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.
The COVID-19-induced recession in Texas has strained the ability of many Texans to pay taxes to fund the state’s budget. The Legislature should consider prioritizing budget reductions to cover any potential budget shortfall.
COVID-19 continues to take a toll in the U.S., with more than 13 million cases and over 260,000 deaths. The rise in cases has led to interventions by state governments.
Given that the health threat is real, we should learn from what has worked —and what has not. That means we must work hard on a vaccine, protect the vulnerable, and let most people live their lives.
Michigan, New Mexico, Oregon and Washington have closed most businesses. New Mexico has issued a shelter-in-place order. Other states have started mandating masks. Some Texans are pushing for more interventions even as we’ve had a statewide mask mandate since July 2.
While these interventions are well-intended, blanket and indefinite policies simply aren’t warranted. Such policies have already cost millions of jobs.
During the lockdown that started in March, many Texans’ livelihoods suffered a devastating blow. The state’s economy contracted by a record 29% on an annual basis in the second quarter of 2020. This contributed to at least 8,900 shuttered businesses, losses of 1.3 million jobs in the private sector, and an unemployment rate that skyrocketed to 13.5% through April.
In a survey taken at the end of May, 16% of Texans said they were facing financial ruin, and 22% said it would take them a year or more to recover. These figures likely have worsened since then.
After reopening some businesses in May and then reversing course over the summer, Gov. Abbott changed the method for assessing how and when to expand capacity at certain business venues.
The new system—considering COVID-19 hospitalizations as a share of hospital capacity in each of 22 trauma service areas — allowed a more targeted, timely, and temporary approach. And it reflected the intent of the initial lockdown response to “flatten the curve” so hospitals wouldn’t be overwhelmed.
If a trauma service area has a rate for seven straight days in which less than 15 percent of total hospital capacity has been COVID-19 patients, then most businesses there can expand from 50% to 75% capacity. Currently, 94% of Texans are in areas that can be at 75% capacity—contributing to more economic activity.
But state totals of COVID-19 cases and hospitalizations have been at or near their highest since the pandemic started.
This has initiated calls by the Statesman’s Editorial Board for people to act responsibly, for a new path in Texas’ response that has been “marked by high hopes and half measures,” and for a “serious national strategy.”
But Gov. Abbott rightfully said lockdowns are off the table: “Our focal point is going be working to heal those who have COVID, get them out of hospitals quickly, make sure they get back to their normal lives,” he said.
With several vaccines getting closer to being available and with Pfizer announcing a pilot program to deliver the vaccine quickly in Texas, there is no reason for a lockdown.
Let’s acknowledge we can’t get to zero cases and deaths without eliminating liberty and livelihoods, and let’s better allocate our efforts in a targeted, temporary, and timely way until the vaccine is readily available and population immunity occurs.
Shutdowns and stay-at-home orders across Texas due to COVID-19 have spiked unemployment, slowed tax receipts, and forced the permanent closure of 8,900 Texas businesses since March. This, from one of the most dynamic and fast-growing economies in the world.
A return to previous success is possible, and necessary, by safely reopening Texas and promptly strengthening its institutions.
The Texas Model of relatively limited government, along with the pro-growth policies of the Trump administration, provided an institutional framework that helped create an attractive economic environment to let people prosper.
In 2019, Texas led the nation with GDP growth of 4.4% and with the most jobs added of nearly 350,000 (and the fourth-fastest growth rate of 2.7%). Also, Texas had the lowest supplemental poverty measure rate of 13.7%, (the SPM accounts for cost of housing differences across the nation and other key metrics), compared with other large states of New York (14.4%), Florida (15.4%), and California (17.2%)—the highest in the nation.
In addition, the Texas model was strengthened by a voter-approved constitutional ban on a personal income tax last year, property tax relief through reform and reductions, and a track record over the last three sessions of passing conservative budgets.
But these benefits couldn’t withstand the economic destruction of fear.
Fear led the public to decrease their interactions early on during the COVID-19 pandemic, before state and local governments created a whiplash of openings and closures with questionable results.
At the state level, Texas Gov. Greg Abbott issued a disaster proclamation on March 13, near the start of the pandemic, and then a stay-at-home order on March 31.
Some restrictions were lifted on April 17 and more were eased a couple of weeks later before another the rise in COVID-19 cases and positive tests—both have been questionable measures to consider when making policy— over the summer raised concern, resulting in a statewide mask mandate and further restrictions.
This sort of uncertainty makes it practically impossible for entrepreneurs to run a business or for job-seekers to find steady employment.
