In this Let People Prosper episode 67, let's discuss the importance of sustaining and improving the Texas Model of no personal income tax, relatively low taxes, relatively less government spending, and sensible regulation that allow entrepreneurs opportunities not available elsewhere. This can be boiled down to: Institutions Matter. Let's recall previous discussions highlighting these key points while noting how Texas led the way in job creation again in 2018.
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In this Let People Prosper episode, I am interviewed by Liz Wheeler on her show the Tipping Point on One America News.
We discuss the high cost of deficits and debt and the need for government spending relief along with the latest farm bill which continues the expansion of welfare. In this Let People Prosper episode 57, let's discuss the following: 1) latest news on the stock market volatility from uncertainty regarding international trade and the Federal Reserve actions; 2) my latest co-authored piece at the Dallas Morning News on the economic freedom of Buc-ees and what could be done to increase prosperity; and 3) what's next for Texas' rainy day fund.
In this Let People Prosper episode, let's discuss my recent trip to Washington D.C., where I spoke at the American Legislative Exchange Council's meetings about the importance of institutions and did an interview with Freedomworks, and then discussed the federal budget with Russ Vought, who is the Deputy Director of the White House's Office of Management and Budget. Let's also discuss the latest economic reports about the continued strength of the U.S. economy in terms of GDP growth and personal income, and examine trade issues being discussed at the G-20 Summit. Below are a few pictures from my recent trip to D.C.
Below is the file for my presentation before the American Legislative Exchange Conference's Fiscal Policy Reform Working Group in Washington, D.C. This presentation is based on my TPPF research paper titled "Do Institutions Matter for Prosperity in Texas and Beyond."
I've also provided a more in-depth presentation in this episode of my YouTube series "Let People Prosper" at the channel "Vance Ginn Economics." In this Let People Prosper episode, let's discuss one of the things that's on most Texans' mind: property taxes. I recently testified before the Texas Commission on Public School Finance's Revenue Workgroup on the problem and solutions to wretched property taxes in Texas. Here's my written testimony and you can watch my oral testimony at time 59:45 here. Texas’ property tax system has turned property owners into renters, where government is their landlord and Texans who struggle to pay annual tax bills face confiscation of their properties. Additionally, the growth of government is harming taxpayers and the economy through higher taxes and more regulation. The goal must be to eliminate all property taxes as they violate property rights, destroy economic growth, and disproportionately hurt the poor while being subjectively determined as they support excessive local government spending. A good place to start down that road is by ending nearly half of the property tax burden in Texas through the elimination of the school maintenance and operations (M&O) property tax, which is supported by the 18 groups in the Conservative Texas Budget Coalition. This is relatively easier than other local tax jurisdiction because the state already determines the school finance formulas and has a way to distribute funds to school districts. Let's discuss. First, we must identify the problem. From 1996 to 2016, total property taxes across the state have increased by 233% while the school portion of the property tax increased by 201%. Personal income has increased by 199%; however, the best metric of the average Texan's ability to pay taxes is measured by the compounded growth of population plus inflation for that period, which was only 123%. This means that the total tax levy increased by 1.9 times more than pop+inf and the school district tax levy increased by 1.6 times more than the average Texan's ability to pay. It's no wonder that many people are being forced out of their homes and businesses because of skyrocketing property taxes. This is a travesty what government is doing to people who are trying to leave a legacy for their kids and grandkids. This points to the disease of the symptom of high taxes: excessive government spending. Taxes (and deficits) are always and everywhere a spending problem. To gain control of skyrocketing taxes, we must first get control of the driver of the problem in excessive government spending. This brings us to a solution: By limiting state and local government spending, Texas can use taxpayer dollars collected at the state level to eliminate the school maintenance and operations (M&O) property tax, which is nearly half of the property tax burden, very soon. While other options have been tried in the past, like raising the homestead exemption and swapping the property tax with a reformed franchise tax ("margins tax"), those didn't permanently reduce property taxes--making those attempts a failure in the eyes of most taxpayers. Fortunately, there are solutions. One option is to permanently buy down the school M&O property tax with state surplus dollars until it is eliminated. Here's how:
Another option is to replace the school M&O property tax by broadening the sales tax base and limiting state and local government spending. Here's how that could work:
Clearly there is no silver bullet. This will be a difficult hill to climb whichever option is chosen.
