Alaska’s economy and Alaskans’ livelihoods were hit particularly hard by the government shutdowns associated with the COVID-19 pandemic, and Alaskans are struggling to recover. But businesses are now open, employment is slowly improving, and oil prices are up, which has resulted in the state’s Department of Revenue substantially increasing its revenue forecast by $2.2 billion over fiscal years (FY) 2022 and 2023. As a new legislative session begins, policymakers must ensure fiscal restraint by not overspending. A repeat of the enormous spending in the early 2010s would harm, not help, Alaska’s economy and Alaskans’ opportunity to work to improve themselves and their families every day.
Need for the Responsible Alaska Budget
Alaska Policy Forum is releasing its second annual Responsible Alaska Budget (RAB), now for FY 2023, to help effectively limit state spending thereby restraining the ultimate burden of government. The RAB represents a strong fiscal rule in the form of a spending limit which should eventually be passed and added to the state’s constitution for spending restraint now and into the future, as has been done in other states. Fiscal restraint allows the state to prioritize the needs of Alaskans without excessively growing the size of government, thus limiting the burden on the private sector where productivity advances improve opportunities for people to prosper today and for generations to come. Given the need to overcome the economic challenges over the last couple of years and excessive spending from 2004 to 2015 in Alaska, the RAB is an essential maximum limit for legislators this session to correct past excesses and leave the state’s savings accounts untouched.
Responsible Alaska Budget Calculation
The 2023 RAB sets a maximum threshold on the upcoming state appropriations based on the summed rate of the state’s resident population growth and inflation, as measured by the U.S. consumer price index (CPI), over the year before the legislative session. This threshold is an upper limit for the enacted budget for all state funds, excluding federal funds, the Permanent Fund Dividend (PFD), and fund transfers.
Figure 1 provides the FY 2023 RAB amount of $6.55 billion from a 4.77% increase based on the key metric in 2021 above the FY 2022 base of $6.25 billion. The rate of growth is from a 0.03% increase in the state’ resident population and 4.73% increase in CPI inflation.
The FY 2022 enacted budget was $6.25 billion (2.05% increase), which was $70 million more than the 2022 RAB threshold of $6.18 billion (based on a 0.92% increase in the key metric), meaning it was not a responsible budget. This should be corrected in the FY 2023 budget. Due to higher price inflation over the past year in the U.S. and a small increase in the state’s resident population, the FY 2023 RAB grew by 4.77%.
In addition to high inflation, Alaskan policymakers will also be dealing with the temptation of a high revenue forecast, due to increased oil prices and a well-performing Permanent Fund. Alaska’s Department of Revenue estimated a FY 2023 revenue of $8.33 billion (excluding federal funds), which does include revenue for the PFD, an appropriation we do not include in our maximum threshold calculation. A responsible budget passed by legislators will not have additional appropriations simply because of the large revenue number. Instead, limiting the growth of government spending to keep more money in the productive private sector will support increased opportunities for Alaskans to achieve their hopes and dreams while helping those struggling to gain the dignity of work by earning a living.
Historical Alaska Budget Trends
Figure 2 shows the Alaska budget trends since FY 2004. During the period from 2004 to 2015, the average annual budget increased by 12%, which was nearly four times faster than the key metric of population growth plus inflation. Since then, the budget has declined annually by 6%, on average, while this key metric increased by 2.4%, meaning that the recent cutting of the Capital Budget has helped to correct for prior spending excesses. Additionally, these budget numbers are only the enacted budgets, not total state spending.
From FY 2004 to FY 2022, the budget grew on an average annual basis by 5%, which was substantially higher than the key metric. Figure 3 illustrates state funds appropriations over this period and the appropriations that would have happened if they had followed population growth plus inflation over time.
The excesses in the earlier period (2004-15) and the adjustments in the later period (2016-22) have compounded over time to result in an inflation-adjusted state budget per capita in FY 2022 that is 9.4%, or $2.26 billion, higher than otherwise. While the FY 2022 budget is just $537 million above where population growth plus inflation would have it, this translates to the state spending an additional $733 per Alaskan than if the state had followed this key metric. This excessive spending has resulted in a bloated state government that reduces private sector economic activity and opportunities for people to prosper.
Alaska Policy Foundation’s FY 2023 RAB sets a maximum budget threshold that will help bring the state budget in check at a state appropriation of $6.55 billion, representing a 4.77% increase based on population growth plus inflation in 2021. Working to enact a budget less than this maximum amount will help immensely in reducing the cost of funding limited government. Policymakers should pass a FY 2023 budget that is less than the Responsible Alaska Budget and put this spending limit in law. Doing so will move the Last Frontier into the future, with a strong, steady economy and a vibrant population with opportunities for Alaskans across the income spectrum to flourish.
By Quinn Townsend, policy manager at Alaska Policy Forum, and Vance Ginn, Ph.D., chief economist at Texas Public Policy Foundation in Austin, Texas. Ginn served as the associate director for economic policy at the White House’s Office of Management and Budget (OMB) during the Trump administration, 2019-20.
“May you live in interesting times,” goes an old saying—usually meant as a curse. When it comes to economics, “interesting” usually means the sky is falling.
Inflation reached 7% at the end of 2021, a rate not seen in 40 years. The Federal Reserve’s balance sheet more than doubled to $8.8 trillion since early 2020. And Uncle Sam’s fiscal house is in shambles. The 2021 budget deficit was almost $2.8 trillion, putting the national debt at $28.5 trillion—nearly 130% of U.S. gross domestic product.
To call this imprudent would be a massive understatement. We need fiscal and monetary rules now.
Money mischief and fiscal follies are intimately related. This isn’t because deficit spending causes inflation—things aren’t that simple. Instead, profligate spending and careless money-printing reinforce each other.
When politicians and bureaucrats have too much leeway, they pursue short-run benefits at the expense of long-run viability. Whether it’s easy money from the Fed or stimulus checks from Congress, papering over unsustainable financial practices is easier than enacting sustainable reforms. To improve Americans’ livelihood, we must break the cycle. Because policymakers have demonstrated they can’t be trusted with discretion, it’s time to give binding rules a try. We can’t reform fiscal or monetary policy alone. Economic flourishing for Americans depends on tackling both.
In the past two years, the Fed purchased more than $3.3 trillion in government debt. Over that same period, Uncle Sam’s deficit totaled almost $6 trillion. That means our central bank indirectly covered more than half of the federal government’s fiscal splurge. Also, Congress authorized spending of roughly $7 trillion since the pandemic started. Even the latest $1.9 trillion American Rescue Plan Act, sold to Americans as a “stimulus,” merely promoted more government. These programs contributed to fewer jobs added last year than the Congressional Budget Office’s baseline. All that wasteful spending drags down the economy.
This is worryingly close to what economists call “fiscal dominance”—monetary policymakers paving the way for spending binges with cheap liquidity. Adam Smith, the godfather of economics, wrote about the continuous cycle of deficits, debt accumulation, and currency debasement that ruins nations. We should work diligently and quickly to ensure the U.S. doesn’t follow.
The solution is a rules-based approach for fiscal and monetary policies. We need strong guardrails around runaway spending and money-printing. A rules-based framework can ensure fiscal and monetary policies work better, both independently and with each other.
For example, we should consider a spending limit that covers the entire budget, capping spending increases at population growth plus inflation. This essentially freezes per capita government spending. By limiting total expenditures, we can minimize the burden on current and future taxpayers. Had this been in place from 2002 to 2021, the cumulative effect on the budget would be a net surplus (debt decline) of $2.8 trillion. This is in stark contrast to the $19.8 trillion in net debt we actually got.
Cutting the national debt means the Fed would have fewer assets to purchase in its open market operations, thereby reducing its ability to manipulate markets and the overall economy. It could then focus on what it can control: price stability. A rule should help achieve this. The Fed drifted off course by needlessly broadening its inflation rule in August 2020. The Fed’s mandate currently includes price stability, maximum employment, and moderate interest rates. But the second and third of these are beyond the competence of central bankers. It’s time to focus the Fed on controlling the dollar’s value.
Congress and the Fed harmed the vibrancy and robustness of the U.S. economy by their poor decisions. Unfortunately, there’s been a bipartisan consensus for irresponsible fiscal and monetary policies in recent years. It’s time for this to change. We need rules-based fiscal and monetary policy to get our economic affairs in order and leave post-pandemic malaise behind for good.
We were promised job growth—after all, that was the main selling point for the March 2021 American Rescue Plan Act (ARPA) from President Biden and the congressional Democrats. Promise made—promise broken.
