Overview: The Texas Workforce Commission recently released the Texas jobs report for July 2020. The report highlights improvements in the state’s labor market but there are challenges to get back to its peak in February 2020, which was before the COVID-19 pandemic and subsequent lockdowns of society by state and local governments. Texas’s private employment in July during the government-induced recession due to COVID-19 is at the lowest level since December 2016.
Lawmaker: At least 38 local government in Texas have attempted to raise property taxes above state cap
(The Center Square) – Several Texas counties have chosen to not raise county property taxes this year, keeping rates the same or lowering them in some cases. But 38 taxing entities have tried to increase property taxes over the state-mandated cap requiring taxpayer approval, state Sen. Paul Bettencourt said.
At a Texas Public Policy Foundation (TPPF) panel discussion last week, the Houston-area senator who serves as the Senate Property Tax Committee Chair said 16 counties and 23 cities attempted to increase taxes over the limit set by the legislature.
Austin was among them. The Austin City Council recently voted to increase taxes above the limit enacted by the legislature last year, and voters will either approve or reject it this November. Several cities rejected increases in property taxes, including Dallas and Longview.
For the fifth year in a row, Collin County announced it was lowering its property tax rate in order to keep homeowners’ bills roughly unchanged from the previous year. In the past decade, the county has adopted no increased revenue rates nine times.
Previously referred to as the effective rate, the no-new-revenue rate collects the same total amount of property tax revenue as it did the previous year. However, what homeowners owe might go up depending on their property’s value increasing. A static or lower rate on a higher value still results in a higher tax bill for some.
In Denton County, the new tax rate is below the current tax rate and the no-new-revenue tax rate. Plano County’s budget is based on a “no-new-revenue” property tax rate.
Tarrant County also kept its property tax rate the same, which is slightly below the no-new-revenue rate. But because of rising home values, the average property tax bill will increase by roughly $9.
“The problem with Texas property taxes has always been as property values go up, tax rates never came down," Bettencourt said. "So values inched up and in some cases increased by 10 percent each year and were never offset by taxes going down.”
Bettencourt helped pave the way for property tax reform in the last legislative session. SB2 reduced cap on potential property tax increases for the first time in 30 years, from 8 percent to 3.5 percent. HB3 placed a hard cap of 2.5 percent for school districts. Both were combined in the property tax bill signed by Gov. Greg Abbott.
Any attempt to increase taxes over the caps requires approval by voters.
Dr. Vance Ginn, chief economist at TPPF, said that the rollback rate was established in 1979. In 1981, it was raised from 5 percent to 8 percent when inflation was running double digits. But over the past 25 years, inflation hasn’t been above 4 percent.
In 2019, it was time to adjust the rates, Ginn said, to protect homeowners from ongoing increased taxation. It couldn’t have been more timely, he said, since within less than a year more than 4 million Texans filed for unemployment during COVID-19 restrictions and state and local governments were seeing less revenue.
It’s problematic that local governments “need to expand their budgets in some capacity by more than 3.5 percent,” Ginn said, “when Texas families are often times seeing their incomes fall dramatically from having some sort of income down to zero, [… receiving unemployment], and some of these local taxing entities are saying, ‘You know what, we need to raise our taxes more. By the way, the way we are going to do that is spending more along the way.’”
In Harris County, property taxes increased by 29 percent from 2014 to 2018, whereas population growth and inflation increased by 11 percent, Ginn said. The comparison between taxes and population growth and inflation is often used as a metric to determine how much the burden of government should grow to stay within the means of taxpayers, he said.
According to a recent WalletHub study, Texas ranked 32nd highest among 50 states for its overall tax burden of 8.2 percent. Texas property owners paid 3.95 percent in property taxes and 4.25 percent in sales and excise taxes.
It took a decade to get tax relief on both sides, Bettencourt said, adding that, “The pressure to spend more taxpayer money is ingrained in government.”
