Texas’s economy is improving after the destruction from the pandemic and forced business shutdowns. The opening of the economy on March 10, 2021, helped bring some normalcy as many return to work, excessive government restrictions cease, and civil society improves. This normalcy is supported by wins regarding fiscal and regulatory policy and paths to opportunity by the 87th Texas Legislature during the recently completed session, and more successes may be realized during the special session called by Governor Greg Abbott. A key initiative will be to promote more pro-growth policies that reduce spending, taxing, and regulating in order to increase prosperity and withstand Washington’s anti-growth policies.
This table provides a comparison of initial appropriations for the 2020-21 budget from the Legislative Budget Board’s (LBB) Fiscal Size-Up and for the 2022-23 budget as noted in the conference committee report for SB 1 General Appropriations Act. We compare the budget with the Foundation’s Conservative Texas Budget (CTB) limits based on on a 5% increase in population growth plus inflation.
We exclude from the 2020-21 budget the $8.3 billion in mostly federal funds for one-time Hurricane Harvey recovery expenses and the $5 billion in general revenue funds for a 7-cent tax rate compression of school district M&O property taxes in HB 3 from the 2019 session. Likewise, we exclude from the 2022-23 budget the $6.1 billion in general revenue funds to maintain last session’s property tax relief—which without this allocation would result in a 7-cent tax rate hike in those property taxes and likely more spending. And we will exclude one-time distributions of federal funds related to the pandemic. Not including these types of one-time funds is necessary for budget transparency and for not inappropriately inflating the baseline budget allowing excessive appropriations later. We also exclude the $410.2 million in all funds for Article X that Gov. Greg Abbott vetoed, and he will likely include in a special session.
The 2022-23 Texas budget is well below the CTB limits in state funds and all funds, and leaves $11.6 billion in the rainy day fund. Excluding the $6.1 billion to stop a massive property tax hike, general revenue funds decline by 3.1% and state funds are up by only 0.7%. Including it, state funds are about $725 million below the CTB. And all funds, which is the full footprint of the taxpayer’s burden to fund state government appropriations, is up 3% to $242 billion, which compared with population growth plus inflation is 2-percentage points lower and $4.8 billion less.
The growth of initial appropriations, on average, has now been well below the average taxpayer’s ability to pay for them over the last four budgets, which was directly after the Foundation created the CTB in 2015.
The Texas Legislature’s practice of fiscal restraint while meeting the needs of the state is good news for Texans. And much of the CTB was passed into statute as the Legislature strengthened the state’s spending limit by expanding the base to all general revenue funds and changed the growth limit to population growth times inflation while increasing the threshold to exceed it to a three-fifths majority in each chamber. After the Foundation has worked toward this statutory change for multiple sessions, this is a huge feat that will have long-lasting benefits to Texans.
We encourage Gov. Greg Abbott to build on these policy wins and more by providing paths for more fiscal gains—such as substantial property tax reductions and improved local revenue limitations—in a special session.
Full article with figures.
Texans will benefit from the policy wins achieved in the 87th Texas Legislature. Among other things, lawmakers:
Passed a Conservative Texas Budget
Strengthened spending limits
Maintained property tax relief
Improved taxpayer protections
Reduced regulatory barriers
The Texas budget, SB 1, came in below the Conservative Texas Budget—in fact, it is about $5 billion below the ceiling the Texas Public Policy Foundation set after excluding the $6.1 billion to maintain the property tax relief from last session. Great credit is due for Senator Jane Nelson and Representative Greg Bonnen because Texans simply cannot afford to pay for out-of-control spending.
Fortunately, measures to address future spending were addressed, too. SB 1336 by Senator Kelly Hancock was sent to the Governor’s desk. This makes much of the Conservative Texas Budget statute by limiting lawmakers from increasing the budget by more than population growth and inflation.
Following the 2019 Session, many local governments sought to bypass the 3.5% limit on property tax growth by taking on more debt in the form of certificates of obligation. This debt would then be passed on to taxpayers. HB 1869 by Representative Dustin Burrows clarifies the definition of debt and reduces this practice for taxing entities.
Local governments also sought to use the “disaster” loophole in 2020 to raise property taxes by 8%. Senator Paul Bettencourt filed SB 1427 which clarifies the types of disasters that can be used to bypass the 3.5% property tax rate limit—COVID-19 was NOT one of the disasters.
Additional bills that expanded on property tax reforms from the 2019 Session were SB 1438 and SB 1449 by Senator Paul Bettencourt. The first would clarify tax rate adjustments and the second would raise the income threshold from personal property from $500 to $2,500 which cuts taxes for small businesses.
On the regulatory side, there were several wins like HB 1560 by Representative Craig Goldman which cuts back on occupational licenses and cuts regulations. HB 139 by Representative Brad Buckley provides license reciprocity for military members, veterans, and their spouses so they will not be forced to go through a new licensing process for an occupation when they move to Texas from another state. Finally, there was SB 424 by Senator Juan “Chuy” Hinojosa which reduces regulatory penalties against small businesses for first time violations.
Texas looks to receive $41 billion in taxpayer money provided by Congress in the $1.9 trillion American Relief Plan Act (ARPA). With $31 billion being sent to the state, this is 25% of the state’s annual budget. This excessive spending in D.C. has become the norm and now they’re trying to push their profligate spending onto Texas.
We must not let that happen, and here’s how to stop it.
