Originally published at The Hill.
Former President Donald Trump’s proposal to exempt tips from federal income and payroll taxes might sound like a windfall for service workers, but it’s a costly illusion that undermines fair tax policy and economic efficiency. This plan, proposed as legislation by Sen. Ted Cruz (R-Texas), designed to appeal to a crucial voter base, exacerbates inequities and distorts the tax system. There’s a better way. The core problem with exempting tips from taxes is that it narrows the tax base, leading to potential hikes in overall tax rates on tipped workers and everyone else to compensate for deficit spending. A broad tax base with low rates is essential for minimizing economic distortions and spreading the tax burden fairly. Narrowing the base by exempting tips would shift the burden to non-exempt income earners, creating an uneven playing field and violating sound tax policy. This proposal picks tipped workers as winners over everyone else, incentivizing more tipped jobs and payments. Today, nearly every payment app prompts users for tips, a practice that could proliferate further under such a tax exemption. This disrupts consumer behavior and distorts the labor market by artificially boosting the attractiveness of tipped positions over other roles, regardless of the actual economic value they generate. Moreover, this policy would discourage employers from raising the base wages of tipped employees. The federal minimum wage for tipped workers has stagnated at $2.13 per hour since 1991, and making tips tax-exempt might reduce the pressure to increase this base wage by employers, harming the workers it aims to help. Fiscal implications are significant. Estimates suggest exempting tips could reduce federal revenue by $150 to $250 billion over a decade. This shortfall requires higher taxes on other income forms or cuts to public services. Additionally, the potential for increased tax avoidance, as employers and employees reclassify wages as tips, would complicate tax administration and enforcement. A more effective approach would be to make the individual income tax cuts from the 2017 Tax Cuts and Jobs Act permanent, as they expire next year. Coupled with broadening the tax base and lowering rates, this would create a more efficient and equitable tax system. Reducing or eventually eliminating corporate income taxes could stimulate investment and economic growth, benefiting a broader range of Americans. Milton Friedman, the renowned free-market economist, advocated for a broad-based tax system with low rates and minimal exemptions. His philosophy centered on minimizing government intervention and ensuring tax policies do not distort economic decisions. Focusing on permanent tax cuts and broader reforms can create a more robust and fair economic environment that truly benefits all workers. Addressing excessive government spending, which has contributed significantly to our fiscal crisis, is also crucial and missing from Trump’s proposal. Neither Trump nor many Republicans seem to be advocating for significant spending cuts these days. Committing to reducing government expenditures would help manage the fiscal crisis and boost economic growth and prosperity by leaving more resources in the hands of individuals and businesses. While Trump’s proposal might seem appealing, it fails to address deeper issues within the tax system and the labor market for service workers. A broad-based tax system with low rates and minimal exemptions and less government spending is a more equitable and efficient approach that would support more prosperity than exempting tips from federal taxes.
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Originally published at Kansas Policy Institute.
Recent Internal Revenue Service (IRS) data underscore a significant trend: people and income continue moving from high-tax to low-tax states. The pandemic lockdowns accelerated this movement, and even as life returns to a semblance of normalcy, the exodus continues unabated as policies matter. The IRS reports migration data between states reveal that in 2022, California topped the list of net losers in adjusted gross income (AGI), shedding $23.8 billion. Other high-tax, blue states, New York, Illinois, New Jersey, and Massachusetts, were the biggest losers, collectively losing billions in AGI. Conversely, low-tax, red states like Florida, Texas, South Carolina, Tennessee, and North Carolina emerged as the biggest net gainers, with Florida alone attracting $36 billion in AGI. According to the Wall Street Journal, the flight from blue, high-tax states far surpasses pre-pandemic levels. California’s income loss in 2022 was nearly three times that of 2019. New Jersey saw a record net income loss, largely due to fewer New Yorkers relocating across the Hudson River. Although lower than during the pandemic, New York’s AGI loss was still about 50% higher in 2022 compared to 2019. This migration pattern illustrates a clear preference for states with lower taxes, less regulation, and more business-friendly environments. The top income-gaining states share common pro-growth policies that promote economic growth, highlighting the significant impact of state policies on migration decisions as people move with their feet. Kansas: A State of Concern For Kansas, the story is one of consistent outmigration. The net loss from domestic migration in 2022 marked the 28th out of the last 30 years, with a staggering loss of over $600 million and more than $2 billion over the last five years. This represents the second-highest loss in three decades, second only to 2017 when the state imposed its highest tax increase. The average state outmigration loss in Kansas, about $76,000 per return, indicates a broad spectrum of incomes are leaving. Moreover, Kansas’ biggest gains came from higher-tax states, and its losses went to lower-tax states. Johnson County, often hailed as Kansas’s economic engine, accounted for over half of the state’s AGI loss at $357 million in 2022. This marks the fifth out of the last six years that Johnson County has experienced a net loss. Despite having about 20% of the state’s population, it has borne a disproportionate share of the AGI loss, which coincides with efforts to shift the county politically left and impose significant property tax hikes that reduce affordability. Considering data from the Kansas Policy Institute’s Green Book and the Tax Foundation, it becomes clear that Kansas is not alone in facing these challenges. However, the extent of the problem in Kansas is particularly alarming compared to other states. The IRS data indicate that while many states have rebounded or stabilized post-pandemic, Kansas continues to struggle with significant outmigration. Economic and Policy Implications for Kansas The significant outmigration from Kansas has several implications:
Kansas’s Path to Prosperity In response to these challenges, Kansas must adopt a comprehensive approach that includes responsible budgeting, tax relief, and the removal of barriers to work and education. Here are some key policy recommendations:
Addressing Migration Trends The migration trends underscore the importance of adopting free-market, pro-growth policies prioritizing economic freedom and personal responsibility. Kansas can learn from states that have successfully attracted residents and income by implementing policies that reduce the size of government, lower taxes, and eliminate burdensome regulations. The continued outmigration from Kansas highlights the urgent need for policy reforms that can reverse this trend. By learning from the successes of states that have managed to attract people and income, Kansas can chart a path toward a more prosperous future. Addressing the underlying issues driving residents away is crucial to ensuring the state’s long-term economic stability and growth. Originally published at AIER.
The push for a carbon tax has regained popularity as the fiscal storm in 2025 and climate change debates intensify. Advocates claim it’s a solution to pay for spending excesses while reducing greenhouse gas (GHG) emissions. But a carbon tax is a misguided, costly policy that must be rejected. A carbon tax functions more like an income tax than a consumption tax, capturing all forms of work, including capital goods production and building construction. These sectors are heavy on carbon emissions, meaning the tax disproportionately burdens them, stifling investment and innovation — much like a progressive income tax, but with broader economic repercussions. For example, in the US, the construction sector alone accounts for about 40 percent of carbon emissions. A carbon tax would heavily penalize this industry, reducing its capacity to grow, generate new housing, and create jobs. Moreover, implementing a carbon tax involves massive administrative costs. The federal tax code is already complex and costly; a carbon tax would exacerbate these issues. Determining net carbon emissions is a nuanced process subject to ever-changing and arbitrary federal definitions, increasing compliance costs for businesses and consumers. A study by the Tax Foundation found that a carbon tax would cost billions of dollars annually in administrative costs, a burden that would ultimately fall on consumers through higher prices, less economic activity, and fewer jobs. The US economy is already suffering from regulatory costs of $3 trillion annually, including many energy-related restrictions, and the Biden administration has added more than $1.6 trillion in regulatory costs since taking office. One core principle of free-market capitalism is that it comes with limited government. A carbon tax contradicts this principle by expanding governmental regulation of everyday economic activities. The tax revenues would also enable further overspending, though that’s questionable given the supposed purpose of the tax is to reduce carbon emissions and, therefore, the taxes collected. Furthermore, a carbon tax could favor certain production methods over others, disrupting the level playing field that free markets thrive on and leading to inefficiencies and market distortions. The government picks winners and losers by favoring specific methods, undermining competition and economic growth. Renewable energy projects are likely to receive preferential political treatment, skewing investments away from the market’s more efficient, practical technologies. Pigouvian taxes, aimed at correcting negative externalities, are often cited to support a carbon tax. These taxes are named after economist Arthur Pigou and are designed to correct the negative effects of externalities by imposing costs equivalent to the external damage. But they can be counterproductive as they are bound to be the wrong tax rate, distorting economic activity. Carbon taxes fail to account for complex economic interactions and unintended consequences. The PROVE It Act, for instance, proposes a new carbon tax framework but lacks a clear, consistent, and scientifically sound basis for implementation. This uncertainty raises the stakes for economic disruption and consumer cost increases. Another critical issue in the carbon tax debate is ‘who decides?’ Climate science is ever evolving, and economic models predicting the outcomes of carbon taxes are fraught with uncertainties. Placing high costs on consumers based on unsettled science and unpredictable economic impacts is not a prudent policy approach. We should promote voluntary measures and technological advancements that naturally reduce emissions through market activity. Importantly, the EPA does not consider carbon dioxide a harmful pollutant in the traditional sense, as it is essential for life. We need carbon dioxide to breathe and enjoy a fulfilling life. This further questions the rationale behind taxing carbon emissions, as it imposes undue economic strain in an attempt to regulate a naturally occurring and necessary element. Even if America hadn’t been doing better than other countries that joined the Paris Treaty for goals on carbon emissions, China (and India) aren’t interested, thereby putting more of the unnecessary cost of reducing these emissions on Americans. Moreover, the cost of carbon taxes can be significant. Increasing production costs leads to higher prices for goods and services, disproportionately affecting low- and middle-income households — especially when they already suffer from high inflation. This regressive nature undermines its purported environmental benefits, placing a heavier burden on those least able to afford it. For example, a $50-per-ton carbon tax could increase household energy costs by up to $300 annually, hitting hardest those who can least afford it. Countries implementing carbon taxes, like some in Europe, have seen mixed results. Emissions reductions have been minimal, while economic growth has been hampered. These policies often result in job losses and decreased global competitiveness, showcasing the unintended consequences of such interventions. For instance, France’s carbon tax led to widespread protests and economic disruption, illustrating such policies’ social and economic challenges. While the intention behind a carbon tax — to reduce American GHG emissions in an effort to combat global climate change — is questionable in itself, the economic realities and principles of free-market economics prove it is a flawed approach. With the fiscal storm likely coming next year, Congress should just say no to the PROVE It Act and the carbon tax in general. The bottom line is that increasing the government’s footprint through such a tax is neither conservative nor market-oriented. Instead, we should focus on market-driven solutions that encourage innovation and efficiency without imposing heavy-handed regulations. Originally published at Kansas Policy Institute.