Today, Texas Comptroller Glenn Hegar revised the Certification Revenue Estimate (CRE) to project a fiscal 2021 ending shortfall of $4.58 billion which Hegar attributed to the COVID-19 pandemic and recent volatility in oil prices.
“Today’s update by Texas Comptroller Hegar on the budget shortfall shows the importance of reining in government spending without raising taxes as families across the state are struggling financially from the COVID-19 situation,” said TPPF’s Chief Economist Vance Ginn, Ph.D. “Fortunately, state leaders have already asked some agencies to find 5% savings to cover part of this shortfall, and we recommend that every agency use all efforts, including zero-based budgeting to find additional savings up to 15% by cutting wasteful and unnecessary spending. This would also alleviate the need for any more state bailouts from the federal government. By safely reopening Texas and getting people back to work and students in schools, the state will be best positioned to deal with any tax receipts shortfall while providing the best opportunities for Texans to flourish.”
The projection is a decrease from the $2.89 billion positive year-end balance originally projected in the Oct. 2019 CRE.
As of February, the US is in a recession, and Texas is no different. While the cause is different than prior recessions, people’s financial struggles are the same.
With the voluntary social distancing and forced disruptions by state and local governments due to COVID-19, economic activity has collapsed, people have lost their jobs, and employers have lost their business. This economic recession means the state of Texas may face a shortfall in tax receipts compared with prior projections.
For example, the Texas Comptroller notes in a recent report that sales tax collections are the state’s biggest source of tax receipts, and they have declined greatly this year as many Texans are out of work, stuck at home, or simply adjusting their spending habits. The Texas budget will face a drop in oil-related taxes as well, as oil prices have fluctuated drastically in recent months.
When the Texas Legislature passed the 2020-21 budget last year, they could not have known the novel coronavirus and its effects. Now, Texas leaders must take action to adapt in these hard times.
In order to deal with a likely shortfall in tax receipts given the state’s balanced budget amendment, the state government can usually:
1) Raise taxes,
2) Use funds in the Economic Stabilization Fund (ESF), and/or
3) Lower government spending.
Raising taxes would only make the problems Texans face worse by raising the cost of living at a time when they’re already struggling financially.
Using the ESF is a viable option. However, with an expected total of $9 billion in the fund going into the 2021 Legislative Session and a sufficient fund balance needed for a high credit rating, there may not be too much to tap.
Therefore, the most responsible choice is to decrease government spending. Texas leaders have experience with this solution, and it can help to reignite the dynamic Texas economy.
In 2003, The Honorable Talmadge Heflin helped to navigate a $10 billion shortfall in tax receipts as Chairman of the Texas House Committee on Appropriations. Describing the success in 2003, Chairman Heflin wrote, “we dealt with the shortfall through targeted budget cuts and avoided raising taxes on already hard-pressed Texas families.” This is sage advice, and we would do well to follow it.
Then-Texas Governor Rick Perry adopted a budgeting strategy called “zero-based budgeting” that encouraged responsible spending. Further, the heads of state agencies and legislators worked together to find workable solutions for the budget gap. For example, 12 state agencies were consolidated into 5 agencies, and this effort saved taxpayers $1 billion.
Solutions are possible if our leaders are willing to work hard to make necessary changes.
While the big three Texas leaders have asked for some state agencies to find savings of 5% to cover some losses, the Foundation has called for all state agencies to find 15% in savings so there is shared sacrifice with Texas families, and their tax burden won’t increase.
There is a fourth consideration this time around as the U.S. Congress has provided federal funds to Texas through the CARES Act with $8.3 billion to state government and $3.1 billion to local governments. This means even more money is sloshing around, but the Legislature must not let federal funds be counted as permanent funds to the budget like some did in 2011 and then consider there to be cuts to government education or other programs when those funds dried up. There weren’t cuts to government education then but that false claim continues to scare people.
