When Did It Begin?
I started this approach a decade ago with my colleagues at the Texas Public Policy Foundation with work on the Conservative Texas Budget which began in 2013. The approach is a fiscal rule based on an appropriations limit that covers as much of the budget as possible, ideally the entire budget, with a maximum based on the rate of population growth plus inflation and a supermajority (two-thirds) vote to exceed it. A version of this approach was started in Colorado with their taxpayer's bill of rights (TABOR), which was championed by key folks like Dr. Barry Poulson and others.  (picture below is from a road sign in Texas)

Why Population Growth Plus Inflation?
​While there are other measures to use for the spending growth limit, this metric provides the best reasonable measure of the average taxpayer's ability to pay for government spending without excessively crowding out their productive activities.

It is important to look at it from the taxpayer’s perspective rather than the appropriator’s view given taxpayers fund every dollar that appropriators redistribute from the private sector. Population growth plus inflation is also a stable metric reducing uncertainty for taxpayers (and appropriators) and essentially freezes inflation-adjusted per capita government spending over time.

​The research in this space is clear that the best fiscal rule is a spending limit using the rate of population growth plus inflation, not gross state product, personal income, or other growth rates. In fact, population growth plus inflation typically grows slower than these other rates so that more money stays in the productive private sector.

Also, personal income growth and gross state product growth are essentially population growth plus inflation plus productivity growth. There's no reasonable consideration that government is more productive over time, so that term would be zero leaving population growth plus inflation. And if you consider the productivity growth in the private sector, then more money should be in that sector at the margin for the greatest rate of return, leaving just population growth plus inflation.

So, population growth plus inflation becomes the best measure to use no matter how you look at it.

Given the high inflation rate more recently, it is wise to use the average growth rate of population growth plus inflation over a number of years to smooth out the increased volatility. And this rate should be a ceiling and not a target as governments should be appropriating less than this limit, ideally freezing or cutting government spending at all levels of government to provide more room for tax relief, less regulation, and more money in taxpayers' pockets.

Overview of Conservative Texas Budget Approach
Figure 1 shows how the growth in Texas’ biennial budget was cut by one-fourth after the creation of the Conservative Texas Budget in 2014 that first influenced the 2015 Legislature when crafting the 2016-17 budget along with changes in the state’s governor and lieutenant governor.

​And the 8.9% average growth rate of appropriations since then was been below the 9.5% biennial average rate of population growth plus inflation over the latter period, which this was drive substantially higher after the latest 2024-25 budget that is well above this key metric (before this biennial budget the growth rate was 5.2% compared with 9.4% in the rate of population growth plus inflation). 

Work With Other States
When I returned to the Texas Public Policy Foundation in May 2020, as I wanted to get back to a place with some sense of freedom during the COVID-19 pandemic and to be closer to family, I started an effort to work on this sound budgeting approach with other state think tanks. This contributed to me working with many fantastic people who are trying to restrain government spending in their states and the federal levels.

​My hope is that if we can get enough state think tanks to promote this budgeting approach, get this approach put into the state's constitution and statute, and use it to limit local government spending as well, there will be plenty of momentum to provide sustainable, substantial tax relief and eventually impose a fiscal rule of a spending limit on the federal budget.

This is an uphill battle but I believe it is necessary to preserve liberty and provide more opportunities to let people prosper.

Responsible State Budget Efforts Across The Country
Here are the states (in alphabetical order) and state think tanks which I'm working with in some capacity or will be soon along with information on how this process is going in that state. I will update  these periodically, with the successful versus not successful budgeting attempts being 18-6 so far.

