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Key Point: Texas continues to be a leader in job creation over the last year (chart below by @SoquelCreek) and set employment records across the state, but Texans who are struggling from an affordability crisis would benefit from less spending, regulating, and taxing. Overview: Texas has been a national leader in the economic recovery since the inappropriate shutdown recession in Spring 2020. This includes reaching a new record high in total nonfarm employment for the 17th straight month, leading exports of technology products for 21 consecutive years, and being home to the most Fortune 500 companies in the country with more than 50. While the 87th Texas Legislature passed a Conservative Texas Budget and passed country’s strongest state spending limit, the current 88th Texas Legislature has more to do to freeze spending and use more than $60 billion in excess taxes collected to put school district maintenance and operations on a path to elimination so Texans can stop renting and start owning their property. Labor Market: The best path to prosperity is a job, as it helps bring financial self-sufficiency, dignity, hope, and purpose to people so they can earn a living, gain skills, and build social capital. The table below shows Texas’ labor market for February 2023. The establishment survey shows that net nonfarm jobs in Texas increased by 58,200 last month, resulting in increases for 33 of the last 34 months, to bring record-high employment to 13.8 million. Compared with a year ago, total employment was up by 611,400 (+4.6%)—second fastest growth rate in the country to Nevada—with the private sector adding 560,100 jobs (+5.0) and the government adding 51,300 jobs (+2.6%). The household survey shows that the labor force participation rate and employment-population rate are slightly lower than in February 2020, but the former is well below June 2009 at the trough of the Great Recession. The private sector now employs 800,000 more people than pre-pandemic. Texans face challenges with a worse unemployment rate, though historically low but higher than U.S. rate of 3.6% though many have dropped out of the labor force elsewhere. Economic Growth: The U.S. Bureau of Economic Analysis (BEA) reported the real gross domestic product (GDP) by state for Q3:2022. The figure below shows Texas had the second fastest GDP growth (first is Alaska) of +8.2% on an annualized basis to $1.89 trillion (above the U.S. average of +3.2% to $20.05 trillion). In the prior quarter, Texas had the fastest growth with +1.8% growth as the U.S. average declined by -0.6% that quarter. Of course, these followed Texas’ GDP contractions of -7.0% in Q1:2020 and -28.5% in Q2 during the depths of the shutdown recession. Fortunately, GDP rebounded in Q3 and Q4, yet declined overall in 2020 by -2.9% (less than -3.4% decline of U.S. average) but increased by +3.9% in 2021 (below the +5.9% U.S. average). The BEA also reported that personal income in Texas grew at an annualized pace of +6.9% in Q3:2022 (ranked 6th highest and faster than the U.S. average of +5.3%) but slower than the robust +8.4% in Q2:2022 (ranked 6th best and above the U.S. average of +4.9%) as job creation and inflated income measures found their way across the economy. Bottom Line: As Texans face an affordability crisis from high inflation and high property taxes and an uncertain future with the U.S. economy likely in a recession, they need substantial relief to help make ends meet. Other states are cutting, flattening, and phasing out taxes, so Texas must make bold reforms to support more opportunities to let people prosper, mitigate the affordability crisis, and withstand destructive policies out of D.C.
Free-Market Solutions: In 2023, the Texas Legislature should improve the Texas Model by:
On a stifling July day, Elon Musk sat across from the governor of Oklahoma under a small white pop-up tent, a red Tesla flag waving from a short pole in an otherwise unadorned field.