ARPA funds to Texas include $11.2 billion already released to public schools. Soon, there will be $10 billion for local governments and $4 billion for only water, sewage, and broadband projects. And $15.8 billion in more flexible funding will head to the state in one payment, since Texas’s unemployment rate is more than 2 percentage points above the pre-pandemic rate.
Not only are these funds adding to the skyrocketing national debt, but they’re also more than what Texas needs. The state and local governments already have balanced budgets or surpluses. And to make matters worse, these funds come with strings attached which jeopardize state sovereignty and our republic’s future.
The U.S. Treasury recently released guidance (a Fact Sheet) for the restrictions on how state and local governments can use the ARPA funds. There will now be a 60-day period for public comments on this guidance before additional clarity will be provided.
In the meantime, it appears that the state cannot use these funds for deposits into pension funds or for direct or indirect state tax cuts, except for special cases that don’t seem to apply in Texas, even though cuts by state or local governments seem legitimate and advisable.
The tangle of strings attached to this ARPA money makes it almost impossible to shrink government. Furthermore, states with respectable fiscal track records, like Texas, are being punished while irresponsible state and local governments, like California and Austin, are being rewarded.
Given the strings attached, if the state accepts ARPA funds, Texas’ approach should be a pro-growth, long-term strategy to strengthen the state while assisting struggling Texans still affected by the pandemic and the shutdowns.
The strategy should strive to return these funds to taxpayers by reducing and keeping taxes lower than otherwise, funding only one-time expenditures, and rejecting all or most ARPA funds with strings attached.
This strategy would help avoid expanding government, reduce the impact on state sovereignty, mitigate the rising burden of the federal government’s high spending and debt, and provide relief to families.
Texas would recover faster, and would better withstand the Biden administration’s onerous policies by using the $15.8 billion in more flexible funding on the following options to Keep Texas Texan.
We should allocate $9 billion for federal unemployment trust fund loans and replenish the state unemployment fund to avoid massive tax hikes that would be needed to fund these.
We should use $5.1 billion in ARPA funds directly or those swapped out with state general revenue to complete the border wall and add border security to provide relief of the border crisis and stop using state taxpayer dollars every biennium for this purpose.
And with property taxes continuing to climb, we should use the other $1.7 billion to provide a 2-cent compression of local school M&O property taxes for additional tax relief this session. Adding the extra $3 billion that Comptroller Glenn Hegar recently announced is available would mean there’s an opportunity to provide a 5.5-cent compression. Since these are technically local taxes, this could be a way to navigate around the unwise restrictions imposed by D.C.
These expenditures should be done in a way that ensures accountability and transparency to taxpayers.
There should be no ARPA funds for ongoing expenses to avoid fiscal cliffs that led to problems a decade ago, when Democrats argued there were “cuts” to public education when Obama’s one-time “stimulus” funds ran out. And these funds should be placed in a separate budget article from the base budget like the Foundation’s Conservative Texas Budget does. And spending should be posted on the Comptroller’s or Legislative Budget Board’s website.
There are other good ideas on how to use ARPA funds, but they may be restricted because of the many strings attached, which is why there should be more clarity from the Treasury. Thus, with so many hoops to jump through, Texas should strongly consider rejecting some or all the funds.
Particularly those with strings attached that would weaken the state’s fiscal and economic situation by creating fiscal cliffs in subsequent sessions, eliminating tax relief opportunities through December 31, 2024, and more. Rejecting ARPA funds would also give Texas an opportunity to help provide relief from the Biden administration’s gambit to bankrupt America with $6 trillion either passed or proposed in legislation during his first 100 days in office.
Texas is a sovereign state. It’s time D.C. recognizes that.
Texas looks to receive roughly $40 billion in taxpayer money provided by Congress through the American Rescue Plan Act (ARPA). This includes $11.2 billion already released to public schools and soon to be released $10 billion to local governments and $4 billion to infrastructure projects (i.e., only water, sewage, and broadband projects). And $15.8 billion in more flexible funding to the state in one payment given Texas’s unemployment rate is more than 2 percentage points above the pre-pandemic rate.
Approach Given Restrictions
The U.S. Treasury recently released guidance (Fact Sheet) for the restrictions on how state and local governments can use the ARPA funds. There will now be a 60-day period for public comments on these restrictions before additional clarity will be provided. In the meantime, it appears that the state cannot use these funds for deposits into pension funds or direct or indirect state tax cuts, except for special cases that don’t seem to apply in Texas while local tax cuts by state or local governments seem legitimate and advisable. Given strings attached, if the state accepts ARPA funds, there should be a pro-growth, long-term strategy to strengthen Texas while assisting struggling Texans from the pandemic and shutdowns.
The strategy should strive to return these funds to taxpayers by reducing and keeping taxes lower than otherwise, funding only one-time expenditures, and rejecting all or most ARPA funds with strings attached. This strategy would help avoid expanding government, reduce the impact on state sovereignty, mitigate the rising burden of the federal government’s high spending and debt, and provide relief to families. Texas would recover faster and better withstand the Biden administration’s onerous policies by using the $15.8 billion in more flexible funding on the following options to Keep Texas Texan.
If Texas accepts some or all the funds, consider the following:
Provide Texans with Relief
$9 billion for federal unemployment trust fund loan and replenish state fund to avoid tax hike.
$5.1 billion for border wall completion and border security to provide relief of border crisis.
$1.7 billion for a 2-cent compression of local school M&O property taxes to provide relief.
