today like that of growing public indebtedness and mounting public expenditures…We want to reverse things,” explained Harding. Reducing spending was not easy. As an example, Harding vetoed a popular bonus for veterans of the Great War. Overall, Harding’s commitment to economy in government resulted in an estimated 50% reduction in federal spending. Harding also relied on Secretary of the Treasury Andrew Mellon, who also shared his views regarding limiting spending. Mellon would serve as the lead architect for Harding’s tax reform policies. The top income tax rate was over 70% and Mellon’s goal was to lower the rate. Through a series of tax reforms, the high rate would eventually be cut to 25% during the Coolidge administration. Harding and Coolidge’s fiscal conservatism of lowering spending and tax rates and paying down the national debt resulted in a quick economic recovery. The Federal Reserve also tightened the money supply. The historian Paul Johnson wrote “Harding had done nothing except cut government expenditure, the last time a major industrial power treated a recession by classic laissez-faire methods…” After the death of Harding in August 1923, Coolidge continued and strengthened the economic policies of Harding. President Coolidge, along with Secretary Mellon, continued to lower spending and tax rates. The federal budget was $3.14 billion in 1923. By 1928, when Coolidge left, the budget was $2.96 billion. Altogether, spending and taxes were cut in about half during the 1920s, leading to faster real economic growth and productivity that contributed to budget surpluses throughout the decade. The decade had started in depression and by 1923 the national economy was booming with low unemployment. And that continued throughout much of the decade. This would have continued but government expanded again. In particular, the Hoover administration ran deficits and raised taxes and the Federal Reserve had too loose and then too tight money supply. This led to the Great Depression—a phenomenon that was avoidable and was exacerbated by President Roosevelt’s large expansion of government. It’s unlikely that President Biden will follow the pro-growth economic policies of Harding and Coolidge, nor will the Fed tighten the money supply enough to reduce inflation. Published at Real Clear Policy with John Hendrickson While a stagnating economy with high inflation is what economists usually call stagflation, the current situation is worse, as the real economy is declining. So there’s much less to go around for everyone—making us poorer in the process.
This inflation-recession could be resolved by Washington reversing course, but President Joe Biden and Democrats in Congress are doing the opposite. Their new bill, called the “Inflation Reduction Act” (IRA), will spend more, raise taxes, increase debt, and contribute to more inflation, resulting in a deeper recession. The IRA includes estimated hikes in taxes with a new 15% corporate minimum tax rate, 87,000 new Internal Revenue Service (IRS) agents to audit more taxpayers, and new closure of “carried interest loophole.” These are each bad policies, but especially during a recession. These add up to an estimated tax hike of about $730 billion compared with current policy over the next 10 years. The main tax hike is the new alternative minimum tax (AMT) of 15% on book income for corporations with net income exceeding $1 billion. This proposal has a rosy revenue projection of $313 billion. But businesses don’t pay taxes; they just submit them. People pay them, through higher costs, lower wages, and fewer jobs. The dynamic effects will result in less tax revenue collected from this hike. According to a recent study by the Tax Foundation, this tax hike alone would contribute to killing 23,000 jobs, a 0.1% cut in wages, and 0.1% less in economic output. If we consider other provisions like the tax hikes on carried interest and reinstatement of the federal Superfund program, the total number of jobs killed is 30,000 with every income group having a reduction in after-tax income. Clearly, this wouldn’t reduce inflation or help the economy recover. But there’s more. While the IRA is aimed at taxing the rich and corporations more, the Congressional Joint Committee on Taxation finds that every income group except those with income between $10,000 to $20,000 per year would face a higher average tax rate. This would mean President Biden’s pledge to not tax anyone earning less than $400,000 per year would be broken, with about half of the burden falling on those earning less than $200,000 per year. And the $80 billion in additional funding for 87,000 new IRS agents to increase tax enforcement and compliance is expected to bring in a phony amount of about $200 billion over a decade. But this will just increase more bureaucracy in an already overly bureaucratic federal government that will make Americans’ lives worse as they put more costs on taxpayers. Specifically, there could be 1.2 million more individual audits per year, and you can bet when the IRS doesn’t increase tax collections from legal tax returns they will come after every tax group, not just those making more than $400,000 per year. On the spending side, the IRA provides tax incentives and subsidies for unreliable wind and solar energy, an expansion of Obamacare subsidies until 2025, and other expenditures to the tune of about $430 billion. Using these rosy assumptions, there is a projected deficit reduction of $300 billion over 10 years. However, more conservative estimates suggest that the IRA will have less deficit reduction and will likely increase the deficit. The Tax Foundation, Penn Wharton Budget Model (PWBM), and Congressional Budget Office (CBO) calculate a $178 billion, $247.8 billion, and $101.5 billion in deficit reduction over the next decade, respectively. But assuming the Obamacare subsidies are extended over the full 10-year period for an apples-to-apples comparison, the PWBM estimates that would bring that deficit reduction down by $158.9 billion to just $88.9 billion over the decade, which is the same amount of the deficit in just June 2022. But recall that these estimates are compared with current policy assumptions over the next decade, which already have massive deficits because of reckless spending, so the IRA will most likely make the deficit worse. Spending will be permanent and is on the front end of the bill, while taxes will likely be temporary and are more on the back end—so the deficit will be higher in the first few years, which will give the Federal Reserve more debt to purchase thereby creating more inflation. And the higher taxes, more debt, and more inflation will stifle economic growth so a deeper recession will result. The IRA does the opposite of what the name implies. This is now too common with Democrats in Congress as they like to keep redefining things that don’t match their narrative. They should instead name this bill the “Inflation Recession Act” because we will get more of both. This far-left agenda must be rejected. Kill the bill. Published at TPPF with Daniel Sanchez-Pinol With extensive economic pressure facing the U.S., progressive lawmakers in Washington believe they have found a new solution: taxing and spending. This failed fiscal framework has become an easy sell for each new progressive administration. But this time the Biden administration has placed America in a high-inflation recession, and looks to do more harm with the “Inflation Reduction Act.”