Recently, two economists from Rice University estimated that if the buy down option or the swap option over time was chosen, the Texas economy could expand by about $12.5 billion above expected growth and private sector job creation could increase by 183,000 net jobs above expected growth soon after reform. The Texas Model is strong, but there's more that must be done. These options would provide a clear path to more prosperity and less of a burden of holding property until you can finally own it when property taxes are eliminated entirely. In this Let People Prosper episode, let's discuss how the recent election gives us insight on how we need more civil discourse to find ways to strengthen institutions so people can flourish. My recent paper on how institutions matter provides a good overview of what I discuss in this episode along with economic data to support the theory. Here is a graphic that explains rather well the ecology of human development. The data provide overwhelming evidence that the Texas Model of inclusive institutions with a relatively low tax-and-spend burden, no individual income tax, and sensible regulation provides an institutional framework supporting more job growth, higher wages, lower income inequality, and less poverty than in comparable states and the U.S., in most cases. Texas is doing something right. Other states and D.C. would be wise to consider adopting Texas’ inclusive economic and political institutions that champion individual liberty, free enterprise, and personal responsibility. This is a path to providing an economic environment that allows entrepreneurs the greatest opportunity to thrive and for prosperity to be generated for the greatest number of people. Despite this success, improvements are needed to keep the Texas Model competitive and create even more opportunities for all to flourish. These improvements to Texas’ institutional framework include:
• limiting the growth in government spending, • eliminating the state’s onerous business franchise tax, • reducing barriers to international trade, • reducing the escalating burden of property taxes, and • relieving Texans from burdensome occupational licenses. Even with these improvements, the data overwhelmingly show it was not a miracle in Texas, but rather abundant prosperity generated by Texans from a proven institutional framework called the Texas Model. By strengthening institutions to let people prosper, we can also engage in more civil discourse so that we have many opportunities to work together. In this Let People Prosper episode, let's discuss Nobel prize-winning economist Paul Krugman's recent concern about the $779 billion budget deficit in FY 2018 under President Trump. Unfortunately, he wasn't worried about the 4 years of more than $1 trillion in deficits under President Obama and he in fact wanted even higher deficit spending. This episode provides a lesson in economics on the aggregate demand-aggregate supply model of how these policies should work in theory but how this mainstream view misses a lot that actually results in my preferred mainstream view of how the economy actually works and the burden higher government spending and resulting deficits put on economic activity and our prosperity.
Last Friday the Bureau of Economic Analysis reported that there was an increase of 3.5% in real GDP growth in the third quarter of 2018, indicated that 2018 may be above 3% growth for the first time in more than a decade. This issue along with the rising deficit gave rise to Krugman's tweet below. Here's what Krugman tweeted: "Reaction to the GDP numbers: quarterly growth rates don't mean much. For one thing they fluctuate a lot -- e.g. rapid growth in 2014, signifying little. For another, you can always juice the numbers for a few quarters by running big deficits. What about the long term"? Here was my tweeted response to his tweet that received a lot of attention: "Who is this @paulkrugman who wasn’t worried about budget deficits during #Obama’s 4 years of more than $1 TR deficit but is worried about #Trump’s $779 B? Recall #Krugman was in favor of LARGER deficit spending to “stimulate” the economy under #Obama. Principles matter." I recommend going to my tweeted response and viewing the comments and discussion. It was a rather lively discussion with some good info in there along the way, but much of it was just noise. This recent WSJ opinion piece by Nobel prize-winning economist Edmund Phelps explains the fantasy of fiscal stimulus quite well along with the nice figure below that shows stimulus doesn't correlate with faster economic growth. What we really need for more prosperity is a government that simply sets the rules of the game such that the institutional framework allows for civil society to flourish along with the resulting prosperity for people. Government under presidents of each main party have fallen victim to the "stimulus" argument when in fact it should be about providing the most pro-growth economic environment while running balanced budgets. A good model would be to look at Texas. #LetPeopleProsper OPINION: CALIFORNIA IS A FAILED MODEL NO MATTER HOW YOU LOOK AT IT