Ensure Accountability and Transparency
No ARPA funds for ongoing expenses to avoid fiscal cliffs (e.g., pub ed “cuts” after ARRA).
Place funds in separate Article from base budget like TPPF’s Conservative TX Budget
Publish receipts and outlays of funds on Comptroller’s or LBB’s website.
Replace general revenue with federal funds for only one-time items.
Support Reform—May be restricted but possibly by swapping general revenue appropriations
Fund Other Post-Employment Benefits (OPEB) with reforms for sustainability.
Swap with GR to pay down state debt with a high interest rate.
Use to fund defined-contribution retirement accounts or similar reforms for new employees.
Swap with GR to fund expanded special education microgrants created during COVID.
Swap with GR to fund market-based healthcare with direct primary care and other options.
Texas should consider rejecting some or all the funds, particularly those with strings attached that could create fiscal cliffs in subsequent sessions, eliminate tax relief opportunities through December 31, 2024, generate school finance problems, and more.
In response to the Texas Comptroller’s announcement that state revenue would be more than $3 billion higher than expected for the 2022-2023 biennium, the Texas Public Policy Foundation’s Vance Ginn released the following statement:
“The Texas Comptroller’s improved estimate of tax collections from primarily an improving COVID-19 situation and opened economy shows that the Legislature has $3.1 billion more available for the Texas budget. Both the House and Senate have already voted in favor of budgets that cover the state’s priorities and stay within the average taxpayer’s ability to pay for them. Therefore, the responsible approach to addressing the additional tax collections should be to give taxpayers relief—especially more toward property tax relief—to help Texas families and businesses.”
Texas Comptroller Glenn Hegar forecast $115.65 billion available for general-purpose spending in 2022-23, which is up $3.12 billion from January.
72% of Texans say property taxes are a major burden
TPPF Conservative Texas Budget: $246.8 Billion
Texas Senate Committee Substitute Budget: $244.7 Billion
Texas House Committee Substitute Budget: $240.9 Billion
This table provides an apples-to-apples comparison of amounts appropriated for the 2020-21 budget from the Legislative Budget Board’s (LBB) Fiscal Size-Up and each chamber’s 2022-23 appropriated amounts. We compare each chamber’s appropriated amounts with the Foundation’s Conservative Texas Budget (CTB) limits for state funds and all funds (state and federal) based on a maximum increase of 5% in population growth plus inflation over the last two fiscal years.
We exclude from the 2020-21 budget the designated $8.3 billion in Hurricane Harvey recovery one-time expenses and $5 billion in general revenue for school district M&O property tax relief in HB 3 from the 2019 session. Likewise, we exclude from each chamber’s version of the 2022-23 budget the $6 billion in general revenue to maintain last session’s property tax relief—which without this allocation would result in school district M&O property taxes rising 7 cents and likely in increased spending—and will exclude one-time COVID-related funding. The exclusion of one-time expenses for a declared disaster recovery is important for budget transparency and for not inappropriately inflating the base by that amount allowing for excessive spending later.
Fortunately, the passed versions of the budget by the Senate and the House fall well below the CTB limits in state funds and all funds, and neither appropriates money from the rainy day fund. This must be maintained—with hopefully more tax relief—by the conference committee and Governor Abbott to account for the average Texas taxpayer’s ability to pay for government spending while leaving more money in the productive private sector to let people prosper.
Vance Ginn, PhD, is chief economist at the Texas Public Policy Foundation.
By combining property tax reductions and reform with spending limitations, Texas could shift to a more efficient and fairer sales tax system. In this way, Texans can be assured meaningful, lasting property tax relief and an improved Texas Model that will sustain economic prosperity for generations.
Testimony in Support to Texas House Appropriations Committee
It’s easy to tell who the Texans are in a crowd; you simply shout, “the stars at night, are big and bright”—then wait for about the span of four quick claps.
It’s easy to tell if a budget in Texas is truly conservative—and worthy of the great Lone Star State’s commitment to freedom and prosperity. If the biennial budget grows less than population plus inflation—our formula for a Conservative Texas Budget (CTB)—then it’s a budget that doesn’t grow beyond the average Texan’s ability to pay.
We love budget and tax cuts, of course; the Texas Legislature should take every opportunity to ease the burden on taxpayers, leaving more of their money in their own pockets. Yet the CTB is a useful guideline for lawmakers.
The good news is that both the House and Senate versions of the 2022-23 budget come in well under the CTB level.
This is a big win for Texans (see this thread), and it includes rightfully rejecting funding for Medicaid expansion in the budget, which effectively kills this attempt by the left. There are better, more affordable ways to help those in need rather than just providing government-run coverage that does not result in quality, timely care, as market-based reforms that put patients in charge would do.
There are other conservative policy victories in the budget, as well. It defunds some corporate welfare, it requires proposals of some state agency cuts each session, and it improves the process in determining the use of COVID-19 relief funds from the federal government.
Note that we appropriately don’t count these federal funds in our budget calculations because they haven’t been accepted yet (and much if not all with strings attached should be rejected) and should be used for only one-time expenditures to keep from unnecessarily growing government and then falling into the trap like the state did when the federal funds from President Obama dried up.
Now, some are saying that the budget doesn’t provide additional property tax relief for Texas families. That’s true. But it does preserve property tax relief from the last biennium. This is relief just like it was last session, when $5 billion was allocated toward lowering school district M&O property taxes—which meant taxpayers paid less than otherwise.