We must work to rejuvenate the Texas economy and the lives and livelihoods of Texans by ending the government’s shutdown of society, rein in wasteful spending, and permanently roll back unnecessary regulations so families can flourish.
In this Let People Prosper episode, we discuss the key elements of real property tax cuts (slower growth rates and lasting tax reductions), movement afoot to eliminate civil asset forfeiture, and potential expansions in local liberty that are being discussed at the Texas Legislature. As we get closer to the end of session, these are critical aspects that you don't want to miss.
In this Let People Prosper episode, we discuss local government transparency and efforts to rein in progressive policies like government-mandated paid sick leave, state reforms to the criminal justice system, and the failure of the Texas House to pass a Conservative Texas budget...but there was a good discussion about property tax relief!
In this Let People Prosper episode, we discuss how to unveil government excess whether it be with pension obligation bonds, bail (register for upcoming TPPF event), occupational licensing burdens reduced for military spouses, TRS pension structural problems, and the Texas House budget that increases far more than the average taxpayer's ability to pay.
In this Current Events Friday episode of the Let People Prosper show, James Quintero, Dr. Derek Cohen, and I discuss:
Thanks for watching and be sure to subscribe. #letpeopleprosper
Amazon Favoritism Problem, TX Property Tax Update, & Committee Org Meetings: Let People Prosper Ep 74
In this Let People Prosper episode, James Quintero, Derek Cohen, and I discuss key topics this week for Current Events Friday.
More to come on Monday. #LetPeopleProsper
It's Current Events Friday!
In this Let People Prosper episode 72, James Quintero, Dr. Derek Cohen, and I discuss this week's current events. The big stories this week are Governor Abbott's State of the State, President Trump's State of the Union, and property tax hearing held by the Texas Senate Committee on Property Taxes. We dive into each of these issues to consider which government actions preserve liberty and which ones don't.
Regarding property taxes, there's some hope in sight! Senate Bill 2 could provide historic property tax reform (read my written testimony and watch testimony at time 1:13:10) that would put in place a 2.5% property tax revenue rate that would trigger an automatic election in November for a local government that wanted to increase their revenue above that point. This reform is an essential element for any property tax relief of lowering property tax bills like TPPF’s plan to eliminate the school M&O property tax over time by slowing spending growth.
In this Let People Prosper episode 71, I chat with James Quintero and Dr. Derek Cohen of TPPF about the benefits of bail reform (SB 628 & SJR 37), the costs and benefits of the latest version of reforming the Teacher Retirement System of Texas (SB 393) (more on TRS problems here), and what to expect in Gov. Abbott's State of the State (like a possible emergency item of property tax reform).
In this Let People Prosper episode 70, I chat with James Quintero and Dr. Derek Cohen about the recently released bills that would both provide property tax reform with the same language (Senate Bill 2 & House Bill 2). Read TPPF's press release here.
The press conference attended by Governor Greg Abbott, Lt. Governor Dan Patrick, Speaker Dennis Bonnen, Chairman Paul Bettencourt, and Chairman Dustin Burrows shows the unity of this particular measure. These bills would provide property tax reforms to increase transparency, change up the appraisal system, and impose a revenue trigger of an automatic rollback election: (1) if revenue is set to grow by more than 8% for local tax jurisdictions with less than $15 million in total revenue from sales and property taxes, and (2) if revenue is set to grow by more than 2.5% for all other taxing entities.
This is a step in the right direction to slowing the growth of skyrocketing property taxes and we look forward to working with leadership and legislators to lower tax bills by limiting state spending as well.
We also discuss the benefits of SB 523, which would restructure occupational licenses for those with particular criminal records.
In this Let People Prosper episode 69, I sit down with James Quintero, director of the Think Local Liberty project, and Dr. Derek Cohen, director of the Right On Crime project, to discuss the Texas budget, ban-the-box, and annexation.
You don't want to miss this first episode of many where we'll address a number of good, bad, and pretty good bills that influence our prosperity throughout session while giving you a heads up on which bills will be heard in committee so you can make your voice heard.