In February 2021, the Congressional Budget Office (CBO) issued its economic outlook and projected 6.252 million jobs would be added in 2021 without ARPA. The White House then projected ARPA would add 4 million additional jobs for a total of 10.252 million more jobs in 2021.
ARPA was said to be necessary for the labor market recovery. Without it, job growth would slow, but with it, job growth would blossom. ARPA promised to get Americans back to work, get COVID-19 under control, and return the country to normal.
None of this happened.
According to the U.S. Department of Labor, the economy added just 6.116 million jobs in 2021, 136,000 fewer jobs than the CBO estimated without ARPA. At a cost of $1.9 trillion, ARPA was expensive from the start as it was added to an already bloated national debt. Now it appears the law added no jobs to the economy, and possibly cost jobs. It was not just expensive, it was also a detriment to the recovery.
The marketing behind ARPA was nothing new; many spending bills have been sold to the American people as stimulus measures. But labeling government spending as “stimulus” is a misnomer. When the government spends money, it usually only stimulates more government, not productive activity in the private sector.
This is partly because the government has no money of its own and it must get resources from the private sector before it can spend or redistribute them. That means any government spending has a cost which is often ignored by political pundits—but must be paid for all the same.
Whether government spending is financed through taxes, borrowing, or inflation, it represents a burden on the private sector. Whatever alleged benefits are to be derived from government spending must be weighed against the cost of first acquiring the resources needed for that spending.
The more government spends, the greater the burden on Americans.
This was evident in the 2008-09 Great Recession and the slow recovery that followed. Despite record spending by the federal government (once again called stimulus), the economy recovered at the slowest pace since the Great Depression of the 1930s. While total output lagged, employment lagged even more when compared to other recessions.
The labor market has now bogged down again.
Despite 10.6 million job openings, the economy is still missing 3.6 million jobs as compared to before the pandemic and there are still 6.3 million people unemployed.
Instead of supercharging the labor market recovery, trillions of borrowed dollars in new spending are hindering it. Because of direct cash payments, welfare expansions, unemployment “bonuses,” and other government transfer payments, many people are rationally choosing not to return to work. And while some of these programs have expired, their costly effects on people and the federal budget persist.
On top of those pressures, exaggerated fears of the omicron variant along with mixed messaging from government health officials have made some people afraid to go back to work. Other people, particularly in the health care industry, have been hesitant to take a COVID-19 vaccine and have consequently been forced out of their jobs because of ill-advised mandates.
The common factor in these examples is bad policy on the part of the government. Whether it is excessive regulation or spending, these public sector mistakes impact people’s lives in a very real—and negative—way.
ARPA failed to deliver on its promise of growing jobs and instead grew government, especially government debt, which now stands at a mind-boggling nearly $30 trillion, far exceeding the entire U.S. economy.
That debt is like an anchor weighing down future economic growth because it constantly requires interest payments, which sap the nation’s economic growth, meaning fewer jobs and less income. In FY 2021, taxpayers funded the second highest interest payment on the national debt—to the tune of a whopping $562 billion, with no end in sight.
ARPA is just the latest in a long line of massive government spending programs that were billed as stimulus for the economy, but only stimulated more government. That is something to keep in mind the next time Washington promises us more jobs.
Texans will never have the peace of mind of owning their home until property taxes have been eliminated. Until then, Texans are renting from the government, always living with the fear that exorbitant taxes could take their home away. The Foundation has developed a balanced solution to give Texans the relief they demand while also funding the needs for critical services like public safety and education. Our Lower Taxes, Better Texas plan will eliminate a significant portion of Texans’ property taxes by 2033 and make structural reforms that limit local government over-spending to prevent annual spikes in tax bills.
Twenty-one states rung in the New Year by raising their minimum wage, to as high as $15 per hour in California, thinking it will benefit employees in those states. But the minimum wage does the opposite of helping workers, especially for those who need it. Fortunately, 20 states, including Texas, haven’t raised theirs in more than a decade.
Proponents of the minimum wage claim the law helps hard-working people with a “living wage.” But that’s not what the policy does. Economist Art Laffer put it succinctly: “A high minimum wage is extremely damaging to the poor, the minorities, the disenfranchised, and the young.”
As with most policies, the effects of a policy matter more than the best intentions of those who champion the policy’s cause.
The minimum wage reduces jobs and increases poverty. People even move from states with a high minimum wage to states with a lower minimum wage because there are more jobs and more opportunity. That is especially true for young people and others without much experience, on-the-job training, or education.
If you want to know which policies people prefer, see how they vote with their feet. The latest Census Bureau data shows that more than 1,000 people each day moved to Texas in 2021. But the Lone Star State is not alone in attracting new businesses, jobs, and people. Other states with low minimum wages attracted more people than average while states with high minimum wages—California, New York, Illinois—are hemorrhaging people at an alarming rate.
The real minimum wage for employees is always $0. If an employee adds only $8 of value per hour to a business, but the minimum wage is $15, then that person will be unemployed, hence a $0 wage.
As many states have arbitrarily pushed their minimum wages higher for political reasons, low-wage workers are slowly being replaced by machines. This is the classic labor-capital tradeoff forced by government coercion through a labor market regulation rather than through voluntary negotiations by people.
For example, some fast-food restaurants are replacing cashiers with kiosks, which tends to reduce hiring of lower-paid workers while oftentimes increasing higher-paid workers who create, build, and maintain the kiosks. This process increases income inequality, which is something proponents often find concerning.
Although it is never a good idea to raise the minimum wage, now would be a particularly bad time.
Businesses are already facing record-high cost increases from price inflation and a government-mandated minimum wage increase would just be adding insult to injury. The latest data show there are 10.6 million unfilled jobs in the U.S. which is far exceeds the 6.3 million unemployed people. While this precarious labor market situation has many causes, a high minimum wage is certainly not helping.
By eliminating some low-skill jobs, the minimum wage reduces the opportunity for many people to climb the ladder of success. Without that entry-level job, many people never escape the cycle of government dependency and poverty, never gain skills, and never become eligible for higher-skill jobs. That creates a mismatch in the labor market for better jobs.
Some of the compensation people receive in their first job isn’t even monetary; it’s learning skills, dignity, and purpose. A first job teaches a person how to work hard, the value of showing up on time, and how to work with others.
Low-wage jobs are not designed to support a family; they’re an important first step on the ladder of success to better jobs with higher pay. Governments raising the minimum wage eliminates many of these jobs, and that cuts out the first rung on the ladder for those who are most vulnerable.
Opportunity and work provide the best path to a successful, self-sufficient, rewarding life. Eliminating this pathway segregates those individuals and confines them to dependency on government.
This disproportionately affects those groups (young, part-time workers, unmarried, and without a high school diploma) who rely on a low-wage first job to give them a hand up out of poverty.
If we truly want a level playing field for all employees and equal opportunity for all, the last thing we want is a higher government-mandated minimum wage.
The state of Kansas has experienced what are arguably excessive monthly tax collections over the past year. Last month alone exceeded expectations by 7.8%. This comes as a backdrop for the upcoming legislative session where ideas such as eliminating the sales tax on food and offering a $250 tax rebate have been pitched by Governor Laura Kelly. Beyond these proposals for this year, legislators have an opportunity to approach the budgeting process differently with this excess cash.
Kansas has an opportunity to cement strong budgeting practices. Kansas Policy Institute is releasing the Responsible Kansas Budget in conjunction with our colleagues at the Texas Public Policy Foundation. This aims to be a model which limits the growth of government spending to the sum of the state’s population growth and inflation. In 2021, Kansas’ CPI inflation increased 2.36%. At the same time, Kansas’ population growth declined .04%. The sum of these values, a 2.32% increase, would serve as the maximum growth rate for All Funds appropriations in FY 2023. Since Kansas’ All Funds budget for FY 2022 is $20.5 billion, the RKB in FY 2023 would make the budget a maximum of $21.0 billion.
Limiting the growth of spending limits the growth of taxation. After the implementation of policies similar to the RKB as part of the Texas Public Policy Foundation’s Conservative Texas Budget, the growth of total spending between 2016 to 2023 in Texas was less than half of the average growth of the prior six budgets. This is important because lowering taxation, and by extension lower spending, gives Kansas families more opportunities to choose what they want to do with their money. Lower taxation is key to a healthy business environment with job creation and new wealth entering the community. Controlling spending is about keeping money in Kansans’ pockets.