But there’s an overlooked concern of hundreds of billions of taxpayer funds redistributed by the federal government to state and local governments for supposedly COVID-relief efforts and even more in the recent “infrastructure” bill over the last two years. These excessive federal funds should be used wisely in order to not hinder Texas’ economic prosperity. That could mean public-private partnerships, which increase transparency and efficiency. Texas’ nonfarm employment has increased in 25 of the last 26 months, bringing record high employment in eight consecutive months. Compared with a year ago, total employment was up by 778,700 (+6.2%) in June with the private sector adding 761,800 jobs (+7.1%) and the government adding 16,900 jobs (+0.9%). Texas also ranks fifth best in a Georgia Center for Opportunity study that compares the ratio of employment to an estimated pre-shutdown recession trend in each state. That’s a huge feat given how many jobs were lost during the costly shutdowns. And Texas is now headquarters for more than 10% of all Fortune 500 companies. Texans and all Americans are struggling with economic uncertainty due to a 40-year high in inflation and a recession from mostly bad policies out of D.C. Texas has been allocated about $116 billion between COVID 19-related funds and the “Infrastructure Investment and Jobs Act” (IIJA) since March 2020. This includes $79 billion from several bills from March 2020 to March 2021. A major chunk of that figure was $24.5 billion from the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020 that was primarily for COVID 19-related provisions, including for health care, public education, childcare, and worker safety. The other was $40.3 billion from the American Rescue Plan Act (ARPA) in March 2021 that was for specific projects like broadband, water, and infrastructure along with $15.8 billion of those funds available for various recovery purposes. Fortunately, the state separated the ARPA funds in Article XI of the budget so that there is less comingling of federal with state funds to avoid considering these as an ongoing funding source. The rest was $36.3 billion from the IIJA to be used primarily for projects related to broadband, transportation, and water. Ultimately, these funds must be spent responsibly—if at all—and only for one-time items to avoid a fiscal cliff when these funds go away. If not, there will be wasteful spending that will unnecessarily grow the state’s budget, leading to higher taxes and distortions throughout the economy and less prosperity. Since the massive expansion of federal assistance to states began in the 1960s with President Johnson’s “Great Society,” the burden of federal funding in states has continued to grow. Texas usually has about one-third of its total budget funded by taxpayer dollars collected at the federal level. We need a new approach. These one-time federal funds must be spent on on-time expenditures. Next, public-private partnerships (P3) should be considered. They’re contractual agreements between a government and private entities. The state provides funding with oversight of a new project while a private company does the work. They can transfer risk, bundle projects, and increase efficiency through a design-build approach. Ultimately, most projects should be left to the private sector, where the best productive projects happen because of profit-loss decisions. But the opportunity to use P3s with these one-time federal funds should be carefully considered to reduce waste and inefficiency on projects. While there are legitimate concerns about corporate welfare to private businesses through picking winners and losers, the use of these one-time federal funds allocated for projects makes sense—though careful consideration should be made now and later. Given the poor track record of excessive federal funds and the success of P3s, Texas should look to set a precedent for fiscal responsibility and more market-oriented solutions by employing P3s with the federal funds recently received rather than resorting to the failures of too many government-run projects. Published at TPPF with Nathan Evenhar Over the last decade, major Montana local governments have grown their budgets faster than population growth plus inflation, burdening taxpayers with millions in excessive spending . The 2023 Real Local Budgets demonstrate the need for government spending restraint and an improved budget process to protect taxpayers. City and county officials should focus on holding the growth of expenditures to less than population growth plus inflation to ensure that the cost of government stays within the bounds of the average taxpayers’ ability to pay for it. Published at Frontier Institute with Kendall Cotton With its vibrant cities, relatively cheap cost of living, and thriving industries like manufacturing, healthcare and hospitality, it’s obvious why South Carolina is one of the fastest growing states in the nation. To keep its competitive edge and protect the interests of taxpayers, it is imperative that state government spending – which has seen significant growth in recent years – be brought under control. For that reason, SCPC has partnered with the Texas Public Policy Foundation (TPPF) for a new project: the South Carolina Sustainable Budget. This introductory report compares the last decade of state appropriations with what spending would have looked like under a sustainable budget. A future report will provide sustainable budget spending recommendations for fiscal year (FY) 2024. Published at South Carolina Policy Council with Bryce Fiedler and Video discussion here. On July 15, Austin City Manager Spencer Cronk laid out a proposed $5 billion city budget for fiscal year 2023. While introducing the mammoth 971-page document, Cronk said: “We are always mindful of our impact on the pocketbooks of Austinites. At the same time, we firmly believe that effective city government is critical to the success, financially and otherwise, of our whole community—and we will endeavor to continue to strike the right balance.”