In this episode we discuss the state's recommended budgets by the House and Senate and how they compare with the Conservative Texas Budget, bad bill of HB 495 related to criminal history, and a prosperity-enhancing bill of HB 347 related to annexation that builds on passage of SB 6 during the 2017 special session.
In this Let People Prosper episode 68, I interview James Quintero, Director of the Think Local Liberty project at the Texas Public Policy Foundation, about reining in skyrocketing local property taxes, increasing local debt transparency, and highlighting frivolous local spending. High taxes and debt are always and everywhere a spending problem. James makes that point clear in this episode. Don't miss it!
Texas leads the nation in economic growth and international trade. Were Texas a country, it would have the world’s 10th-largest economy—a ranking achieved in no small part by the state’s deep involvement in international trade. Local, national, and international trade provide the ability for more extensive specialization, and each is an important component of Texas’ economy.
Great discussion on these issues with Texas Comptroller Glenn Hegar, Leila Afas of Toyota Motor Co., Representative Matt Shaheen, and Doug McCullough of the Lone Star Policy Institute.
Read the TPPF report on how people prosper from NAFTA and trade.
The Texas Teacher Retirement System has had massive debts for years and there is growing concern the system is moving toward insolvency. There are good options the Texas Legislature can pursue to fix the system, but they all require hard choices. Which path will policymakers take, or will they put it off?
Great discussion with Stephen Gassenberger of Reason Foundation, Monty Exter of the Association of Texas Professional Educators, and Josh McGee of the Texas Pension Review Board on TRS issues and potential solutions.
Check out this recent TPPF-Reason publication that provides an overview of issues facing TRS.
Perhaps no issue unites Texans across the state like the need to reduce property taxes. But any property tax reform will have consequences that affect how we fund education, pay for roads, grow our economy, improve access to health care, and more. Experts and policymakers take on this critical question and look for solutions in the 86th Legislature.
Great discussion with Dr. John Diamond from Rice University's Baker Institute, Senator Paul Bettencourt, Judge Glenn Whitley, and Representative Drew Springer.
Read more about TPPF's plan to cut property taxes and find out how much you would save under this plan over time here.
How much money does Texas have and what will it do with it? It’s perhaps the most important question the legislature deals with each session – and it all starts with deciding on the state’s priorities. TPPF convenes the important voices who will help answer that question in 2019.
Watch this fantastic discussion with Chairman John Zerwas, Representative Donna Howard, and Chairman John Whitmire as we discuss key issues facing Texas in the upcoming budget.
In this Let People Prosper episode 67, let's discuss the importance of sustaining and improving the Texas Model of no personal income tax, relatively low taxes, relatively less government spending, and sensible regulation that allow entrepreneurs opportunities not available elsewhere. This can be boiled down to: Institutions Matter. Let's recall previous discussions highlighting these key points while noting how Texas led the way in job creation again in 2018.
In this Let People Prosper episode 65, let's discuss the legislative priorities set by the Texas House and Texas Senate in their recently proposed recommended budgets. While there's much to wade through, here’s what I’ve derived so far from the House and Senate recommended budgets. Of course, there will be many discussions over these budgets during the next several months until a final budget is determined and approved by both chambers, but these recommendations give a good indication of the priorities of each chamber, much like your family's budget.
The first thing to note is that both chambers have prioritized public education and property tax relief to a certain extent. Both chambers have relatively large increases in public education, but the details will need to be worked out throughout the legislative session to determine the allocations to public education spending and tax relief.
In general, there should be a push for spending current resources more wisely within public education before considering any new money. In other words, there could be a large amount of money to buy down the school maintenance and operations property tax as outlined in TPPF's property tax plan (view how much you would save over time with our online calculator).