The $6 billion in this budget is to fund that same 7-cent property tax rate compression because of rising appraisals across the state. If that $6 billion wasn’t in the budget, then property owners would face a 7-cent tax increase and those funds would go to other programs that grow government.
So, the $6 billion is property tax relief by keeping property taxes and the size of government lower than otherwise—that’s certainly better than the alternative.
The next step in the budget process is for the conference committee on the budget to iron out the differences of a gap of $4 billion more in the Senate budget than the House budget, which the amount of expected federal funds is the main difference. This should include continued spending restraint for actual tax cuts and additional tax relief before the end of session.
There are a few key amendments to the budget by the House that lawmakers should keep, including:
Asking state agencies to provide proposed cuts of 1%, 5%, and 10% each session;
Defunding more corporate welfare; and
Improving federal COVID-19 funds determination.
Overall, this approach to the budget is a key part of TPPF’s Responsible Recovery Agenda that will support more growth, job creation, and economic opportunity in Texas.
It’s never hard to tell who the Texans are in a crowd, and in a crowded legislative session, it’s not hard to tell which budgetary decisions are the right ones. They’re the ones that lead to more freedom and more prosperity for Texans like the Legislature looks poised to do.
In Texas, we dream big. That’s what House Bill 59 does—it imagines a Texas that lightens the tax burden on Texans, upholds property rights and ensures that education is properly funded.
Authored by Rep. Andrew Murr, R-Junction, the bill would eliminate the school maintenance and operations portion of your property tax bill on Jan. 1, 2024, and would create a legislative commission that would use the intervening time to study the best way to replace that revenue. This bill would cut local property taxes nearly in half while adhering to the state’s constitutional responsibility of funding government schools.
The key to achieving this, of course, is restraining government spending at the state and local government levels.
The fact is that the skyrocketing local property tax burden remains one of the state’s most pressing policy challenges. Property taxes have been growing faster than the average taxpayer’s ability to pay for them. Any growth over population-plus-inflation represents a growth in government above our ability to pay. For more on this formula, which we call the Conservative Texas Budget, click here.
According to the Tax Foundation, Texas has the seventh most burdensome property tax on homeowners. Using a different calculation, Fox News ranks Texas third-worst.
Too many have been forced out of their homes and businesses because of rapidly rising property taxes.
It would be great to eliminate all property taxes, which tend to hurt lower-income earners the most, so Texans can stop effectively renting from the government forever.
A good start in that process would be to eliminate school district M&O property taxes, which account for nearly half of the total property tax burden on Texans. Eliminating just the school district M&O property taxes is rather straightforward because the state determines the funding formulas for the school finance system, and it represents nearly half of the property tax levy across the state.
The question is how to replace this revenue. That’s easy—with a broader-based sales tax.
State sales taxes have grown far less than property taxes, less than personal income, and more closely with population growth plus inflation. This indicates that moving to a system based on the sales tax better aligns with the average taxpayer’s ability to pay for these taxes that fund government spending over time.
There are some important reasons why a sales tax is the better way to fund schools.
First, property taxes are inefficient. Property taxes in Texas are based primarily on subjective valuations by appraisal review boards and tax rates determined by local tax entities with little to no feedback from citizens, creating a highly inefficient collection mechanism.
Next, property taxes are more regressive than sales taxes. Sales taxes are paid once at purchase, yet property taxes are paid annually, hurting low- and fixed-income Texans the most because the costs compound over time. A high property tax also prevents many low-income earners from purchasing their first home and forces many others who do purchase to struggle to keep their home—they may even lose it.
Finally, during recessions (like the recent pandemic), lower-income earners tend to face the highest levels of unemployment and are least able to shoulder a tax burden. Their property tax burden, however, would increase relative to their income, while their sales tax burden would fall more proportionately with their income.
The sales tax is money that comes directly from the choices of consumers. It ensures that all financial power remains within their control, whereas property taxes are a burden that is forced upon all taxpayers with little means of working around it.
It would work—and result in fully funding schools based on the state’s school finance system.
Economists of the Baker Institute at Rice University studied the economic effects of replacing property taxes with sales taxes over time. They found that just a 3.6% decrease in school district M&O property taxes could contribute to a $14.3 billion increase in economic output and 217,000 new jobs after just the first year of reforms and more thereafter. Imagine if we eliminated that burden!
By combining property tax reductions and reform with spending limitations, Texas could shift to a more efficient and fairer sales tax system. In this way, Texans can be assured meaningful, lasting, property tax relief and an improved Texas Model that will sustain economic prosperity for generations.
“Hey Florida! Help is Here.”
That’s how Vice President Kamala Harris recently put a 21st Century spin on Ronald Reagan’s famous quote, “The nine most terrifying words in the English language are: I’m from the Government, and I’m here to help.”
What does this have to do with the Texas budget and House Bill 3548? Let me explain.
The premise of the Vice President’s tweet is that government’s job is to swoop in and solve all of our problems. The premise of Reagan’s quote is that too often, government is the problem—or at least standing in the way of solutions. Reagan was right, of course; government fulfills some necessary functions, but in most cases, more government means less freedom.
That’s why we at the Texas Public Policy Foundation have labored for years to chisel the idea of a Conservative Texas Budget into the hard granite at the Texas state capitol. Our reasoning is clear — people don’t need more government; they need more opportunity. And our simple formula reflects that: The state’s total budget, which is the footprint of government funded by taxpayers, ought not to grow faster than our population growth plus price inflation. This spending limit is reflected in Rep. Matt Krause’s committee substitute for HB 594, which has been referred to the House Appropriations Committee.