That the billionaire was even in Oklahoma, seriously considering putting a gigantic new Tesla factory outside of Tulsa, was a major turning point for the frequently overlooked state. Suddenly, Oklahoma could boast of being on par with its much larger neighbor and rival, Texas. The only other city still in the running for the plant, by that point in 2020, was Austin. The wide shadow of Texas has long fallen over Oklahoma. Despite offering the same red-state promise of open land, a cowboy ethos and limited government regulations, Oklahoma has found itself a perennial also-ran, especially in recent decades as Texas cities became magnets for new companies and workers from around the country. In the end, Mr. Musk chose Austin. But the long-shot bid put Oklahoma on the map for relocating companies and workers, and inspired a new resolve to make the state a more appealing place to work and live. Since 2018, Tulsa has been offering remote workers $10,000 to move to the city for at least a year. In its first year, 70 people took the city up on the offer. In 2021, 950 people made the move. Many stayed. “I can’t believe I live in Oklahoma — it’s like even weird to say,” said Chris Bland, who took the $10,000 and moved in 2021 from an apartment in Harlem, working remotely as an environmental scientist at New York’s Mount Sinai Health System. Since then, Mr. Bland, 29, has been selling his friends and family on Tulsa — restaurants, bars, $895 a month for a studio apartment downtown — and he has already stayed longer than the single year required by the program, which is funded by the Tulsa-based George Kaiser Family Foundation. Oklahoma City has taken a different tack, raising money from residents and visitors — in the form of a dedicated 1 percent sales tax — and spending hundreds of millions of dollars in recent decades on things like new parks, a canal, a streetcar system and a basketball arena. The city remade its downtown, and new shops and restaurants replaced those that had long ago vanished. Many American cities have been spending to improve their downtown amenities, and other states also offer tax breaks and other incentives to try to lure businesses. But Oklahoma City is now one of the country’s fastest-growing large cities, climbing past Boston and Washington to become the 20th largest by population, with 687,000 people. Still, the state’s growth has been dwarfed by the roaring boom in Texas, which has welcomed a rush of transplants from other states and new immigrants from around the world. The Texas economy is second in the United States only to California, and it has been growing faster. But Oklahoma officials now see a chance to draft off that boom, selling their state as a place that is just as business-friendly, at a more affordable entry point. “We hope it’s the next Texas,” said Lt. Gov. Matt Pinnell of Oklahoma, sitting in a Houston seafood restaurant for a series of recent meetings to entice more international energy investment in his state. More than 100 companies have come to Oklahoma in the last five years, including 29 last year, and another 200 have announced expansions, according to the state Commerce Department, resulting in more than $10 billion in promised new investments. Six companies moved their headquarters to the state. The rivalry with Texas nonetheless remains a bit one-sided. Oklahoma has three Fortune 500 companies headquartered in the state, all in the oil and gas industry; Texas has more than 50. Asked about the threat posed by their neighbor, Texas officials did not see one. “Texas is dominating for the 18th year in a row as the Best State for Business,” Andrew Mahaleris, the press secretary to Gov. Greg Abbott, said in a statement, citing a ranking in Chief Executive magazine. “Texas will continue to remain number one because of the unmatched competitive advantages we offer: no corporate or personal income taxes, a predictable regulatory climate, and a young, growing and skilled work force.” But soaring housing prices in Austin and other Texas cities are undermining some of the state’s competitive advantage. “There are a lot of states around here that are a lot cheaper to live,” said Vance Ginn, an economist in the Trump administration and a former chief economist at the Texas Public Policy Foundation, a conservative think tank. “That is a concern.” Don Ward, a Texas native and entrepreneur, is moving his small technology business, Laundris, to Tulsa from Austin. Mr. Ward, 53, said he worried about the rapid rise of housing and other costs, and Tulsa offered some of the small-city feel that he said had been vanishing from Austin, whose population is now just under 1 million. “Austin has been more focused on working with the Elon Musks of the world,” Mr. Ward said. “Tulsa gave me an opportunity to be a big fish in a smaller pond again.” Reliable electricity is another issue Oklahoma is using as a selling point. The failure of the Texas electrical grid during a brutal winter storm in February 2021 fueled new interest in states, like Oklahoma, with energy infrastructure seen as more reliable. Gov. Kevin Stitt, a Republican, boasted in a recent interview about not only the state’s “affordable, reliable energy grid” but his effort to do away with 25 percent of the state’s regulations on businesses. Seated in his office in the Capitol, Mr. Stitt conceded that