Kansas has been simmering in economic stagnation for decades, trailing behind national averages in job growth, population increases, and economic growth. Like a poorly tended grill, high taxes and selective business subsidies have smoked out potential growth, leaving stagnation rather than sustenance. From 1979 to 2022, Kansas’s private job growth was just 53% compared to the national average of 88%. Imagine the vibrancy of having an additional 451,000 jobs in the state—jobs that could have been fostered with more competitive tax policies. Kansas has seen a net exodus of nearly 198,000 residents since 2000, driven away by an unwelcome tax environment. The states with the lowest tax burdens saw an influx of 4.6 million people from domestic migration during the same period, while the high-tax states watched 10.7 million residents pack up and leave. According to recent IRS data, Kansas lost $2.1 billion in adjusted gross income due to people moving elsewhere since 2017. The Kansas Policy Institute’s Green Book shows per capita spending of $4,941 in 2022 was substantially higher than in states with no personal income taxes ($3,283) and the ten best economic performance ($3,543). States with lower tax burdens have had better job growth and economic activity. Between 1998 and 2022, the ten states with the lowest state and local tax burdens averaged 51% growth in private-sector employment versus 34% for the ten states with the highest burdens. Kansas, ranked 44th during this period, achieved just 16% growth. Furthermore, Kansas’s high spending per person translates to higher taxes, ultimately burdening its citizens and hampering economic growth. More recently, Kansas’s unemployment rate ticked up to 2.9% in May 2024, a slight increase but a revealing one. The total nonfarm payroll employment saw a marginal uptick by 100 jobs. Beneath this weak report, there was more weakness as the private sector lost 300 jobs while the government added 400 jobs. This isn’t growth; it’s a reshuffle at a high cost to private-sector workers. Over the past year, Kansas has seen an overall increase of 24,000 jobs, with the private sector contributing 18,700 and the government sector adding 5,300, or about 20% of the total. During the recent special session, the Legislature passed several measures to boost the state’s economic prospects. One notable legislative action was passing a multi-billion dollar STAR bond to attract major sports franchises, especially the Chiefs and Royals from Missouri, just a few miles away. Investing in sports is like predicting Kansas weather—unpredictable and always exciting. There is potential for economic rain, but this will likely put you in a financial storm instead. Moreover, the recent special session saw efforts to provide broad tax relief, with the key being reducing tax brackets from three to two, which is a correct step toward a flat income tax. These changes could significantly impact Kansas’s economic landscape, reducing the tax burden and potentially helping grow the economy. However, the effectiveness of these measures will depend heavily on their implementation and the accompanying fiscal restraint. Flattening the income tax would transform Kansas from a flyover state into a destination. This move would simplify the tax code, making it fairer and less of a headache—because the only thing Kansans should worry about rising are the sunflowers. Kansas has also flirted with property tax relief with KPI promoting a constitutional amendment to limit appraisal valuation increases, which has broad support. The same or separate constitutional amendments should limit property tax levies, which cover the product of appraisals and tax rates, and cap state and local government spending to the rate of population growth plus inflation. The latter would best limit the true burden of government in the form of spending, providing predictability and stability for homeowners and businesses alike. Kansas is sitting on a $4 billion reserve—it’s like having a savings account when you’re deep in credit card debt. Responsible budgeting ensures fiscal sustainability and prevents the state from falling into the cycles of budget shortfalls and hasty tax hikes that have plagued it in the past. By following this approach, over-collected taxpayer money called a “surplus,” can be returned by cutting a flat income tax rate. This can be achieved by spending on essential services outlined in the state’s constitution, providing opportunities for strategic budget cuts and growth of no more than the rate of population growth plus inflation. This balanced approach helps ensure fiscal sustainability without compromising essential services. By implementing bold tax reforms and adopting a disciplined approach to spending, Kansas can pave the way for a prosperous future. These measures will create an environment conducive to job creation and economic competitiveness, ensuring that Kansas becomes a place where businesses thrive, and residents enjoy a higher quality of life. Originally published at Dallas Morning News.
More conservatives are likely to be elected to the statehouse in November. This is a historic opportunity in 2025 to enact a new budget that provides property tax relief, empowers all families with universal school choice and puts state spending in Texas on a more sustainable trajectory in 2025. Texas, in a nation grappling with unsustainable government spending, stands out for its relative fiscal restraint and economic dynamism. However, despite historically prudent budgetary policies, Texas lawmakers enacted the largest two-year budget increase last year and the second-largest property tax relief measure (though many claimed it was the largest). According to the Sustainable Budget Project by Americans for Tax Reform, Texas, unlike the federal government and the vast majority of states, has done better at aligning its budget growth with the average taxpayer’s ability to pay for government spending, as measured by the rate of population growth plus inflation. Over the past decade, federal spending has escalated by an astonishing 81.7%, nearly quadrupling the 23.2% rate of population growth plus inflation, according to Americans for Tax Reform data. In stark contrast, Texas has exhibited fiscal restraint, ensuring its spending did not spiral out of control. The implications of such fiscal prudence are profound. If the federal government had followed the sustainable budget approach from 2014 to 2023, it could have saved taxpayers an estimated $2.1 trillion in 2023 alone. Texas’ measured approach during this period allowed the state to spend and tax $22.0 billion less than it might have otherwise, benefiting taxpayers and the broader economy. The recent and uncharacteristic budgetary excesses in Texas diminish the capacity for property tax relief. Further property tax reform is crucial. Property taxes are unfair, burdensome, and they keep people renting from the government by paying property taxes forever. The competitive landscape is also evolving, with states like North Carolina and Florida thriving by implementing aggressive tax cuts and regulatory reforms. Texas must respond by intensifying its commitment to pro-growth policies and fiscal conservatism if the Lone Star State is to maintain economic leadership. A constitutional spending limit, similar to Colorado’s Taxpayer Bill of Rights, would help put state spending in Texas on a sustainable trajectory. Even in a blue state where progressives are in charge, this measure has effectively kept state and local spending in check. Its adoption in Texas would ensure that state and local budgets grow in line with the average taxpayer’s ability to pay. To truly distinguish itself, Texas should consider a strategic overhaul of its tax system, particularly in property taxes. With no personal income tax, Texas could relieve property holders of a significant financial burden by eliminating school district maintenance and operations property taxes. This shift, funded through better-controlled state and local government spending, could transform the economic landscape for homeowners and businesses. The state could achieve this monumental feat by using the resulting surpluses from spending restraint to reduce school district M&O property tax rates, aiming to phase them out over the next decade. The Texas Legislature already controls the school finance formulas so this property tax is mostly “local” in name only, and legislators have been phasing it down in recent years. It’s possible to reduce and even eliminate truly local property taxes by cities, counties, and special purpose districts through spending restraint that would produce surpluses, which can then be used to drive property tax rates down to zero over time. Some localities would take longer than others to accomplish this, but as people vote with their feet to places without property taxes, other local governments would look for ways to eliminate theirs. The result would be less government spending and little to no property taxes in Texas. This shift in a pro-growth direction would enhance homeowners’ financial freedom and support more economic growth through increased personal savings and business investment. Texas’ economic policies have historically positioned the state as a leader in job creation and financial freedom, helping to achieve record economic growth, job growth and in-migration. However, the path forward requires conserving and enhancing these policies. Texas must adapt to the changing economic landscapes by fostering a more favorable business climate, reducing governmental interference, and revamping its tax system to maintain and strengthen its competitive status. By prioritizing spending restraint, strategic tax relief and universal school choice, Texas can secure a prosperous economic future and set a standard for budgetary sustainability. Grover Norquist is president of Americans for Tax Reform, a taxpayer organization founded in 1985 at the request of President Ronald Reagan. Vance Ginn is a senior fellow at ATR, president of Ginn Economic Consulting, and previously served in the White House’s Office of Management and Budget. Originally published at AIER.
The US economy faces numerous challenges, exacerbated by policy uncertainty and excessive government intervention. Milton Friedman famously said, “If you put the federal government in charge of the Sahara Desert, in five years there’d be a shortage of sand.” This sharp observation underscores the inefficiencies often associated with government intervention. Instead, we should advocate for free-market solutions that empower individuals and businesses to drive innovation and growth. Election years heighten policy uncertainty, driving economic volatility. Businesses and investors become cautious, waiting to see which policies will prevail. This hesitation can slow economic activity, affecting job creation and investment in new projects. More than half of Americans think we are in a recession even when the headline data say otherwise, reflecting a disconnect between reported statistics and personal experiences. Policy uncertainty during election years exacerbates these issues. The upcoming elections could significantly impact economic policies, depending on the direction taken by the administration. Whether it’s Biden’s continued interventionist policies or a shift under Trump, the stakes are high. Businesses, investors, and consumers are left guessing, which stalls responsible decision-making and hampers economic growth. The recent meeting of the Business Roundtable highlighted these concerns as both Biden and Trump pitched their economic visions. According to the Tax Foundation, Biden’s tax plan, which includes increases on corporations and the wealthy, could reduce GDP by 2.2 percent and eliminate 788,000 jobs over time. On the other hand, Trump’s tariff proposals that hike taxes on Americans would have economic consequences, increasing consumer prices and reducing household incomes. The Federal Reserve’s decisions also play a crucial role in shaping the economic landscape. Recent hikes in interest rates to curb inflation have added another layer of uncertainty. Higher borrowing costs can dampen consumer spending and business investment, slowing economic growth. The Fed’s policy trajectory remains uncertain, contributing to a cautious outlook among businesses and investors. Biden’s regulatory approach further complicates matters. His administration has introduced numerous regulations affecting various sectors, from energy to finance. While intended to address climate change and market stability, these regulations often have significant compliance costs and operational challenges. The regulatory burden can stifle innovation and deter investment, particularly in industries struggling with economic headwinds. Another key aspect is the role of institutions. Friedrich Hayek, in his seminal work “The Road to Serfdom,” cautioned against the overreach of central planning. He emphasized that central planning often leads to inefficiencies and a loss of individual freedoms. His insights are particularly relevant today as we navigate the complexities of modern economies. To truly flourish, governments should embrace free-market capitalism and resist the creeping influence of socialism. This principle applies across sectors. By focusing on the efficient use of resources, reducing regulatory burdens, and fostering competition, we can build a more prosperous future. The bottom-up approach ensures better utilization of resources and empowers entrepreneurs, businesses, and local communities. Policies such as eliminating unnecessary regulations, reducing corporate tax rates, and promoting school choice are vital. These policies drive economic growth and ensure that resources are used where they are most needed. Policy uncertainty during election years can create a precarious economic environment. Given the numerous issues in Washington, states must lead the way in our system of federalism. The increasing divergence between red and blue states on taxes, labor, and education highlights this trend. Red states cut taxes and promote business-friendly policies, while blue states often expand government programs. This divergence allows states to set examples of effective governance through free-market principles. By reducing regulatory burdens, passing sustainable budgets, and fostering competition, states can mitigate some national policy uncertainties that stall economic progress. The next big step in federalism involves states innovating beyond traditional policies. For instance, states should focus on restraining government spending, eliminating bad taxes like income taxes, and reducing onerous regulations. Policies promoting school choice can also drive education reform and better outcomes, ensuring that all children have access to quality education regardless of their socioeconomic background. In addition, more freedom in technology and innovation should be ensured to support the next big revolution that improves our lives and livelihoods. To move forward, we must build from our past experiences and rise to overcome obstacles. We can foster innovation and resilience by acknowledging and learning from our failures. It’s essential to recognize that failure provides valuable lessons and opportunities for growth. Expanding government intervention in response to failures often stifles this learning process and leads to greater inefficiencies. Policy uncertainty during election years can create a precarious economic environment. States must lead the way in our system of federalism, setting examples of effective governance through free-market principles. By passing sustainable budgets, reducing regulatory burdens, and fostering competition, states can mitigate some national policy uncertainties that stall economic progress. Let’s leverage the strengths of the free market, prioritize efficiency, and ensure that our policies truly benefit Americans. By embracing free-market principles, reducing regulatory burdens, and fostering competition, we can pave the way for a stronger and more prosperous America. Together, we can build a future where smart policies and strong institutions that support life, liberty, and property pave the way for economic resilience and growth. Originally published at Mackinac Center.