Vance Ginn, the chief economist at Texas Public Policy Foundation and co-author of the report, said, “The ultimate burden of government is how much it spends of taxpayer dollars. This is why any increase in the state budget should be less than the average taxpayer’s ability to pay for it, as measured by population growth plus inflation, which is what the Responsible Kansas Budget sets as a maximum threshold on the state’s upcoming budget. We have seen the success of this approach in Texas, resulting in increased opportunities for people to flourish for many years. I’m excited to partner with Kansas Policy Institute in ensuring Kansas is a great place to raise a family and start a business.”
Legislators have the power to control taxing and spending in an unpredictable economy. It is the government’s responsibility not to put an undue tax burden on citizens by controlling spending. Having a more responsible budget keeps more money in taxpayers’ wallets, promotes business investment, and helps slow government creep into peoples’ lives.
View the Responsible Kansas Budget in our report below.
What’s the answer to poverty? I believe it’s opportunity—and hope.
I grew up in South Houston, Texas, an urban area of Houston in the 1980s and ‘90s. I lived in a lower-income, single-mother, two-child household. My mostly absent father was on disability due to epilepsy.
I had opportunities to attend private school, public school, and finished K-12 in home school. But those years were tough—in a loving yet chaotic home shadowed by traumatic events, budget troubles, and stints of living at my grandparents’ house.
Much of poverty is dependent on family structure and location.
Kids living with a single mother are much more likely to live in poverty than with a father and mother. And this is associated with less upward income mobility and higher incarceration rates. But some overcome this path by taking available opportunities, whether divinely or otherwise directed.
For my part, I made bad decisions in my late teenage years that could have devastated my future in ways that so many others suffer.
I started on the right track by working at 16. But I started straying the next year when I began living the “rock star” life as the drummer for a hard rock band. Over the next few years, I found myself walking close to the edge of life and the law.
Fortunately, God’s grace—evidenced through a life-threatening car accident—changed this trajectory from poverty, jail, or death to meeting my calling of helping others. I went on to college, earning a doctorate in economics. Then I found a fulfilling career and built a loving family.
At every juncture, a combination of grace and opportunity (also, in my view, a manifestation of grace), opened new paths to me.
One such opportunity allowed me to earn my high school diploma. Others helped me to start a full-time job, and to get married before having kids. Unknown to me at the time, this is what’s called the success sequence—and it put me in a better position to achieve prosperity. And this success sequence is clearly correlated with less poverty and better family outcomes.
But not everyone has the same opportunities I had—most often, because government gets in the way.
And that’s precisely why the Texas Public Policy Foundation is releasing its Alliance for Opportunity campaign. This campaign will work closely with similar efforts by the Georgia Center for Opportunity and Pelican Institute in Louisiana in releasing an online roadmap with practical ways to provide poverty relief.
The Alliance is working to move people off government dependency onto a path toward self-sufficiency, hope, community, and restorative justice.
Ronald Reagan was right when he said, “I believe the best social program is a job.” We need more opportunities for people to receive an education, training, and a job. That’s done by removing obstacles, mostly from government.
The need is clear. Nearly 42 million Americans were on food stamps in 2021, up 5.3% from the prior year, showing more people in poverty. Of course, rapid inflation from bad policies out of Washington has made matters worse. Fewer are working; the key labor market measure of the prime-age (25 to 54 years old) employment-population ratio remains depressed. And the misery index remains historically high even during the recovery. These troubling signs for Americans reject the White House’s claim of a robust economy.
Dependency and lack of community—of the institutions that give our lives meaning—have led to a rapid rise in deaths of despair. While many of these deaths may have been avoided without the mistaken shutdowns, the key to overcoming poverty’s lethal toll is more opportunities to flourish. Oftentimes government supports abundant opportunities while inhibiting others.
But there’s hope. Lives can be saved and improved with strong families, robust civil society, limited government, and free enterprise. Those are the things that make success stories like mine possible.
We have our work cut out for us. But I’m ready to go to work to help make the Alliance’s efforts to improve people’s lives more purposeful and prosperous. Join me.
Texans continue to recover from the shutdown recession. There have been challenges like business closures, skyrocketing local property taxes, and anti-prosperity fiscal and monetary policies out of Washington. Fortunately, the Texas economy was (finally) fully opened on March 10, 2021, and the third wave of COVID-19 is now behind us with better results than after prior waves without statewide mandates of masks, closures, or vaccines—as these should always be voluntary. The 87th Texas Legislature mostly helped support the recovery with passage of many sound policies like a Conservative Texas Budget, a stronger state spending limit, and independent efficiency audits. However, there were missed opportunities like permanent, broad-based property tax relief. Given other states are drastically cutting or even eliminating taxes, Texas must remove government barriers so it can support more opportunities to prosper, remain an economic leader, and withstand bad policies out of Washington.
Build Back Bankrupt How the Latest U.S. House’s Build Back Better Act Spends Nearly $5 Trillion Americans Can’t Afford
The U.S. House of Representatives’ Build Back Better Act (BBBA) is filled with policies that will burden Americans and benefit special interests. Everything from childcare to gasoline will increase in price, on top of general price inflation. The BBBA will slow the economy, cut jobs, and turn inflation into stagflation.
The Texas Model of relatively less spending, no personal income tax, and sensible regulation continues to support improved economic freedom with more opportunities to flourish. But there’s room for improvement for the state recently ranked as the fourth most free nationwide.
Canada’s Fraser Institute recently released the Economic Freedom of North America 2021 report that scores states for economic freedom based on government spending, taxation, and labor market regulation. Economic freedom essentially is the freedom for people to use their property with minimal government interference. These scores are based on the latest available data for all jurisdictions in 2019, so they don’t include the effects of the shutdowns yet.
Based on these scores, they separate states into four quartiles. In the most-free quartile, the average per-capita income was 7.5% above the national average while the least-free quartile was 1% below it. Additionally, people tend to be richer when economic freedom is greater.
Economic freedom is essential to human flourishing.
Texas was the most economically free state in 1981 when the first score was reported. This was when the state had more conservative Democrats before party realignment with a political trifecta—control of the governor, house, and senate. But that ranking fell as they started to impose big-government policies that lowered it to seventh in 1991. The Lone Star State then dropped further and bottomed out at ninth in 1993. Through the late 90s and early 2000s, the more progressive Democrat-controlled House continued to restrict economic freedom which kept our ranking stubbornly low.
The first Republican trifecta was in 2003. The new leadership helped weather the storm of a fiscal crisis during a severe recession by overcoming a $10 billion shortfall through spending restraint. This new direction for limited government helped improve the ranking to fourth in 2006, rising to as high as second in 2008, while falling to no lower than fifth since then. This is quite impressive given these rankings can move depending on the relative ranking of states, and other states attempted to follow what worked in Texas.
The stronger commitment to the more successful Texas Model in recent years with a more conservative Republican trifecta especially since 2015 has helped support more economic freedom and prosperity.
Comparatively, Texas’ economic freedom ranks considerably better than other large states like California’s 49th, which has ranked in the bottom five states since 2002, and New York’s 50th, which has been in the bottom three states since 1981. Texas trails New Hampshire, Tennessee, and Florida, but the state’s score of 7.75 is near the leaders. It is only 0.08 points behind the top-ranked New Hampshire and 0.03 behind third-ranked Florida.
This comparison indicates the difference in governing philosophy.
For example, more conservative Texas and Florida rank 13th and 6th best, respectively, in state and local spending per capita compared with progressive California and New York ranking 48th and last, respectively. Of course, lower spending means less taxation, as Texas and Florida rank fourth and eighth best, respectively, in state and local tax burden per capita, while California and New York rank 43rd and last, respectively.
And Texas and Florida are right-to-work states while California and New York are not. Texas continues to reduce barriers to work by removing unnecessary and harmful regulations, especially relating to occupational licensing—though there’s still too many. And Texas keeps its minimum wage at the federal mandate of $7.25 per hour, though the real minimum wage is always $0.
These measures matter for human flourishing when you consider Texas has a lower cost of living (ranks 15th lowest in the state compared with Florida ranking 32nd, California 49th, and New York 48th) and better labor market outcomes, including lower income inequality and poverty.
Less economic freedom contributes to people fleeing California and New York for greener pastures. Over the last decade, the populations have grown more than two times faster in Texas and Florida compared with California and New York, and Texas’ population has grown 9.3% faster than Florida’s.
But Texas needs improvement.