Texas has long had a reputation as a good place for business. “But it’s getting overcrowded,” he said, noting that commute times around Oklahoma City are far shorter than those in Dallas-Fort Worth. It has long been easy to drive around Oklahoma City. The problem was a lack of things to drive to. The need became apparent decades ago, when the city lost out to Indianapolis for a United Airlines maintenance center. Company executives had visited Oklahoma City and found they simply could not make their employees live there. “It was terrible,” said David Holt, 43, who grew up in Oklahoma City in the 1990s and is now in his second term as mayor. “All my peers who had any wherewithal went to Dallas or Houston or the more adventurous off to California or New York.” The city began a long process to make itself more attractive, one that continues. On a recent weekday, a billboard across from the Oklahoma City Thunder arena proclaimed “Always Onward” over a newly opened park of spindly young trees. (The state, for its part, has been trying a different tagline: “Imagine That.”) The city has also been transforming politically. Once reliably red, Oklahoma City is now solidly purple, having narrowly favored former President Donald J. Trump in 2020 but voting by a wide margin for the losing Democratic candidate for governor last year. Governor Stitt, a businessman and political newcomer when first elected in 2018, said that he did not worry that efforts to attract newcomers to the state’s urban centers would alter its political identity. “We’re finding people moving here from the quote unquote liberal states because of their policies,” he said, adding that he and other state leaders were clear about their conservative principles. “It’s not for everybody. If this is not who you are, great, you don’t have to live in our state.” Tulsa has similarly been shifting politically, and in its attitude about itself, said Mayor G.T. Bynum, also a Republican in a nonpartisan office. He said the amount of investment in the city was akin to the 1920s oil boom and, because of Tesla’s interest, the city was hearing from other electric vehicle and battery companies. “Elon Musk netted us tens of thousands of dollars in free advertising,” Mr. Bynum said. Even so, by the time he visited, Mr. Musk may have already made his decision against Oklahoma, for many of the same old reasons. “The fundamental problem I have is getting people to move out of California,” Mr. Musk told the head of work force development in Oklahoma in 2020, according to documents obtained by The Associated Press. “Austin is one of the few places to which they will move.” The population of Austin has grown more than 20 percent in the last decade. But Oklahoma City has also grown by nearly that much during that time period, roughly 18 percent, a fact Mayor Holt attributes in part to his city’s ability to appeal to those seeking what Austin used to be. “We have a lot of the things that you would expect to find in a large American city, but without the hassle,” he said. “I think that’s a combination that maybe only has a finite window. It’s the combination Austin offered 20 years ago, and then everybody took them up on it, and now it’s too crowded.” Originally published at The New York Times.
In 2021, a bipartisan coalition ended school property tax abatements for corporations and renewable energy companies. On this week’s Liberty Cafe, Vance Ginn and Tim Hardin join me to discuss how Big Government Texas Republicans are attempting to restore this program for their friends in Big Business.
It's no secret that relocators have recently favored moving to Florida. Recent data from the Florida Department of Motor Vehicles shows that people from New York, New Jersey, and California are among the states with the most people applying for Florida driver's licenses. In fact, according to the New York Post, the data showed that around 30,000 Californians applied for a Florida license in 2022.
Economist Vance Ginn believes he knows one of the major reasons that Californians are coming to Florida, and he believes it is fueled in part by saving money, as follows. Cheaper Housing Fueled by Fewer Roadblocks to Real Estate Development: Ginn, who is chief economist at the Pelican Institute for Public Policy, recently co-authored an opinion piece in the Washington Examiner. In it, he laid out his argument that the primary motivation for relocating Californians to Florida and Texas is housing affordability, writing, in part: "Housing affordability has been a major factor driving Californians to states such as Texas and Florida, where they can realistically afford the American dream of owning a home."Ginn further explains that Florida and Texas have less expensive housing because they implement fewer "bureaucratic bottlenecks" for real estate development, writing: Florida has done a good job winning the war against excessive regulation to make way for more home construction...It’s not complicated: The states and cities that will prosper in the coming decade will be those that allow a less regulated housing market so the quantity of housing supplied can efficiently meet the quantity demanded." U.S. News & World Report did conclude that California was the most regulated state in America. And although Ginn's article is written as an opinion piece, there is some evidence to support