Michigan’s economic health and fiscal policies are critical for its future prosperity. Understanding where the state stands in various economic freedom measures can help identify areas for improvement and guide policy decisions. Fraser Institute Rankings The Fraser Institute publishes the Economic Freedom of North America index, which evaluates how states' policies support economic freedom. The index considers three main areas: government spending, taxes and labor market regulations. Higher scores indicate greater economic freedom. In the latest report, Michigan ranks 31st in economic freedom among U.S. states. This ranking reflects areas where Michigan lags in supporting economic freedom and highlights opportunities for policy improvements. Government Spending: This component measures the size of government relative to the economy. Lower government spending relative to GDP indicates more economic freedom. Michigan ranks 28th, suggesting a need to control spending better. Taxes: This component assesses the impact of taxes on economic incentives. Higher tax burdens discourage investment and economic activity. Michigan ranks 19th, indicating room for tax reforms to enhance economic freedom. Labor Market Regulations: This component examines labor market regulations, such as minimum wage laws and forced membership in a labor union. Stricter regulations can reduce economic freedom by limiting the flexibility of labor markets, thereby making it more difficult for employers and employees to find the best fit for each other. Michigan ranks 38th, so improving labor market regulations can help Michigan enhance its economic freedom ranking — improving opportunities for employers and employees alike. Economic Factors Labor Market: The latest BLS data shows Michigan’s unemployment rate is 3.9%, the same as the U.S. rate. But the number of employed persons increased by only 0.9% over the past year, half the national growth rate of 1.8%. The slower hirings highlight the need for more job opportunities from faster economic growth in Michigan. Employment Trends: According to the Michigan Labor Market Information, the state has seen slow employment growth, with particular struggles in industries such as manufacturing and financial activities. This emphasizes the need for pro-growth policies to make it easier for businesses to grow, leading to more and better-paying jobs. Labor Force Participation Rate: Michigan’s labor force participation rate — the share of people ages 16 and over working or seeking work — is 61.7%. That’s lower than the national average of 62.3%. If you, as a consumer, find fewer employees when you need to talk to someone at a business, that’s an example of why the participation rate matters. Wage Growth: Wage growth in Michigan has been slower than the national average, affecting the economic well-being of its residents. Path to Improvement Tax Reform: Lowering tax rates can support economic growth and attract business investment. Reducing the state income tax and exploring other tax reforms can make Michigan more competitive with other states. A more favorable tax environment can increase business activity, job creation and wages. Regulatory Efficiency: Streamlining regulations can reduce the burdens businesses face. By simplifying regulatoryprocesses and reducing bureaucratic hurdles, Michigan can make it easier for businesses to start and grow, leading to a more vibrant economy with more goods and services available. Spending Discipline: Implementing strict budgetary controls can ensure that spending growth does not exceed the combined rate of inflation and population growth, maintaining the state government’s fiscal stability. Michigan can achieve long-term fiscal health by focusing government spending on areas with the largest impact and eliminating wasteful spending. Labor Improvement: Reinstating a right-to-work law will lead to more jobs. By addressing its economic and fiscal policy weaknesses, Michigan can improve its rankings and create a more robust and dynamic economy. Sustainable budgeting, tax reform and regulatory efficiency are key to unlocking Michigan’s economic potential. By implementing these strategies, Michigan can enhance its economic freedom, attract investment and ensure long-term prosperity for its residents. Originally published at AIER.
As 2025 draws near, America teeters on the brink of a fiscal abyss. This impending fiscal cliff, marked by the end of tax cut provisions and a spending crisis, calls for immediate and decisive action by Congress to avert a worse economic situation than the one Americans feel today. The national debt from excessive government spending is on track to surpass $35 trillion soon, a stark increase of nearly $10 trillion since 2020. This level of debt per citizen exceeds $100,000; per taxpayer, it is nearly $267,000. Such figures are not just numbers but represent a looming burden that future generations will bear — a burden that transcends mere fiscal policy and ventures into the realm of ethical responsibility. The gravity of this debt is exacerbated by the interest payments it necessitates, which have soared to over $1 trillion annually, surpassing what the country spends on national defense. This situation illustrates a troubling scenario where the government, to manage its debt, resorts to issuing more debt, a practice unsustainable by any standard measure of sound budgeting. The economic repercussions of this cycle of debt are profound, leading to higher interest rates, likely increased inflation, and a misallocation of resources that stifles productive private sector activity. Amidst these challenges, the Tax Cuts and Jobs Act (TCJA) provisions, set to expire in 2025, play a pivotal role. These tax cuts have been instrumental in supporting economic activity across all income brackets by reducing their tax burden. If these cuts expire, they could reverse the economic gains achieved, reducing disposable income, dampening savings and investment, and contributing to an economic downturn in an already fragile economy. The cessation of these benefits would particularly impact families who have benefited from the near doubling of the standard deduction and enhancements to the child tax credit. Furthermore, the expiration of the $10,000 cap on state and local tax (SALT) deductions could have mixed effects; while it may benefit taxpayers in primarily blue, high-tax states, it complicates the fiscal landscape significantly. A balanced approach would be to maintain the increased standard deduction while simplifying the tax code further by eliminating complex provisions like the SALT deduction and the child tax credit, promoting a flatter, more equitable tax system with one low tax rate for everyone. This would also support more economic growth that, combined with spending less, can quickly get our fiscal house in order. This fiscal predicament is further complicated by President Biden’s commitment not to raise taxes on those earning less than $400,000 annually. This promise will be difficult to keep if the TCJA provisions expire without appropriate legislative adjustments, further imperiling his dwindling reelection hopes in November. This situation and recent tariff impositions that affect all income levels would represent a double blow to American taxpayers, dampening economic prospects. As we face these fiscal upheavals, the discretionary spending caps and the debt ceiling, due to expire in 2025, add complexity to an already challenging budgetary environment. The US risks a severe budgetary crisis without thoughtful reform, particularly in the so-called “entitlement programs” like Social Security and Medicare, which consume a substantial portion of the federal budget. These areas must be addressed because both will be essentially bankrupt over the next decade, and millions of recipients will face substantial cuts in benefits. Given all these challenges, fiscal and monetary rules are paramount. Congress should implement a fiscal rule after cutting federal spending to at least the pre-lockdown level in 2019. Implementing rules like the Sustainable American Budget, which caps federal spending based on population growth plus inflation, could provide a sustainable path forward. This approach, supported by Americans for Tax Reform along with the economic insights of Alberto Alesina and John Taylor, advocates for austerity focused on spending restraint and economic growth rather than tax hikes, as some on the “new right” have recently advocated. Regarding a monetary rule, the Fed should return to a single mandate of price stability, cut its bloated balance sheet to at least the pre-lockdown level in 2019, and adopt a strict rule that ideally would be on the growth of its monetary base. These steps would help reduce persistent inflation and remove the extraordinary distortions throughout asset prices and the production process because of years of quantitative easing and low interest rates. Combining these monetary and fiscal rules would provide the necessary checks and balances to give the economy time to heal from massive government failures and help support a stronger institutional framework for economic growth and individual flourishing. Moreover, the regulatory environment has grown increasingly burdensome under the Biden administration, with an estimated $1.6 trillion in new final rules imposed since President Biden took office through May 2024. These rules have been applied across the economy, including financial decisions based on ESG factors influencing the energy sector to increase car emission standards influencing the auto sector. But these ultimately influence producers’ and consumers’ costs of many goods and services. Removing the burden on Americans would unleash economic growth, helping with the fiscal and economic headwinds. The bad policies out of DC have created a dire fiscal and economic situation moving into 2025. If the Trump tax cuts expire, excessive spending will continue unabated, and corrective monetary policy will not happen. Uncertainty and expectations alone will result in a hard landing in the economy, job losses, and elevated inflation. Given the last four years of declining purchasing power for millions of Americans, this result is unacceptable, and the idea of raising taxes to attempt to solve this is naive. Instead, the US must leverage this crisis as an opportunity for sweeping reforms. By returning to principles of fiscal responsibility and market-driven activity, America can navigate away from the fiscal abyss and toward a future of economic stability and prosperity. Though fraught with challenges, this moment offers an unparalleled chance to reshape America’s fiscal landscape, ensuring a legacy of growth and stability for future generations. Originally published at Mackinac Center.
Michigan’s economic and fiscal future hinges on adopting sustainable budgeting practices. Insights from other states show the tangible benefits of fiscal restraint, efficiency, and lower taxes. By examining how other states have managed their budgets, Michigan can learn valuable lessons in improving its fiscal health and thus secure a prosperous future. In 2023, Americans for Tax Reform launched its Sustainable Budget Project. This project monitors state government spending and tracks which states have enacted “sustainable budgets.” The Sustainable Budget Project defines a sustainable budget as one that grows no more than a specific rate: the inflation rate plus population growth, as expressed as a percentage. This project is similar to Mackinac Center’s Sustainable Michigan Budget. For comparison, Texas has focused on fiscal discipline and low taxes, creating a business-friendly environment that attracts investment. It has kept government spending in check, which fosters an environment conducive to economic growth. As a result, it projects a $21 billion surplus next year despite the recent large budget increase. In contrast, California faces a significant economic challenge due to high taxes and heavy spending habits. With the state facing an upcoming budget deficit of at least $45 billion, Gov. Gavin Newsom has proposed painful spending cuts to various social programs. This development highlights the risks of unsustainable budgeting. California relies on volatile revenue sources (especially a progressive income tax with high rates) and has failed to implement spending discipline, leaving it in a precarious fiscal situation. Other states, such as Alaska, Colorado, North Dakota, Oklahoma, Texas and Wyoming have kept spending growth below the rate of population growth plus inflation over the last decade. They’ve maintained lower taxes and enjoyed better economic health even though most of these depend partially on volatile oil and gas activity. These states have demonstrated that sustainable budgeting can lead to greater economic stability and improved quality of life for residents. Their commitment to fiscal discipline has allowed them to weather economic downturns more effectively and avoid severe budget shortfalls. Implications for Michigan Michigan's budget growth outpaces both inflation and population growth, placing a heavy burden on taxpayers. Officials can reduce this burden by adopting sustainable budgeting practices like those of successful states. This will support more economic growth and attract businesses. Sustainable budgeting can also enhance Michigan’s economic resilience, making it less susceptible to economic shocks and fiscal crises, which have historically burdened oil and gas states. The benefits of sustainable budgeting extend beyond fiscal stability. By reducing unnecessary spending and lowering taxes, Michigan can increase disposable income for families, encourage consumer spending, and boost total economic activity. This can lead to more jobs, higher wages and improved living standards for all Michiganders. To achieve sustainable budgeting, Michigan should implement strict budgetary controls, such as spending caps and mandatory budget reviews. Additionally, the state should focus on long-term fiscal and economic health by eliminating wasteful spending, increasing spending prudently and reducing tax burdens. Transparency and accountability in the budget process are also crucial for spending taxpayer money wisely. Sustainable budgeting is not just about balancing the budget — it's about ensuring a brighter future for all Michiganders. By adopting best practices from other states, Michigan can become a model of fiscal discipline and economic vitality, providing a stable and prosperous environment for its residents and future generations. Originally published at AIER.