1. Americans for Tax Reform release the Sustainable Budget Project with every state's budget compared with population growth plus inflation and valuable comparisons and data for each state.
2. Alaska: Alaska Policy Forum released its third Responsible Alaska Budget, with the first two unsuccessful but the most recent being successful as it helped define the narrative about sound budgeting.
3. Colorado: Independence Institute will release its first Sustainable Colorado Budget soon.
4. Florida: James Madison Institute released its first successful Conservative Florida Budget.
5. Iowa: Iowans for Tax Relief Foundation released its fourth Conservative Iowa Budget, and the first three have been mostly successful.
6. Kansas: Kansas Policy Institute released its second Responsible Kansas Budget, with the first two not being successful but improvements are being made to help rein in even more spending.
7. Kentucky: Bluegrass Institute is working on putting together its first budget with this approach.
8. Louisiana: Pelican Institute recently released its first Responsible Louisiana Budget, which was unsuccessful.
9. Michigan: Mackinac Center released its second Sustainable Michigan Budget, with the first not being successful but the second one being successful in reining in excessive spending in a tough political situation.
10. Mississippi: Mississippi Center for Public Policy recently released its first Responsible Mississippi Budget and was successful.
11. Montana: Frontier Institute released one Conservative Montana Budget and one report on Responsible Local budgets, which has resulted in two successful CMBs and improved local budgets.
12. South Carolina: South Carolina Policy Council released its second South Carolina Conservative Budget, with the first being successful and the second being unsuccessful.
13. Tennessee: Beacon Center released its third Conservative Tennessee Budget, with the first two being successful.
14. Texas: Texas Public Policy Foundation released its fifth Conservative Texas Budget, with the first four of five (2024-25 budget wasn't) being mostly successful, and the recent release of Responsible Local Budgets.
15. Federal: The Responsible American Budget to rein in federal government spending to support fiscal sanity in D.C., which is essential for the future of our country.

​
If you're interested in doing this in your state, please reach out to me.

P.S. Good write-up on this issue here by Grover Norquist and I at WSJ, Dan Mitchell at International Liberty, and The Economist.

T​he rise of several underdog states and the fall of previous favorites tells the story of the Tax Foundation’s new 2024 State Business Tax Climate report. The findings support how less government contributes to more flourishing, while heavy-handed taxes hinder prosperity. 

The scores for the 50 states in the report declined by 0.19 points from the prior report, indicating a less overall competitive business tax climate nationwide. Considering that half of all states have cut taxes over the past three years, and an increasing number are moving to flax taxes, pressure is building on states to seek tax cuts or risk getting left behind. 

An inspiring success story is Iowa, which has emerged as a beacon of pro-growth tax reform. Iowa reduced its top marginalindividual income tax rate from 8.53 to 6.0 percent. By consolidating its previous nine tax brackets into four, the newer, more streamlined tax system is less burdensome for Iowans. 

Another improvement in Iowa’s reforms was reducing the marriage penalty. The state removed a longstanding tax burden by doubling the bracket amounts for married couples filing jointly. The state also shifted its previously three-bracket corporate income tax structure into just two brackets, which caused the top rate to drop by 1.4 percentage points. 

As a result of these changes, Iowa’s ranking improved from 38th to 33rd in just one year. 

While there’s room for improvement, the state is on a better path. Considering the conservative budgeting by Governor Reynolds and the legislature, and the transition to a flat 3.9 percent income tax rate by 2026 and a flat corporate income tax rate of 5.5 percent, the state could soon be on its way to 15th place. 

Massachusetts, on the other hand, experienced the sharpest decline of all the states, plummeting 12 places down to 46th. 
This regression in business tax competitiveness can be largely attributed to a new state constitutional amendment. It transitioned Massachusetts from a single-rate to a graduated-rate income tax system with a new 4 percent surtax for a top marginal tax rate of 9 percent for incomes over $1 million.

This progressive policy not only represents a departure from the trend of rate reductions and bracket consolidation in other states as part of the flat tax revolution, but also introduces a significant marriage penalty. While implementing a new payroll tax further contributed to Massachusetts’s decline in tax competitiveness, the state’s individual tax component ranking fell from 11th to 44th.

Unfortunately, this fall was foretold by the vast number of people fleeing the state, many of whom were no doubt searching for a more tax-friendly place of residence. After all, people vote with their feet.

While Massachusetts experienced a sharp fall, Mississippi and Idaho emerged as rising stars in the world of tax reform. 
Mississippi’s ranking jumped from 27th to 20th thanks to three major shifts. It became the second state to implement permanent full expensing for select investment in machinery and equipment, passed a flat personal income tax, and will soon phase out its franchise tax.

These forward-thinking policy changes encourage investment and economic growth, positioning Mississippi as a more competitive business destination.

Likewise, Oklahoma has also made significant strides in tax reform. In addition to eliminating its marriage penalty, the state reduced its split roll ratio in property taxation and withdrew its capital stock tax. These actions propelled its property tax component ranking to substantially improve from 30th to 15th.

As a result of these reforms, Oklahoma’s overall ranking has risen significantly, now at 19th. And while Governor Stitt’s recent special session was unsuccessful in making bigger strides for tax cuts, the state looks poised to do so soon, thereby improving its competitiveness. 