Vance Ginn and Elliott Raia | Director and Research Associate, Center for Economic Prosperity When you have to begin an argument with “depending on how you look at it,” you’re not arguing from a strong position. Yet such has become the answer to the question of, “Is California a good role model?” posed recently in The New York Times. Even its defenders say California’s prosperity is relative. The good news is that those seeking more concrete progress need only to look to the state that inspired the lone star in the upper-left corner of the Golden State’s flag: Texas. While the Texas Model of limited government needs improving, it has already proven to be a more sustainable catalyst for job creation and economic prosperity than in California. Although the idea of limited government may be foreign to many Californians, the Texas Model embraces the principle of reengaging institutions such as family, community, and free markets — institutions that are often undermined by an over-burdensome state. This is not to say the government has no place in Texas; it does. Nor is this to say that those who have fallen through the cracks don’t deserve help in their times of need; they do. Rather, the model revives the notion that government’s primary responsibility is to preserve the liberties of families and individuals, instead of attempting to supplant them. In the case of Texas, this also means allowing employers to operate with freedom and without onerous regulation. The outcome of Texas’ limited government approach is empirically clear. In creating jobs, no one messes with Texas as one in four jobs added nationwide were created in the Lone Star State in the last decade since the Great Recession. But it’s an even longer period of prosperity. Consider that the average unemployment (U3) rate since 2000 was 5.8 percent in Texas compared with 7.7 percent in California and 6.4 percent nationwide. Perhaps more telling of the complete picture is the average underutilization(U6) rate, which includes the unemployed, underemployed, and discouraged workers. Given the data available since 2003, Texas averaged 10.5 percent while California averaged 14.3 percent and the United States averaged 11.6 percent. And poverty is lower in Texas. The Census Bureau’s supplemental poverty index that adjusts for regional costs of living differences and government transfer payments places California’s 19 percent poverty rate the highest nationwide whereas Texas’ rate of 14.7 percent is near the U.S. average of 14.1 percent. With a relatively light tax burden on employers in Texas compared with California, Texas’ employers have the freedom to innovate and grow. Although the current level of taxation is a stark departure from West Coast philosophy, Texans already see where improvement can be made as efforts to corral skyrocketing property taxes are underway to maintain their economic canter. While taxes play a role in overall government intrusion, burdensome regulations do, too. The Texas Model, while still not free of all unnecessary regulation and corporate welfare, places more faith and decision-making in markets, where individuals — not politicians — decide the best way to satisfy their desires. Consider the energy industry in Texas. While the state has yet to completely eliminate its wind subsidies, it has, in general, taken a more moderated position on industry regulation than the California model. Instead of coercing consumers towards a source of energy favored by bureaucrats and politicians, Texas strengthens its power generation, reliability and cost efficiency by allowing consumers to access a wide energy portfolio. As a result, Texans pay half the price for their electricity than their Californian counterparts, while also not having to contend with potential rolling blackouts whenever the sun doesn’t shine and the wind doesn’t blow. While energy is just one example, the California Model’s policies highlight why the state has nearly 20 percent of its population in poverty. No matter how well-intentioned, when government entangles itself in the lives of individuals and tries to supersede other institutions that may be more effective, tribulation soon follows. Will the nation follow California down a road to serfdom, or, more recently, follow Texas down a road to liberty? That question remains undecided. But if the mass migration of individuals and businesses out of California and into Texas is any indication, the trend is clear that institutions matter. When institutions in civil society are strengthened by limiting government, people prosper. Vance Ginn, Ph.D., is director of the Center for Economic Prosperity and senior economist. Elliott Raia is a research associate. Both work at the Texas Public Policy Foundation. Read the Foundation’s latest report for more. In this Let People Prosper episode, I discuss my latest published research on how institutions matter for prosperity in Texas and beyond. I compare multiple measures of economic freedom and economic results between the largest four states in terms of population and economic output of California, Texas, New York, and Florida along with U.S. averages. These data indicate that Texas has greater economic freedom and prosperity, which should be emulated by other states and D.C., but there's more to do to improve the Texas Model.