But while balance may have been the intent, big government spending was the result. It’s time for a Responsible Austin Budget that puts taxpayers first. Under the guise of worker shortages and a perceived inability to meet core government services, such as law enforcement or emergency services, the budget focuses on increasing pay and benefits to city employees on the back of taxpayers. Specifically, it proposes increasing their minimum wage from $15 to $18 per hour and giving a $1,500 stipend for employees serving at least one year. It also creates at least 200 new positions, an interesting choice given the city’s difficulty retaining its current employees and its many vacancies. These increases, along with other priorities such as reducing greenhouse gas emissions and homelessness with large city-funded programs, come at a high, irresponsible cost. No government spending is “free,” as every dollar comes from taxpayers. Cronk presented the budget as a positive step after fears last year that economic strain would lead to drastic budget cuts and layoffs, and attributed this gain to the city’s fiscal management and economic recovery after COVID-19. However, much of the city’s fiscal position could well be attributed to the pro-growth policies at the state level and huge influx of federal aid, which could create big problems for taxpayers later, if not handled properly. Once one-time federal monies expire, officials will be tempted to maintain programs indefinitely through tax and fee increases. It doesn’t matter if it comes out of the left or right pocket, this excessive spending will put even greater pressure on Austin taxpayers. To be fair, the proposed budget does provide for a property tax rate reduction, moving the current rate from $0.541 to $0.4519 per valued $100 , a 16.5% cut. However, this is being done in large part to compensate for soaring real estate valuations and in order to stay under the newly-imposed 3.5% revenue limit, so depending on how much appraisals are up this could still be a tax hike. To counter the growth of taxes and spending, TPPF has proposed a Responsible Austin Budget. Over the last 10 years, the city of Austin has passed a budget that grew 14.3 percentage points faster than population growth plus inflation, increasing the cumulative cost of funding spending for an average family of four by more than $9,000. The FY 2023 RAB sets a maximum budget of $4.93 billion based on population growth plus inflation of 5.75% to help improve Austin’s affordability crisis in an already economically costly time. The proposed city of Austin budget exceeds this limit by $70 million, a staggering amount when you consider that prices at the gas pump and grocery store are by far the biggest concern of American adults today. The Federal Reserve raised its federal funds rate target today, creating more concern about the high cost of operating businesses, taking out loans, and maintaining essentials of everyday life. In all, given rising inflation and economic uncertainty from mostly the bad policies out of D.C., but also those from the city of Austin, local officials should be responsible in maintaining budget limits. Not generous in creating new positions and raising wages which will unduly burden taxpayers. The Austin City Council should amend the budget before final approval, maintaining a Responsible Austin Budget, instead of doing more harm by exceeding it. That will help Austinites weather this economic storm. Published at TPPF with Caroline Welton As most of the country struggles with the effects of stagflation and is either in or will soon be in a recession, Texas has been an economic leader. The Texas Model of economic freedom with the strongest state spending limit in the nation, no personal income tax, sensible regulations, and a relatively low cost of living have helped sustain this leadership.
No wonder 54 of the Fortune 500 companies call Texas home—most of any state. But excessive local spending and taxing must be addressed to improve ways to let people prosper. Net nonfarm jobs in Texas increased by 74,200 in May, resulting in increases in 24 of the last 25 months and the 7th consecutive month of record-high employment. Compared with a year ago, employment was up by 762,400 (+6.1%) with the private sector adding 733,900 jobs (+6.9%) and the government adding 28,500 jobs (+1.5%). Compared with February 2020 before the pandemic-related shutdown, the state’s labor force participation rate is higher at 63.7%, employment-population ratio is close at 61.1%, and private sector employment is up 410,000 jobs. States with limited government better support opportunities for people to gain self-sufficiency and flourish. Erik Randolph at the Georgia Center for Opportunity calculates that Texas’ private sector employment is 98.9% of its pre-shutdown trend, which ranks sixth best nationwide. Overall, 22 of the 25 best-performing states are red-leaning states and 12 of the 14 worst performing states lean blue. These data are insightful because only Republican governors, with the exception of Louisiana, ended the enhanced supplemental unemployment payments that contributed to some people receiving more payments than while working well before the payments expired in September 2021. Texas ended these enhanced payments in June 2021. Clearly, incentives matter. In fact, the positive effects of this decision and more well-paid jobs in Texas helped increase personal income by an annualized 4.6% in the first quarter of 2022 even as many federal safety-net payments without work requirements expired. But Texas faces challenges. Bad policies primarily out of Washington have contributed to stagflation. Recent data show that Texas’ inflation-adjusted economic output declined by 2.6% on an annualized basis in the first quarter of 2022, more than the 1.6% decline nationally. This was after Texas led the way with 10.1% growth in the fourth quarter of 2021. The decline in the first quarter indicates that elevated inflation, less investment, and other factors are reducing economic activity. This stagnating economic growth hasn’t hit the labor market yet, which has a 4.2% unemployment rate, but the labor market is a lagging economic indicator. Fortunately, Texas has been doing better than many states as people and businesses move to the Lone Star State. Texas must do more to combat Washington’s irresponsible