One area is excessive local property taxes from too much government spending. The Texas Legislature provided limited relief this year, but much more is needed.
The state should build on its recent success of passing the strongest state spending limit in the nation this year by using use surplus funds to cut school district property taxes. And lawmakers should use the same approach for other local governments. These actions, along with redesigning the tax system, can result in eliminating property taxes by 2033.
By continuing to build on past successes and remove government barriers, Texas can be the most economically free state to best let Texans prosper.
The shutdown recession from February to April 2020 was devastating. There must be a return to the dignity and permanent value of work instead of dependency on government from Washington’s big government agenda and mandates related to COVID-19. The U.S. labor market has been improving more slowly than expected even though Washington has tried “stimulus” time and again. Congress has authorized spending $7.2 trillion since the recession above the normal budget. The next bad policy from D.C. could be the $5 trillion Build Back Better Act that could add $3 trillion to the bloated $29 trillion national debt, ballooning the debt owed per taxpayer by $23,800 to $110,900.
Fear and uncertainty over the pandemic are rising again as the first U.S. case of the Omicron variant of COVID-19 was found in a patient in California and has been spreading across the nation. But let’s not panic and jump to solutions. While this could contribute to the second consecutive winter wave, our new research shows why state governments shouldn’t overreact. Instead, we must steer clear of the devastation caused by mistaken shutdowns over the last two years.
Recently, Federal Reserve Chairman Jerome Powell told a U.S. Senate committee that this new variant poses “downside risks” to our country’s economic recovery and inflation headed into 2022.
But if recent history is a guide, the economic consequences of Omicron—or future variants—would be mostly from bad policies out of Washington and state capitols.
Congress is already running up massive deficits with excessive spending and misguided policies. The Fed has monetized much of that debt issuance, creating too much money that’s chasing too few goods, hence the highest inflation in 39 years. That inflation rate is challenging for the middle class, but it’s devastating to the impoverished who struggle to afford spiking prices of groceries, gasoline, and more.
But what’s too often missed is the effect that states had on making what could have been a slowdown or minor recession in response to the pandemic into a severe downturn.
Our new research, commissioned by the Georgia Center for Opportunity, finds that the overreaction by states to previous waves did substantial damage without much benefit in reducing the effects of the coronavirus.
The research shows a statistical correlation between how severe state governmental actions were in shutting down their economies and negative impacts on employment more than a year after the pandemic began in America. This was the case even after controlling for a state’s dependence on tourism or agriculture, population density, and the prevalence of COVID-19 infections and hospitalizations.
Our research found no correlations between the severity of shutdowns imposed by state governments and the rate of reported COVID-19 hospitalizations or deaths.
What we do know is that nationally, there are 3.3 million fewer people employed in the private sector since February 2020, a month before the shutdowns in most states. But the job loss is not spread evenly across the country.
Our study did not settle for simply comparing the job loss as measured from February 2020, the month before the pandemic hit. Instead, we ran more than 200 ARIMA model forecasts to capture pre-pandemic trajectories in an effort not to skew the results. Not all states had upward trajectories, and job growth rates varied from −0.8% to 2.9% for the 12 months prior to the pandemic.
States like Hawaii, New York, California, and New Mexico that imposed harsher economic restrictions generally have greater job losses even today than those states that were less harsh, such as South Dakota, Iowa, Nebraska, Missouri, and Utah. For example, New York was 10.2% below its trajectory in October 2021 while Nebraska was just 2.4% below.
Policies need to be implemented in a way that preserve jobs.
Protecting the rights and opportunities of workers to earn a living is obvious. Equally important are the psychological benefits that come with the dignity of work. And there are socio-economic benefits from work that positively impact everyone, such as building social capital and gaining skills, which are especially important for those in marginalized communities who were most impacted by the pandemic.
As the states prepare to deal with the Omicron variant (and we’re sure there are more to come), it is paramount that they consider the empirical evidence and not impose burdensome restrictions—such as business closures, stay-at-home orders, school closures, gathering restrictions, and capacity limits—on economic activity that will likely end up doing more harm than good.
Instead, the policies need to be crafted more carefully to expand opportunities for the poor and preserve jobs in an open economy in which entrepreneurs can solve problems while taking measures when necessary to protect vulnerable populations.
These are the policies that should have been done all along to avoid the severity of the shutdown recession and the effects on lives and livelihoods thereafter. Let’s not make another mistake when so many are already suffering.
Mr. Randolph who authored the study, is the Director of Research for the Georgia Center for Opportunity. Mr. Ginn, who sat on the advisory panel for the study, is chief economist at the Texas Public Policy Foundation, served as associate director for economic policy at the White House Office of Management and Budget, 2019-20.
Americans are being crushed by the highest inflation in 39 years. An entire generation has never seen prices rise this fast and they’re feeling the pain in their wallet. But the Build Back Better Act (BBBA) passed by the U.S. House of Representatives will only compound this pain with new spending, taxes, and debt.
Americans are already being heavily taxed by inflation. Inflation is fundamentally a way to transfer to the federal government without explicitly raising taxes, while robbing people of their purchasing power. It means everything from groceries to housing is more expensive. The most vulnerable among us are hit the hardest by inflation, especially those with fixed and low incomes. Americans need relief.
Instead of relief, the BBBA will make things worse.
Despite the White House’s assertions, the BBBA will not reduce inflation. Rather, this legislation spends records amount of money that we don’t have. Americans simply cannot afford to pay for the elephantine BBBA.
Without the House’s budgetary gimmicks, the Congressional Budget Office’s price tag for the legislation balloons to nearly $5 trillion over the next decade, with $3 trillion added to the deficit. After increased interest costs, the effect on the already bloated $29 trillion in national debt would be even larger. Estimates by the University of Pennsylvania’s Wharton Budget Model and the Committee for a Responsible Federal Budget both arrived at similar figures.
To put this new reckless spending in perspective, it would load another $24,000 in debt on the back of every American taxpayer, who would then owe a grand total of $111,000 each.
Runaway government spending is crowding out private prosperity and tethering American taxpayers to a cycle of poverty. It is nothing less than a modern-day financial servitude, in which we are all hopelessly indebted to the government, which allegedly spent the money on our behalf, but not to our benefit.
These massive deficits will have to be paid for, one way or another.
Taxes would have to be raised or other spending cut to cover the future costs of this big-government socialist bill. Congress can explicitly raise taxes, or the Federal Reserve can implicitly tax Americans by buying more Treasury bonds that would elevate inflation. Either way, it will compound the pain.
While these are bad, the BBBA is also flawed because of how the money is spent.
Despite its vastness, it’s difficult to find any productive spending in this bill. Instead, there are green energy boondoggles, and other special-interest giveaways. There are also tax breaks for high-income earners in primarily blue states.
These are just a few examples of the bill’s payouts to the political donor class, but there are no benefits for most other Americans.
Instead, Americans will suffer the : lower wages, less return on investment, fewer job opportunities, and even higher prices. To add insult to injury, the bill also provides for a newly hired army of Internal Revenue Service agents who will be monitoring your bank account, so you better keep every receipt.
The bill collects and spends money in such a way that it seems intended to cause economic harm.
Our research has shown that many tax provisions in the legislation will cost millions of jobs and reduce wages. There are also steep penalties on work and new costly entitlement programs, such as paid leave and universal preschool, which will incentivize millions of people to
For those with kids who choose to work, they could see their wallet hit hard from childcare costs more than doubling. And the BBBA would add new marriage penalties to the tax code, compounding the pain of married couples.
Sadly, this progressive agenda functions like an attack on families, individual liberty, and prosperity; it must die in the Senate.
Einstein once called compound interest “the most powerful force in the universe.” But just as gains compound on one another, so do losses. The BBBA will only compound the existing pain inflicted by inflation.
The better choice is monetary and fiscal rules, like the Foundation’s Responsible American Budget, combined with pro-growth polices to support human flourishing.
The economic success of the Texas Model’s limited government framework demonstrates that institutions matter for prosperity. But Texas must improve to remain competitive and support greater flourishing.
There’s a saying, “The road to hell is paved with good intentions.” If that’s true, the recent passage of the Biden administration’s “infrastructure” package just added an express lane.
The massive $1.2 trillion bill, called the Infrastructure Investment and Jobs Act (“Jobs Act”), balloons the $29 trillion national debt on what’s largely a green energy boondoggle while sending states like Texas more money when they’re already flush with cash.
The share in the Jobs Act allotted to roads and bridges and other items typically considered infrastructure could be at best 20% while the details indicate it could be as low as 10%. Talk about a waste of taxpayers’ money that could be better used in their pocket.