some of its claims, as follows. California has 4 of the 10 Most Expensive Cities in the United States: According to a 2022 study by Rocket Mortgage, the markets of San Francisco, Los Angeles, San Jose, and San Diego were among the 10 most expensive cities in the United States, making up almost half of the country's most expensive places to live. Generally Speaking, Housing in California is Much More Expensive than Housing in Florida: Although Florida's real estate markets have risen dramatically, they are still reasonably priced when you compare them to California's. According to Zillow, the average home value in Florida is $404,939. In California, that same number is $760,644. So while some Floridians and those wishing to buy a home in Florida may lament the rising real estate markets, someone coming from California may see Florida real estate prices as a bargain. Differences in State Income Tax: Although Ginn's writings didn't bring up the differences in state income tax, there are key differences between these two states that affect the cost of living. California's state income tax ranges from rates of 1% to 12.3%, and the sales tax rate is 7.25% to 10.75%. Florida does not have a state income tax, and its sales tax rate is 6%. Originally published at Newsbreak. Overview
Texans for Fiscal Responsibility’s 3-Step Plan to Eliminate All Property Taxes
This paper was initially published by Texans for Fiscal Responsibility. The late, great economist Milton Friedman said, " The real problem is government spending." I believe this to be true as spending comes before taxes or regulations. In fact, if people didn't form a government or politicians didn’t create new programs, then there would be no need for government spending and no need for taxes. And if there was no government spending nor taxes to fund spending then there would be no one to create or enforce regulations. While this might sound like a utopian paradise, there are essential limited roles for government outlined in constitutions and laws. Of course, most governments are doing much more than providing limited roles which preserve life, liberty, and the pursuit of happiness. This is why I have long been working diligently to get a strong fiscal rule of a spending limit enacted in all states and at the federal level promptly under my calling to let people prosper, as effectively limiting government supports more liberty and therefore more opportunities to flourish. Fortunately, there have been multiple state think tanks that have championed this sound budgeting approach through what they've called either the Responsible, Conservative, or Sustainable State Budget. I started this approach a decade ago with my colleagues at the Texas Public Policy Foundation with work on the Conservative Texas Budget which started 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 growth rate based on the rate of population growth plus inflation and a supermajority (two-thirds) vote to exceed it. While there are other measures to use for the 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 also 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. Given the high inflation rate more recently, it is wise to use the average growth rate of population growth plus inflation 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. Figure 1 shows how the growth in Texas’ biennial budget was not only cut in half 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 5.2% average growth rate of appropriations was been well below the 9.4% average rate of population growth plus inflation over the latter period. And this approach was mostly put into state law in Texas in 2021 with Senate Bill 1336, as the state already has a spending limit in the constitution. The bill improved the limit to cover all general revenue, base the growth limit on population growth and inflation, and raise the vote to three-fifths of both chambers to exceed it. There are improvements that could be made to SB 1336, such as adding it to the constitution and improving the growth rate to population growth plus inflation instead of population growth times inflation calculated by (1+pop)*(1+inf). But this stronger limit is likely the strongest in the nation as historically the gold standard for a spending limit of the Colorado's Taxpayer Bill of Rights (TABOR) has been watered down over the years. From June 2019 to May 2020, I took a hiatus from state policy work to serve my country as the associate director for economic policy at the White House's Office of Management and Budget. There I learned much about the federal budget, the appropriations process, and the economic assumptions which are used to provide the upcoming 10-year budget projections. In the President's FY 2021 budget, we found $4.6 trillion in fiscal savings and I was able to include the need for a fiscal rule which rarely happens. 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. 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. 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, which I will update periodically.
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 Dan Mitchell at International Liberty. California Gov. Gavin Newsom boldly — and a wee bit desperately — ran ads last summer encouraging Florida residents to relocate to California . Housing affordability is one reason it probably won't work.