policies and remain a leader. The affordability crisis of a 40-year high inflation, record-high home values, and skyrocketing property taxes are hurting Texans. While Texas can’t directly influence the inflation rate—which is driven by excessive money printing by the Federal Reserve fueled by out-of-control spending by Congress, it can help with the housing affordability issue by reducing local zoning restrictions and reducing property taxes. Texas is expected to have about $30 billion in extra taxpayer dollars available next session. As Governor Greg Abbott recently tweeted, “We must use a substantial portion of this money to cut property taxes in Texas.” We agree as there is a need to cut school district maintenance and operations (M&O) property taxes, which is about half of most Texan’s property tax bill and part of a renters’ rent. The Legislature ought to hold spending growth below population growth plus inflation as it has in the last four initial biennial budgets, and even more so now given less spending equals more money in struggling Texans’ pocket. Then use the surplus to dramatically cut school district M&O property taxes while funding core services. But the Foundation’s recent report shows how many local governments have been spending excessively. They should pass responsible budgets that spend less than this metric to be consistent with the state’s fiscal prudence and help Texas be more affordable statewide. Doing so will give many local governments the opportunity to compress their own M&O property taxes and fund essential provisions. Texas ought to strengthen its successful model by reducing and ultimately eliminating arcane M&O property taxes that hinder people from keeping or ever actually owning their home. There is a historic opportunity to at least lower property tax bills next session if governments limit spending and rightly make taxpayers the priority. Published at TPPF with Nathan Evenhar Press Release for 7 Publications on Responsible Local Budgets for 7 Cities and Counties in Texas6/29/2022
Nearly every major city and county government in Texas spends well beyond what the average taxpayer can afford, according to a series of new research papers on local government spending by the Texas Public Policy Foundation. As a result, over the last decade the typical family of four has paid thousands of dollars in taxes over what the state considers to be a reasonable increase.
(Individual reports linked below) “Major cities and counties in Texas are spending huge sums that are wildly out of step with what many taxpayers can afford to pay,” said Dr. Vance Ginn, TPPF’s Chief Economist and co-author of the series. “The data should be a huge red flag that we are heading toward unsustainable spending growth and tax increases that kill jobs, punish families, and drive people and businesses out of the state.” TPPF defines reasonable spending growth as no more than population growth plus inflation. The state of Texas has followed this spending limit for state budgets for several biennia and officially adopted most of it into state statute in the last legislative session. City and county budgets are currently under no obligation to follow this reasonable spending limit. “Responsible Local Budgets (RLB) would promote efficiency and prudence with taxpayer money, creating less need for higher taxes and fees, but still provide all the funding needed for critical government functions,” said James Quintero, TPPF’s Policy Director for the Government for the People campaign and co-author of the research. “Taxpayers would love to see local governments voluntarily adopt these spending limits, but, as long as cities and counties continue their spending binge, it may be necessary for state lawmakers to impose strict parameters to protect taxpayers.” Over the last decade, Dallas has been the worst offender among cities, spending more than 34% above a responsible spending growth limit. In that time, the average family of four in Dallas paid more than $10,000 in excess taxes. The cities of San Antonio and Austin spent over 16% and 14% higher, respectively, than the average taxpayer’s ability to pay. Spending growth in Texas’ major counties has been eye-popping. Lubbock County’s spending has grown 66% above a responsible limit, Bexar County by 52%, Travis County by 43%, Dallas County by 40%, and Tarrant County by 27%. Only Brownsville spent under the growth limit during the decade. Harris County takes the prize as the worst of all local governments by exceeding a responsible spending limit by 114%. “Now it is time to rein in excessive government spending growth at the local level,” Ginn and Quintero write. “We urge local governments to voluntarily adopt these taxpayer protections. Because some may not, we recommend that the Texas Legislature pass a spending limit for all other local governments that includes all spending from any revenue source, restricts expenditure growth to a maximum of state population growth plus inflation from the prior year, and requires a two-thirds supermajority vote by the local governing body to exceed the limit.” “Limiting the growth of these budgets to population growth plus inflation with the RLBs outlined here will help ensure these localities can be vibrant places for people to prosper.” https://www.texaspolicy.com/press/tppf-local-governments-spending-beyond-the-average-taxpayers-ability-to-pay The economic shock from the shutdowns in response to the COVID-19 pandemic were unprecedented. Never had state governors imposed stay-at-home orders that cut people off from their lives and livelihoods. Those costly policies were bad enough, but then came historic increases in deficit spending and money creation. While these may have been well-intentioned policies early on, their repercussions—amplified by misguided macroeconomic policy since January 2021—continue to plague many Americans. The antidote is pro-growth policies. There was a vibrant economy on the eve of this shock. In fact, about three quarters of the flows of people into employment were Americans returning to the workforce—the highest on record. For context, 2.3 million prime-age Americans—people between the ages of 25 and 54—returned to the labor force during Trump, after 1.6 million left during the Obama recovery. This happened with a robust private sector providing many opportunities because the Trump