Collectively, the Jobs Act may have had some good intentions, but it will leave Americans and Texans hurting.
And this doesn’t include the Democrat’s next reckless spending bill called the “Build Back Better Act” that recently passed in the U.S. House on a partisan vote. This $5 trillion big government bill would substantially increase dependence on government, thereby reducing families’ opportunity for self-sufficiency and threatening state sovereignty.
In short, Congress could soon spend about $12 trillion since the costly shutdowns by governments in response to the COVID-19 pandemic, sending us down the road to serfdom that Americans don’t want and can’t afford.
In Texas, the threat of government dependency may grow as the Jobs Act could allocate $35 billion over five years in federal funds for infrastructure-related projects.
According to a White House state fact sheet for Texas, $26.9 billion will be allocated for federally aided highway apportioned programs, with $537 million for bridges. And $3.3 billion will be used to improve and provide public transportation, despite only 8.6% of the U.S. population lacking access to a personal vehicle and the wasteful projects as fewer and fewer people using public transit because of its location and more remote work.
The electric vehicle producing company Tesla and its principal owner Elon Musk now call Texas home with an ever-expanding portfolio of products soon to come off the assembly line in Austin. The Jobs Act includes $408 million for the expansion of EV charging stations in Texas with possibly up to an additional $2.5 billion. Despite Washington’s effort to “electrify” Texas, state legislators declined to advance an EV infrastructure bill in 2021, indicating voter displeasure with subsidizing unreliable energy sources, while Musk recently admonished federal subsidies.
The Jobs Act would also send at least $100 million for broadband, though state legislators already approved $500 million for it from the American Rescue Plan Act (ARPA) funds, potentially making the added funds duplicative and wasteful.
To limit rising dependence on the federal government and given the state already has the potential for a combined $24 billion in state surplus and the rainy day fund, how can Texas use this money responsibly?
First, lawmakers must reject unneeded funds, given the state has a massive surplus.
Second, they must prioritize transparency like the state did for the $16 billion appropriated from Congress’ ARPA funds. This includes posting funds on the Legislative Budget Board’s website, using funds for only one-time expenditures, and keeping them separate to avoid misuse and a fiscal cliff. And strict oversight of contracts is essential given the potential for abuse.
Second, legislators should swap out any Jobs Act funds with general revenue funds already for infrastructure. The state currently appropriates $26.5 billion in the current budget cycle for infrastructure projects, though some of that could be what was expected from typical formula funding from the federal government as passed in the Jobs Act.
Finally, if it’s possible to make more general revenue funds available, lawmakers must provide much-needed substantial, broad-based property tax relief. Specifically, the state should return surplus taxpayer dollars by reducing school district maintenance and operations property taxes like HB 90 during the third special session of 2021. With tens of billions of dollars available, Texas should seize the opportunity of the Foundation’s bold strategy to eliminate property taxes.
The state’s infrastructure needs a tune up. Any Texan who spends time on Interstate 35 believes they are already on the road to hell.
The real question is whether in tuning up our infrastructure, Texans wish to take the route filled with more strings and less flexibility or the route with more certainty and accountability.
The choice is important.
The two sides of a coin are typically regarded as opposites. In the case of President Biden’s $5 trillion Build Back Better bill, the two sides are actually the same. Both the revenue and expenditure provisions of this agenda will cause substantial decreases in employment. The only difference will be how.
The Build Back Better bill would deliver a double blow to an already disrupted labor market. Most of the explicit tax increases in the agenda directly disincentivize investment, which reduces capital, wealth, wages and employment. Meanwhile, the creation of new (and the expansion of existing) employment-tested and income-tested benefits would increase the implicit tax on working.
The tax increases on both corporate and pass-through business income would reduce wage growth by shifting investment out of the business sector, reducing competition and overall investment, and contributing to lower employment. The tax increases on capital gains, as well as increased corporate taxes on foreign profits, would exacerbate these effects.
The expansion of Affordable Care Act subsidies and paid medical-leave mandates would also reduce employment levels by tying benefits to not working. This and other provisions are gifts to unions, helping them achieve the goal of higher wages through reduced labor supply.
The bill would expand the child tax credit for households that earn no income for a full calendar year. Perhaps the bill’s authors are too young to remember the 1996 welfare-reform law, which demonstrated how sensitive single mothers’ work behaviors are to such disincentives.
Additional subsidies for food, along with medical coverage and housing, decrease as a household earns more income, providing more disincentive for working. The implicit employment and income taxes from a total of 13 such measures would add almost eight percentage points to the marginal tax rate on labor income. Other parts of the bill further reduce the purchasing power of wages by educing competition and raising costs in telecommunications, energy and other products and services, increasing prices in those industries.
After separately estimating the effects of Mr. Biden’s tax hikes, we find large costs to the supply side of the economy. One of us (Mr. Ginn), along with Steve Moore and E.J. Antoni, finds that the explicit tax increases on income, investment and wealth will cost five million jobs over a decade compared to baseline growth. The other (Mr. Mulligan) finds that implicit tax increases on work will cost nine million jobs.
While these two effects may overlap, the Build Back Better agenda is a jobs killer. Pushing these programs further into the budget window may change the headline spending number, but it won’t change the economic damage they will do to the nation.
The president’s plan would be the largest tax-and-spend increase—and disincentive to work—since the introduction of the income tax. It would tax those who produce and subsidize those who don’t. It would encourage dependency on government and punish self-sufficiency. Wealth taxes could exceed 70%, and marriage penalties on small-business owners could exceed $130,000. Families could be hard-pressed to keep farms and businesses after the original owner dies. And the real median household income would fall by $12,000. Meanwhile, lower-income households would see their generous government assistance decline rapidly in the event of even a modest increase in earned income.
Increasing the implicit tax on working has the same effect as a statutory tax increase on income, investment and wealth: decreased employment. With inflation-adjusted private investment having declined for the first two quarters of this year, the nation doesn’t need direct—or indirect—tax increases, especially on investment.
Likewise, with a near-record high 10.4 million job openings in August, the same month there were 8.4 million unemployed, the nation doesn’t need additional disincentives to work. The Build Back Better agenda would hamstring a labor market that remains five million nonfarm jobs below its February 2020 levels and potentially reverse the economic recovery.
Nobel laureate James Tobin was a leading Keynesian economist and key adviser to President Kennedy. He described high-implicit-tax situations as causing “needless waste and demoralization. . . . It is almost as if our present programs of public assistance had been consciously contrived to perpetuate the conditions they are supposed to alleviate.”
The hidden tax of inflation prevents people from getting out of poverty. Inflation isn’t just an inconvenience; it’s a huge obstacle to prosperity for the vulnerable and low-income. And even if Congress and the Fed have good intentions, their next steps could make the current bad situation worse.
The latest inflation data from the consumer price index shows an increase of 6.2% over the last year. This means that Washington took this out of your paycheck from no fault of your own or without you sending them a check.
This sleight of hand is caused by the Federal Reserve built on the excessive spending by Congress and it crushes the hopes and dreams of many, especially the poor.
If you received a raise recently, say around 8%, then about three quarters of it is not real—it’s inflation. The purchasing power of goods and services through your raise is cut by higher prices. If your raise was about 6%, normally a healthy increase, then your purchasing power doesn’t change. At this pace, prices are set to double in less than 12 years, but will your paycheck?
People with lower incomes tend to receive smaller raises, and those on fixed incomes receive no raises or raises that just match inflation, such as those on Social Security. For them, inflation is the harshest of taxes and they can’t avoid it. Families with lower incomes have few assets like corporate stocks that can grow as prices rise.
This inflationary blight on low-income earners is the Fed’s doing, but Congress gives the Fed the means to do it and it looks poised to double-down on its bad decisions.
Congress has already authorized $7.2 trillion in spending since the shutdown recession, including much of the waste in the recent $1.2 trillion “infrastructure” bill. Now, the House’s Build Back Better Act would increase spending by $5 trillion, after appropriately excluding budget gimmicks, and increase the bloated national debt by another $3 trillion more than without it over a decade.
This spending would likely be more expensive because the policies would destroy an estimated 7 million jobs by paying people not to work per economist Casey Mulligan’s estimates and reducing entrepreneurs’ investments based on the Tax Foundation’s assessment. And these job losses would most likely be concentrated among those with lower incomes. Increasing unemployment over time would make more people dependent on government, which may be a feature of the bill instead of a bug.