The recently released GDP by state figures for the second quarter of 2020 accounted for this destruction. Dealing with a U.S. economy contracting by an annualized rate of 5% in the first quarter and 31.4% in the second, Texas’s GDP shrank by a record-breaking 29% in the second quarter. But this put it in the second quintile of best-performing states, if contracting at a record annual pace can be considered “best,” with less loss than Florida (-30.1%), California (-31.5%), and New York (-36.3%).
While the third quarter growth improved dramatically across the U.S., the same is true in Texas as some restrictions were eased.
And on Sept. 17, Texas changed the metric used to evaluate the situation to COVID-19 hospitalizations as a share of all hospitalized patients, which aligns with the initial reasoning for government overreach to avoid overwhelming hospital capacity. This allowed some trauma service areas (TSA) with that metric below 15% for seven consecutive days to open most businesses to 75% capacity.
Then, on Oct. 7, a new Executive Order was issued that changed the metric to COVID-19 hospitalizations as a share of total hospital capacity, an improvement that better accounts for the flexibility that hospital managers have with beds. This order also expanded most businesses capacity to 75% in TSAs with less than 15% of this metric and allowed bars to open to 50% capacity—assuming a county’s judge approves it, which hasn’t been the case in most large urban counties.
The new metric results in only three (Amarillo, Lubbock, and El Paso) of 22 TSAs with a hospitalization rate above 15%, as of Nov. 9, meaning that 94% of Texans can have access to 75% of certain business capacity.
As COVID cases rise once more during flu season, calls for a second round of harsh restrictions are sure to happen. What these demands fail to understand is that the re-opening measures in place are not due to a blind indifference to human suffering, but rather a different, better path to evaluate tradeoffs.
In addition, the catastrophic drop in GDP across the state was due in no small part to the swinging pendulum of shutdown to rollback to shut down again, with unemployment rising to a historically high 8.3%. Another statewide shutdown would deal another staggering blow to an economy recovering from the fallout of the pandemic.
The Texas Model was responsible for the economic boom before the pandemic, and what comparative success we’ve had during the COVID-19 crisis was due to efforts to roll back restrictions in line with that model.
If the state is to fully recover, the next steps to do so must be made clear soon as without it the uncertainty and fear will contribute to more job losses and the demise of the once successful Texas Model.
Watch my presentation “Was the Cure Worse than #COVID19?” This presentation is part of the Free Market Institute at Texas Tech University's Public Speaker Series, where I explain the economics of how institutions, tradeoffs, and policy matters when dealing with this situation. You can also view my slides below.
With the Texas economy reeling in the wake of the COVID-19 pandemic and the resulting statewide shutdowns, economic recovery will be the top issue for the upcoming legislative session. Key to any attempt at recovery will be determining how much the state should spend.
The prosperity of many Texans at stake and the Texas Legislature ought to consider fiscal savings to cover any shortfall in the current budget period and pass a responsible budget in the upcoming session that starts in January.
The Texas economy has taken a beating from the COVID-19 pandemic and associated lockdowns by state and local governments. Many Texans are struggling. And a recent national poll found 65% of voters say it will take more than a year for the U.S. economy to recover.
As Texas continues to recover, the necessity of keeping the government’s hands out of the taxpayer’s pockets is as important as ever. As the economy recovers, the natural inclination is to spend as much as necessary to support Texans reeling from the effects of COVID-19.
However, the old adage that there is no such thing as government funds, only taxpayer funds, should be at the front of legislators’ minds as they attempt to address the fallout from the pandemic.
With that spirit in mind, we at TPPF recently released our latest 2022-23 Conservative Texas Budget (CTB) that sets a maximum threshold on appropriations at $246.8 billion.
This amount is the result of increasing the 2020-21 appropriations by 5% growth rate, which was calculated using the state’s population growth plus consumer price inflation to capture taxpayers’ ability to pay for their government. These appropriations exclude extraordinary funds that shouldn’t go into the baseline budget because they’re one-time costs, such as funds to Hurricane Harvey recovery and property tax relief last session and those explicitly to COVID-19 efforts.
The CTB has been a success in the sense that it has helped give state officials a maximum benchmark with which to hold appropriations to within taxpayers’ ability to pay for it. By limiting growth in the budget, legislators have helped strengthen the Texas Model of low taxes and more freedom by cutting the business margins tax and property taxes by billions of dollars since the 2015 session when TPPF created the CTB.
Specifically, the average growth of the two-year state appropriations fell from 12% during the five budgets from 2004 to 2015 to an average of just 5.5% during the last three budgets. And after appropriations grew well above population growth plus inflation of 7.3% in the earlier period, the more recent growth was below this key metric of 6.3%.