In this episode, I explore the following questions: What are claimed market failures? Do they exist? Can government intervention correct them? Is there such thing as government failure? It's important to ask these questions to determine whether or not market failure or government failure are the bigger problem in society. Much of this has do with the differences between Mainline Economics (my preference) and Mainstream Economics.
This enters controversial territory in economics and politics by discussing the myths of "market failure." Supposed market failures usually include problems with markets because of asymmetric information (occupational licensing and healthcare), monopolies (utilities and EpiPen), and externalities (pollutants) that can theoretically be corrected by government intervention. However, I make the case that these issues in markets are generated by government intervention, not unhampered markets, and the introduction of government intrusion to attempt to correct these potential issues only expand government and make the problem worse. Moreover, there are no free-market government solutions, which is why toxic pollutants should be dealt with by letting markets sufficiently price them or alternatively, though not recommended, by regulation. Policy solutions such as a carbon tax indirectly price externalities and the price will always be wrong because of the "knowledge problem" taught by economist Friedrich Hayek and the poor modeling that's done by so-called experts (see William Easterly's book The Tyranny of Experts). In general, the institutional structure of an economy should be supported by the government through upholding contracts, protecting people, and providing very few public goods. Instead of resorting to government intervention to solve supposed market failures, we should first understand that the government is likely the problem and Let People Prosper by promoting institutions with strong private property rights and fewer barriers to entry and exit markets. #LetPeopleProsper In this let people prosper episode, I discuss two key reports released today. The first is that the Energy Information Administration reported that the U.S. oil production exceeded Russia and Saudi Arabia to become the top oil producer in the world in August 2018. The second is the Census Bureau released the latest income and poverty-related data that shows less poverty nationwide with little change in Texas' supplemental poverty measure (SPM) while California still has the highest SPM in the nation. Regarding the EIA's data, the following figure shows this historic moment in U.S. history. Here's the EIA's projection through 2019: "Although EIA does not publish crude oil production forecasts for Russia and Saudi Arabia in STEO, EIA expects that U.S. crude oil production will continue to exceed Russian and Saudi Arabian crude oil production for the remaining months of 2018 and through 2019." Much of this expansion in oil production has been in Texas. In fact, Texas is producing a record amount of oil at 4.4 million barrels per day as of June 2018 (latest data available), which is about 40% of total U.S. production that month. The increase in oil production in the last couple of years has contributed to faster economic growth and job creation, thereby helping to reduce the poverty rate. Of course, this is a relatively small direct relationship, but the indirect relationship of more production capacity in the private sector is quite remarkable. Moreover, the regulatory cuts last year and the general increased economic activity and job creation in recent years has helped get people out of poverty. This is noted by poverty measures improving some in the latest report for the average of the 2015-17 period (see page 26-27 of this report). The Official Poverty Measure (OPM) looks at one poverty level across the entire nation with the federal poverty level of $12,752 for an individual and a family of four (two adults and two kids) of $24,858. The OPM declined to 12.9%, or 41.2 million, nationally for the average of 2015-17. However, the OPM is a poor measure of poverty because there are different housing costs in each state along with different levels of government benefits. Several years ago the Census Bureau created the Supplemental Poverty Measure (SPM) that accounts for after-tax income, differences in regional costs of housing and other expenditures, and government transfers (see figure below). The SPM declined to 14.1 percent, or 45.3 million, nationally. These measures for the 2015-17 period are also available by state. Let's consider the two largest states: California and Texas. California's OPM is 13.4%, which is near the national average, with 5.3 million people in poverty, and SPM is 19%, which is the highest nationally, with 7.5 million in poverty. Texas' OPM is 14%, more than a percentage point higher than the national average, with 3.9 million people in poverty, and SPM is 14.7%, which is near the U.S. average, with 4.1 million in poverty.