Other proposals, like “green energy” projects and “incentives,” would increase the cost of living for everyone and hurt those with low or fixed incomes most because they’re least able to absorb it. And while the Congressional Budget Office could soon release their cost estimates for the BBBA, we should take them with a grain of salt as they could be too rosy because its static estimates have long been problematic, which is why it should move to more realistic dynamic scoring.
Though Congress’ boondoggle spending doesn’t directly cause inflation, it provides the fuel to the Fed’s fire of printing more money. These progressive policies in Washington are crushing the poor, even as they’re providing tax cuts for the “rich,” and there doesn’t seem to be an end in sight—unless this this latest big-government bill appropriately fails.
Impolitic government programs, like those in President Biden’s agenda, incentivize dependency on government and create cycles of poverty. Few things are more harmful than this because it cuts the rungs out of the ladder that many people use to climb out of poverty and better their lives, both financially and otherwise. These rungs of the ladder start with a job. Work is the only way to permanently earn more over time and improve human dignity that comes with financial self-sufficiency, community, and social capital.
If Congress really wants to give people a hand up—and not just a handout—then it should focus on repealing those programs which disincentivize work and remove the tax hikes that disincentivize investment that goes to hire more workers.
Likewise, if the Fed intends to improve the economy, it should focus on reining in inflation which it controls, not lecturing on diversity. These measures would help take the costly pressure off people, especially low-income earners instead of crushing them based on the president’s progressive agenda.
We’d be wise to remember what Milton Friedman correctly said: “One of the great mistakes is to judge policies and programs by their intentions rather than their results.”
Gov. Kim Reynolds and Republican legislative leaders are making tax reform a priority for the upcoming 2022 legislative session. The path to keeping government from excessively burdening people with taxes and allowing for pro-growth tax reform starts with conservative budgeting.
Fortunately, Iowa has been practicing prudent budgeting. Iowa will end the current FY 2021 with a $1.24 billion budget surplus in its general fund, which is substantially larger than last year’s surplus of $305 million.
Iowa state leadership deserves credit for their recent prudent spending and tax relief. As a result, Iowa was prepared fiscally for much of the costs related to the government shutdown in response to the COVID-19 pandemic. Truth in Accounting’s Financial State of the States 2021 report ranks Iowa in the top 10 (9 out of 50) of fiscally stable states.
In addition, the legislature has been careful to avoid using the billions in COVID-19 related federal funding on ongoing expenses. The $1.24 billion surplus is not a result of these federal dollars, but rather the fiscal conservativism that has spurred economic growth.
Nevertheless, policymakers will need to continue this approach to strengthen the state’s improving fiscal foundation by keeping spending from excessively burdening taxpayers to provide needed tax relief.
This is a reason that the Iowans for Tax Relief (ITR) Foundation recently released the Conservative Iowa Budget (CIB) for FY 2023. This conservative budget approach helps limit spending by setting a maximum threshold on the state’s general fund based on the rate of the state’s resident population growth plus inflation. Given the 2021 rate of 4.51% and a base of $7.1B, excluding $1 billion provided in tax relief this year, the FY 2023 budget should be less than $7.44 billion.
This fiscal rule of a spending limit on the general fund provides a reasonable limitation that essentially freezes inflation-adjusted spending per capita. This helps to lessen the crowding out of private sector activity and helps to stabilize expectations over time.
Iowa’s Revenue Estimating Conference (REC) estimated that revenues will increase for both FYs 2022 and 2023. The REC is estimating $8.9 billion in revenue for FY 2022 and $9.1 billion for FY 2023. This projection is a healthy improvement from the previous year. These optimistic projections by the REC make it prudent to continue using budgetary caution to fund only limited roles for government instead of spending every taxpayer dollar.
Therefore, it is important to keep spending reined in and will require legislators to prioritize every taxpayer dollar, which is difficult as many special interests will be arguing for either new funding or expansion of their previous allocations.
Already public education (K-12, community and technical colleges, and higher education) along with Medicaid comprise 79% of the general fund budget. This creates additional pressure because spending on these items continue to increase and crowd out other priorities.
Many families and businesses, especially during the pandemic and now as inflation reduces their purchasing power, must prioritize their spending. Government should also focus on priorities, even more so than families and businesses – because it is not the government’s money.
Fiscal rules that limit spending help achieve this goal. While Iowa currently has a 99% spending limit in code, this limitation must be strengthened.
The spending limit should be strengthened by passing a constitutional amendment or changing it in the code to be based on a maximum rate of population growth plus inflation. This is an important measure because it accounts for more people paying taxes, higher wages – which are highly correlated with inflation over time, and economies of scale.
Policymakers have a historic opportunity to enact pro-growth tax reform that will benefit all Iowans and make the state more competitive. To achieve this goal policy makers must continue to practice sound budgeting by passing a Conservative Iowa Budget.
The Conservative Iowa Budget helps limit government spending so that there are more opportunities for tax relief and for widespread prosperity for Iowans now and for generations to come.
The path to keeping government from excessively burdening people with taxes and allowing for pro-growth tax reform starts with conservative budgeting. Iowa Gov. Kim Reynolds and the Republican-led legislature have fortunately been following a policy of prudent budgeting. Iowa will end fiscal year (FY) 2021 with a $1.24 billion budget surplus in its general fund, which is substantially larger than last year’s surplus of $305 million. The large surplus is a direct result of fiscal conservatism. Nevertheless, policymakers will need to continue this approach to correct for past excesses and strengthen the state’s improving fiscal foundation to provide needed tax relief. This can be achieved by keeping government spending from excessively burdening taxpayers.
The Iowans for Tax Relief (ITR) Foundation’s Conservative Iowa Budget (CIB) for FY 2023 (see Figure 1) helps do this by setting a maximum threshold on the state’s general fund based on the rate of the state’s resident population growth plus inflation, as measured by the U.S. consumer price index (CPI). This fiscal rule of a spending limit on the general fund based on population growth plus inflation provides a reasonable limitation that essentially freezes inflation-adjusted spending per capita. This helps to lessen the crowding out of private sector activity and helps to stabilize expectations over time.
For several decades and under the control of both Republicans and Democrats, Tennessee has been known for its fiscally conservative budgeting. Years of limited spending and low taxes have kept hundreds of millions of dollars in the pockets of Tennessee taxpayers that might otherwise have gone to government bloat. In fact, according to the Tax Foundation, Tennessee residents pay less in taxes than anyone in the country. Conservative budgeting has not only helped Tennessee taxpayers, but it also positioned the state to enter the COVID-19 crisis with a relatively strong “rainy day fund” of $1.1 billion, or seven percent of the state’s general fund expenditures. Tennessee remains in a strong financial position as its economy has bounced back stronger than the national average post-pandemic. Conservative budgeting and sound policy during the pandemic contributed to such strong tax revenues that the state had an unprecedented $2.1 billion surplus in the latest fiscal year despite the crisis.
But future good times are no guarantee—and that’s why, whether in good or bad times, Tennessee families practice priority-based budgeting, making tough choices on how to spend their hard-earned dollars. If Tennessee is to remain an economic powerhouse, policymakers must also continue to make fiscally conservative choices, resist the temptation for excessive spending, and not make it overly difficult for Tennessee taxpayers to fund their state government.
Ron Shultis, Director of Policy and Research for the Beacon Center, commented about the report: “Tennessee has been a fiscal leader for decades but it is important that we not rest on our laurels or take that for granted. The Conservative Tennessee Budget sets the standard for staying a national leader. By ensuring spending doesn’t grow more than population plus inflation, state government won’t become more of a burden on taxpayers.”
Vance Ginn, chief economist at the Texas Public Policy Foundation and co-author of the report, stated, “Any increase in the state budget should be less than the average taxpayer’s ability to pay for it, as measured by population growth plus inflation, which is why the Conservative Tennessee Budget is essential for continued opportunities that best let people prosper. We have seen the success of this approach in Texas for a number of years so I’m excited to partner with the Beacon Center in this fruitful endeavor to keep Tennessee a great place to raise a family and start a business.”
House Speaker Nancy Pelosi set Halloween as the deadline for passing multiple reckless budget increases. The latest new framework announced recently by President Biden has a claimed cost of $1.75 trillion ($1.85 trillion when you include $100 billion for “immigration”). That number may sound frightful, but the monster under the mask is ghastlier—the real figure likely remains closer to $5 trillion over the next decade.