Both major presidential candidates, Joe Biden and Donald Trump, have leaned towards protectionism, a stance recently echoed by Terry Schilling in The American Conservative. Unfortunately, this perspective misses the mark. Protectionism is not the solution to revitalize American manufacturing or the economy. The real culprits are flawed internal policies — excessive government spending, high taxes, and stringent regulations — that stifle growth and innovation. Politicians from both sides of the aisle often scapegoat countries like China and Mexico for the decline in US manufacturing. This narrative overlooks reality. Technological advancements and productivity gains are the primary drivers of change in manufacturing, and that’s a good thing for the many beneficiaries at the expense of the few. Industrial production in manufacturing has remained relatively flat, indicating stable output despite economic fluctuations, while manufacturing employment has declined significantly, reflecting the sector’s increased productivity and automation. In short, we don’t need as many hard jobs to provide the same output, and those displaced individuals can find better avenues to flourish, even with tough transitions. While it would be great if there were a way to protect everyone’s job, this is a fool’s errand resulting in control by politicians and bureaucrats in government at the expense of everyone else. Free-market capitalism is needed now more than ever, not big-government socialism, which is already sending us down the road to serfdom. American manufacturing’s decline is largely due to domestic policies that reject free-market capitalism, thereby hindering economic growth. Progressive policies have led to excessive government spending, high taxes, and overregulation. The federal government is spending about 25 percent of GDP and running nearly $2 trillion deficits, including paying about $1 trillion in net interest payments annually, even with record-high tax collections. Add to this how the Competitive Enterprise Institute reports federal regulations cost the US economy $1.9 trillion annually, equivalent to 7 percent of GDP. Spending and regulations shackle about one-third of our economy, creating perverse incentives for businesses and workers to compete and innovate. The Trump administration’s efforts to boost manufacturing through tariffs led to trade wars that aimed to bring jobs back to the US. These measures backfired, however, increasing costs for American businesses and consumers, as tariffs are just taxes on Americans. Manufacturing output saw little sustained improvement, and employment gains were modest and short-lived. Deficit spending, which contributed to an appreciated currency from foreigners’ demand for the US dollar, made it cheaper to purchase foreign goods, exacerbating the trade deficit. The trade deficit expanded even after Trump imposed tariffs on Chinese goods. Similarly, the Biden administration’s attempts to revitalize the sector through initiatives like the American Jobs Plan and the Inflation Reduction Act have yet to do more than drive up the deficit and prop up specific markets. Despite potentially good intentions, these policies have yet to deliver the promised results, often perpetuating the same issues of overregulation and high spending. The United States-Mexico-Canada Agreement (USMCA), which replaced NAFTA and mentioned in the piece, introduced more protectionist measures than its predecessor. The USMCA’s stringent labor and content rules have complicated trade and increased production costs, undermining its effectiveness in promoting free trade. These provisions counter what should have been done to promote more trade and prosperity. It is wise to remember that free trade has provided the best opportunities for people to prosper and has significantly reduced extreme poverty globally, including in China. America should not isolate itself from other countries, as we benefit from a growing global demand for our products and the supply of goods we can purchase from abroad. Consumers and producers in America are better off with more domestic and international trade. As we don’t want to produce everything we consume daily, trading with others is the most efficient way to meet our needs. Our national debt, driven by excessive government spending, is a significant economic burden. This debt will continue to grow without the resolve to cut spending and implement a strong spending limit. The Federal Reserve’s monetary policy, which has reduced purchasing power and higher inflation, also impacts manufacturing and should be regulated through a monetary rule. The PROVE IT Act aims to ensure that carbon emissions from imports are accurately measured. Still, the underlying assumption of a need to tax carbon dioxide — a necessary component of life — is flawed. Pigouvian taxes are problematic because they often target the wrong factors at incorrect tax rates, essentially serving as tools for government overreach rather than effective economic policy. The focus should be on minimizing government control over economic actions, which create more problems. A carbon tax or one of its spinoffs is a misguided attempt to control what the EPA doesn’t consider a pollutant, leading to worse outcomes for everyone, especially the poor. Another way to improve relationships with countries and put more collective pressure on China to liberalize while meeting the needs of consumers and producers in America would have been to approve a version of the Trans-Pacific Partnership (TPP). This trade agreement negotiated by the Obama administration allowed expanded free trade with 11 other Asia-Pacific countries (Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam). By partnering with multiple countries, America could have promoted free trade practices that fostered a more robust economic environment that competes with China, Russia, and other potential adversaries. The TPP, as detailed by the Council on Foreign Relations, aims to enhance trade and economic integration across the Asia-Pacific region, providing significant benefits to all member nations. The TPP would reduce tariffs, establish common trade standards, and open new markets for American goods and services, ultimately leading to greater economic growth and job creation at home. Unfortunately, Trump rejected the TPP when he took office in 2017 instead of trying to negotiate the TPP better. While America was left out, the other 11 countries joined trade agreements after TPP’s demise, a major setback for Americans that could have been avoided. Revitalizing American manufacturing requires addressing internal policy failures rather than blaming foreign competition. We can ensure long-term prosperity by reducing government interference, embracing free trade, and fostering a competitive environment. The better path forward with fewer trade-offs lies in free-market principles, which have the power to drive innovation, efficiency, and economic growth. It’s time to shift the focus from protectionism to fostering a robust, open market that benefits everyone. Originally published at Kansas Policy Institute.
As Kansas gears up for a special legislative session in two weeks, the state stands at a pivotal point. Governor Laura Kelly’s call to reconvene the legislature after vetoing three key tax relief bills this year, let alone what she vetoed previously, indicates the struggle to pass pro-growth policies. For Kansas to thrive, it must pursue significant income tax reductions complemented by responsible budgeting. Despite an appealing low unemployment rate of 2.8%, a deeper look at Kansas’ labor statistics reveals significant challenges. The labor force participation rate, the share of residents either working or actively looking for work, has dropped to a historic low of 66.1% since 1977, and the workforce has been flat since 2008. This stagnation points to a need for reform policies that do more than temporarily boost employment numbers—they must encourage sustainable work and investment. Current tax relief discussions, including proposals to eliminate the state’s 2% sales tax on groceries, reduce the current 20 mill state property tax levy for K12 education, and end the state income tax on Social Security benefits, though politically attractive, do not provide the necessary economic improvements as cutting personal income taxes:
In contrast, flattening and cutting income taxes would dramatically improve Kansas’s economic environment. As noted in a recent report by The Buckeye Institute for KPI, this sort of pro-growth tax policy in Kansas would make the state more attractive to entrepreneurs and skilled workers, fostering an ecosystem ripe for innovation and investment that increases economic growth and job creation across sectors, contributing to a wider tax base and more tax collections. Kansas must also embrace responsible budgeting for these tax cuts to be sustainable. The state should learn from the lesson of excessive spending during the last decade’s troubles, which led to deficits and foolish tax hikes. This can be achieved by spending on only limited roles outlined in the state’s constitution, providing opportunities for strategic budget cuts and growth of no more than the rate of population growth plus inflation. This balanced approach helps ensure fiscal sustainability without compromising essential services. The upcoming special session is a golden opportunity to initiate significant economic reforms. By adopting bold income tax cuts and responsible budgeting, Kansas can set a prosperity cycle that benefits all residents. This approach goes beyond temporary fixes to establish a solid foundation for future economic stability and growth, which can’t be achieved with the other proposals. Now is the time to implement visionary reforms that position Kansas as a smart, growth-oriented fiscal policy leader. This special session is ideal for Kansas to boldly step into a future marked by robust economic health and lasting prosperity. By seizing this moment to enact significant tax cuts and set the table for disciplined spending, Kansas can ensure its competitiveness and prosperity for generations. Let this session be remembered when Kansas took bold steps to secure its economic future, setting a precedent for fiscal responsibility and proactive economic strategies that lead to a flourishing state. Originally published at Daily Caller.
The Biden administration’s heavy regulation of America’s banking industry hinders economic growth and raises consumer costs. As FDIC Chair Martin Gruenberg faces scrutiny over the agency’s toxic workplace culture, lawmakers have a prime opportunity to address the broader issue of overregulation. Instead of focusing solely on internal misconduct, Congress should seize this moment to reduce the oppressive regulatory framework burdening financial institutions and the economy. The current banking regulatory environment is burdensome and counterproductive. Tens of thousands of pages of rules and guidance dictate banking operations and are treated as legally binding by U.S. regulators. Multiple agencies, including the Federal Reserve, FDIC, OCC, and CFPB often overlap and contradict each other, leading to confusion and inefficiency. This excessive regulation is an administrative burden and a significant barrier to economic prosperity. The Biden administration’s regulatory overreach is evident in the extensive presence of government examiners within banks. These examiners enforce ad hoc mandates that effectively dictate business decisions, and failure to comply can result in secret, unappealable ratings downgrades. This system creates a chilling effect, stifling innovation and growth. The annual stress tests conducted by the Federal Reserve impose the highest bank capital requirements globally. However, these tests rely on opaque models and unrealistic scenarios and are never subjected to public scrutiny. This significantly impacts how banks operate and adds to the regulatory burden. The lack of transparency undermines the credibility of regulatory agencies and results in unnecessary costs for banks, which are often passed along to consumers. Furthermore, the politicization of agencies such as the CFPB, FDIC, and OCC exacerbates the problem. These agencies increasingly pursue regulatory agendas through public relations stunts and policy announcements from the White House rather than through transparent processes. The predominantly progressive leanings of regulatory staff further bias outcomes against the banking industry, contributing to an environment in which financial institutions are unfairly targeted and overburdened with compliance costs. The economic consequences of this regulatory overreach are profound. As compliance costs soar, assets are migrating away from traditional banks, despite banks having access to deposits and being able to provide low-cost credit. This mainly affects community, mid-sized, and regional banks, which struggle with the high compliance costs of holding a banking charter. For all banks, high capital requirements and intense supervision increase the cost of lending, significantly impacting small businesses and low- to moderate-income individuals. This limits access to credit and slows economic growth. Reducing these excessive regulations would lead to significant gains in economic activity, highlighting the substantial benefits of reducing overregulation. The Biden administration’s excessively complex regulations, oppressive oversight, and politicized agenda stifle innovation, raise consumer costs, and hinder economic growth. Given these glaring issues, Congress should streamline regulations, increase transparency by requiring regulatory agencies to publish their models and scenarios for public comment, and ensure regulatory agencies operate independently of political influence. This would provide regulatory relief for community, mid-sized, and regional banks to enhance competition and access to credit. By reining these excesses in, Congress can unshackle the economy and promote a more competitive, dynamic financial sector that benefits all Americans. The potential rewards — a more prosperous, innovative, and dynamic America — make this a fight worth undertaking. Originally published at AIER.