Housing affordability has been a major factor driving Californians to states such as Texas and Florida, where they can realistically afford the American dream of owning a home. Cost of living — which is mainly a housing problem — and taxes round out the top motivations for fleeing the once-growing states such as California. The states that win on housing affordability from free-market-oriented policy win overall. Twenty years ago, few would have bet on a mass exodus of residents from the popular albeit highly regulated housing market in California. Issues related to land use, zoning, and bureaucratic chaos led to substantially higher housing costs. The five most expensive housing markets nationwide are all within California. Further, a recent Hoover Institution report found that one of the top reasons companies leave California is “... high living costs, particularly the cost of housing affordability.” In the same vein, C2ER finds that California’s housing costs are about 1.7 times greater than Florida’s and 2.2 times higher than Texas’s. This contributes to California suffering losses of big businesses (11 Fortune 1,000 companies) between 2018 to 2021, along with small, quickly growing companies. Texas and Florida have figured out the secret to housing affordably through free-market policies that help entrepreneurs address challenges to build more homes in a safe, less costly manner. The recent census report shows how Florida drew the most net new domestic residents (318,855), with Texas coming in second (230,961). Many people packed up and moved to states with “lower taxes, more affordable housing and a higher standard of living.” What’s more, Texas came in first in overall population growth (470,708), with Florida second (416,754). These states are the ones that tend to let builders build more freely than the others. The Wharton Residential Land Use Regulation Index , one of the most respected analyses of the effect of regulation on price, shows a strong, positive correlation between house prices and over-regulation. Take, for example, San Francisco, where it takes 861 days to get a permit for one residential home. In Houston, it takes just 15 days . That’s huge savings for homebuilders and, therefore, homeowners. For Texas to remain competitive, it must guard against bureaucratic bottlenecks like those developing in Austin, where simply getting residential site plans approved now takes one to two years . To remain prosperous, Texas must keep and improve on free-market principles, especially in housing. Otherwise, the resulting higher costs of living will force people and businesses elsewhere. Florida has done a good job winning the war against excessive regulation to make way for more home construction. In 2019, the Sunshine State passed a law allowing third parties to help streamline the permitting process, alleviating wait times for home construction. In 2021, it passed a shot-clock law that effectively limited permit responses by cities to no more than 30 days. It’s not complicated: The states and cities that will prosper in the coming decade will be those that allow a less regulated housing market so the quantity of housing supplied can efficiently meet the quantity demanded. For states that plan to attract business while retaining residents, they must improve the regulatory environment for builders by getting out of the way. This should include streamlining building regulations to make it easier to build new housing, reforming land use policies to encourage development, and sorting out the bureaucratic bottleneck that complicates the building process. Like musical chairs, if you have fewer chairs than people, some people have to find a new home … or a state. Vance Ginn, former associate director for economic policy in the White House Office of Management and Budget, is president of Ginn Economic Consulting, LLC , chief economist at Pelican Institute for Public Policy, and senior fellow at Young Americans for Liberty. Nicole Nabulsi Nosek is the founder and chair of Texans for Reasonable Solutions. Originally published at Washington Examiner. Key Point: Texas continues to lead the way in job creation over the last year (see first figure) and second in economic growth in the third quarter of 2023 (see last figure), but there’s more to do to help struggling Texans deal with the state’s affordability crisis, especially spending, regulating, and taxing less. Overview: Texas has been a national leader in the economic recovery since the inappropriate shutdown recession in Spring 2020. This includes reaching a new record high in total nonfarm employment for the 14th straight month, leading exports of technology products for 20 consecutive years, and being home to more than 50 of the world’s Fortune 500 companies. While the 87th Texas Legislature in 2021 supported the recovery by passing many pro-growth policies like the nation’s strongest state spending limit, there’s more to do in the ongoing 2023 session to remove barriers placed by state and local governments. Labor Market: The best path to prosperity is a job, as it helps bring financial self-sufficiency, dignity, hope, and purpose to people so they can earn a living, gain skills, and build social capital. The table below shows the state’s labor market for December 2022. The establishment survey shows that net nonfarm jobs in Texas increased by 29,500 last month, resulting in increases for 31 of the last 32 months, to bring record-high employment to 13.7 million. Compared with a