The House budget noted first in the table below shows that the recommendations for state funds and all funds (state and federal) are greater than the Conservative Texas Budget limits based on growth of 8% in population and inflation in the last two fiscal years. The amounts appropriated for 2018-19 budget are from the LBB's Fiscal Size-Up for an apples-to-apples appropriation comparison. I've also noted the Texas Comptroller's Biennial Revenue Estimate (BRE) amounts. The House budget allocates $9 billion towards pub ed/property tax relief but is contingent on bills passed for those. There aren’t specific allocations of that $9 billion for pub ed or property tax relief.
The Senate budget is noted second and is below our CTB limit for state funds but is above our limit for all funds. The Senate budget provides $6 billion in pub ed/prop relief to the tune of $3.7 billion for increased teacher pay ($5,000) and $2.3 billion for prop relief.
I've excluded $7.1 billion in federal funds from both chambers' 2020-21 budgets for disaster recovery after Harvey as these should be one-time, unexpected expenses.
Overall, the Senate budget is in better shape to meet the CTB limits to keep the average taxpayer's ability to pay for government from unnecessarily growth and doesn't include use of the ESF like the House does of $633 million.
Bottom line: There’s work to do to limit government spending and provide tax relief to #letpeopleprosper.
More on this comparison here.
In this Let People Prosper episode 64, let's discuss the Texas Public Policy Foundation's Policy Orientation, which was a sold out event that helps define the narrative for the 86th Texas Legislature, and highlight the recent spending limit set by the Legislative Budget Board.
The following are the panels that I moderated or participated in some capacity and my key takeaways with resources:
The other big news on Friday was that the Legislative Budget Board (LBB) set the state's spending limit for the upcoming 2020-21 budget. This spending limit is on only general revenue not dedicated by the constitution which is less than half of the total budget. While statutorily the spending limit should be based on growth in personal income, last session the LBB chose the rate based on population growth and inflation. This time the spending limit is 9.89% for the 2020-21 budget, which is based on an increase of 8.39% in population growth and inflation and 1.5% for Harvey.
This is another good sign that the LBB continues to use a measure for the limit that better matches the average taxpayer's ability to pay than the inappropriate growth rate of personal income. This spending limit is in-line with the recent BRE increase of 8.1% in general revenue-related funds and provides funds available to cover needed expenses along with property tax relief. Specifically, the Legislature could use half of the funds of about $4.4 billion for spending and 90% of the rest of the funds of about $4.1 billion to buydown the school maintenance and operations property tax.
In this Let People Prosper episode, let's discuss today's release of the Texas Comptroller's Biennial Revenue Estimate report. This report is key because the state's balanced budget amendment means this estimate provides the projected amount of taxpayer money available for the 86th Texas Legislature to appropriate during the upcoming legislative session that starts tomorrow. The revenue estimate indicates that the Legislature can pass a budget that funds legislative priorities while including taxpayers in the budget process by lowering property taxes within the average taxpayer's ability to pay.
The report notes that the 2020-21 budget will have available an estimated $265.6 billion in all funds (state funds and federal funds) (6.7% increase), $176.9 billion in state funds (7.3% increase), and $119.1 billion in general revenue-related funds (8.1% increase). Included in these amounts is an available fund balance of $4.2 billion remaining from the 2018-19 budget.
The 86th Legislature has a grand opportunity to pass what could be the third straight Conservative Texas Budget (CTB) while prioritizing taxpayers in the budget process to lower property tax bills and improve education.
Specifically, the Conservative Texas Budget Coalition, which includes the Texas Public Policy Foundation and 15 other member organizations, has set conservative spending limits on the 2020-21 budget of $234.1 billion in all funds and $156.5 billion in state funds based on an 8 percent increase in population growth plus inflation over the previous two fiscal years above current appropriations.
There are also 2018-19 supplemental bill limits of $3.6 billion in state funds and about $4.4 billion in all funds to cover unfunded expenses in the 2018-19 budget. But these amounts could be quickly reached as there's a $1.8 billion amount likely needed to fund a delayed payment to transportation and $2 billion in unfunded Medicaid expenses. Legislators will need to appropriate these dollars wisely so the 2018-19 budget can be the second straight CTB.