On a similar path, Idaho made a noteworthy move by transitioning from four brackets to a flat individual income tax at 5.8 percent. Additionally, the state cut its corporate income tax rate to 5.8 percent, further enhancing its tax competitiveness. These reforms boosted its individual tax component rank by two places, now at 17th.

The findings from the Tax Foundation’s report underscore a fundamental economic truth: Free markets do not discriminate. They thrive where they are permitted to flourish, and that starts with sustainable budgeting and sound tax policy. 

States like Iowa, Oklahoma, Mississippi, and Idaho, which prioritize tax cuts and financial freedom, are poised to rise in the rankings and could quickly become some of the more sought-after states. As they continue to reduce tax burdens, they create environments where individuals and businesses can retain more of their earnings, which invites innovation, improves the quality of life, and encourages moving to those states. 

Meanwhile, states like Massachusetts and New Jersey, which ranks 50th in the report, choose high spending and taxes that will contribute to continued out-migration as individuals and businesses seek refuge in states prioritizing economic freedom. 

The message is unmistakable. Free markets work, and policymakers should heed the lessons from these tax climate rankings.

Originally published at AIER. 

The Texas Legislature just found out it has a huge opportunity to correct its profligate spending failures made earlier this year. But instead, they’re gearing up to spend more at the expense of strapped taxpayers. This would be a fatal error for the Lone Star State.

Texas Comptroller Glenn Hegar recently released the Comptroller's Revenue Estimate (CRE). This report acts like a financial checkup to confirm sufficient tax revenue available to cover expenditures based on the state’s balanced budget amendment.

The current two-year tax revenue for 2024-25 was updated higher to $194.6 billion available for general spending, an increase of 24.8% from the previous budget. This certified revenue estimate exceeds the $176.3 billion appropriated by the 88th Legislature for general purposes, resulting in a projected surplus of $18.3 billion.

This large amount is from a more vibrant economy than previously estimated and could go a long way to putting school property taxes on a path to elimination. Yet the Texas Legislature’s recent out-of-control spending habits indicate taxpayers probably won’t get more property tax relief than the minimal amount passed this year. 

The state wants to increase spending on a government school system in the current third special session rather than on students to have universal school choice. And spending could go up by more than $13 billion outside of the expenditure limit if voters approve most of the 14 constitutional amendments on the state ballot this year.

Add it all up, and it’s no wonder that Texans find living in many places across the state unaffordable.

While Texas has witnessed major economic achievements this year, such as noteworthy records for labor force participation and job creation, the 88th Legislature's actions raise serious concerns about the future. 

This year, the Lone Star State passed its largest spending increase, largest corporate welfare, and just the second-largest property tax cut in state history, which the latter will underwhelm homeowners when they get their bills. This could be a major problem for Republicans who have touted this as the “largest property tax cut in the world” or the “largest property tax cut in Texas history.” 

While Texans grapple with an affordability crisis, spending the state surplus and voters approving the proposed ballot items, except propositions 3 (prohibit wealth taxes) and 12 (abolish Galveston County treasurer’s office), would add insult to injury. 

Rather than squandering the surplus, the Texas Legislature should prioritize strengthening the Texas Model by: 

1. Spending less at the state and local levels, strengthen the state’s spending limit with the rate of population growth plus inflation covering all state funds, and have that spending limit also cover local government spending similar to Colorado’s Taxpayer’s Bill of Rights.

2. Taxing less by putting local property taxes on a path to elimination using surpluses to reduce school district M&O property tax rates until they are zero. Local governments should leverage their surpluses to reduce their property tax rates until they are zero.    

3. Regulating less by removing barriers to work, removing occupational licensing restrictions, reforming safety nets, and passing universal school choice.

Strengthening the Texas Model isn't just about fiscal responsibility; it's about securing a thriving future for generations to come. Texas, with its unique spirit and determination, can continue to lead the way, fostering an environment where free-market capitalism thrives and individuals prosper.

The surplus, instead of being frittered away on needless pursuits, should be a catalyst for transformation that redefines the Lone Star State's destiny, safeguards liberty, and sows the seeds of enduring prosperity.

​Originally published at The Center Square.

I hope you enjoy the fantastic 67th Let People Prosper Show episode with TX State Rep. Brian Harrison! Please subscribe to my newsletter if you haven’t already, and subscribe to my podcast wherever you get yours. I would appreciate it if you would also rate and review my podcast!