These data make sense because Texas is a relatively cheaper place to live that in California so Texans' dollars go a lot further than Californians' even as California has a more liberal welfare state and spends much more per capita. In this Let People Prosper episode, I'm honored with the "Champion of Freedom" award from Grassroots America--We The People's Executive Director JoAnn Fleming for advancing economic freedom and prosperity in Texas and beyond. I'm thankful for receiving this stellar award! Here's Part 1 with JoAnn Fleming announcing my award and providing some very kind remarks. Here's Part 2 where I give my acceptance speech. Short and to the point. I thank God, wife, family, colleagues at TPPF, and all of the freedom fighters working hard to assure liberty is rising! Now let's get to work to assure to expand opportunities to #LetPeopleProsper.
In this Let People Prosper episode, I discuss the latest state-level jobs report for July 2018 issued by the U.S. Bureau of Labor Statistics while highlighting how economic freedom and the recent federal changes to the State and Local Tax Deduction (SALT) matter to our prosperity.
As noted in my previous blog post (see presentation), Texas continues to be America's jobs creation engine as the Lone Star State has created 23% of all new civilian jobs added nationwide and created the most nonfarm jobs of 377,100 in the last 12 months. In general, states with more economic freedom and lower taxes have performed better in terms of economic growth and job creation over time than states with less economic freedom and higher taxes. Hundreds of papers have found this connection when considering the Economic Freedom of North America report by the Fraser Institute. Watch the episode to find out more. Have a blessed day and let people prosper. (Tip: Get checked by a dermatologist periodically, especially if you have fair skin like I do. That's the reason for the band-aid on my left cheek--praying for no issues!) In this episode, I discuss today's decision by the San Antonio City Council with a 9-2 vote to pass a city ordinance mandating private businesses provide paid sick leave of 64 hours for those with more than 15 employees and of 48 hours for those with 15 or fewer employees.
As I noted in a previous blog post, this sort of forced activity by government is bad for employers (raises costs), bad for employees (reduces negotiating power), bad for consumers (increases prices), and bad for the Texas economy (less economic activity). Instead, San Antonio and Austin, which passed this ordinance earlier this year, should find ways to provide a pro-growth economic framework to let people prosper instead of making people poor while likely violating state law (Texas Minimum Wage Act). #LetPeopleProsper AUSTIN – Today, Texas Public Policy Foundation announces that Senior Economist Vance Ginn, Ph.D., has been named a Champion of Freedom by Grassroots America-We the People, one of the state’s leading conservative grassroots organizations.
“We are thrilled to announce Vance Ginn as a 2018 Grassroots America Champion of Freedom,” said JoAnn Fleming, executive director of GA-WTP. “To read, hear, and observe Vance assert the fundamentals of economic freedom one can never question that he believes these principles down to his very core. Vance’s gift is his ability to translate abstract economic principles into concrete, understandable applications for maximum liberty, while doing so with infectious enthusiasm and good cheer. Vance is a happy warrior, arming citizen activists with usable information as they battle government bureaucracy and prosperity-stealing over-regulation and taxation. Dr. Vance Ginn is a tremendous asset to the growing Texas conservative grassroots movement.” “Vance’s important work continues to advance the goals of the Texas Public Policy Foundation – promoting liberty at every level, from local governance to state and federal issues,” said TPPF Executive Director Kevin Roberts, Ph.D. “This honor from Grassroots America-We The People is an unexpected but richly deserved award. We thank Grassroots America for its own work of holding government officials accountable and ensuring that government itself remain efficient, open and limited.” Ginn will be honored with the award at GA-WTP’s annual Champions of Freedom Banquet, to be held on Sept. 8 in Tyler, Texas. Other honorees for 2018 include Teresa Beckmeyer of Lone Star Voice, Jim and Elizabeth Graham of Texas Right to Life, Aaron Harris of Direct Action Texas, Rachel Malone of Texas Firearms Freedom, Dr. Laura Pressley of True Texas Elections and Pastor Dave Welch of the Texas Pastors Council. Previous honorees include Sen. Ted Cruz, Congressman Louie Gohmert, members of the Texas House Freedom Caucus and Pastor Rafael Cruz. Grassroots America – We the People, Inc. is the largest constitutional conservative citizen organization in East Texas and one of the largest in Texas. mailchi.mp/texaspolicy/tppfs-ginn-named-a-champion-of-freedom-by-grassroots-america?e=16ad82b6dd In this episode, I talk with Jonathan Williams, Chief Economist of the American Legislative Exchange Council (see full bio here), about the positive economic effects of the recent Tax Cuts & Jobs Act along with how the Texas Model works well but should be improved.