But the Conservative Texas Budget is a maximum to just keep in line with the average taxpayer's ability to pay. Given skyrocketing property taxes, the Legislature should add taxpayers in the budget process and limit general revenue-related funds spending so that the rest can be used for property tax relief through the TPPF proposal here. Many have claimed that Texas can't afford TPPF's proposal, but this revenue estimate shows that Texas clearly can and must for the sake of prosperity in the Lone Star State.
If the upcoming 86th Texas Legislature limited spending of general revenue-related funds to just 4% growth, that would provide $4.4 billion in new spending on budget items while allowing the rest of the 4% of those funds under the CTB of $4.1 billion to go to lowering the school maintenance & operations (M&O) property tax.
The school M&O property tax is about 45% of the total property tax burden. The $4.1 billion would amount to an almost 8% biennial cut in that portion of the property tax, leaving more money in the pockets of taxpayers. The school M&O property tax would continue to be lowered each session given taxpayers are part of the budget process and fully eliminated within about a decade. This process could be sped up by lowering the rainy day fund cap and using excess funds, which the rainy day fund amount could grow to more than $15 billion, to provide property tax relief.
Although slowing the growth rate of property taxes over time is good step towards reform, taxpayers want lower property tax bills for relief. The TPPF proposal works to lower property tax bills, and the Texas Comptroller's revenue estimate proves that it can and must be done.
Despite the economic success of the Texas Model of fiscally conservative governance, a skyrocketing local property tax burden remains one of the state’s most pressing policy challenges. Property taxes have been growing faster than Texan’s ability to pay for them, increasing the need to eliminate them.
You get less of whatever you tax. This key economic insight suggests the best type of taxation does the least economic harm, achieved by limiting government spending to only securing liberty. The evidence is clear that Texas should never have a personal income tax. There is nearly a consensus that is true, but there is a growing consensus that Texas should eliminate property taxes that keep Texans renters forever.
Property taxes are an inefficient type of tax. They are based on primarily subjective valuations by appraisal review boards and determined tax rates by local tax entities with little to no feedback from citizens. Given the rising property tax burden and its inefficient collection mechanism, they should be eliminated in exchange for a more efficient, slower-growing sales tax based on objective market transactions that would help appropriately remove taxes on capital (i.e. property)—the driver of the wealth of states.
Property taxes are more regressive than a sales tax. Opponents of a sales tax say it is too regressive, whereby people with lower incomes people pay a larger share of their income to taxes than those with higher incomes. The Texas Comptroller’s recent report confirms that both sales taxes and property taxes are regressive, according to the “suits index” (see following two tables), but suggests property taxes are less regressive. However, this analysis (and others like it) do not account for the fact that 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 property tax also keeps people from getting their first home and kicks many people out of their home and business. Appropriately accounting for these cumulative costs indicates a property tax is more regressive.
Texas should ultimately have only a single-legged barstool in the form of a broad-based sales tax. Some talk about the need for a three-legged stool of taxation. These legs include a sales tax, property tax, and a personal income tax. Because Texas appropriately doesn’t have the latter, the argument is that there is a need for the other two. But that’s incorrect. Texas needs the most efficient tax system possible to fund limited government. That’s done by expanding the sales tax base as wide as possible to not pick winners and losers to keep the rate as low as possible.
There are paths to swapping out city and county property taxes with a higher local sales tax rate if the state doesn’t broaden the base. This is also a good option as it provides a direct funding source for local governments’ maintenance and operations if, and only if, they eliminate the property tax with a revenue neutral swap. Ideally, the sales tax rate would not be allowed to ratchet up further after the swap and the property tax could never come back.