This fiscal responsibility in the last three budget cycles must be continued because the excess in the earlier period has compounded to put more pressure on taxpayers’ budgets.
For example, if the state had adhered to this metric every budget period since the 2004-05 budget, appropriations would be $37.3 billion less, saving families of four, on average, about $2,500 per year—savings which would have been invaluable with the lockdowns’ lost wages and jobs.
Texas Comptroller Glenn Hegar recently reported that state sales taxes were down a whopping 6.1% in September over the prior year. This has contributed to a projected $4.6 billion deficit by the end of fiscal year 2021. Any attempt to raise appropriations above population growth plus inflation or raise taxes fails to take into consideration this deficit because it will detrimental to the recovery. The responsible action now is to cut spending as much as possible to make up the shortfall.
And to help put Texans on the best path to a full recovery from this unprecedented situation is to consider cutting wasteful and unnecessary appropriations at the very least not appropriate more than the Conservative Texas Budget in the upcoming session. Doing so will improve the proven successful Texas Model so more people have the chance to fully recover much faster than anticipated.
After the year we’ve had, we need a clear conservative fiscal approach in the upcoming session.
Americans want to return to work after months of joblessness due to the COVID-19 pandemic-related business closures. But too many Texans can’t—because of the industry they work in.
There was some hope that this might change after Gov. Greg Abbott’s executive order that took effect on Oct. 14 expanded the state’s reopening plan by adding bars to the list of certain businesses allowed to partially open. But one of the stipulations in the order to open bars to 50% capacity is already proving hardest to overcome: gaining the approval from the county judge.
Despite low COVID-19 hospitalization rates in most of the 22 trauma service areas across the state, many bars do not have the judge’s approval they need to open.
This limitation—among others—hits many Texans while they’re down. For example, Texas’s 8.3% unemployment rate in September is historically high and substantially higher than the near record-low rate of 3.5% in February before the COVID-19 pandemic.
Under the latest order, fewer restrictions are placed on those areas that are below the 15% threshold metric of COVID-19 hospitalizations as a share of total hospital capacity for at least seven consecutive days. These areas can have most businesses expand to 75% capacity and allow bars to open to 50% capacity with the approval of the county’s judge. But if an area’s metric is above this 15% threshold for seven straight days, then certain businesses are rolled back to 50% capacity and bars must close.
Fortunately, this order allows a more targeted policy approach to focus public and government assistance on populations that need it most. The chosen metric also helps bring a more objective measure that’s less susceptible to manipulation—intentional or otherwise—while supporting the government’s initial argument for preventing COVID-19 from overwhelming hospitals.
While this is an appropriate and safe step towards opening Texas, uncertainty remains for employers and workers who are left in the dark without a timeline for when the state will be fully open. In other words, when will Texans have their freedoms back so that they can live out their dreams responsibly?
This sort of certainty is what will help give people a sense of calm in this storm and support a more vibrant economy that will lead us back to a robust situation like we had in February. Adding to the current uncertainty, local officials are making bad decisions by refusing to rely on the evidence.
Specifically, many of the major county judges insist that the threat levels are still too high for any further reopening efforts. But the data indicate otherwise. In fact, as of Oct. 27, most areas where 94% of Texans reside are maintaining a hospitalization rate below 15% with only the three trauma service areas that include El Paso, Amarillo, and Lubbock on the restricted list.
The evidence did not stop the counties of Dallas, Harris, and Travis from firmly putting their feet down when it comes to reopening bars. Judges in Dallas and Harris counties quickly announced their rejection of opting into the order despite their preceding seven-day COVID-19 hospitalization rate at that time holding steady around 8% and 4%, respectively.
Dallas and Houston are not alone. The Travis County judge, which houses the state’s capitol in Austin, announced its intention to keep bars closed until further notice. Its preceding seven-day average was even lower than Dallas and Houston, running below 3%. In fact, the Austin area’s rate has been below the Governor’s 15% threshold since July 22.
With numbers this low and personal responsibility in place, why shouldn’t bars and similar businesses be allowed to open?
Failing to rely on the data when making life-altering decisions demonstrates that these decisions are not based solely on the health, safety, and livelihoods of Texans. If they were, Texas would be further along to fully opening, and Texans could live their lives more freely.
The evidence supports further reopening and local officials would do right by Texans to allow it. One thing is clear: Texans want to get back to normal.