In The Parent Revolution, Corey A. DeAngelis offers a compelling narrative that champions the transformative power of universal school choice in reshaping the American educational landscape. His detailed exposition on how school choice, especially through education savings accounts (ESAs), can fundamentally alter the trajectory of education makes this book an essential read for anyone interested in educational improvement, economic freedom, and societal betterment. Historical Context and Evolution DeAngelis pays homage to Milton Friedman, the intellectual progenitor of the school choice movement, and masterfully traces the evolution from Friedman’s voucher system to today’s more sophisticated ESAs. These accounts are not merely funds but keys to unlocking individual potential. By enabling parents’ direct financial control over their children’s education, ESAs facilitate a customized educational experience that can adapt to each student’s unique needs and aspirations. This paradigm shift from institutional funding to individual empowerment is more than a policy adjustment; It is a reclamation of educational agency. While my ideal situation would be for politicians and bureaucrats not to be involved in schooling or education, this seems unlikely in the short term, given some form of taxpayer-funded K-12 schooling is in the constitution of every state. We can, however, limit government involvement in education as much as possible. ESAs provide that path so parents are empowered to avoid a monopolistic government school system in favor of a more competitive market for education to meet their kids’ needs, whether that be government schools, private schools, homeschool, co-ops, tutoring, or something else. In short, we should “fund students, not systems,” as DeAngelis loves to say, and empower parents, not politicians and bureaucrats. Empirical Evidence and Societal Benefits DeAngelis uses abundant evidence to support the effectiveness of ESAs, detailing how states that have implemented these policies witness improved educational outcomes and broad societal improvements. In Arizona and Florida, for instance, where ESAs have been widely adopted, there has been a notable increase in student achievement and parental satisfaction. Moreover, he points to research indicating that school choice initiatives can reduce crime rates and support faster economic growth, underscoring the far-reaching impacts of educational freedom. Real-world examples and testimonials from families benefiting from ESAs add a poignant layer to his argument. These narratives are powerful, illustrating the flexibility of ESAs and their capacity to meet diverse educational needs — from specialized programs for the disabled to accelerated learning for the gifted. DeAngelis offers a scathing critique of the current public education system, which he rightly calls the “government school system,” focusing particularly on the disproportionate influence of teachers’ unions. He argues that they often prioritize adults’ interests over students’ educational needs, hindering reform and innovation. This critique highlights the entrenched resistance to school choice and positions ESAs as a solution for educational inefficiency and bureaucratic inertia. Moreover, he discusses the misallocation of resources in government schooling, where too much funding is absorbed by administrative overheads rather than being directed into classrooms. He advocates for a more efficient use of educational funds, where money follows the student rather than being tethered to potentially underperforming institutions. This book is not just an academic treatise but a practical guide for navigating and influencing the complex landscape of educational reform. It is a manifesto for those who believe in the power of education to elevate society and a toolkit for those ready to take part in this crucial endeavor. “The Parent Revolution” serves as a call to arms, providing readers with actionable steps for advocating school choice. DeAngelis outlines strategies for grassroots organizing, legislative engagement, and public persuasion, empowering readers to translate passive agreement into active participation in the educational reform movement. His vision extends beyond immediate educational outcomes. He envisages a society where educational freedom catalyzes lifelong benefits, preparing students not just for tests, but for life. His advocacy for ESAs is framed within a broader narrative of individual liberty and market efficiency. “The Parent Revolution” is a profoundly influential book that offers a clear, economically sound, and morally compelling case for universal school choice across America and the world. It is an indispensable resource for anyone interested in the intersection of education, economics, and policy. DeAngelis advocates for significant education reform and provides a detailed roadmap. His book reaffirms the critical role of choice and competition in improving education, making it a must-read for anyone interested in empowering parents and improving students’ educational outcomes. The key is, of course, to: “Fund students, not systems.” Originally published at The Center Square.
Iowa Gov. Kim Reynolds and the Republican-led Legislature have emphasized conservative budgeting as a central priority. Such prudence in budgeting is the cornerstone of fiscal conservatism, and the recent passage of the FY 2025 budget in Iowa highlights a commitment to fiscal restraint, albeit less stringent than in previous sessions. The newly approved $8.9 billion FY 2025 General Fund budget marks a 4.7 percent increase from the previous fiscal year's $8.5 billion, demonstrating moderate fiscal growth. Historically, spending has been recommended to align with the combined rates of population growth and inflation. Based on this formula, the FY 2024 budget of $8.5 billion should ideally have capped the FY 2025 spending at $8.8 billion. Adhering to such metrics ensures that the budget reflects the average taxpayer's ability to fund it, a fundamental principle that should guide all budgetary decisions. This year, however, the legislature has ventured slightly beyond this benchmark, underscoring the careful balance between fiscal responsibility and the needs of a growing state. To provide substantial relief to individual taxpayers, the legislature has implemented a significant income tax cut, which accelerates the implementation of a 3.8 percent flat tax in 2025. This measure is projected to save taxpayers over $1 billion. The tax relief directly benefits Iowans, putting more money back into their pockets and supporting more economic growth. Despite concerns from critics who argue that such fiscal strategies could undermine public services, the FY 2025 budget demonstrates that the government is not retrenching but rather growing at a deliberate pace. Education remains a top priority, accounting for 56 percent of the budget. When combined with the allocations to the Department of Human Health Services (DHHS), these two areas consume a significant 81 percent of the General Fund. While this concentration of funds reflects the importance placed on these sectors, it also highlights the challenges of allocating resources to other critical areas, such as public safety and the judicial system, which have only seen modest increases. The practice of conservative budgeting is further evidenced by the state's adherence to its legal spending cap, which allows up to 99 percent of projected revenue to be used. In contrast, the FY 2025 budget only commits 92 percent of these projections, reinforcing Iowa's fiscal discipline. This cautious approach is proving effective, as evidenced by the substantial budget surpluses recorded in recent years, including a $1.8 billion surplus in FY 2023, with similar surpluses anticipated for FY 2024 and FY 2025. Looking ahead, legislators must remain vigilant to ensure that conservative budgeting principles continue to guide fiscal policy. State Sen. Jason Schultz rightly points out the interdependence of tax policy and spending, “Both Republicans and Democrats need to realize that tax policy is affected by spending. And when you start seeing spending creeping up for annual, year after year, new good ideas, you can’t have good tax policy.” Strengthening Iowa's 99 percent spending limitation would provide a robust mechanism to curb future expenditure desires. This could be done by changing the law and enshrining it in the Constitution to bind spending increases to no more than the rate of population growth plus inflation. Iowa’s fiscal approach starkly contrasts the situations unfolding in neighboring states like Minnesota and Illinois or others such as New York and California. Higher spending and taxes in these progressive states contribute to economic challenges and drive more people away. The message is clear: unsustainable increases in spending can lead to severe consequences. Iowa's success in maintaining fiscal discipline through conservative budgeting and responsible tax policies is a testament to the effectiveness of this approach. Iowa’s unwavering commitment to conservative budgeting and responsible tax policies is the cornerstone of its fiscal strategy, ensuring the state remains a model of stability and prosperity. By striking a balance between providing essential services and fostering economic growth, Iowa sets a commendable example of how sustainable fiscal policies can safeguard a state’s financial health and support the well-being of its citizens. Originally published at The Courier.
By John Hendrickson and Vance Ginn, Ph.D. Iowa Governor Kim Reynolds and the Republican-led Legislature have emphasized conservative budgeting as a central priority. Such prudence in budgeting is the cornerstone of fiscal conservatism, and the recent passage of the FY 2025 budget in Iowa showcases a commitment to fiscal restraint, albeit less stringent than in previous sessions. The newly approved $8.9 billion FY 2025 General Fund budget marks a 4.7 percent increase from the previous fiscal year's $8.5 billion, demonstrating moderate fiscal growth. Historically, spending has been recommended to align with the combined rates of population growth and inflation. Based on this formula, the FY 2024 budget of $8.5 billion should ideally have capped the FY 2025 spending at $8.8 billion. Adhering to such metrics ensures that the budget reflects the average taxpayer's ability to fund it, a fundamental principle that should guide all budgetary decisions. This year, however, the legislature has ventured slightly beyond this benchmark, underscoring the careful balance between fiscal responsibility and the needs of a growing state. To provide substantial relief to individual taxpayers, the legislature has implemented a significant income tax cut, reducing the flat tax rate to 3.8 percent. This measure is projected to save each taxpayer over $1 billion annually. The tax relief directly benefits Iowans, putting more money back into their pockets and supporting more economic growth. Despite concerns from critics who argue that such fiscal strategies could undermine public services, the FY 2025 budget demonstrates that the government is not retrenching but rather growing at a deliberate pace. Education remains a top priority, accounting for 56 percent of the budget. When combined with the allocations to the Department of Human Health Services (DHHS), these two areas consume a significant 81 percent of the General Fund. While this concentration of funds reflects the importance placed on these sectors, it also highlights the challenges of allocating resources to other critical areas, such as public safety and the judicial system, which have only seen modest increases. The practice of conservative budgeting is further evidenced by the state's adherence to its legal spending cap, which allows up to 99 percent of projected revenue to be used. In contrast, the FY 2025 budget only commits 92 percent of these projections, reinforcing Iowa's fiscal discipline. This cautious approach is proving effective, as evidenced by the substantial budget surpluses recorded in recent years, including a $1.8 billion surplus in FY 2023, with similar surpluses anticipated for FY 2024 and FY 2025. Looking ahead, legislators must remain vigilant to ensure that conservative budgeting principles continue to guide fiscal policy. State Senator Jason Schultz rightly points out the interdependence of tax policy and spending, “Both Republicans and Democrats need to realize that tax policy is affected by spending. And when you start seeing spending creeping up for annual, year after year, new good ideas, you can’t have good tax policy.” Strengthening Iowa's 99 percent spending limitation would provide a robust mechanism to curb future expenditure desires. This could be done by changing the law and enshrining it in the Constitution to bind spending increases to no more than the rate of population growth plus inflation. Iowa’s fiscal approach starkly contrasts the situations unfolding in neighboring states like Minnesota and Illinois or others such as New York and California. Higher spending and taxes in these progressive states contribute to economic challenges and drive more people away. The message is clear: unsustainable increases in spending can lead to severe consequences. Iowa's success in maintaining fiscal discipline through conservative budgeting and responsible tax policies is a testament to the effectiveness of this approach. Iowa’s unwavering commitment to conservative budgeting and responsible tax policies is the cornerstone of its fiscal strategy, ensuring the state remains a model of stability and prosperity. By striking a balance between providing essential services and fostering economic growth, Iowa sets a commendable example of how sustainable fiscal policies can safeguard a state’s financial health and support the well-being of its citizens. John Hendrickson serves as policy director of Iowans for Tax Relief Foundation, and Vance Ginn, Ph.D., is a contributing scholar at ITR Foundation and former chief economist at the Office of Management and Budget, 2019-20. Originally published by American Institute for Economic Research.