Don't miss his latest Rich States, Poor States publication that gives an economic outlook for each state and then ranks them. Here is the recent commentary I co-authored with Jonathon on not believing the hype about a carbon tax. Check out more of his work and more of the fantastic information at ALEC at the website www.alec.org. In this episode, I discuss the state of the U.S. economy, including the markets, rising compensation for Americans, Federal Reserve leaves target federal funds rate unchanged in the range of 1.75-2%, and costly federal budget deficits of nearly $1 trillion that will be a drag on economic growth unless government spending is reined in along with the cost of tax hikes from tariffs.
There is a clear path to more economic growth, job creation, and resulting prosperity: capitalism without government barriers to opportunity. In other words, the federal government should uphold contracts through a justice system, provide a national defense, and deal with international commerce, but really not much more than that. Let people prosper by letting them satisfy their desires within institutions of civil society that are the backbone of America's strength. Unfortunately, too many of those institutions are hindered because of excessive government intervention at every level. Let's learn more about what we can do together. President Trump’s Council of Economic Advisors recently released a reportshowing that there is a large portion of non-disabled, working-age adults (16 to 64 years old) who are receiving government non-cash welfare payments funded by taxpayers but aren’t working. For example, of those on Medicaid, 53 percent of non-disabled, working-age adults don’t have a job.
These perverse incentives created by relaxed work requirements for able-bodied workers who receive welfare payments not only hurts their financial prospects today and over time, but is an extractive institution hurting civil society. Institutions are the framework that makes up society. They are the rules of the game. Institutions can include formal laws and rules, but also more informal social norms, families, and churches. Institutions can be considered inclusive, like capitalism, or extractive, like socialism, as noted by Acemoglu and Robinson. Economist Douglass North remarked in his 1993 Nobel Prize in Economics lecture that “if the institutional framework rewards productive activities then organizations—firms—will come into existence to engage in productive activities.” On the opposite side, if institutions reward unproductive behavior, the result will be more unproductive behavior and increased poverty. Unfortunately, the institutional framework in the U.S. has many extractive programs in our welfare system that have incentivized unproductive behavior and made many people poor in the process. As another example of a costly welfare program, the Supplemental Nutrition Assistance Program (SNAP) provides assistance to more than 10 million non-working, non-disabled working-age adults. Of all the childless adult recipients on SNAP, 63 percent do not work, which is higher than the rate of recipients with infants (57 percent)—often the most difficult age to raise a child. Clearly, the incentives to work while getting welfare are little to none, even when you are able to work and don’t have a child. Welfare should be based on need, and with the unemployment rate at record lows and more job openings than people unemployed, there are few excuses to not work. Work ethic, personal responsibility, and independence are all informal institutions. They are the rules of our game. These institutions are inclusive, because they allow individuals to be self-sufficient, and become productive members of civil society. When these incentives and social norms are eroded, our institutions become extractive, redistributing resources from productive workers to welfare recipients. This process is done by government bureaucrats subjectively determining who gets what and when. Moreover, these institutions create a situation that crowds out inclusive social institutions, such as families and private charities and churches, which have been the backbone of civil society for centuries. Our current welfare system, specifically the Temporary Assistance for Needy Families (TANF), has been reformed before, making it more inclusive. This includes putting the recipients on a path to individual responsibility and prosperity by increasing work requirements to receive welfare, thereby increasing recipients’ productivity that helps them actually get off government welfare. Chicago economist Casey Mulligan has explained that the income cliff when someone earns more income and is dropped from government welfare programs acts like an implicit marginal income tax that reduces their incentive to work. It’s time to stop this sort of welfare for non-disabled working age adults. This would not only improve the relatively low but improving employment-to-population ratio for the prime age working group(25 to 54 years old) but also help to reduce welfare and the taxes paid by workers to fund these programs. The Trump administration’s recent report highlighting these issues and calling for an increase in work requirements of welfare programs for able-bodied people is a step in the right direction to let people prosper. www.texaspolicy.com/blog/detail/government-welfare-keeps-people-from-flourishing In this episode of the Let People Prosper series, I discuss the economic freedom associated with the Texas Model, which is based on relatively less government spending and taxation along with sensible regulations.