The scary specter of the president’s “Build Back Better” agenda seemed dead, a victim of the political infighting among the Democrat Party. But now, the monstrosity has been exhumed from the graveyard in a costume betraying its true cost.
The expenditures from the original bill are reported to have been reduced not by cutting wasteful programs but by budgetary gimmicks. For example, the new costs of the expanded Earned Income Tax Credit and Child Tax Credit is counted for only one year; universal pre-K and child-care subsidies are counted for only six; and extended Obamacare and Medicaid subsidies are tallied through only 2025 instead of scoring them over the normal decade as part of reconciliation. Meanwhile, the tax increases are all counted for the next ten years.
This was one of the tricks on taxpayers that got Obamacare passed in 2010, and that program has been haunted by substantial cost overruns.
This latest Washington tax-and-spending drama has morphed into a horror show.
With a recalcitrant Republican Senate minority disavowing a December debt-ceiling increase, Democrats are attempting to corral nearly their entire caucus—in both chambers—into supporting this new framework and the other $1.2 trillion “infrastructure” bill.
Amid the White House’s rush to announce an agreement before the president leaves for Europe that didn’t get done, we should ask: What would be the effects of passing this agenda? The recent skeleton bill gives little meat to provide a thorough comparison of how close it is to previous incarnations of the president’s 10-year plan but what’s available remains scary.
While Senators Kyrsten Sinema and Joe Manchin likely approve of this lower-topline-number facade, the radical progressives want it larger. The self-proclaimed socialists want their $5 trillion spending spree and have said they will not support anything less.
Our analysis of the entire “Build Back Better” agenda illustrates the true cost of pushing big-government socialism onto Americans that we don’t want and can’t afford.
Compared to baseline growth, the broader agenda will slow the economy by $3.7 trillion, including $663 billion in lost private investment. Job growth will decline by 5.3 million over that time, about 4.3% of the latest employment figures. Meanwhile, the nation will add $4.5 trillion more to the national debt, even after $1.7 trillion in tax increases.
These are spooky figures, but the worst effects are the financial injuries inflicted on hard-working Americans. This agenda will crush the middle class, as we estimate that real median household family income could lose about $12,000 compared with baseline growth. Biden’s promise to not raise taxes on those earning less than $400,000 a year is repeatedly broken, implicitly and even explicitly.
The new 15% corporate minimum tax is just one example. Despite the White House press secretary’s assertions, businesses do indeed raise prices when corporate taxes increase. Businesses also reduce wages and cut hours for workers, while Americans see a lower return on their investments.
The new IRS “investment” is another frightful facet. The administration has repeatedly advocated for spying by the IRS on everyday Americans—not just the wealthy—to collect $400 billion more in taxes over a decade. Virtually everyone with a direct deposit paycheck could find themselves under audit.
Nearly all the tax increases proposed by Democrats this year are heavy taxes on investment. Contrary to what the Biden administration believes, tax rates matter because people respond to incentives. Higher tax rates disincentivize investment, which in turn reduces the nation’s capital stock, real wages, and economic output.
Besides the horde of proposed tax increases, there are expansions of welfare programs and the removal of work requirements. Instead of obliging people to earn at least some income before receiving a refundable tax credit, these bills would redistribute dollars from productive activity to handouts for people to not work. The last year shows that is a proven recipe for disaster in people’s livelihood and the economy and economist Casey Mulligan, senior fellow at the Committee to Unleash Prosperity, notes this could cost 9 million jobs over the next decade.
Neither Biden’s American Jobs Plan nor the American Families Plan that constitute the Build Back Better agenda have been passed, which is fortunate because both of their monikers seem to detail the things they attack.
But these scary specters have returned in this latest amorphous outline—and the devil is always in the details. Speaker Pelosi and Senator Majority Leader Chuck Schumer now must flesh out the monster and try to secure enough of their own party’s votes to revive the beast.
It is still possible that Congress passes some form of this legislation—a veritable Frankenstein’s monster. We will have to wait and see what kind of scary surprise Washington has in store for the rest of America. But the details we do have are Americans’ worst nightmare with this latest budget-busting that should die—and stay buried this time.
J. Antoni, Ph.D., is an economist, and Vance Ginn, Ph.D. is chief economist, at the Texas Public Policy Foundation. Dr. Ginn also served as Associate Director for Economic Policy at the White House’s Office of Management and Budget, 2019-20. Stephen Moore is an economist at Freedom Works and co-founder of the Committee to Unleash Prosperity where Dr. Antoni is a visiting fellow.
Since 1920, Texas’ economy has been hindered by a little-known protectionist law called the Jones Act. In fact, Wayne Christian, the current chairman of the Railroad Commission of Texas, noted in a 2018 letter that this act hurts Texas and the nation and should be reevaluated. At a time when energy prices are soaring and economic activity is souring from bad policy in Washington, ending this antiquated act would be a big boost to Texans and all Americans.
The Jones Act mandates that only ships built, owned, and crewed by Americans can transport goods between U.S. ports. But such vessels are relatively more expensive to build and operate because of the lack of competition due to government restrictions. As a result, it can often prove cheaper for Americans to purchase products made in other countries.
In times of national disaster, presidents, regardless of political affiliation, have provided aid to coastal states and U.S. territories by granting waivers of the Jones Act so the assistance can arrive efficiently.
The act especially harms states like Alaska and Hawaii, as well as U.S. territories like American Samoa, Puerto Rico, and Guam. Because of the added surcharges associated with shipping goods on an approved vessel, artificially high prices become the norm for most of the goods shipped to those places and result in billions of dollars of lost revenue for U.S. businesses — and thus American workers and consumers.
The Jones Act is even more burdensome on energy producers, especially here in Texas. Currently, Texas produces half of America’s natural gas output — but instead of shipping gas domestically, we are being forced to export our natural gas. Texas continues to ramp up liquefied natural gas (LNG) production, but the Jones Act has made it impossible to sell some domestically. In fact, there are only 96 American-made, Jones Act-compliant ships and no eligible ships capable of carrying LNG. Because of this, it’s more economically viable for some coastal states and territories to import from foreign nations rather than buying LNG produced in Texas. Repealing this protectionist measure would remove this obstacle and help lower energy prices. Currently, foreign nations with large reserves of natural gas and crude oil have greater incentives to enter U.S. markets because the act puts American energy producers at a disadvantage.
Last year, the U.S. exported LNG to 37 countries, with the Dominican Republic purchasing over half of its LNG from the U.S. Meanwhile, the Dominican Republic’s island neighbor of Puerto Rico found it cheaper to import most of its LNG from Trinidad and Tobago instead of mainland America. The difference is that the Dominican Republic is a foreign nation and is not limited to more expensive approved ships to buy from the United States.
Proponents for the Jones Act claim that it “bolsters” our national defense, but instead it increases energy dependence on foreign imports, often from unfriendly countries.
Another unintended consequence of protectionist shipping laws is one of the largest — and most dangerous — commercial challenges for ships that navigate the narrow connection in the Houston Ship Channel as they sail towards the Gulf of Mexico from near Houston.
Jokingly nicknamed the Texas Chicken, this hair-raising encounter in which oncoming ships steer almost directly at one another has become the norm for ship captains because Houston simply doesn’t have a wide enough channel to safely accommodate two-way traffic at normal distances. This is due to another costly protectionist measure called the Foreign Dredge Act of 1906. It prohibits foreign-built ships from dredging in the U.S. In addition to these risky maneuvers, the U.S. Army Corps of Engineers has talked at length about the channel’s inefficiencies and environmental concerns because of flawed assumptions that restricting certain ships benefits Americans.
Simply expanding the channel would solve many of the bottleneck issues our state sees with energy exports and shipping in general. However, the costs associated with conducting this project are artificially high because of the two acts. Two of the largest sand-moving projects in Louisiana dredged about 24.6 million cubic yards of sand, costing a combined total of $334 million. In the Netherlands, a similar project was undertaken, costing just $55.5 million while dredging 14% more sand.
The economic costs of the Jones Act are clear and, as economist Milton Friedman said, “One of the great mistakes is to judge policies and programs by their intentions rather than their results.”
The Jones Act was created to protect domestic shipbuilding, but it has turned a once-thriving U.S. maritime industry into a dying, anti-competitive relic — an allegory of what irresponsible government regulation looks like. If waiving the Jones Act works during a crisis, why have it at all? We shouldn’t, and Texans and all Americans would be better off without it.
It’s playoff baseball time here in Texas—go ‘Stros! But baseball fans know everything depends on the umpires—as the great Bill Klem said, when asked whether a ball was fair or foul, “It ain’t nothing until I call it.”
