Texas public policy foundation
Congress should follow the Texas model when it comes to government spending
 
COMMENTARY
 

This commentary was originally featured in The Hill on August 24, 2017. 

The discussion of raising the debt ceiling before the federal government potentially defaults on September 29 is an excellent opportunity for Congress to demand tax cuts and restraining government spending for pro-growth budget neutrality. Budget neutrality would allow increased economic activity from restraining government while allocating more tax revenue from that growth to pay down expected ballooning deficits.

This would help move the country past President Obama’s government-centered policies such as the ironically named “stimulus” plan, ObamaCare, Dodd-Frank, and the numerous lesser known regulations and programs. The result of this approach, along with unconventional monetary policy, was the slowest economic recovery since WWII and a doubling of the national debt to a level exceeding annual U.S. economic output.

Instead, Congress can and should pursue a limited government approach that’s repeatedly helped achieve more economic prosperity in Texas and other places that have practiced it.

A good start was Congress recently putting to rest the misguided border adjustment tax (BAT). While advocated as a way to maintain tax revenue neutrality when lowering the industrialized world’s highest corporate income tax, the argument assumed an economically questionable strengthening of the dollar value to mitigate higher costs of goods and services paid by Americans.

For example, the Texas Public Policy Foundation and R Street Institute published a study highlighting how the BAT could substantially raise property-casualty insurance premiums from the effects on the international reinsurance market. With mounting opposition to the BAT, Congress rightfully dismissed this bad idea that would have grown government.

There are, however, some very good ideas available that depend on restraining government spending to provide relief from onerous regulations and burdensome taxes.

On the regulatory front, the Heritage Foundation noted that from 2009 to 2015 more than 20,000 new rules resulted in a net burden on businesses and individuals of approximately $108 billion. Fortunately, the Trump administration has begun dismantling onerous regulations by a pace of 16 regulation rollbacks for each new regulation.

With many costly regulations and mounting expenditures with ObamaCare, Congress should fully repeal it. This would not only set the stage for a market-based, patient-centered healthcare system that would provide better care, but it would also help bend the cost-curve of a major driver of excessive government spending. Until Congress demonstrates the fortitude to overcome the obstacles to accomplish this, it should move to restraining government by providing tax relief and cutting spending elsewhere.

The Texas model of low taxes, relatively less government spending, and sensible regulations provides a good guide. During the last two legislative sessions, there’s been a push to pass a “Conservative Texas Budget,” whereby spending growth increases by no more than state population growth plus general price inflation. Fortunately, the state legislature has taken steps to passing two such budgets in a row. These allowed for $4 billion in tax and fee relief in the 2015 session and budget growth of less than 4.5 percent during the upcoming 2018-19 period.

Texans are rewarded for this fiscal conservatism. Texas has created almost 30 percent of the increase in U.S. employment since the start of the Great Recession, stayed below a five percent unemployment rate for three straight years, and had lower supplemental poverty and less economic inequality than comparable states — California, New York, and Florida. Moreover, Texas was the top state for net domestic migration from 2010 to 2016 and has led the nation in exports for 15 straight years.

The Texas model of limited government has been tried and tested, and similar pro-growth fiscal policies should be implemented at the federal level.

As a first step, Congress should work toward budget neutrality, whereby a dollar of a tax cut will be much more effective if it’s met with a dollar cut to spending. This approach helps to minimize any influence a tax cut might have in contributing to the growth of projected deficits and likely reduce current deficits over time due to continued spending restraint.

As the all too familiar practice of raising the debt ceiling nears, Congress has the opportunity to look to the Texas model as it focuses on reforming the institutional framework of the federal government. By fully repealing ObamaCare, simplifying the tax code, broadening the tax base, lowering tax rates, and continuing to cut excessive regulations, America can again be the beacon of fast-growing prosperity for the world.