I examine data for more than a decade along with the latest state-level jobs report to highlight how the Texas Model has supported abundant prosperity. Of course, Texas has room for improvement, such as limiting government spending and eliminating property taxes, but there's much Texas gets correct. Please watch and share this episode. Please sign-up for my channel Vance Ginn Economics to watch this full episode and more.
In today's episode, I discuss how stocks look to end Q2 2018 up after a rocky quarter, projected economic growth rates continue to go up, price inflation reaches a 6-year high, and economics is the study of how people act and interact to satisfy their desires within institutions given scarce resources. Enjoy! I discuss the markets that tell us something about domestic and global economies and how spending must be restrained at the federal and state levels, like cutting corporate welfare, for increased prosperity. Thanks for watching! Texas ranks the 2nd most economically free state, tied with Florida, in the U.S. according to the Fraser Institute. This ranking is based on levels of taxes, government spending, and labor market freedom. Figure 1 shows states that rank in each quartile of economic freedom.
Research finds that higher economic freedom is overwhelmingly linked to a variety of economic benefits, which is why Texas cannot rest on its laurels but rather continue to free Texans from unnecessary economic barriers to competition. Here are three of the many findings:
https://www.texaspolicy.com/blog/detail/texas-should-boost-economic-freedom-to-let-people-prosper This commentary was originally featured in the Dallas Morning News on January 6, 2018.
Texas' economic policies keep it near the top in economic freedom, but government barriers hinder more human flourishing. The Fraser Institute gleans these insights in its recently released annual Economic Freedom of North America report. Based on variables related to government spending, taxes and labor market freedom, Texas and Florida tied for second place, behind only New Hampshire, where fewer than 1.5 million people reside. Texas, with a population of roughly 28 million, has ranked in the top five for 11 straight years, and has its highest overall score since the report began. On the other end of the spectrum, New York ranked 50th and California 49th, as they have for three of the last five years. This matters because residents and businesses frequently vote with their feet in favor of economic freedom. Since the last national recession ended in 2009, population in the 10 most-free states has grown two-and-a-half times faster than it has in the 10 least-free states, and nearly three-and-a-half times faster in just the past three years. Employment and income, two key measures of economic prosperity, have also increased faster in the freer states. More than 230 scholarly articles by independent researchers have used Economic Freedom of North America report data to examine economic freedom at the state level, while more than 400 articles have done the same at the national level (using its companion report that ranks countries). Most of that literature finds that economically free areas tend to experience more broadly positive outcomes, including more economic prosperity. One reason is that high levels of spending, taxes and regulation make it harder for entrepreneurs to succeed. When businesses can't expand and hire new workers, everyone hurts. States with the fastest economic growth, like Texas and Florida, tend to have a common focus in their economic policies: low taxes (including low or no income taxes), a fiscally conservative approach to spending, and a common-sense approach to regulation that makes it easier for entrepreneurs to succeed. States that take the opposite approach, like New York and California, tend to experience much less economic prosperity and many more moving trucks leaving for greener pastures. While Texas is ranked near the top again, it should be noted that the report grades on a curve, so there's plenty of room for improvement. One step is to eliminate the burdensome gross receipts-style business margins tax. After multiple states eliminated such a tax because of the high compliance cost to businesses and its job-killing nature, only four other states (Delaware, Nevada, Ohio and Washington) still have it. This antiquated tax is a reason the Tax Foundation's State Business Tax Climate Indexranks Texas 49th on corporate taxes, better than only Delaware. While Texas benefits from no personal income tax, another step is to reduce the burden of property and sales taxes; the Tax Foundation ranks both 37th. Reducing that burden would allow working Texans to keep more of their hard-earned money rather than leaving exorbitant amounts in politicians' hands. In order to reduce the burden of taxation, of course, Texas must take the pivotal step in reining in excessive government spending. Allowing the budget to grow no faster than the population growth plus inflation, which has been done for a historic two straight legislative sessions, would make a big difference. A good start would be to eliminate wasteful spending on corporate welfare programs, like the Texas Enterprise Fund, that put small businesses and businesses already in Texas at a disadvantage to businesses elsewhere. We should follow Florida's example, as the state zeroed out funding for economic incentives to individual companies in their similar fund two years in a row. Taking the steps necessary to rank higher on the various measures of economic policies is a win-win for Texas (and all other states). Politicians can take the credit for improving the economy, and Texans can benefit from greater prosperity. https://www.texaspolicy.com/blog/detail/texas-ranks-near-the-top-again-for-economic-freedom This commentary was originally featured in the Fort Worth Star-Telegram on September 6, 2017.