Growth beyond that equation is an excessive growth of government—meaning bigger state agencies, which inevitably assume more and more regulatory powers to themselves. And a bigger budget also means more taxes, since states (unlike the federal government) can’t hide behind deficit spending. Government shouldn’t grow faster than the citizens’ ability to pay for it.
Now, state Rep. Greg Bonnen, who chairs the House Appropriations Committee, has had his HB 3548 referred to that committee. And Sen. Kelly Hancock, a member of the Senate Finance Committee, has the companion SB 1336 that will be heard before the Senate Finance Committee (of which he is a member). This legislation would improve the state’s current weak spending limit by expanding the base to all general revenue funds and by changing the growth limit to one closely related to ours of population growth times inflation.
It’s important to note that the Conservative Texas Budget is a ceiling, not a floor. It’s a limit on how much the budget can increase, not a target. There’s no limit on shrinking government, cutting taxes and reducing regulations. That course would be best for Texans, and TPPF has outlined many ways in which lawmakers should do so. Our top 10 legislative priorities for this Session, which we call our Liberty Action Agenda, provides a clear path for legislators to shift power and prosperity back to the people of Texas.
While Chairman Bonnen’s and Sen. Hancock’s legislation would set an improved formula closer to ours into stone and ensure that future Legislatures comply, we are pleased to see that both the House’s and the Senate’s introduced (proposed) budgets fit within our guidelines. Our math says that a total of $246.8 billion in all funds for 2022-2023 would represent a 5% increase over the last biennium, matching the growth in population plus inflation. Both proposed budgets came in under that number after excluding $6 billion toward maintaining property tax relief from last session instead of growing government.
Historically, lawmakers have been too ready to increase the Texas budget and grow government. But in 2015, we introduced the Conservative Texas Budget, giving legislators a clear bar. Prior to this, the average growth rate of the biennial budget from 2004 to 2015 was 12%. With the Conservative Texas Budget in place, the average growth rate was just 5.5%. More importantly, before 2015, the average growth rate of appropriations exceeded that of population plus inflation by almost 5 percentage points, while since then, growth has been limited to an average of almost a full percentage point below population and inflation.
The Conservative Texas Budget provides a path toward responsible state spending. It has proven to be successful at restraining excessive growth in government in the past, and it will continue to do so in the future if followed each session.
That’s why Chairman Bonnen’s and Sen. Hancock’s legislation, which codifies much of the Conservative Texas budget, is so important. It’s the help Texas families truly need.
The COVID-19 pandemic has changed our routines, but it doesn’t change the laws of economics. Yet it seems government is in the business of doing something when it really should do nothing, such as the recent proposals by President Biden and Congress to spend more and raise the federal minimum wage in the name of pandemic relief.
These actions would not only make a bad economic situation worse, especially for the ones the policies are intended to help, but they would destroy the unity that the president says he wants.
We’ve already seen the devastation that government action can cause during the pandemic, as the broad U6 unemployment rate remains at an elevated 11.1% and almost 800,000 people are filing initial jobless claims every week. The government shutdowns are an unfolding tragedy, and we won’t know their full extent for years to come.
But, as usual, there’s another attempt to put a patch on the American economy with an unnecessary, poorly crafted monstrosity of a $1.9 trillion COVID-19 relief package, which includes raising the federal minimum wage from $7.25 to $15 per hour by June 2025.
This boondoggle sends taxpayer money to people through checks when real personal income reached a record high in 2020. Its higher unemployment payments will distort incentives to work. And it will bail out profligate state and local governments when they’ve already received nearly three times more in taxpayer funds than their estimated losses.
Collectively, this package could delay the needed reopening of our economy, the only real path to regain Americans’ taken prosperity.
The focus of a package—if it must be done—should be to get the vaccines out as quickly as possible to open America now so that people can regain their prosperity they had before the pandemic. Better yet, a pro-growth approach of spending restraint, tax relief, and deregulation would be a better federal response.
In fact, the latter two measures (tax relief and deregulation) were practiced by the Trump administration and it contributed to records of the highest real median household income and lowest poverty rate in 2019. And while President Trump’s budgets found more fiscal savings than any other president, Congress continued to spend excessively—thereby bankrupting us and our country in the process.
But what’s getting a lot of media attention recently without much consideration of its cost is the Raise the Wage Act that the Democrats in Congress are trying to push through. This arbitrary hike of the federal minimum wage would be a mistake as it would separate us in terms of economic status and further divide us as a nation. That’s not what I would consider as “unity.”
According to a 2019 Pew Research poll, about two-thirds of Americans supported increasing the minimum wage to $15. But at what cost, given that nothing is free?
For example, the Congressional Budget Office recently reported that passing the Raise the Wage Act could mean as many as 2.7 million workers lose their job and earn the real minimum wage of $0. This would also come at the cost of $54 billion more to the national debt, further bankrupting us. And while the number of people lifted up from poverty could be 900,000, many of them will face higher prices, higher taxes, and higher interest rates making it harder for even those lucky enough to not lose their jobs to make ends meet.
But this analysis misses two key points that should not be overlooked: 58.5% of Americans earning the minimum wage are between 16 to 24 years old, and costs of living vary greatly across states, with California being 50% more expensive than Texas.