It’s time for us to call fair and foul on the Texas Legislature; there were some homeruns, some wild pitches and even some unforced errors. And ultimately, it’s the taxpayers who either win or lose.
To begin with, lawmakers did well in remembering the taxpayer by maintaining a Conservative Texas Budget (CTB), which sets a maximum appropriations threshold based on the average taxpayer’s ability to pay for it (as measured by population growth plus inflation), and passing a stronger spending limit.
There was concern with Congress sending Texas $16.3 billion in mostly discretionary funding through the American Rescue Plan (ARPA). During the recently ended third special session, the Legislature appropriated $13.3 billion of it, with a positive of leaving $3 billion for possible tax relief later.
Another winning play is that the Legislature followed most of the Foundation’s recommendations for ARPA funds.
It sustained the CTB and used the funds for only one-time expenditures which will help avoid any fiscal cliffs like some claimed Texas had after Obama’s one-time “stimulus” funds in 2009. Legislators appropriately used $7.2 billion—about half of ARPA funds—for debt payment and replenishment of the state’s depleted unemployment trust fund after the shutdown recession to avoid a massive payroll tax hike on employers. And they ensured transparency and accountability by requiring that the uses of these funds be posted on a government website and put in a separate account, respectively.
While those actions benefited taxpayers, a botched play was in not providing substantial, broad-based property tax relief.
This could have been done, as there were surplus funds of $6 billion in general revenue and $3 billion in ARPA funds. All legislators needed to do was use surplus funds to reduce school district maintenance and operations property taxes, thereby continuing the path toward eliminating property taxes by 2033.
Instead, lawmakers raised the homestead exemption for school district property taxes by $15,000 to $40,000, funded by about $450 million in general revenue annually. And even this won’t happen unless voters approve this constitutional amendment in May 2022. If passed, more than 5 million homeowners would benefit from average savings of $176—excluding other higher local property taxes. So, no relief for business owners, landlords, apartment owners, renters, and those with secondary properties.
This compromise followed proposals in the Senate that would have provided at least $2 billion in general revenue to lower school district property taxes for everyone and in the House that would have provided $3 billion in ARPA funds for checks to only those with a homestead.
Clearly, the Senate’s version would have been broad-based, even though more could have been added to it. Combining it with HB 90 in the House that would have provided structural reform to eliminate property taxes over time, which died in House calendars, could have provided extraordinary relief. Instead, it appears that lobbyists for the public ed establishment pushed against this pro-taxpayer effort, resulting in little-to-no relief through the increase in the homestead exemption.
A huge unforced error was the wasteful spending of ARPA funds.
The decision to allocate $325 million in ARPA funds to support $3.3 billion in tuition revenue bonds for construction at higher education institutions is at the top of the fouls list. While tuition and student debt continue to rise, the quality of education is declining, and universities are already receiving billions of dollars, this provision is ill-advised.
It’s unfortunate that instead of providing tax relief these funds went to projects like student housing enhancements for the Marine Science Institute at the University of Texas at Austin and $100 million to two state university systems for institutional enhancements.
However, not all state legislators sought to rubber stamp additional funds to a declining higher education system. Rep. Matt Schaefer (R-Tyler) proposed an amendment that sought to connect the amount of money institutions can receive based on the rate of tuition increase. Unfortunately, the amendment didn’t pass, ending an opportunity to curb the fiscal bloat that plagues Texas universities, students, and taxpayers.
Putting this year’s legislative game in perspective there were many hits but also some strikeouts, especially on major property tax relief. But taxpayers did get relief from less government spending than what was available.
The Legislature left about $20 billion in total revenue, including $6 billion in general revenue, and $12 billion in the rainy day fund and $3 billion in ARPA funds on the table. Texas should return much if not all of these surplus funds to struggling taxpayers so they can recover from the shutdown recession, withstand the stagflation by the Biden administration, and actually own their property.
But as with baseball, there’s always next season.
Given Texas’s commitment to lower taxes and limited government, it’s not surprising that the economy here is booming. Allowing people and businesses to keep more of their hard-earned money is the not-so-secret reason Texas often leads the country in job creation, economic growth, and inbound domestic migration.
Unfortunately, Democrats in Washington are trying to enact a reckless $5 trillion spending bill that would also raise taxes by the most in at least fifty years while leaving a mountain of debt. This could be a crushing blow for the American economy, and Texas could be one of the states hardest hit.
Indeed, research from the Texas Public Policy Foundation shows that Biden’s “Build Back Better” plan could cost the U.S. economy a conservatively estimated 5.3 million jobs compared with baseline growth over the next decade—and 467,000 of those jobs would be lost in Texas. This should come as no surprise to anyone as Democrats are not only trying to raise taxes broadly on individuals and job creators, but are also taking aim at specific industries they don’t like. That’s bad news for Texas.
In their bid to end the use of fossil fuels, Democrats would hit oil and gas producers with punitive fee increases and potential tax changes that would make reliable energy production less competitive. This will directly impact Texas families, as 2.5 million Texans have jobs that are directly or indirectly supported by the oil and gas industry. And these additional government-mandated burdens will drive up prices on gasoline and fuel, as well as other everyday prices like food and clothing.
Americans deserve a healthy economy, not more burdensome tax measures and policies that will make the inflation situation worse.
Thankfully, a small but significant group of moderate Democrats, including South Texas Reps. Filemon Vela, Vicente Gonzalez, and Henry Cuellar have publicly expressed concerns with the reckless spending bill. These members wrote to Speaker Pelosi in late September and asked Democrat leaders to “reconsider some of the revenue raising provisions of this otherwise sound and critical effort,” and said they’re concerned about provisions that would “jeopardize U.S. energy independence, harm American jobs, raise energy costs, and increase global emissions.”
Their concerns are valid, and they are certainly correct that the Build Back Better plan would hurt American workers. However, despite their letter, in August these three representatives voted to allow the $5 trillion bill to move through the legislative process. If they truly have concerns about this disastrous bill—as they have publicly stated—then they should have voted “no” and forced Speaker Pelosi to hit the brakes. But it’s not too late. With a razor-thin Democrat majority in the House, these three members of Congress could flex their collective muscle and end this assault on Texans and all Americans.
Absent the political courage of these or other Democrats in Congress, Biden and Democrats will enact job-killing policies that place a heavy burden on taxpayers of nearly all income levels. For instance, if Biden gets his way and raises the corporate tax rate from 21 percent to 28 percent, $100 billion of this tax hike will be shouldered by taxpayers making $100,000 or less according to calculations by National Taxpayers Union. Despite his claim that only the wealthy will pay higher taxes, Congress’s Joint Committee on Taxation says that under Biden’s plan, people making just $30,000 and above will pay higher taxes starting in 2027.
Small businesses could also face higher tax burdens as Biden would increase their tax rates and place new restrictions on their ability to utilize the 20% tax deduction that was created in the Tax Cuts and Jobs Act. That’s just the tip of the iceberg: Biden’s plan also involves tax hikes on investors, property owners, and even cigarette and vape users—tax hikes that would further break his pledge to not raise taxes on anyone making less than $400,000 a year.
The country is still recovering from the COVID-related shutdowns and dealing with economic problems like inflation that have taken a heavy toll on families across the country. After spending trillions of dollars over the past eighteen months, Congress shouldn’t be considering a costly tax-and-spend plan that would jeopardize the American recovery. Instead, members like those in south Texas should find ways to get our fiscal house in order by reducing spending. Killing this bill would be a good start.
Governments’ forced business closures and mandates in response to COVID-19 resulted in much economic destruction during what I am calling the “shutdown recession.” Returns to normal, to work, and to pro-growth polices are essential for the economic recovery and people’s flourishing. However, more government intervention in response to the Delta variant and reckless fiscal and monetary policies out of D.C. are hindering the recovery. The labor market has been improving more slowly than expected even though Congress has authorized $6 trillion since the pandemic started and may soon authorize another $6.2 trillion, while the Federal Reserve has more than doubled its balance sheet to $8.4 trillion. The federal government has been paying people not to work thereby supporting labor market shortages and a near record high of 2.1 million more job openings than total unemployed. In August, there was a record high of 2.9% of job holders who quit their job, possibly due in part to the vaccine mandates. Congress should stop paying people not to work, reject the reckless Build Back Better agenda, and return to the pro-growth policies supporting vast opportunities to let people prosper.
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Vance Ginn, Ph.D.