Musings on Economic Freedom from the Texas Public Policy Foundation's Center for Economic Freedom
The Foundation recently updated the chart below on the state spending burden in Texas, which originally appeared in our 2010 paper, Texas vs. California: Economic Growth Prospects for the 21st Century. The chart shows that Texas has much lower government spending as a percentage of the private economy than the U.S. or our largest competitor, California.
In other words, Texas generally imposes a lower spending burden on it citizens, which translates into lower taxes. But a low spending burden isn't a constant in Texas. The chart also shows that Texas spending burden has increased at certain times. This is certainly the case in 2009, for which our new data shows a sharp uptick in Texas' spending burden.
The spending burden can increase for two reasons: because of a decrease in the size of the economy relative to spending or because of an increase in spending relative to the economy. Quite often the increased spending burden can be attributed to both. That has been the case recently in Texas.
The chart quite obviously shows the increased spending burden leading up to 2003, when Texas lawmakers showed up in Austin facing a $10 billion budget shortfall. Yet they met the challenge by balancing the state's budget without raising taxes. Because of this policy decision, Texas' spending burden declined significantly, and even after a recent increase remained slightly below its 1987 levels-a major accomplishment since our paper also shows a close negative correlation between government spending and economic growth: the less spending, the more growth.
However, increased spending in 2007 and 2009 led to the jump in the spending burden in 2009, even before the effects of the Great Recession hit Texas. When we get the updated data, we expect the 2010 burden to be even higher as the 2010 spending increases combine with the onset of the Great Recession in Texas. So for the third time in 20 years, the spending burden has significantly increased.
The impact of the increased spending burden can be seen in the $15 billion shortfall the Texas Legislature faced in 2011, only eight years after spending restraint successfully dealt with the last major shortfall.
A state that keeps its taxes low and overregulation at bay is one that fosters economic development. On the other hand, a state that plows its cash into government spending is one whose businesses and citizens will soon be leaving for greener pastures. The state spending burden is perhaps the best measurement to gauge which one of these paths a state is traveling.
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