AUSTIN – The recently passed federal stimulus package increases overall government spending to a level that will hinder Texas’ private sector growth and cost the state at least 131,400 jobs, according to research findings released today by the Texas Public Policy Foundation.
“These findings show clearly that growth in government crowds out growth in the private sector,” said Talmadge Heflin, Director of the Foundation’s Center for Fiscal Policy and former chairman of the Texas House Appropriations Committee. “Texas taxpayers and workers will pay a high price if our legislators use this supposedly free, one-time federal money to expand state government programs.”
The Foundation released the report, “The Economic Impact of Federal Spending on State Economic Performance-A Texas Perspective,” at a press conference in the Texas State Capitol. The Foundation commissioned Arduin, Laffer & Moore Econometrics-the research firm of internationally renowned economist Dr. Arthur Laffer-to produce the report.
The research looks at historical patterns of economic growth and spending by federal, state, and local governments; implications for Texas unemployment payments and taxes; and estimated effects that the recently passed federal stimulus package will have on Texas private sector economic activity and employment.
The report highlighted that the federal government’s short-term assistance with unemployment benefits has historically increased federal control over program eligibility and benefits. Because of that, the taxes paid by Texas businesses to support the unemployment program increase substantially once the federal money runs out.
“The Texas data shows significant increases in tax collections in the years that followed the infusions of short-term federal funds,” said Foundation Senior Fellow Donna Arduin. “Such surges are consistent with the need to build an adequate revenue reserve to pay for the higher costs that were mandated by the federal government in return for the extra revenues during the recessions.”
Heflin pointed to the report data showing a clear negative correlation between increased government spending and reduced private sector output. The report concluded that the federal stimulus package would reduce net business output by 2.5%, which would translate into between 131,400 and 171,900 additional job losses in Texas.
“The federal stimulus package was bad policy and the wrong direction for America,” Heflin said. “These findings show how important it is that the Texas Legislature reject the unemployment stimulus funds, as well as all others that would lead to permanent increases in state government spending.”
“The best way to reduce unemployment is to create jobs, and the best way to create jobs is to allow businesses to keep a greater share of their revenues so they can invest and expand,” Heflin said. “Expanding unemployment eligibility would take Texas in the wrong direction, reducing the ability of businesses to invest and expand and keeping more Texans out of work and for longer periods of time.”
Joining the Foundation for the release were numerous state legislators, as well as leaders representing the Texas Association of Business, the National Federation of Independent Business -Texas chapter, the Texas Conservative Coalition, and the Texas Conservative Coalition Research Institute.
The report is available on the Texas Public Policy Foundation’s website, www.TexasPolicy.com.
Donna Arduin is a Senior Fellow at the Texas Public Policy Foundation, and a partner with Arduin, Laffer & Moore Econometrics, which provides economic, fiscal, and policy advice to governors, legislatures, think tanks, and corporate clients throughout the country. She served as California Gov. Arnold Schwarzenegger’s Director of Finance from November 2003 until October 2004, and has served as a top budget advisor to former Florida Gov. Jeb Bush, former New York Gov. George Pataki, and former Michigan Gov. John Engler.
The Honorable Talmadge Heflin is Director of the Center for Fiscal Policy at the Texas Public Policy Foundation. Heflin served 11 terms in the Texas House of Representatives and chaired the House Appropriations Committee in 2003, leading the Texas Legislature’s successful efforts to close a $10 billion budget deficit without a tax increase.
The Texas Public Policy Foundation is a non-profit, free-market research institute based in Austin, Texas.
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