Imagine a small business owner navigating the complexities of trying to be profitable, as most small businesses close in the first two years, and to provide a reasonable work-life balance for their employees. Enter the “Thirty-Two Hour Workweek Act,” proposed by Senator Bernie Sanders, which seeks to mandate a reduction from 40 to 32 hours at the same pay. While well-intentioned, this bill simplifies the nuanced balance of modern work environments and threatens the flexibility crucial to businesses and workers. The Act proposes to amend the Fair Labor Standards Act of 1938. Sanders suggests this change will fairly distribute productivity gains, decrease stress, and improve life quality. However, this sweeping reform would harm sectors where extended hours are essential due to operational demands or competitive pressures. It would also hurt the needs of workers and their families. Current data from the Bureau of Labor Statistics show that the average workweek for full-time private sector employees is about 34 hours per week. This means employers and workers are already negotiating work arrangements that deviate from the traditional 40-hour workweek based on mutual needs and economic conditions. The BLS table below shows the different average weekly hours by major industry. In sectors like healthcare or manufacturing, where longer shifts are common, limiting hours might reduce employees’ earnings if they are willing to work more. With their thin profit margins, small businesses could face severe challenges, potentially leading to job cuts, reduced services, or even closures, especially in rural or disadvantaged areas. Only leisure and hospitality and other services industries have average hours at or below 32 hours. Those are typically lower-skilled, lower-paid jobs, with many working part-time for various reasons. This flexibility in the private sector allows employers to manage labor costs effectively and workers to adjust their schedules for optimal work-life balance. The proposed 32-hour workweek represents a significant opportunity cost, not only in economic terms but also in worker and employer liberty. America faces a worker shortage, with job openings exceeding the number of unemployed individuals. Reducing work hours could exacerbate this issue, particularly as many Americans juggle multiple or part-time jobs to make ends meet. This policy would add another layer of complexity and constraint in a market that requires more flexibility, not less. This act would disproportionately affect small businesses, which typically operate with tighter profit margins and may find the increased labor costs unsustainable. These businesses might be forced to reduce their workforce, cut back services, or, worst cases, shut down altogether. The impact on employment could be profound, especially in rural or economically disadvantaged areas where small businesses are often major employers. Compensatory flexibility, where businesses adjust other aspects of employment such as benefits or job duties to offset mandated costs, could mean that workers end up with less flexible schedules, reduced benefits, or increased job demands as employers strive to maintain profitability. Total earnings, including pay and benefits, are much higher than average weekly pay, so a government mandate like this would worsen the situation. Looking globally, countries like France have long experimented with reduced work hours (the 35-hour workweek). The results have been mixed, with some reports suggesting a negligible impact on employment and others indicating increased stress for workers who have to compress the same amount of work into fewer hours. These mixed outcomes underscore the risks of applying such policies universally without considering industry-specific and cultural contexts. These costs would further exacerbate the connection between people and work by many across the country. Work is also a moral issue, we bear responsibility to “be fruitful and multiply.” Moreover, work brings dignity, value, productivity, and the best path out of poverty. David Bahnsen’s latest book Full-Time Work and the Meaning of Life highlights these virtues of work and how government interventions in the labor market destroy many of its benefits. Rather than imposing hour restrictions or other government mandates, politicians at the federal, state, and local levels, as appropriate, should remove government barriers to work and let the market work. These policies that would benefit workers include reducing or eliminating most occupational licenses, reducing or eliminating minimum wages, and ending the tax exclusion of employer-sponsored health insurance. These pro-growth policies would allow for more dynamic labor market movements, and spending less and cutting taxes would leave workers with more earnings to support flexible work choices. Also, many companies are already voluntarily innovating with remote work, flexible hours, and four-day work weeks without government mandates. These changes are often driven by the competitive need to attract and retain the best workers and the recognition that happy, well-balanced employees are more productive. Improving work-life balance is commendable, but the “Thirty-Two Hour Workweek Act” would hinder rather than help. By championing policies that limit government intervention thereby supporting work flexibility and innovation, we can foster a labor market that thrives and adapts organically, benefiting all sectors of the economy and ensuring that both employers and workers enjoy true freedom in crafting their work lives. Originally published at Governing with co-author John Hendrickson at Iowans for Tax Relief Foundation.
The idea of a universal basic income (UBI), whereby a government provides everyone with a certain monthly amount to spend as they wish, is nothing new. Touted by its proponents as a way to reduce poverty and provide economic security, this endeavor is costly for taxpayers and a disincentive to work. It is a bad idea no matter which level of government does it. In Iowa, several counties in the Des Moines metro area have been using COVID-era federal funds, along with foundation and private-sector support, to launch UpLift, a UBI pilot program. In response, the Iowa legislature recently passed a bill to prevent local governments from creating UBI programs. In Minnesota, where some localities are testing UBI programs, the Legislature is doing the opposite: considering legislation that would create a statewide UBI program. These neighboring states are vastly different politically, and the debate over UBI is just one example. Iowa lawmakers seek to curb socialism, while Minnesota is attempting to advance this economic philosophy. Individuals from across the political divide have advocated for UBI-related policies. Whether it was the free-market economist Milton Friedman’s negative income tax for low-income Americans or, more recently, Democratic presidential candidate Andrew Yang’s Freedom Dividend, UBI-type proposals are generating more debate, especially at the state and local level. The Wall Street Journal recently reported that numerous communities nationwide are experimenting with UBI programs. Most of these are in Democrat-run localities. Some UBI advocates, as Friedman did, argue that this should replace existing welfare programs, while most progressives argue that it should be in addition to existing benefits, needed because too many Americans cannot break the cycle of poverty. The massive spending by the federal government in response to the COVID-19 pandemic is driving the UBI programs launched by numerous local governments. The UpLift program provides “no-strings-attached basic income of $500 per month for 24 months.” Individuals selected in the Des Moines metro area “are free to use the monthly payments to meet their needs best.” In Minnesota, the Legislature is considering a proposal to appropriate $100 million to provide hundreds of dollars every month to as many as 10,000 people. Specifically, recipients of the proposed UBI program would receive $500 a month for at least 18 months in addition to any existing social welfare benefits. Minnesota would provide grants to local and tribal governments, which would then redistribute those funds to UBI recipients. A UBI would not just create a new entitlement program; it is a form of socialism as it would essentially take ownership of some people’s work so that government can redistribute it to others. Further, most UBI grants are currently from federal COVID-19 funds — one-time money. When these funds expire, it will be the responsibility of state and local governments to continue to fund the UBI programs. And it is doubtful that UBI would replace existing social welfare programs. This would be an additional costly entitlement, which would result in increasing state and local spending and higher taxes. The objective of UBI is to conquer poverty, but advocates do not realize that many people are struggling to make ends meet because of persistent inflation resulting from the Federal Reserve’s monetizing of reckless COVID-19 spending. This is why Iowans are struggling with real average weekly earnings down 3.9 percent since January 2021 as high grocery and gas prices continue to weigh on them. The cost of UBI would also place further pressure on already heavy tax burdens. A major concern for Iowans is the increasing burden of property taxes, driven by local government spending. A UBI program brings up some moral concerns as well. UBI, especially with no strings attached, becomes an incentive for not working. During COVID-19, many able-bodied individuals stayed out of the workforce due to generous stimulus payments. The objective of social welfare policy should be to provide for those who need help, but these policies should be short term and designed to encourage people to be in the workforce and move beyond poverty. The social safety net consists of numerous programs at all government and private-sector levels. Iowa policymakers did the right thing in prohibiting localities from creating UBI programs that would not only fail to resolve poverty but also create a fiscal nightmare for taxpayers. The best approach to reducing poverty is to create an environment that fosters economic growth and job creation, which leads to economic opportunities. Originally published at Mackinac Center for Public Policy.
As Michigan lawmakers Lansing grapple with the state government budget, let’s evaluate whether it’s sustainable for Michiganders and the state’s fiscal health. Lawmakers often focus on the short term as they face a deadline to pass the next fiscal year’s budget. The long-term health of the prosperity of Michiganders who pay for the state’s budget depends on putting government finances on a sustainable path. Right now, they’re not. While the current state budget looks healthy, bolstered by temporary federal pandemic relief funds and volatile revenue spikes, it’s vulnerable. It relies on fleeting funding sources to support ongoing expenses — a dangerous position that makes residents and even government workers vulnerable to funding shortfalls. Policymakers must reassess the state’s budgetary practices and put the budget on solid ground. Consider this excerpt from a recent news story: “Gov. Gretchen Whitmer delivered her budget proposal two months ago. Her plan for the 2024-25 fiscal year weighs in at $80.7 billion and includes universal pre-kindergarten, two-years of tuition-free community college and a state tax credit for home caregivers.” Many people may think these are good proposals. The governor’s plans, however, have many underlying issues. To start with, they build on a history of excessive government spending. A recent Mackinac Center report found that taxpayers could be paying $6.5 billion less in taxes this year had lawmakers enacted sustainable budgets since fiscal year 2019. A sustainable budget grows no more than the rate of population growth plus inflation. If Michigan had adopted sustainable budgets, the income tax could have been cut in half. By contrast, unsustainable spending costs the typical household an extra $1,600 annually. Public choice economics, which focuses on the tradeoffs and incentives politicians face when making decisions, offers valuable insights into the state’s budgetary challenges. In short, political incentives and lawmakers’ self-interest often lead to outcomes that do not align with citizens’ needs. Like Michigan governors before her, Gov. Whitmer has called for increasing the government’s budget to expand many programs and create others. Doing this can put the budget in a precarious position and undermine economic factors for long-term growth. Tax collections are slowing, limiting how much the budget can grow. Aligning officials’ political incentives with citizens’ long-term interests is important. This means embracing a more disciplined approach to budgeting that ensures spending is sustainable and delivers meaningful results. Zero-based budgeting, independent efficiency audits, and a strong spending limit would help. Michigan can create a more dynamic and resilient economy by removing barriers to work, including reducing regulations and taxes. Doing this would enhance economic freedom and increase the state’s attractiveness, driving more prosperity and higher tax revenue. News accounts report that policymakers are focused on budgets for infrastructure and education. These are important areas of spending, and lawmakers should examine them with a critical eye. But it is even more important for policymakers to enact the budgetary reforms mentioned above. As legislators consider the next budget, they should incorporate the lessons of public choice economics, steer clear of short-sighted policies, work toward a budget that recognizes government can’t expand to satisfy every desire, and cut tax rates. The journey toward a more prosperous Michigan requires a sustainable budget approach. If we apply the insights of public choice economics, we can navigate the complexities of fiscal policy with a clear vision, providing a better path to human flourishing. Originally published at Kansas Policy Institute.