year ago, total employment was up by 650,100 (+5.0%)—fastest growth rate in the country—with the private sector adding 628,800 jobs (+5.7) and the government adding 21,300 jobs (+1.1%). The household survey shows that the labor force participation rate is slightly higher than in February 2020 but well below June 2009 at the trough of the Great Recession. The employment-population ratio fell was unchanged in November and nearly where it was in February 2020, and the private sector now employs 700,000 more people than then. Texans still face challenges with a worse unemployment rate, though historically low, and nonfarm private jobs just recently above its pre-shutdown trend (Figure 1). The figure below compares the ratio of current private employment to pre-shutdown forecast levels in red states and blue states if both chambers of the legislature and the governor are Republican (dark red), Democrat (dark blue), or some combination (lighter colors). The results show a clear distinction between red states and blue states, with the stringency of restrictions by governments during the pandemic along with pro-growth policies before and after the shutdowns playing key roles. Specifically, 21 of the 25 states with the best (highest) ratios are in red-ish states while 13 of the 15 states and D.C. with the worst (lowest) ratios are in blue-ish places as of December 2022. The following figure from Soquel Creek on Twitter tells the story even more directly: those states with more economic freedom prosper more than those with less economic freedom (see rankings in Fraser Institute's Economic Freedom of North America report: FL ranks #1, Texas ranks #4, California ranks #49, and New York ranks #50). Overall, multiple indicators should be considered in this nuanced labor market, such as the fact that the unemployment rate is a weak indicator as many have dropped out of the labor force. While the labor force participation rate in Texas slightly exceeds where it was before the shutdowns, and the 3.9% unemployment rate could be considered full employment, the employment-population ratio is 0.2-percentage point below the pre-shutdown ratio. Economic Growth: The U.S. Bureau of Economic Analysis (BEA) recently provided the real gross domestic product (GDP) by state for Q3:2022. The Figure below Texas had the second fastest GDP growth (first is Alaska) of +8.2% on an annualized basis to $1.89 trillion (above the U.S. average of +3.2% to $20.05 trillion). In the prior quarter, Texas had the fastest growth with +1.8% growth as the U.S. average declined by -0.6% that quarter. Of course, these followed Texas’ GDP contractions of -7.0% in Q1:2020 and -28.5% in Q2 during the depths of the shutdown recession. Fortunately, GDP rebounded in Q3 and Q4, yet declined overall in 2020 by -2.9% (less than -3.4% decline of U.S. average) but increased by +3.9% in 2021 (below the +5.9% U.S. average). The BEA also reported that personal income in Texas grew at an annualized pace of +6.9% in Q3:2022 (ranked 6th highest and faster than the U.S. average of +5.3%) but slower than the robust +8.4% in Q2:2022 (ranked 6th best and above the U.S. average of +4.9%) as job creation and inflated income measures found their way across the economy. ![]() Bottom Line: As Texas recovers from the shutdown recession and faces an uncertain future with the U.S. economy having stagflation and a likely recession, Texans need substantial relief to help make ends meet. Other states are cutting, flattening, and phasing out taxes, so Texas must make bold reforms to support more opportunities to let people prosper, mitigate the affordability crisis, and withstand destructive policies out of D.C.
Free-Market Solutions: In 2023, the Texas Legislature should improve the Texas Model by:
Occupational licensing hinders individuals attempting to work in their chosen field, often with little benefit to the public. Key points – Occupational licenses should only be required where there is a clear and convincing need to protect the health and safety of the public and the license is reasonably expected to achieve that protection. – Texas has taken important strides in recent years to reduce the number of unnecessary occupational licenses, but more needs to be done. – Occupational licenses should be reviewed and eliminated if determined to be unnecessary to protect the health and safety of the public. Originally posted at TPPF. Texans are struggling with high property taxes, soaring prices, and stagnant income. As a result, most big-budget players favor some property tax relief. For instance, Gov. Greg Abbot declared his intention to use half of the actual surplus fund ($16.3 billion) for this initiative. Likewise, Lt. Gov. Dan Patrick revealed that property tax relief is his first legislative priority.
However, the economic outlook for 2023 is not encouraging. The IMF has announced a slowdown in the global economy, and a third of the world’s economy is expected to be in a recession in 2023. Moreover, the consensus among large financial institutions is that the U.S. will have a recession this year. Consequently, in such a bloomy scenario, caution is warranted on how to use Texas surplus funds prudently. Based on previous data, the Foundation finds that Texas has enough funds to use toward property tax relief, even in the worst-case scenario. Our three key findings are:
Considering that the State’s finances are robust enough to face a recession, the Foundation has proposed a path toward completely eliminating school districts’ maintenance and operations property taxes by using state surplus general revenue-related (GRR) funds to buy them down over time to zero. By following the spending limit of population plus inflation, assigning at least half of the current surplus and 90% of the future surplus thereafter, we should expect the elimination of school district M&O property taxes over the next decade. In case of any revenue shortfall, school districts could cover it with their reserve funds. By gradually replacing property taxes with more efficient sales taxes, more Texans would be able to boost their savings, afford a new home, and preserve their property while improving their ability to afford housing and other necessities. Originally published at TPPF. Key Point: Texas leads the way in job creation over the last year and in economic growth in the latest reported quarter but there’s more to do to help struggling Texans deal with the state’s affordability crisis, especially spending less and moving further to sales taxes. Overview: Texas has been a national leader in the economic recovery since the inappropriate shutdown recession in Spring 2020. This includes reaching a new record high in total nonfarm employment for the 13th straight month, leading exports of technology products for 20 consecutive years, and being home to 54 of the Fortune 500 companies. While the 87th Texas Legislature in 2021 supported the recovery by passing many pro-growth policies like the nation’s strongest state spending limit, there’s more to do in the session in 2023 to remove barriers placed by state and local governments. Solutions include governments passing responsible budgets and returning surplus tax dollars collected to taxpayers by reducing property taxes until they’re eliminated. Other states are cutting, flattening, and phasing out taxes, so Texas must make bold reforms to support more opportunities to let people prosper, mitigate the affordability crisis, and withstand destructive policies out of D.C. Labor Market: The best path to prosperity is a job, as it helps bring financial self-sufficiency, dignity, hope, and purpose to people so they can earn a living, gain skills, and build social capital. The table below shows the state’s labor market for November 2022. The establishment survey shows that net nonfarm jobs in Texas increased by 33,600 last month, resulting in increases for 30 of the last 31 months, to bring record-high employment to 13.7 million. Compared with a year ago, total employment was up by 657,600 (+5.1%), which was the fastest growth rate in the nation, with the private sector adding 635,100 jobs (+5.8) and the government adding 22,500 jobs (+1.1%). The household survey shows that the labor force participation rate is slightly higher than in February 2020 but well below June 2009 at the trough of the Great Recession. The employment-population ratio fell by 0.1% in November moving it further away from where it was in February 2020, and the private sector now employs 700,000 more people. Texans still face challenges with a worse unemployment rate, though historically low, and nonfarm private jobs just recently above its pre-shutdown trend (Figure 1). Figure 1 compares the ratio of current private employment to pre-shutdown forecast levels in red states and blue states if both chambers of the legislature and the governor are Republican (dark red), Democrat (dark blue), or some combination (lighter colors). The results show a clear distinction between red states and blue states, with the stringency of restrictions by governments during the pandemic along with pro-growth policies before and after the shutdowns playing key roles. Specifically, 22 of the 25 states with the best (highest) ratios are in red-ish states while 13 of the 15 states and D.C. with the worst (lowest) ratios are in blue-ish places as of October 2022. Figure 1 Ratios of Current Private Jobs to Pre-Shutdown Forecast of Private Jobs by Place and Political Representation, October 2022 Overall, multiple indicators should be considered as the unemployment rate is a rather weak signal of the labor market. While the labor force participation rate in Texas exceeds where it was before the shutdowns, and the 4.0% unemployment rate could be full employment, the employment-population ratio is 0.2-percentage point above the pre-shutdown ratio. Economic Growth: The U.S. Bureau of Economic Analysis (BEA) provided the real gross domestic product (GDP) by state for Q2:2022. Texas had the fastest GDP growth of +1.8%—to $1.85 trillion—on an annualized basis (above the -2.6% U.S. average). These followed Texas’ GDP growth declines of -7.0% in Q1:2020 and -28.5% in Q2 during the depths of the recession. GDP rebounded in Q3 and Q4, yet declined overall in 2020 by -2.9% (less than -3.4% decline of U.S. average) but increased by +3.9% in 2021 (below the +5.9% U.S. average). The BEA also reported that personal income in Texas grew at an annualized pace of +9.3% in Q2:2022 (ranked 3rd best and above the +5.8% U.S. average) as job creation and inflated income measures found their way across the economy. Bottom Line: As Texas recovers from the shutdown recession and faces an uncertain future with the U.S. economy having stagflation and a likely recession, Texans need substantial relief to help make ends meet. While the Texas Model was strengthened by the 87th Legislature last year from less government spending, taxing, and regulating, more is needed for limiting government at the state and local levels.