administration focused on removing barriers by getting the Tax Cuts and Jobs Act of 2017 through Congress and providing substantial, sensible deregulation. We often hear that these tax cuts were “trickle-down economics” or “tax cuts for the rich and big business.” But the change in real (inflation-adjusted) wages was positive across the income spectrum. The bottom 10% of the wage distribution rose by 10% while the top 10% rose half as fast. And real wealth for the bottom 50% increased by 28%, while that of the top 1% increased by just 9%. The results show those tax cuts weren’t designed for the “rich.” In 2019, the real median household income hit a record high, and the poverty rate reached a record low. Poverty rates fell to the lowest on record for Blacks and Hispanics, and child poverty fell to 14.4%—a nearly 50-year low. Clearly, Americans were doing well across the board, especially those who had historically been left behind. These stellar results were from reducing barriers by government in people’s lives—a stark contrast to what happened by state governments during the pandemic and exacerbated thereafter by Biden’s big-government policies. While there were similar spending bills passed into law during both administrations, it’s comparing apples and oranges. Trump supported congressional efforts in March and April 2020 when huge swaths of the economy were shut down, 22 million Americans were laid off, and 70% of the economy faced collapse. In contrast, Biden substantially increased regulations immediately and passed a nearly $2 trillion spending bill in March 2021—an amount equal to approximately 10% of the U.S. economy, at a moment when the U.S. economy was already 10 months into recovery. Another difference was that Trump introduced sunsets for emergency pandemic provisions so that they would expire. But Biden continued and expanded many of them, increasing dependency on government. Through March 2022, employment is back up 20.4 million but remains 1.6 million below the peak in February 2020. While Biden touts the most jobs gained in one year in 2021, more jobs were recovered in just the two months of May and June 2020 than in all 12 months of 2021, and nearly two-thirds of this jobs recovery was during Trump. Moreover, job gains of 6.7 million in 2021 were far less than the glorified projections coming from the White House of around 10 million. Just think if Biden had practiced the pro-growth policies of Trump. Instead, inflation is at a 40-year high and looks to continue to soar, fueled by a host of self-imposed costly policies in Washington. This includes Biden’s over-regulating of the oil and gas sector, massive unnecessary spending bills, and attempts to drastically raise taxes. And the Federal Reserve has more than doubled its balance sheet over the last two years, purchasing a majority of the $6 trillion increased national debt in that period, which is a 25% increase to $30 trillion. These policies, which simultaneously boost demand while constraining supply, have brought the prospect of stagflation—high inflation and low growth—back for the first time since the late 1970s. Rather than directly addressing the crisis, Biden has consistently deflected the issue by first doubting the reality of inflation to now falsely blaming it on corporate greed or Russian President Vladimir Putin. But the causes and consequences fall at his feet. It’s time to return to the proven, pro-growth policies that worked during the Trump administration, along with an essential missing factor then of spending restraint by Congress. Doing so will provide a solid foundation for more opportunities to let people prosper. This commentary was based on the remarks by Mr. Ginn and Mr. Goodspeed on a panel at the Texas Public Policy Foundation’s 2022 Policy Orientation. https://www.texaspolicy.com/biden-should-pivot-to-trumps-pro-growth-policies/ Overview
When Uvea was 9, Oregon’s foster care agency couldn’t find a placement in-state, so it sent her to Montana—to a poorly supervised facility where she was drugged, physically restrained and verbally abused by facility staff. “Can I say the two words she called me?” Uvea asked a lawmaker during a later legislative hearing. “They made me feel very uncomfortable. She called me a pervert and a prostitute.” Remember, she was 9 at the time. Untold damage was done to the young girl—but one thing came of it that will benefit all Oregon foster children. Her story sparked an effort to reform Oregon’s child welfare programs, beginning with an efficiency audit. Following the audit, every single child placed out-of-state was brought back to Oregon without increasing the number of foster homes, simply because the state learned how to use its resources more efficiently. And that Montana facility has been shut down. Today, Uvea is 11 years old and living in what she recently told state lawmakers is “the best foster home” she’s ever been in. Too many government programs aren’t achieving their intended purpose. This doesn’t serve the intended recipients—like Uvea—or the taxpayers well. Next session, the Texas Legislature can utilize effective and powerful independent efficiency audits to determine how programs, including Child Protective Services, are performing, where waste can be cut, and what outcomes can be improved. While traditional financial audits can uncover evidence of malfeasance, they only look at the money trail. An efficiency audit goes even further, investigating whether funds are being used for their intended purpose and whether they’re being spent efficiently toward desired outcomes. Bringing in an independent, private sector auditor, rather than the state’s auditor, prevents a potential collusive situation between government entities and provides a fresh perspective that can identify innovative solutions, counteracting the myopic tendencies of government bureaucracy. Last session, the Texas Public Policy Foundation identified the need for independent efficiency audits of the Temporary Assistance for Needy Families (TANF) program and the Department of Family and Protective Services (DFPS), which contains CPS. Both TANF and DFPS have had problems achieving their intended goals. DFPS is a major recipient of TANF dollars in Texas, which is intended to help strengthen families and promote self-sufficiency. DFPS is also responsible for administering the state’s foster care