This means that those who will be hit hardest by raising the minimum wage are those just trying to get their foot on the bottom rung of the economic ladder, and typically have other sources of income. In fact, raising the minimum wage can benefit high-wage, highly skilled people at the expense of low-wage, low-skill people as employers move from labor to capital in their operations. This actually increases income inequality.
And states that have done a good job in keeping the cost of living low, like Texas (due to more pro-growth policies resulting in increased economic freedom) are hit hardest compared with those that don’t, like California. We should let federalism’s system of “laboratories of democracy” continue to prove that people vote with their feet, as the number of Californians moving to Texas increased by 36% in 2018.
America may still be suffering through the chaos of COVID-19, but that doesn’t mean we need more of it. President Biden should give doing nothing a chance, especially his policies that will bankrupt the country and force increased unemployment.
Given the economic situation with many unemployed Texans struggling from business closures in response to the COVID-19 pandemic and government restrictions and following recent power outages, the Legislature should consider less spending, taxing, and regulating so Texans have more opportunities to prosper.
Invited testimony submitted to the Texas House Committee on Appropriations – S/C on Article II
Many Americans are recovering from the economic destruction that started in March 2020 due to shutdowns by state and local governments in response to the COVID-19 pandemic. The economy has improved, but the pace has slowed because of increased restrictions by many state governors making it more difficult to regain the tangible prosperity experienced last February.
I highlight data on economic growth and employment and provide pro-growth policy recommendations to help quickly recover.
More on the data ⬇️
Texans are ready to return to work.
Due to the COVID-19 pandemic and forced business shutdowns by state and local government mandates, Texas’s unemployment rate in December sits at a staggering 7.2%, compared to 3.5% the previous year. Not only is unemployment high, but many businesses have failed or are on the verge of failing.
What can we do about it?
TPPF’s Responsible Recovery Agenda would help speed up the recovery so Texans can regain their prosperity through a pro-growth approach of spending less, taxing less, and regulating less. Having state government do less now—while understanding in some areas that will be difficult—is the solution to doing more for Texans tomorrow.
Spend less. Gov. Abbott noted in his recent State of the State speech that “we must balance the state budget without increasing taxes.” So far, this has been the case for the current 2020-21 budget and for the House and Senate versions of the 2022-23 base budget of about $251 billion. This amount is under TPPF’s Conservative Texas Budget of $246.8 billion because $6 billion is for maintaining property tax relief from last session instead of growing government.
Continuing to reduce spending and accepting budgets below this representation of the average taxpayer’s ability to pay (meaning population growth plus inflation) will allow Texas to start making strides toward economic recovery. This should include strengthening the state’s weak spending limit for the long run as would be the case with HB 594 (Krause) and HB 910 (Parker).
Tax less. Although taxes are necessary to fund government programs, they distort and limit economic activity in the private sector. During a time when many Texans are struggling to make ends meet, tax increases must be off the table. In fact, there should be a continued push for tax relief.
While SB 2 last session provided historic reforms to the property tax system, there are already those interested in rolling back those reforms which must be maintained and even improved upon. One way is to clarify the “disaster loophole” that some local governments are using to substantially raise property taxes.
By appropriately limiting spending, more tax relief is possible while continuing the action last session of moving Texas’s tax system more toward an efficient, fair, and pro-growth sales tax system. Movement is afoot in the Legislature to limit state spending so surplus dollars can replace school districts’ maintenance and operations property taxes, which comprise nearly half of total property taxes paid statewide. This could be done through different approaches like HB 958 (Oliverson), HB 59 (Murr), or others on the way.
Another tax to consider cutting is the business franchise tax, often called the margins tax. This tax limits a firm’s ability to hire workers and grow their business from its costly gross receipts-style tax and unnecessary complexity of tax compliance.
Regulate Less. Texas continues to excessively regulate entrepreneurial activity, many of which are unnecessary and harmful to the state’s economic freedom. The state has looked to cut regulations before the COVID-19 pandemic, but much more can be done given what we’ve learned since.
Some occupational licenses and other regulations were suspended during the efforts to relieve the economic burden holding back resources and services during the pandemic. Gov. Abbott recently said, “That is why I am asking the Legislature make permanent some of the regulatory relief that I authorized. This will cut red tape and unleash the full might of the Texas economy.” We agree.
Having unnecessary barriers to earn a living especially hurts those who do not have the time or money to get “certified.” While some regulations make sense, the Texas Legislature should take a look at each of the more than 263,000 restrictive regulations to ensure that each protects Texans and serves its intended purpose. If that’s not the case, then the regulation should be suspended, or better yet, eliminated.
An innovative idea is HB 819 (White) which would create economic zones to waive some regulations and occupational licenses in low-income areas so that people have more chances to flourish. Other bills have been filed to help remove excess barriers limiting opportunity.
Texans’ improved livelihoods through a robust recovery by opening fully and removing governmental obstacles should be a top priority. The Responsible Recovery Agenda is a roadmap that emphasizes how to do this through spending less, taxing less, and regulating less.
It feels like there’s hope on the horizon. As Gov. Abbott said in his recent State of the State speech, “With each passing day of more vaccinations and increased immunity, normalcy is returning to Texas.” The Texas economy is recovering and at long last, some normal activity is returning. We’re not out of the woods yet, but we can at least see a clearing ahead.
Yet too many Texans could be left behind.
“The situation in the Houston area is particularly desperate, with almost half of residents struggling to pay basic expenses in the week ending Dec. 7, according to a Census Bureau survey,” Pew reports.