The Texas economy is recovering, but there’s much room for improvement. The Texas Workforce Commission recently released the Texas jobs report for August 2020. While there have been improvements in the state’s labor market, there are challenges to return to the robust situation of February 2020 before the COVID-19 pandemic and lockdowns by state and local governments. The U.S. Bureau of Economic Analysis recently reported that in Texas in the second quarter of 2020 on an annualized basis GDP growth declined by 29% and personal income increased by 34.1%.
The Tax Foundation recently published a map of the country illustrating the property taxes paid in each state as a percentage of owner-occupied housing value in 2018. Of all 50 states, Texas had the seventh highest property tax burden in the country, with an effective rate of 1.69% of occupied housing value. This burden is something that Texans across the state know too well.
The article accompanying the map acknowledges that Texas to some extent relies on high property taxes in lieu of other tax categories – i.e., income taxes – though other states without an income tax do not necessarily have a high property tax burden (e.g., Florida). Regardless, in an economy hampered by COVID-19 and government lockdowns and with homeowners under substantial financial and mental stress, local governments have a responsibility to reduce the burden on taxpayers.
The Texas Public Policy Foundation has put forward proposals to reduce burdensome property taxes by focusing on Texas embracing final sales taxes over property taxes and governments implementing sound budget practices.
A final sales tax system is a more attractive alternative to a property tax. Property taxes are calculated on oftentimes subjective property values, which can rise without a change in homeowners’ ability to pay; Texans can adjust their spending habits to a sales tax, however. This results in a compounding effect of property taxes on holders of property every year that reduces their ability to pay them, forcing many to lose their property and to never truly own it.
One way to ease the property tax burden across Texas is to buy down school districts’ maintenance and operations (M&O) property taxes, which is about half of the property tax burden. This could be done by limiting state spending and using any surplus funds to cut the local property tax until it is eliminated, which could take roughly a decade, moving Texas towards sales taxes as they are the state’s top revenue source. However, this could be difficult to maintain session after session with the limitations on state and local government spending to achieve this in a timely manner, if at all.
Another way is for the state to immediately replace school M&O property taxes with higher sales taxes. An immediate swap would eliminate the risk that the switch to a final sales tax would be only temporary, a failure common to past property tax relief efforts. However, an immediate switch may be politically challenging to implement, so a way to mitigate this is to limit state spending and use surplus funds to cut the sales tax rate over time.
Switching M&O costs to sales taxes is not the only measure local (or state) governments should adopt. The other, and possibly even more fundamental to reducing barriers for opportunities to let people prosper, is implementing sound budgetary practices.
By reducing government spending through things like freezing new hires and pay raises and placing a moratorium on incurring any new taxpayer-funded debt, there are plenty of opportunities to cut taxes.
Local governments should volunteer for third-party audits to determine where areas of waste can be eliminated along with expensive lobbying contracts and longevity pay. Ultimately, practicing zero-based-budgeting, whereby local governments must justify every expenditure, could help achieve setting budget priorities that support effective government programs.
Any government approach to supporting an economic recovery in the wake of COVID-19 must begin with easing the burden on Texas taxpayers, and that approach must include reducing the burden of soaring property taxes and implementing sound budgeting at all levels of government.
Today the Texas Public Policy Foundation released the threshold number for the 2022-23 Conservative Texas Budget in a live event and released a paper on the topic. The Conservative Texas Budget is an approach to the state budget limiting its growth so spending doesn’t outpace Texans’ ability to pay for it. Measured in terms of population growth plus inflation, the Conservative Texas Budget establishes a maximum threshold for growth in the state’s initial appropriations.
For the 2022-23 state budget that percentage is 5% for a total appropriation of $246.8 Billion.
“The Conservative Texas Budget is an effective maximum threshold for prioritizing the taxpayer in the state budget process as every dollar spent comes out of the pocket of Texans,” said TPPF’s Chief Economist Vance Ginn, Ph.D. “Since this approach was implemented ahead of the 2015 legislative session, budgets have grown less than half the rate of the five prior state budgets. This trend should continue for the 2022-23 Texas budget especially as many families are recovering from the recession due to COVID-19 and government lockdowns.”
The 2022-23 Conservative Texas Budget sets a maximum threshold for the state’s budget that will be passed during the 2021 Legislature so government grows by less than taxpayers’ ability to pay for it.
Production of crude oil and natural gas has historically fluctuated based on many market-driven and geopolitical factors. Because the Texas Legislature collects severance taxes from this volatile production to primarily fund the state’s rainy day fund, the purpose for and use of the ESF must be worthy.
Vance Ginn, Ph.D.