system. In response to the ongoing foster care crisis, the Legislature increased appropriations to the agency. Our internal analysis of corresponding DFPS expenditures raised significant concerns regarding the appropriateness and efficacy of those dollars spent. Specifically, our analysis found that a significant portion of these funds were not getting to the families most in need. Rather, one third of the roughly $1 billion annually in TANF funds are allocated to DFPS, yet half of that third goes to administrative and overhead expenses—things like staff salaries and IT services. That’s money that could have otherwise been used towards its stated intent to help needy Texans. Why was this happening? TANF is primarily funded through a block grant from the federal government, with the rest funded by the state. States have flexibility in how they administer and distribute that funding. While this flexibility can be helpful, DFPS used TANF dollars to fill budget gaps rather than meet its goals. This misuse of TANF dollars by the department revealed a need to investigate whether other agencies were engaging in similar behavior. When we advocated for the use of an independent efficiency audit, we specifically sought to investigate how well both TANF and DFPS were doing at achieving the intended goals of helping Texas families move from dependence to self-sufficiency. Under the new laws passed in 2021 (HB 1516 and HB 2374), that question must be answered every four years before the start of a legislative session. Doing so allows legislators to critique agency appropriations requests more knowledgeably and to ensure taxpayer resources are generating intended outcomes. Because these audits must stay within the bounds of current resources available to each department or agency, taxpayers are assured these efforts will not be used to grow government, but rather evaluate how government could be improved, reformed, or cut. Identifying opportunities to consolidate efforts across separate agencies for example, or when a governmental function might be performed more successfully by a community provider, can provide legislators and the public with solutions that will lead to better services to beneficiaries at lower costs to taxpayers. Oregon, Wyoming, and Kansas are states that have made great strides because of their respective efficiency audits. Louisiana, likewise, recently did an internal efficiency audit of TANF, which the legislative auditor found much needed improvement to achieve the intended goals. Texas Legislators should bring efficiency audits to every aspect of government to generate better outcomes and save taxpayer resources. Little children like Uvea are counting on them. https://www.texaspolicy.com/efficiency-audits-arent-about-saving-money-theyre-about-saving-lives/ Americans have less money than they had last year—though taxes haven’t been raised. So what’s the problem? Inflation, which has increased at a 40-year high annual pace of 7.9%. It acts as a hidden tax because we don’t see it listed on our tax bills, but we sure see less money on our bank accounts. In fact, inflation-adjusted average hourly earnings for private employees are down 2.8% over the last year. This means a person with $31.58 in earnings per hour is buying 2.8% less of a grocery basket purchased just last February. “For a typical family, the inflation tax means a loss in real income of more than $1,900 per year,” stated Joel Griffin, a research fellow at The Heritage Foundation. The hidden tax of rapid inflation has been avoided for four decades. But that’s understandable because we haven’t seen these sorts of reckless policies out of Washington since the Carter administration. The policies from the Biden administration’s excessive government spending and the Federal Reserve’s money printing must correct course now before things get worse. What’s causing inflation is being debated. One claim is “Putin’s price hikes” stem from the Russian president’s invasion of Ukraine. While this has contributed to oil and gasoline prices spiking recently, these prices—and general inflation—were already rising rapidly. This was because of the Biden administration’s disastrous war on fossil fuels through increased financial and drilling regulations, cancelation of the Keystone XL pipeline, and more. Specifically, the price of West Texas Intermediate crude oil is up about 110% since Biden took office, yet only up 21% since Russia invaded Ukraine. And to think, the U.S. was energy independent in the sense that it was a net exporter of petroleum products in 2019. Another claim is the supply-chain crisis. For example, the global chip shortage has contributed to a large shortage and subsequent increase in the average price of new vehicles—to a record high of $47,000, up 12% over the last year. This contributed to buyers switching to used cars, which has pushed the average price up to nearly $28,000, about 40% higher. These two claims will likely be transitory price increases, though not sufficient to drive down overall inflation to what we’ve experienced for the last year-plus. Inflation is persistent because of rampant government spending and money printing. Larry Kudlow, who served as the director of the National Economic Council for President Trump, stated that inflation “is destroying working folks’ pocketbooks and devaluing the wages they earn, and the root cause of the inflation is way too much government spending, too many social programs without workfare, and vastly too much money creation by the Federal Reserve.” Both political parties share the blame for too much government spending, which has caused the national debt to balloon to $30 trillion. Just over the last two years, the debt has increased by 25% or $6 trillion. While some of that may have been necessary during the (inappropriate) shutdowns in response to the COVID-19 pandemic, much of the nearly $7 trillion passed in spending bills was not, especially the trillions by the Biden administration far after the pandemic had slowed and people were returning to work. Laughably, Speaker of the House Nancy Pelosi recently argued that government spending is helping inflation and President Biden argued that he’s cutting the deficit. Both are false. Government spending doesn’t change inflation because it just redistributes money around in the economy. And the deficit would only be rising from