The school district maintenance and operations property tax, which comprises about 45 percent of the total property tax burden in Texas, could also be swapped out with a sales tax. A broader sales tax base could allow the rate to fall. Here is an overview of possible rates and sales tax bases to eliminate the school district M&O property tax in Texas with 2017 data, which the ideal option would be to expand the base and not tax property, as property is capital that supports economic prosperity.
Texas should limit spending to limit taxes. While sales tax collections can be more volatile than property tax collections from economic changes, sales taxes better reflects taxpayers’ ability to pay than a property tax that they have little control over. Also, property taxes often don’t reflect the economic climate but rather the whims of appraisal districts and local officials that hurt property holders in the process when their incomes are falling. More importantly though, Texas governments must practice spending restraint so that excessive spending doesn’t drive taxes higher than taxpayers’ ability to pay. High taxes are always and everywhere a spending problem.
This is why there is need to limit spending growth to no more than population growth and inflation, two key measures that reflect the ability to pay from more people and wage growth that’s highly correlated with inflation. By practicing spending restraint, excess taxpayer dollars can be used to lower the sales tax rate after a swap or could even be used to cut the school M&O property tax in the meantime until the elimination of school districts’ maintenance and operations property taxes.
By practicing fiscal restraint and eliminating all taxes in Texas except for a broad-based sales tax, the Texas Model would support even greater prosperity for all Texans.
In this Let People Prosper episode 61, let's discuss the U.S. Senate's passage (and soon will be in the House) of a landmark criminal justice reform bill called the First Step Act, the unanimous vote by the Texas Commission on Public School Finance of recommended changes to the system, and the ninth increase by the Federal Reserve of the federal funds rate target to a range of 2.25-2.5%.
These are all key issues. But I'm particularly proud of the work that TPPF's Right on Crime team did to make criminal justice reform a priority for years and ultimately by the Trump administration. The First Step Act "provides reentry programming to help reduce recidivism, includes modest sentencing reforms, increases public safety, and gives those incarcerated a second chance once they have paid their debt to society." This is truly a step in the right direction as far too many are locked up for far too long and then return to a life of crime after because of the lack of a job and social normalcy.
The Texas Commission on Public School Finance provided a number of recommendations on how to improve student outcomes, how to increase teacher pay, how to more efficiently spend taxpayer money, and ultimately how to provide tax reform. Fortunately, the final version included language similar to TPPF's property tax plan that could provide lower property tax payments for Texans across the state. This is what Texans need and deserve to assure that they have every chance possible without unnecessary government barriers keeping them from reaching their hopes and dreams.
Finally, the Federal Reserve raised their overnight lending rate between banks, known as the federal funds rate, to 2.25-2.5%. This is the 9th increase since December 2015 after the Fed had left this rate in a range of 0-0.25% for seven years. The new rate remains near historic lows, as noted in the chart below.
While the stock market tanked after this report, the fundamentals of the economy remain relatively strong. One reason for the decline in the stock market today was because the price of credit increased today. This raise reduces the net present value of longer term capital investments and profitability along with the expectation of at least two more raises next year.
My take is that the Fed left rates too low for too long when you compare it with an indicator of a more market-driven, "neutral" rate derived by the Taylor rule. As you'll notice in the figure below, the Taylor rule suggests a neutral rate above 4%, which is almost twice as high as the federal funds rate. By the Fed's distortion of the markets with imposing an ultra-low interest rate policy and multiple rounds of quantitative easing, there are many assets that are bound to be highly inflated and we should expect corrections in these markets as the rate is raised to a more normal level. This isn't necessarily a bad thing as letting the air out of these inflated markets will help steady the markets and ultimately the economy for a firmer foundation for the long run. Interestingly, stocks remain much higher than they were when President Trump took office, which are positive signs of a growing economy as the economic institutions were strengthened from regulatory and tax relief even as burdens were imposed by excessive government spending and trade protectionism.
More to do to #letpeopleprosper.
Vance Ginn, Ph.D.