​Brian (bio) and I discuss:

• His experience serving as the former Chief of Staff at the U.S. Department of Health and Human Services in the Trump administration, including before, during, and after the pandemic and efforts to advance medical freedom;
  
• His thoughts on how Texas' state and local governments responded to the pandemic and other efforts that expanded the size and scope of government; and
  
• The biggest threats facing Texas' liberty today, including high government spending, burdensome property taxes, lack of school choice, and more.
  

​While the latest “strong” US jobs report and “cooling” CPI inflation have been touted as promising, a closer look reveals more complexity, and many American families continue to bear the brunt of DC’s failures over the last three-plus years. 
The payroll survey’s net gain of 336,000 non-farm jobs is a popular headline, as the figure nearly doubled expectations.

But the household survey, a second crucial report by the US Bureau of Labor Statistics, shows that only 84,000 jobs were added in September. Meanwhile, the unemployment rate stayed at 3.8 percent, which would be much higher if more people were looking for work. 

Let’s consider the labor force participation rate of 62.8 percent to double-check the headlines. 

If this rate were 63.3 percent, as it was in February 2020, there would be 1.4 million more people in the labor force. If they are all unemployed, today’s unemployment rate would be nearly 5 percent, which is substantially higher than the touted 3.8 percent rate. 

There have also been substantial revisions to the non-farm jobs report in recent months because of volatile data used for seasonal adjustments since the shutdowns, which makes much of it “garbage in, garbage out.” There were, for example, an additional 119,000 jobs added over just July and August than what was initially reported, giving us reason for pause with all of these reports. 

In short, this volatility in the job market data makes it challenging to discern actual trends, especially when Americans continue to be concerned about the economy.

On top of a fickle job market, the latest consumer price index (CPI) sits at 3.7 percent over the past year, while the core inflation, which excludes food and energy, is 4.1 percent. This core inflation rate is double the Federal Reserve’s average inflation rate target and doesn’t show any signs of reverting to 2 percent any time soon. 

This problem was created by the Fed’s bloated balance sheet, which results from its willingness to help finance the federal budget deficits caused by excessive government spending. Until Congress reins in government spending and money printing, inflation will strain household budgets.

Also, real (inflation-adjusted) average weekly earnings dropped by 0.2 percent over the past year, and the average family’s real income has suffered a significant blow, with a decline of more than $7,000 since the start of 2021. 

These financial setbacks are not coincidental. They are the direct result of the progressive policies of the Biden Administration, the Federal Reserve’s bloated balance sheet, and Congress’s habit of excessive spending.

If we want to understand the true state of our economy, we should pay more attention to the Fed’s balance sheet, which remains a crucial indicator of inflationary pressures. This is why I was never on team “transitory inflation.” Even a relatively superficial understanding of the work of Milton Friedman, Friedrich Hayek, and John Taylor has indicated from the start that we would face persistent inflation. 

Sure, supply-side factors contributed to higher prices in some markets, as did supply chain bottlenecks. But those are short-term fluctuations that don’t tell the entire story of reduced purchasing power for everyone over a longer period, which is a story of failed public policy on top of the failed shutdowns during the pandemic. 

The explanation is pretty straightforward. There was a sudden halt in the economy due to pandemic shutdowns that distorted many exchanges throughout the marketplace. The federal government then sent out redistributed money to individuals and employers so they wouldn’t have to fret too much during a stressful time. This propped up many Americans, creating any number of zombie firms, zombie workers, and a debt-fueled zombie economy. 

But this alone wouldn’t explain the inflation, as increased government spending doesn’t stimulate anything other than more government and some specific markets. 

Next, the Fed more than doubled its balance sheet, increasing its assets from $4 trillion to $9 trillion. This doesn’t lead to long-term economic growth, but it does contribute to many market distortions and inflation across the economy. Much of this money stays in the hands of the banks, mortgage companies, and others at the upper part of the income spectrum. Only then does some of it spread further, in a process known as the Cantillon effect. 

The problem is not only a propped-up economy with multiple asset bubbles, but reduced purchasing power that punishes lower-income families the most. Few, if any, of the positives from more money in circulation goes to these families. Instead, they have seen whatever savings they had dwindle. 

To achieve a more stable and prosperous economic future, we must strike a balance between sound fiscal and monetary policies and curb excessive government spending and money printing. This will only begin to happen when we have rules that control discretionary policies by the administration, Congress, and the Fed. 

While headline jobs and inflation data might suggest a strong economic recovery, digging just a little deeper into the data shows a weak economy with major challenges. It’s time for policymakers to take a hard look at the factors contributing to these economic woes and adopt prudent policies that address the root causes of stagflation.

Originally published by AIER.