Biden’s big-government policies but he’s taking advantage of an optical illusion: one-time COVID-19 relief funding drying up and tax revenues rising partially from the effects of inflation. Ultimately, the driver of inflation is from discretionary monetary policy by the Federal Reserve as it monetizes much of the $6 trillion in added national debt since early 2020. The Fed did this to keep its federal funds rate target from rising above the range of zero to 0.25% by more than doubling its balance sheet to $9 trillion. More money is fueling the ugly government spending and bubbly asset markets that’s resulting in dire economic consequences. Instead, we need to learn what Presidents Harding and Coolidge realized a century ago. This would mean a return to sound fiscal policy, monetary policy, and the dollar that built on the principles of America’s founding. We need binding fiscal and monetary rules to hold politicians and government officials in check of we hope to tame inflation and return to prosperity. https://www.texaspolicy.com/the-tax-increase-thats-hidden-in-plain-sight/ An MSNBC headline reporting on a recent interview of a White House economic advisor Jared Bernstein claimed that America has a “booming economy.” But that’s not what most Americans think about the economic situation. The University of Michigan’s consumer sentiment index for March, which gauges how consumers feel about the economy, fell to a decade low at 59.4. This is a 5.4% drop from February and a 30% drop from March 2021. The survey reveals Americans’ pessimism and uncertainty amidst the highest levels of inflation since the 1980s. Many Americans reported that they have had to reduce their quality of life and lower their living standards amidst the inflation crisis. This crisis has been created by the Federal Reserve printing too much money to fund the overspending by Congress, and exacerbated by the Biden administration’s war against oil and gas that fueled higher energy prices and have been amplified by the Russia-Ukraine conflict. The only positive news from the survey was slight optimism for the strengthening labor market. Survey statistics revealed that there was hope that the unemployment rate would continue to decline. While there are reasons to be optimistic about the labor market’s increase in monthly nonfarm jobs—431,000 (with 426,000 in the private sector)—and the unemployment rate dropping to 3.6%, weaknesses remain. For example, since the shutdown recession ended in April 2020, total nonfarm jobs are up 20.4 million but are still down 1.6 million from February 2020. This indicates that though the labor market is improving, but it’s not as strong as it was then. And while the Biden administration touts the jobs created since he took office in January 2021, only 39% have been added since then while the other 61% were during the Trump administration. Other unaddressed labor market weaknesses remain. Inflation-adjusted wages are down by 2.3% over the last year, a depressed prime-age (25-54 years old) employment-population ratio by 0.5 percentage point since February 2020, and a broader U6 underemployment rate of 6.9%. Further adding to the concern in the labor market is a record high of 5 million more unfilled jobs (11.3 million) than unemployed people (6.3 million). These ongoing weaknesses are shedding light on the impacts of big-government policies out of D.C., such as the “stimulus” checks, enhanced unemployment insurance, expanded child tax credits, and pandemic-related mandates, that have limited and are hindering the rebound of the American economy. Instead, we must return to normalcy if we wish to give Americans more opportunities to prosper. But that’s not happening. Paired with the inflation we’re dealing with stagnating economic growth, creating a period of stagflation for the first time since the 1970s. Rising inflation is foreshadowing concerns of a future recession and economic crisis as American families are paying substantially more for products and services amidst reduced purchasing power. Why is our economy out of control, and what can be done to mitigate the economic crisis? The government imposed a “shutdown recession” from March to April 2020 that proved devastating. Amidst the shutdown, elected officials heightened Americans’ economic dependence on government through $6 trillion in deficit-spending that included programs which disincentivized working. Two years later, there must be a return to the dignity and permanent value of work — instead of the dependence on the government that the Biden administration is promoting. For example, the Biden administration’s irresponsible proposed budget of $5.8 trillion includes massive spending while raising and creating harmful taxes, such as the new “billionaire tax” that Sen. Joe Manchin already shot down. The result of this irresponsible budget would be an increase in the debt by 50% to $45 trillion over the next decade, which is highly optimistic given their unlikely rosy economic assumptions. Given the likelihood of continued trillion-dollar deficits for the foreseeable future and the Fed keeping its target overnight lending rate low even as it raises the rate by printing more money means that more inflation and economic damage are to come. But this doesn’t have to happen. Congress should choose a different path, enacting pro-growth policies like those passed from 2017 to 2019, which will better provide Americans with opportunities to improve their lives and livelihoods. This should be paired with binding fiscal and monetary rules to stop Congress from overspending hard-earned taxpayer dollars and to stop the Fed from overprinting money that’s reducing families’ purchasing power. We should stop the “booming economy” rhetoric and focus on how families are doing. The way to give them more opportunities to flourish is by removing obstacles imposed by government. https://www.texaspolicy.com/booming-economy-not-if-you-ask-most-americans/ Watching the screen on a gas pump while filling your vehicle’s tank is liable to induce a panic attack. Paying for a used car almost requires taking out a second mortgage. Speaking of mortgages, members of the middle class are being priced out of the housing market as home prices march relentlessly upward. Many price increases are out of control. How did we get here? A little over a year ago, and in the years before the