As states across America sharpen their competitive edges with tax cuts and simpler tax codes, Kansas has a unique opportunity to foster prosperity and economic resilience. The tax reform bill with about $635 million in personal income tax relief in the first year awaits Governor Laura Kelly’s signature. While this bill is not as good as the one with a flat 5.25% tax rate passed earlier this year but vetoed by Governor Kelly, the latest bill would help better align the state with successful tax reforms nationwide that have spurred growth and investment. Governor Kelly would be wise to sign it or risk losing the opportunity for people to flourish across the state. But her recent equivocations do not suggest she’s likely to side with Kansas families. The Urgency of Tax Reform Earlier this month, HB 2036 overwhelmingly passed the House and Senate. The bill seeks to overhaul the state’s current tax structure by simplifying the brackets and reducing financial burdens on Kansans. The essence of the reform is to streamline the number of tax brackets from three to two, simplifying the tax filing process and reducing administrative costs. This reform is not just a fiscal adjustment; it’s a strategic move toward making Kansas more competitive and prosperous. The proposed changes in tax brackets will make the tax system easier to navigate and less burdensome. But the legislation doesn’t stop at restructuring brackets; it also includes several key features designed to benefit Kansas residents directly:
This restructuring will leave more money in Kansans’ pockets, fostering increased consumer spending and investment that will help support sustained increases in economic growth and new hires. National Trends in Tax Reform Kansas is not alone in its move toward income tax simplification and reduction. In 2024, fourteen other states thus far, had income tax cuts, enhancing their economic landscapes and making them more attractive for business investments and skilled workers. Here’s a map highlighting the states that have implemented income tax cuts this year: This national movement underscores the importance of Kansas keeping pace with these trends. Failing to do so could deter potential investment and encourage businesses and talent to move to more tax-friendly states. This is especially true given how neighboring states are cutting taxes. The Vision of Fiscal Responsibility and Economic Freedom In an unpredictable economy, Kansas can improve the fiscal landscape through tax reform and sustainable budgeting. Adhering to a “Responsible Kansas Budget,” which changes the budget every year by no more than the rate of population growth plus inflation, and using resulting surpluses to reduce income tax rates annually would help flatten and eventually eliminate these taxes. This strategic approach promises a robust economic future, minimizing the need for burdensome taxation. Economic Context: Kansas vs. Other States The contrast in economic performance is stark when comparing Kansas with nearby states and those with and without income taxes. Here’s a snapshot of economic performance among these states. This data proves that those states without income taxes perform better economically regarding job growth and wage growth, two key ingredients for reducing poverty and encouraging prosperity. Moreover, those states without personal income taxes have substantially less government spending, which helps reduce the burden of government on residents. Kansas will substantially improve its current trajectory by following the path of those states that are flattening, lowering, and eliminating personal income taxes. Not Perfect, But Good Step Forward It’s time for sustainable tax reform after the issues during the last decade of overspending, which resulted in higher taxes later. The Legislature’s passed tax reform is crucial for Kansas to provide the following:
The proposed tax relief of more than $600 million is needed in Kansas today. A recent economic analysis by the Economic Research Center at the Buckeye Institute of a $500 million income tax relief package. Their findings show that Kansas could have a $430 million (2012 dollars) increase in GDP, $240 million more in business investment, $200 million more in consumption, and 1,000 more jobs in the first year and more growth after that. Gov. Kelly and the legislature should learn the key lesson from the Brownback years – you cannot cut taxes and increase spending. The plan on Gov. Kelly’s desk is eminently affordable if all parties involved learn from this lesson and have the discipline to act on it. Governor Kelly’s signature would mark a significant step forward, positioning Kansas among the leading states with proactive fiscal policies that spur growth and enhance quality of life. This tax reform and responsible spending will help ensure that Kansas does not fall behind its peers but moves forward as a leader in economic health and resident well-being. It would also set the stage for a flat income tax and eventually eliminate it by returning surplus dollars to taxpayers where it is most productive. Originally published at AIER.
April heralds two markers in Americans’ financial calendar. Neither brings joy. Their anguish reminds us of the dire need for fiscal reform before it’s too late. The first day is Tax Day on April 15, when you must file taxes to the IRS. The other day is Tax Freedom Day on April 16. The latter is the 104th day of the year, which represents when Americans, on average, can stop working to pay taxes and start working to improve their own lives and further their economic goals. We work 30 percent of our days to pay government alone. This stark division of the year into earning to pay for the government versus for oneself casts a revealing light on taxation’s burden. These dismal dates indicate an urgent need to overhaul the fiscal regime of excessive government spending that drives taxes higher. The pain and uncertainty from an ever-changing federal progressive marginal individual income tax system with forced withholding and payment or refund later are destructive. These costs distort our ability to prosper. Central to minimizing these burdens and distortions is for the federal government to spend less, thereby reducing the amount needed from taxes. And the tax system should be simplified by moving to a broad-based, flat-income tax. Eventually, we could eliminate income taxes and fund our significantly reduced spending with a broad-based, flat final sales tax, but politics too often takes precedence over prudence. States without personal income taxes, such as Texas and Florida, often showcase stronger economic performance, underscoring the potential benefits of a consumption-based tax model. The Tax Foundation’s analysis shows that these states enjoy higher growth rates and attract businesses and residents alike, advocating for the efficiency of a less burdensome tax system. Unlike taxes on income, a consumption tax better aligns with economic volatility and taxpayers’ decisions. It introduces a transparent, simpler tax system, starkly contrasting the current convoluted income tax code, thereby supporting more freedom to choose, increased savings, and faster economic growth. But the looming uncertainty inevitably generated by temporary tax measures and seemingly endless, excessive government spending demands attention. For instance, the individual income tax rate reductions, full-expensing, and other provisions of the Tax Cuts and Jobs Act (TCJA) of 2017 expire over the next year, creating a cloud of uncertainty. Moreover, the multi-trillion-dollar deficits from overspending result in further economic destruction because of higher interest rates and less investment. The economic impact was notable, with the Congressional Budget Office reporting a surge in GDP growth following the TCJA’s implementation. But the uncertainty surrounding its future dampens long-term economic prospects and investments. Permanent tax reform, aimed at fostering stability and growth, requires a commitment to fiscal discipline and a reevaluation of government spending priorities. The erratic nature of such spending and tax policies erodes the stability crucial for economic prosperity. Uncertainty, particularly around taxes, inhibits investment and innovation. Predictability is key to strategic planning and growth. For entrepreneurs, uncertainty is a strong disincentive. The fluctuating tax landscape presents a significant barrier to economic expansion. Addressing this uncertainty requires permanent growth-oriented tax policies and controlling government spending. The direction of tax reform must be twofold: advocating for broad-based, flat taxes and championing sustainable government budgets. This dual approach promises to enhance economic liberty and lay a foundation for robust growth, which should also reduce the number of days to Tax Freedom Day so more money is in our pockets. Reflecting on Tax Day and Tax Freedom Day sparks a broader discussion on tax reform. We can envision a society that values freedom, peace, and prosperity by championing pro-growth policies of a simplified, flat tax system and sustainable spending. Dispelling tax uncertainties and controlling government spending pave the way for economic policies that foster rather than hinder human flourishing. The journey toward a more rational tax system is not merely fiscal; it’s a moral imperative. It demands bold, persuasive advocacy for policies that champion economic soundness while embracing the principles of liberty and opportunity. We can inspire a movement toward genuine economic reform on this Tax Day by addressing the challenges posed by the current tax code and advocating for a shift toward a better fiscal regime with more days working for ourselves instead of Uncle Sam. Originally published at Daily Caller.
The National Association of Insurance Commissioners’ (NAIC) recent regulatory proposals have concerned stakeholders across the U.S. insurance landscape. At the heart of the controversy are proposed changes that could fundamentally alter how life insurance companies invest in financial instruments, with far-reaching consequences for the broader economy and, more specifically, the retirement security of millions of Americans. The NAIC, as a non-governmental entity that wields considerable influence over the insurance industry’s regulatory framework, operates in a unique space where its decisions can have national implications. Its recent move to increase capital requirements from 30% to 45% on residual asset-backed securities (ABS) tranches is a poignant example of regulatory action with unintended consequences. The proposal reflects a perceived higher risk assessment by necessitating higher financial reserves against these investments. However, this risk reassessment and the consequent regulatory response have not gone unchallenged. Critics, armed with analyses such as the Oliver Wyman report, contend that the data does not substantiate these changes, highlighting a dissonance between the empirical evidence and regulatory action. The implications of the NAIC’s proposals extend beyond the immediate financial health of life insurance companies to impact broader retirement planning. By disincentivizing investments in ABS and similar financial instruments, these regulatory changes threaten to narrow the investment options available to life insurance companies. Given the critical role that life insurance companies play in providing annuity products and as major institutional investors, the potential for these regulatory changes to affect market dynamics and returns for retirees is a major concern. These decisions should be made from a bottom-up approach in the marketplace, not from a top-down approach by NAIC. Amidst these regulatory developments, the suggested influence of external political forces, including the Biden administration and labor unions, introduces an additional layer of complexity. The assertion that these proposals may be driven by broader political objectives, rather than by an unbiased assessment of market risks and consumer protection needs, underscores the potential for regulatory processes to be co-opted for ideological ends. This prospect is particularly troubling in retirement planning, where American workers’ and retirees’ economic well-being and choices should be paramount. The debate over the NAIC’s proposed regulatory changes highlights the broader challenges of ensuring that this regulatory body operates with a commitment to transparency, accountability and evidence-based policymaking. An institutional framework that supports free-market competition, consumer choice and the economic interests of Americans in this financial space is needed, given the oversized influence of NAIC and the government. As the insurance industry navigates these regulatory waters, the call for a balanced, data-driven approach to regulation — prioritizing American workers’ long-term financial security and the U.S. economy’s health — is urgent. Regulation should be the last resort instead of the first for potential problems, as the marketplace, through a well-functioning price system, is best at regulating things to those who want and provide them most. The NAIC’s regulatory proposals represent a critical juncture for the U.S. insurance industry and the financial system supporting American retirement planning. The potential for these proposals to disincentivize key investment strategies poses a considerable risk to the sustainability of defined-contribution plans. It highlights the need for vigilant oversight of the regulatory process to hold regulators in check. Stakeholders, including policymakers, industry leaders and the public, must engage in substantive dialogue to ensure that future regulatory actions are grounded in solid empirical evidence and aligned with the prosperity of Americans. As this debate unfolds, upholding principles of competition, consumer protection and the integrity of the retirement planning framework in the marketplace remains paramount. At best, the NAIC proposal should be delayed for a year to give more time to examine its effects. But given the evidence so far, the proposal should be trashed. Originally published at Econlib.