Recommendations: In 2023, the Texas Legislature should improve upon its past efforts by:
The 2024–25 Conservative Texas Budget limits the state’s budget to be passed by the Legislature in 2023 so that the average taxpayer can afford it and historic tax relief can happen. Key points
Original post at TPPF. In the last two decades, local property taxes in Texas have grown far faster than the average taxpayer’s ability to pay for them. Moreover, high property taxes are aggravating the housing affordability crisis by increasing the overall out-of-pocket cost of keeping a property. Therefore, we propose a buydown plan for property tax relief. Our simulation shows that the state can limit spending and use the resulting surplus state taxes collected to buy down school district maintenance and operations (M&O) property taxes until they are eliminated over the next decade. If, in addition, all local governments in Texas were to also limit spending and use the resulting surplus funds to reduce their property taxes, Texans could have substantial tax relief to mitigate this affordability crisis. Key Points
Key Point: Texas recently leads the way in job creation and economic growth but there’s more to do to help struggling Texans deal with the state’s affordability crisis, especially freezing government spending and moving further to sales taxes. Overview: Texas has been a national leader in the economic recovery since the inappropriate social and economic shutdowns that caused a severe recession in Spring 2020. This includes reaching a new record high in total nonfarm employment for the 12th straight month, leading exports of technology products for 20 consecutive years, and being home to 54 of the Fortune 500 companies. While the 87th Texas Legislature in 2021 supported the recovery by passing many pro-growth policies like the nation’s strongest state spending limit, there’s more to do in 2023 to remove barriers placed by state and local governments. Solutions include governments passing responsible budgets and returning surplus tax dollars collected to taxpayers by reducing property taxes until they’re eliminated. Other states are cutting, flattening, and phasing out taxes, so Texas must make bold reforms to support more opportunities to let people prosper, mitigate the affordability crisis, and withstand destructive policies out of D.C. Labor Market: The best path to prosperity is a job, as it helps bring financial self-sufficiency, dignity, hope, and purpose to people so they can earn a living, gain skills, and build social capital. The table below shows the state’s labor market for October 2022. The payroll survey shows that net nonfarm jobs in Texas increased by 49,500 last month, resulting in increases for 29 of the last 30 months bring record-high employment to 13.6 million. Compared with a year ago, total employment was up by 694,200 (+5.4%), which was the fastest growth rate in the nation, with the private sector adding 670,200 jobs (+6.1%) and the government adding 24,000 jobs (+1.2%). The household survey shows that the labor force participation rate is slightly higher than it was in February 2020 but below June 2009 at the trough of the Great Recession. The employment-population ratio is nearly back to where it was in February 2020, and the private sector now employs 600,000 more people. Texans still face challenges with a worse unemployment rate, though historically low, and nonfarm private jobs just recently above its pre-shutdown trend (Figure 1). Figure 1 compares the ratio of current private employment to pre-shutdown forecast levels in red states and blue states if both chambers of the legislature and the governor are Republican (dark red), Democrat (dark blue), or some combination (lighter colors). The results show a clear distinction between red states and blue states, with the stringency of restrictions by governments during the pandemic along with pro-growth policies before and after the shutdowns playing key roles. Specifically, 22 of the 25 states with the best (highest) ratios are in red-ish states while 13 of the 15 states and D.C. with the worst (lowest) ratios are in blue-ish places. Figure 1 Figure 1 is informative because only Republican governors, with the exception of Louisiana, ended the supplemental unemployment payments that contributed to some people receiving more than while working before the payments expired. These data indicate a strong relationship between sound policy and more job creation. Overall, multiple indicators should be considered as the unemployment rate is a rather weak signal of the labor market. While the labor force participation rate in Texas exceeds where it was before the shutdowns, and the 4.0% unemployment rate could be full employment, the employment-population ratio is 0.2-percentage point above the pre-shutdown ratio. Economic Growth: The U.S. Bureau of Economic Analysis (BEA) provided the real gross domestic product (GDP) by state for Q2:2022. Texas had the fastest GDP growth of +1.8%—to $1.85 trillion—on an annualized basis (above the -2.6% U.S. average). These followed Texas’ GDP growth declines of -7.0% in Q1:2020 and -28.5% in Q2 during the depths of the recession. GDP rebounded in Q3 and Q4, yet declined overall in 2020 by -2.9% (less than -3.4% decline of U.S. average) but increased by +3.9% in 2021 (below the +5.9% U.S. average). The BEA also reported that personal income in Texas grew at an annualized pace of +9.3% in Q2:2022 (ranked 3rd best and above the +5.8% U.S. average) as job creation and inflated income measures found their way across the economy.
Bottom Line: As Texas recovers from the shutdown recession and faces an uncertain future with the U.S. economy having stagflation and a likely recession, Texans need substantial relief to help make ends meet. While the Texas Model was strengthened by the 87th Legislature last year from less government spending, taxing, and regulating, more is needed for limiting government at the state and local levels. Recommendations: In 2023, the Texas Legislature should improve upon its past efforts by:
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Vance Ginn, Ph.D.
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