Lawmakers can help, but the help must be the right kind. History shows that our poorly designed welfare system traps too many people in poverty or near-poverty. Economists like me will tell you that people respond to incentives, and the welfare system disincentivizes self-sufficiency.
So, the best response is to unleash opportunities for people to prosper. We can reverse those incentives and show our fellow Texans that they can achieve their American dream.
How? Through what we’re calling the Opportunity Project that provides a path to dignity, self-sufficiency, and prosperity.
Let’s start with more effective training for better jobs.
We can tailor our state’s workforce development efforts more narrowly to the jobs that are out there and the skills that are needed. Texas is a prosperous state with many job opportunities, but a portion of the populace lacks the skills necessary to get and keep these jobs.
But we know what helps. Welfare-to-work programs, with the vital participation of the private sector, can change lives.
Generally speaking, such programs target disadvantaged populations, provide training in a marketable skill in addition to “soft-skills” instruction, and offer wraparound services (such as child care, transportation vouchers, housing assistance, etc.), job placement services, and follow-up services to help graduates stay on a path to success.
One example is the earn-while-you-learn program established by the Texas Federation for Advanced Manufacturing Education (FAME) in San Antonio. The employers in the consortium offer a competitive wage that gives program participants the safety net they need to leave low-paying jobs or welfare. The payoff for employers is a steady stream of well-qualified workers.
Next, let’s lower barriers to entrepreneurship by rolling back restrictive regulations like occupational licensing.
Nationally, nearly 22 percent of jobs require an occupational license. That makes sense for doctors, but many other occupations are questionable at best—such as cosmetologists having to complete 10 times more days of training than EMTs.
And it’s not just the silly licensing rules; many licensing schemes exclude those who have a criminal conviction. We believe in second chances; that should also apply to occupational licensing, especially when the license has no direct relationship with the long-ago crime.
Finally, where we can, we must keep the existing welfare system from unintentionally trapping people in a life of helplessness.
Welfare should be reprioritized to count as “successes” those who move off and stay off it rather than those enrolled. We can streamline and simplify the sign-up process and implement efficiency audits of programs to ensure those Texans who need help receive it, while clearly defining the pathways out of welfare dependency.
Where the system creates a welfare benefits “cliff”—in which families lose benefits arbitrarily or too quickly when they re-enter the workforce—we should demand a smoothed approach that doesn’t disincentivize work.
Of course, a strong and vibrant economy is key to making this work.
Gov. Abbott made this point: “Texas has been ranked the number one state for business for 16 straight years. For the past eight years, we led the nation in economic development, and we have led America in exports for 18 straight years. The Texas model. It inspires entrepreneurs and innovators and attracts job creators from across the entire country.”
Strengthening the Texas Model is the best way to uphold this, with lower taxes (and no personal income tax), fewer unnecessary regulations, and a commitment to limited government. This framework provides more economic freedom and greater opportunity for all Texans.
The COVID-19 pandemic isn’t over, but recovery is on the way. Let’s work to assure every Texan can participate when the economy opens and thereafter.
The Texas economy has continued to recover since the steep downturn due to the COVID-19 pandemic and shutdowns by state and local governments in March. The partial reopening of most non-essential businesses has been a key part of that recovery, but the rise in COVID-19 hospitalizations has contributed to increased capacity restrictions that have slowed economic activity.
More on the data and how Texans can get back to work as quickly and safely as possible
Today, the Texas Workforce Commission released the state jobs report for Dec. 2020 in which the Texas unemployment rate fell from 8.1% in Nov. 2020 to 7.2%.
“Today’s jobs report for Texas shows some good news for workers and employers in December as employment increased for the eighth straight month and as the unemployment rate dropped to 7.2%,” said TPPF’s Chief Economist Vance Ginn, Ph.D. “While these gains are welcome, Texas’ labor market remains much weaker than a year ago when there were 384,700 more people employed in the private sector and the unemployment rate was 3.5%. Despite the potential policy challenges for the state’s recovery imposed by the Biden administration, the Texas Legislature looks poised to help with the recovery in their latest budget proposals as soon as the economy opens.”
Today, the Texas House and Senate introduced their versions of the 2022-23 budget.
The Texas Public Policy Foundation’s Chief Economist Vance Ginn, Ph.D. offered the following statement:
“At a time when many Texas families and employers are struggling financially across the state, we are glad to see the Texas Legislature come together to introduce a state budget that protects taxpayers. By maintaining last session’s property tax relief and ensuring the savings does not go to extra spending, the total 2022-23 budget comes in well below the Foundation’s Conservative Texas Budget. It controls spending growth, keeps property taxes lower, doesn’t raise other taxes or tap into the rainy day fund. The state budget is a responsible approach that puts Texans in a better position to recover their lives and livelihoods as soon as the economy is fully open.”
To read more about TPPF’s 2022-23 Conservative Texas Budget, please visit:
Today, Texas Comptroller Glenn Hegar released the Biennial Revenue Estimate (BRE) which tells the Legislature the amount of taxpayer dollars available to fund various programs like public safety, education, and health care during the upcoming session which begins Jan. 12.