Through the Consumer Financial Protection Bureau (CFPB), the Biden administration has proposed a regulation to cap how much credit card companies can charge us when we’re late on a payment to just $8. This sounds great on the surface, right? Lower fees mean less stress when we’re struggling to make ends meet, as inflation-adjusted average weekly earnings have been down 4.2 percent. But, as with many things that seem too good to be true, there’s a catch. This well-meaning price control could make things the most challenging for those it’s supposed to help. First, why do credit card companies charge late fees? It’s not just about making an extra buck. These fees support more credit available for everyone and encourage us to pay on time, which helps the credit system run smoothly. Now, the CFPB is shaking things up by setting a price ceiling on these fees at $8. While it could save us some money if we slip up and pay late, credit card companies will find ways to compensate for this lost income. And how do they do that? Well, they might start charging more for other things, tightening who they give credit to, or increasing interest rates. That means, in the end, credit could be more expensive and harder to get for all of us. Not just individuals who could feel the squeeze, but small businesses, too. Many small businesses rely on credit to manage their cash flow and growth. If banks start being pickier about who they lend to or raise their fees, these small businesses will find it more costly to get credit. This isn’t just bad news for them; it’s bad news for everyone, as the result will be higher prices for consumers, lower wages, and fewer jobs for workers. Remember that small banks and credit unions are a big deal for the local economy. These institutions often depend on fees to keep things running. If they can charge less for late payments, they might not be able to lend as much. This could hit communities hard, making it tougher for people to get loans for starting a small business, buying a home, or building a project. Economists have long warned about the dangers of well-intentioned but poorly thought-out regulations. By setting a one-size-fits-all rule for late fees, the government would make credit more expensive and less accessible for everyone. The idea is to protect us from unfair fees, but the real-world result would be different if access to credit were limited for those who need it most. History proves that often the biggest challenge is to protect consumers from the consequences of government actions. In trying to shield us from high late fees, the government will set us up for a situation where credit is harder to come by and more expensive. This doesn’t mean we shouldn’t try to protect consumers. Still, we need to think carefully about the consequences of our actions and let markets work, which is the best way to protect consumers as they have sovereignty over their purchases. While capping credit card late fees sounds like a simple fix, the ripple effects would be complex and wide-reaching. It’s crucial to keep credit accessible and affordable, support small businesses, and ensure the financial system remains robust. Let’s look at the implications of this price control regulation before rushing into it. Price controls never work as intended, as history has proven. Instead, we should ensure people in the marketplace determine what’s best for them rather than the Biden administration’s top-down, one-size-fits-none approach. Originally published at AIER.
Recently, the Biden administration handed $1.5 billion to the nation’s largest domestic semiconductor manufacturer, GlobalFoundries, the biggest payout from the CHIPS and Science Act of 2022 so far. The argument for this corporate welfare is America is too dependent on chips from China and Taiwan so more should be made domestically. Instead of seeing how America should reduce the cost of doing business for all semiconductor businesses here, some businesses will be picked as winners and others as losers. The cost of this form of socialism gives capitalism a bad rap and should be rejected. This move echoes a broader trend of governments worldwide intervening in their economies through industrial policy. A cocktail of targeted subsidies, tax breaks, and regulatory tinkering, industrial policy aims to sculpt economic outcomes by favoring specific industries or firms, all for the supposed benefit of the national economy. Industrial policy puts business “investment” decisions in the hands of government bureaucrats. What could go wrong? While its champions tout its potential to boost competitiveness and spur innovation, the reality often tells a different story, especially in light of massive deficit spending. In practice, industrial policy tends to fan the flames of higher prices and sow the seeds of economic destruction. Politicians too often meddle with voluntary market dynamics by artificially bolstering favored sectors through subsidies and tax perks, resulting in the misallocation of resources and distorted prices. Moreover, the infusion of government funds to bankroll these initiatives with borrowed money can contribute to the Federal Reserve helping finance the debt, increasing the money supply, and stoking inflation. The nexus between deficit spending and prices looms large over industrial policy. When politicians resort to deficit spending to bankroll industrial ventures, they put upward pressure on interest rates by issuing more debt and competing with scarce private funds. Elevated interest rates disturb private investment, ushering in a likely economic slowdown. Suppose deficit financing leans heavily on monetary expansion, whereby the central bank snaps up government debt. In that case, it fuels inflation by flooding the market with money that chases fewer goods and services. The national debt is above $34 trillion, and the Federal Reserve has already monetized much of the increase in recent years. Racking up even more deficits is insane: repeating the same mistakes and expecting a different result. Excessive spending and money printing have landed us with above-target inflation for over three years running. The repercussions of industrial policy ripple beyond inflation to encompass the broader economic landscape. Excessive government meddling in specific industries crowds out private investment and entrepreneurship. When particular firms enjoy subsidies and preferential treatment, it distorts the competitive landscape and deters innovation. This stifles economic vibrancy and impedes the rise of new industries or technologies crucial for sustained growth. For a cautionary tale of how Biden’s recent move could play out, look no further than Europe. Nations like Sweden, heralded by the West as a utopian example of big government yielding big benefits, spent the last year grappling with economic strife driven by dwindling private consumption and housing construction. Europe’s penchant for industrial policy, marked by subsidies, high taxes, and regulatory hoops, has contributed to its economic stagnation. To sidestep the dilemma of industrial policy missteps, policymakers should stop propping up their favorite sector or industry and instead unleash people to flourish by getting the government out of the way. Politicians should foster an environment conducive to entrepreneurship, innovation, and competition. This entails cutting government spending, reducing taxes, trimming red tape, and championing trade by removing barriers to private sector flourishing. By allowing market forces to determine resource allocation and rewarding entrepreneurship and risk-taking, people here and elsewhere can unleash their full potential and adapt to changing circumstances more effectively than under industrial policy frameworks. Biden’s billion-dollar amount to one company may seem like a lot, but that’s just a drop in the bucket of what’s to come from the CHIPS Act. Instead, these funds should be eliminated, preventing Congress from taking us further down the road to serfdom. Originally published at Texas Scorecard.
Texas can pass bold school choice legislation when the next legislative session starts in January 2025. This could finally happen because of the recent election wins in the House primaries, efforts led by Gov. Greg Abbott. The election wins include pro-school choice candidates beating anti-school choice incumbents or filling seats of retiring anti-school choice members. More incumbents, including House Speaker Dade Phelan, were forced to a runoff in May. Moreover, 80 percent of Republicans voted for Proposition 11 on the primary ballot to support school choice, which matters in a dominantly red state. In the evolving educational reform landscape, universal education savings accounts (ESAs) provide the best path to empower parents to decide their children’s education. They are also a practical, fiscally responsible strategy for reimagining the future of education. At least 10 states have passed universal school choice, and more are likely to do so soon. But these states haven’t reached the pinnacle of what a competitive education system should look like. The optimal school choice approach should liberate education from the constraints of the monopoly government school system, draw upon successful market-driven solutions, and offer a simplified education finance system. The Texas Legislature essentially controls the current school finance system with funding from taxpayers through taxes collected by the state, school district, and federal governments. The inefficiency and ineffectiveness of the status quo are stark, including questionable but relevant declining test scores. This highlights a critical need for an approach that better serves students’ and families’ unique needs and aspirations. The state’s school finance system is based on many factors to the school system, but the Texas Education Agency recently reported that the average funding per student was $14,928 in the 2021-22 school year. Total funding was $80.6 billion for 5.5 million students. Of course, this is how much is spent, but the actual cost of the monopoly government school system is hidden and driven higher by politics rather than market outcomes. ESAs provide flexibility in covering many educational services, including various schooling options, tutoring, testing, and other related expenses. This empowers parents to customize their children’s education to suit individual learning styles and interests. This adaptability is vital for fostering environments where children excel academically, socially, and emotionally. Implementing a universal ESA program demands a framework that balances simplicity with accountability, ensuring the focus remains on expanding educational opportunities and improving student outcomes. While many current ESA programs run alongside the government school system, this doesn’t provide the most competitive framework. Running them in tandem, whereby the funding remains the same or even increases for government schools while creating a new system to fund ESAs, is costly and lacks the incentives for optimal outcomes. Instead, we should pursue a simplified education finance approach that maximizes competition, reduces costs, and lowers taxes by funding students, instead of a system. A bold proposal would provide parents with an ESA of $10,000 per child for the school year but paid monthly or the preferred frequency to choose any approved schooling, including government, private, charter, home, co-op, tutoring, or other types of schooling. With about 6.3 million school-age children in Texas, the annual total expenditure would be $63 billion, or $17.6 billion less than what’s being spent today on government schools. Parents could receive an ESA of as much as $12,800 per student to keep the same expenditures as today. However, given the bloated bureaucracy and misguided direction of government schools, the $10,000 amount would help force efficiencies while reducing taxpayers’ costs and incentivizing new education providers. The lower cost of $17.6 billion would provide an opportunity for substantial school property tax relief. Combining ESAs and property tax relief would further accentuate the proposal’s appeal, addressing the lack of school choice and burdensome property taxes. The bold approach eliminates most, if not all, of the current antiquated government school finance system with one that gives parents a way to meet their children’s unique learning needs best. It would help alleviate the hardship for many families that can choose alternatives for financial reasons, pay lower property taxes, or have money remaining to invest in their children’s quality of life and educational pursuits. As states across the nation begin to recognize the transformative potential of this bold universal school choice approach, the momentum is undeniable. This trend underscores a growing consensus on the need for educational systems that prioritize choice, flexibility, and parental empowerment. By breaking free from the monopoly government school finance system and embracing a bold ESA finance approach that empowers parents, we can pave the way for a future where every child can achieve their full potential. Originally published at The Center Square.
The recent surge of bills attempting to rein in social media outrage in Florida and across America has sparked debate over the role of government in regulating them. Florida Gov. Ron DeSantis vetoed an initial bill banning minors on social media. In his veto message, he said, “Protecting children from harms associated with social media is important, as is supporting parents’ rights and maintaining the ability of adults to engage in anonymous speech.” We should empower parents to determine what's best for their children on social media, or otherwise. This will work better than putting politicians and government bureaucrats in charge, which is what these types of bills do. These bills are likely unconstitutional, as they violate the First Amendment. Furthermore, excessive government regulation of social media stifles innovation and entrepreneurship in the digital space, especially small businesses. By imposing burdensome restrictions on online platforms, we risk hindering the development of new technologies and services that could benefit families. A more pragmatic approach fosters competition in the marketplace, allowing consumers to choose the platforms that best align with their values and preferences. These regulations would hurt many start-up firms as they won’t have the resources to hire as many lawyers to jump through the hoops imposed on them that larger, incumbent companies can afford. They would also need to pay third-party verification systems that cost thousands of dollars, making it more challenging to start a business, as noted in a recent report by Engine. Gov. DeSantis has been a vocal advocate for parental empowerment, emphasizing the importance of transparency and accountability from social media companies. His initial pushback of government overreach of social media should be championed rather than resorting to bans for questionable reasons, as social media isn’t the culprit for bad parenting or bad legislation. In light of ongoing NetChoice cases at the Supreme Court, where the organization has fought against state-level regulations deemed infringing on free speech and commerce, we should uphold free speech in the digital age. By joining parents in advocating for greater transparency and accountability by social media companies where applicable, we can champion the interests of Americans and assert state sovereignty. Rather than relying on government mandates and regulations, we should foster a culture of parental responsibility and provide families with the resources they need to navigate the digital landscape safely. If politicians and bureaucrats take over these responsibilities, it will lead to less incentive for parents to be engaged with their kids and what they’re doing online. This would be a terrible path forward as the government has already made bad situations worse regarding safety-net handouts, a monopoly government school system, and more. Let’s stick with a proven approach that supports parents and social media providers rather than a top-down, likely unconstitutional one. |
Vance Ginn, Ph.D.
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