Covid-19 pandemic, most prices were relatively stable. But more recently, general price inflation is at a 40-year high. The late economist Milton Friedman helped explain the inflation and stagflation of the 1970s. His explanation helped shape the strong economic recovery of the 1980s, built on the principles of limited government, with sound monetary policy that resulted in a steep decline in what had been rampant, double-digit inflation. Inflation Is a Monetary Phenomenon Friedman pointed out that “inflation is always and everywhere a monetary phenomenon.” The seemingly force majeure is actually a manmade problem, caused by the Federal Reserve (Fed) creating too much money. These principles of money and inflation aren’t new. But those lessons are being disregarded by some in the economics profession. People like Stephanie Kelton have been promoting Modern Monetary Theory (MMT), which is virtually a complete reversal of what Friedman espoused and history demonstrated. This theory contends that the federal government’s current deficit spending isn’t an issue — it can, and should, be solved by the Fed creating money to fund it without concern about inflation as long as the U.S. dollar is the world’s reserve currency. President Joe Biden has not openly endorsed MMT, but he’s no fan of Friedman either. Instead, he seems content to have many mostly younger congressional Democrats advocate for MMT, which provides convenient and seemingly academic reasoning for financing more federal spending without explicitly raising taxes. It has a similar political appeal that Keynesianism presented almost a century ago, and MMT is just as flawed. But proponents of MMT do get one thing correct — the Fed can create money to service the debt and avoid a default. But in real terms, meaning adjusting for inflation, this assertion is false. Creating money to service the debt devalues the currency. Investors then receive a lower real return on their holdings of federal debt. Furthermore, everyone is hurt by inflation, whether they own government bonds or not. Inflation is essentially a tax, as it robs people of their purchasing power at no fault of their own. Everyone who received a 7.5 percent raise over the last year probably thought they would be able to afford more stuff, but they were deceived. Inflation rose just as much — so there was no real raise. False Claims That Taxes Are the Solution But MMT proponents claim that the massive budget deficits are what allow people to save money. Were it not for those deficits, they contend, people would have no cash to save. At first glance, the pandemic seemed to support that. People received transfer payments from the government and saved much of them due to uncertainty. But more recently, people’s savings are being depleted as this dependency on government dries up and prices soar. Now that inflation is running amok, MMT adherents believe tax increases are the primary (if not only) cure. They claim inflation is not caused by the Fed creating too much money, but by people having too much money to spend; taxation will remove that excess liquidity and stop inflation. However, MMT doesn’t explain why it’s only inflationary when people spend money, but not when the government spends it. Somehow the Fed creating money by purchasing government debt miraculously doesn’t bid up prices for scarce resources. The theory sounds more like a belief than science — something that must be trusted rather than demonstrated. Specifically, MMT ideology is built on mathematical relationships between economic variables like private and public savings and debt rather than a strong theoretical construct, and breaks down quickly when analyzed with sound economic theory. Moreover, these relationships seem to be used to derive a funding mechanism for their big-government policy goals, such as a federal jobs guarantee, universal healthcare, and other costly initiatives. How Taxation Might Stop Inflation But MMT is not entirely wrong on using taxation to stop inflation. If those taxes are used to pay for deficit spending — which really should be done by spending less — rather than the Fed financing it, then higher taxes can lower inflation. But that is far too nuanced of an explanation for MMT, which paints in much broader brushstrokes. Regardless, MMT cannot dispel the hard truths of monetary policy, which is inflation comes from one place — the Fed. When the Fed creates money faster than the real economy grows, prices will rise; it’s that simple. To alleviate the uncertainty and distortions across the economy of bad policies in Washington, there should be binding fiscal and monetary rules based on sound economics instead of ideology. This should include changing government spending by less than the growth in personal incomes and only changing the money supply to keep prices stable. Almost two years after President Biden declared “Milton Friedman isn’t running the show anymore,” the late economist is clearly the one with the last laugh. Perhaps next time, the president will think twice before speaking ill of the dead. https://www.texaspolicy.com/the-real-cause-of-inflation-is-insane-government-spending/ The media is quick to explain away the runaway inflation that is squeezing American families and darkening the prospects of Democrats in the upcoming midterm elections. “The U.S. economy has been hit with increased gas prices, inflation, and supply-chain issues due to the Ukraine crisis,” CBS News tweeted on Tuesday. Its article went on to claim, “Although many Americans may prefer that the U.S. stay out of the conflict between Russia and Ukraine, the brewing violence and political fallout are already hurting their wallets.” Americans know better—because each of these problems has been worsening ever since President Joe Biden took office in January 2021. The West Texas Intermediate crude oil (WTI) price is up 98% since January 2021. Yet WTI is essentially flat since the White House warned that Russia would soon invade Ukraine on Feb. 11. On that day, WTI sold for $93 per barrel. On Tuesday, it closed at $92. It just goes to show that the Biden administration (and its allies in the media) will try to blame anything except its own bad policies. https://www.texaspolicy.com/you-cant-blame-ukraine-crisis-for-rising-inflation-gas-prices/ |
Vance Ginn, Ph.D.
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