“Given the COVID-19 pandemic and business shutdowns by state and local governments, the Comptroller’s budget forecast, while better than anticipated, has a great deal of uncertainty,” said Texas Public Policy Foundation Chief Economist Vance Ginn, Ph.D. “While the BRE is well above expectations and the 2020-21 budget will likely end balanced, the Legislature should continue to find savings. At a time when many families are struggling, it is essential that the Legislature maintain conservative fiscal policies, so Texans have the best opportunity to flourish. This can be done by assuring that the budget increases by no more than the maximum threshold of the Conservative Texas Budget, reducing spending where appropriate, cutting taxes, and rolling back regulations as we outlined in the Foundation’s Responsible Recovery Agenda.”
The Texas economy continues recovering since the steep downturn due to the COVID-19 pandemic and business shutdowns by state and local governments in spring 2020. Tailwinds could be strong in 2021 if the government removes restrictions and follows responsible fiscal policy so people are free to live and earn money.
Are your kids getting the education they need—either in person, or remotely? It might depend on where you live; it should instead be up to you.
Schools shut down last spring. Some reopened in the fall, some did not. Others, like those in New York City, are closing again. Some schools are trying to mix in-person and virtual instruction.
This confusion should be alleviated as much as possible by allowing parents to decide which schooling is best for their kids.
Based on the evidence, it seems that schools can safely keep in-person instruction as they aren’t super-spreaders, and that many students benefit from this kind of instruction. A recent national poll found that more than 50% of parents are comfortable with returning to school. The same poll found that half of parents with a choice selected remote education for their children.
Ultimately, decisions about schooling should happen closest to students, starting with their parents. The COVID-19 shutdowns have shown us the need for school choice—letting parents decide what schooling works best for their children.
Families with means already have more choices, of course. Some have chosen to put their kids in private schools or home school. But other families can’t afford this and must try to make their public school work—while also trying to make ends meet.
For example, virtual instruction usually requires an adult’s care to ensure that a child is able to access instruction and learn. This puts extra pressure on working families—they might have to miss work or pay someone else for childcare.
We know that normal school breaks can lead to widened educational disparities. Continued school shutdowns could also lead to widening racial wealth disparities in America. A McKinsey study reported that the educational level of the average Black or Hispanic student is two years behind the average white student, based on many factors—including place of residence and wealth disparity.
That study also indicates that if in-person instruction doesn’t occur until January 2021 and students receive remote instruction at reduced learning rates (or even no instruction at all), “white students would earn $1,348 a year less (1.6% reduction) over a 40-year working life, [but] the figure is $2,186 a year (3.3% reduction) for Black students and $1,809 (3.0% reduction) for Hispanic ones.”
Continuity in students’ educational experiences are also at the forefront of parents’ concerns.
A recent survey of 600 full-time, public school teachers across the nation showed that 67% of teachers agreed that completion rates of assignments were worse during distance learning than in-person instruction.
The concern is especially high with low-income earners. The Texas Education Agency, for instance, reported a 55.6% drop this spring in progress for online math coursework for low-income families.
Still, for many families, the threat from COVID-19 is more concerning than the potential drawbacks of remote instruction, particularly for students or family members who are immunocompromised. And there are at least some families who have thrived in a remote education setting.
In the end, parents know their situations and concerns best. The choice should be theirs. In-person schooling, remote learning, or some other model should be their call.
The burden shouldn’t lie on parents to be flexible (and accepting of whatever school officials tell them they’ll receive); it’s the school districts that must be flexible—and accountable.
Child development doesn’t stop for COVID-19, or any other disruption. We owe American families the flexibility they need to keep their kids on track. And that should start with more choices for parents rather than top-down mandates by governments.
The Texas economy has continued to recover since the steep downturn due to the COVID-19 pandemic and shutdowns by state and local governments in March. The partial reopening of most non-essential businesses has been a key part of that recovery, but the rise in COVID-19 hospitalizations has contributed to increased capacity restrictions that have slowed economic activity.
Today, the Texas Public Policy Foundation released five papers that together form a responsible strategy for the state’s immediate and long-term economic growth.
“These five approaches make for good economic policy anytime,” said TPPF Chief Economist Vance Ginn, Ph.D. “But they are especially important as the state recovers from government-imposed shutdowns. Together, these strategies will help return Texas to the prosperity we saw before COVID-19 and help get us there fast.”
The Five-Step Strategy is:
“During the shutdown, the state suspended some rules and regulations, proving they weren’t essential for health and safety in the first place,” said Rod Bordelon, TPPF’s Policy Director for the Remember the Taxpayer Campaign. “Instead of waiting for the crisis to end to re-evaluate these regulations, we should repeal them now and review others in an ongoing basis so that Texans aren’t held back by unnecessary restrictions.”
The Responsible Recovery Agenda also stresses that budget writers should avoid seeking additional state revenue through increased fees and taxes.
“Raising taxes is a costly endeavor — even more so in a recession because it distorts behavior at a time when the economy is weak, delaying recovery and leading to even greater economic stress,” said Benjamin Priday, Ph.D., Economist at TPPF. “Legislators should close budget gaps first by strategically employing the Rainy Day Fund and by trying to find ways to reduce spending.
The Responsible Recovery Agenda is a comprehensive approach to addressing the budget challenges Texas faces in the wake of COVID-19 shutdowns while also preserving the success of the Texas Model, which has strengthened the state’s economy.
For a historical look at the budget and other ways to improve the budget process, the Foundation also released The Real Texas Budget report.
Texas’s Economic Stabilization Fund (or “rainy day fund”) is a valuable tool for covering unexpected shortfalls in tax receipts, like those during the COVID-19 pandemic, but it should be used sparingly, and budget reductions should be prioritized instead.
Vance Ginn, Ph.D.