The 85th Texas Legislature’s special session ended Aug. 16. While there were several topics in Gov. Greg Abbott’s call that improved economic freedom and opportunity, which are the basis of greater prosperity for Texans, there was much left desired to strengthen the Texas model. Texans already enjoy more freedom than most other states. For example, Texas ranks third-highest in the 2016 Economic Freedom of North America (EFNA) report, which ranks states on their relative levels of economic freedom. There have been more than 150 independent studies of the relationship between economic freedom at the state level and a variety of economic outcomes. The overwhelming majority of those have found that states with higher economic freedom have better results, including faster economic growth and higher incomes. While Texas is ranked high for economic freedom, there are several notable areas of deficiency that need improvement. While some of these were on the call, they weren’t addressed and should be studied during the interim for swift implementation next time in 2019. 1) Eliminate the business franchise tax, not included in the call. The Tax Foundation ranks Texas 49th for its corporate tax burden, worse than every state except Delaware. A big reason is that Texas is one of few states to even levy this particularly burdensome tax, which is a tax on a firm’s gross receipts. Eliminating this tax would make it easier for Texas businesses to expand and hire new workers. 2) Reform property taxes, included in the call but not passed. The property tax burden in Texas ranks sixth-worst nationwide. Residents across the state have seen huge increases in recent years. Either SB 1 or HB 4 would have provided much-needed structural property tax reform by triggering an election for local voters to approve increases in property tax revenue by local jurisdictions of more than a certain threshold. Neither made it to the governor’s desk. 3) Restrain budget growth to cut taxes, not included in the call. One option is to cut the sales tax rate. Most Texans pay a combined state and local sales tax rate of 8.25 percent. Only nine states have a higher rate. By restraining government spending, excess money could be put toward reducing the state’s sales tax rate or other taxes, providing much-needed relief. 4) Enact a stringent spending limit, included in the call but not passed. To not excessively burden taxpayers with funding government services, population growth and inflation are key metrics that reflect that burden. One represents the increase in number of residents while the other tracks closely with wage growth over time, collectively providing an increase in funding to government that probably doesn’t overly distort each individual’s ability to satisfy his or her desires. Either SB 9 or HB 208 would have been terrific steps to enacting an effective cap on government spending that limits increases to no more than the rate of population growth and inflation, but neither made its way to the governor. 5) Increase state budget transparency, not included in the call. Many government programs continue to get funding years after they are no longer needed. Requiring agencies to explicitly justify the need for their programs on a biennial basis through the practice of zero-based budgeting would make it easier to eliminate those that are unnecessary while making it easier to provide tax relief. 6) Reduce government regulations, not included in the call. The Legislature recently took a step to address the growth of the regulatory burden by passing a law that requires the state to remove one regulation for every new regulation created. Requiring that all regulations “sunset” after a certain period would go further by actually reducing the number of regulations on the books. Residents and businesses vote with their feet in response to policy differences. Texas is widely regarded as a top business-friendly state; the flood of new businesses into the state in recent years is testament to that reputation. However, like any sort of reputation, maintaining good standing requires constant vigilance. These six reforms to tax, budget, and regulatory policy would help increase economic freedom and individual liberty in Texas. While none of these were addressed in the special session, they should remain high priorities by the 86th Legislature to provide relief to taxpayers and put Texas at the top when it comes to economic freedom and associated prosperity. https://www.texaspolicy.com/blog/detail/six-missed-opportunities-in-special-session-that-could-have-aided-economic-prosperity |
Vance Ginn, Ph.D.
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