“A rising tide lifts all boats.”
Jack Kemp understood that economic growth was the key to human flourishing. This is achieved with an institutional framework that provides economic opportunities for people across the income spectrum. This happens best in free market capitalism. Socialism, on the other hand, fails everyone.
The Bureau of Labor Statistics (BLS) recently released a report profiling the working poor. The BLS defines the working poor as “people who spent at least 27 weeks in the labor force (that is, working or looking for work) but whose incomes still fell below the official poverty level.”
While the working poor may start their careers poor, that doesn’t mean they will stay there. In fact, free market capitalism allows for people to move up the income ladder.
On the other hand, socialism is an expansion of government to control the levers of economic activity. This institutional framework distorts market activity by picking winners and losers, restricting labor market activity, and limiting opportunities for people to reach their full potential. The result is failure.
Yet these principles are at work in certain areas of the U.S. economy, such as health care and education, and far more extensively in places that practice more expansive socialism like in Venezuela.
It’s worth repeating the wise mantra of Larry Kudlow, who is currently the Director of the National Economic Council under President Trump: “Free market capitalism is the best path to prosperity.”
In the U.S. where capitalism has been practiced more than most countries, per capita GDP has increased from about $2,500 in 1776 to about $57,000 today in dollars adjusted for inflation. Capitalism trumps poverty, which is why the U.S. and states need more of it.
A cornerstone of capitalism is private property rights, supported by limited government. The Texas Model protects these more than most states by limiting government barriers so Texans have more chances to prosper. But the Texas Model has more to do to remove these barriers.
To ensure that the Texas Model is improved, the 86th Texas Legislature should take steps to reduce the burden of government in our lives.
A way to do this is to keep government spending and thus taxes to just funding limited government. Fortunately, economic growth hasn’t been handicapped by a state income tax, which would be detrimental to a robust economy. But an egregious income tax has been replaced by an almost equally egregious property tax, which has grown at an excessively rapid annual average of 5.8 percent pace over the last 20 years.
This skyrocketing tax burden has prevented many of the working poor from purchasing a home, which is normally the largest purchase for a family. It has also raised the working poor’s rent, which hinders them from purchasing one of the most basic items on Maslow’s hierarchy of needs: shelter.
While the Legislature has had a beneficial debate about limiting the growth in property tax revenue, the ultimate remedy would be to eliminate property taxes.
This could be achieved by immediately swapping school districts’ maintenance and operations property taxes with sales taxes. This swap could be done by reforming the state sales tax by broadening the sales tax base to make the sales tax system more efficient and to keep the rate from going above 10 percent.
Other options include buying down school districts’ property taxes with sales taxes or fiscal restraint. Regardless, government spending and tax revenue growth must be limited to sustain lasting tax relief.
Another barrier to keeping the working poor from prosperity has been occupational licensing.
These licensing barriers have resulted in labor shortages, which has artificially inflated wages by 15 percent in certain professions. And these licenses have cost Americans an estimated 2.85 million jobs and $203 billion in economic output, which comes at the detriment of the working poor.
There should be reform of occupational licensing in Texas. This includes continuing to review licenses as often as possible to determine which ones don’t sustain the health, safety, and welfare of Texans. When these are found, they should be eliminated. That’s exactly what the Sunset Commission staff report recommended about the Board of Professional Geoscientists, but the Sunset Commission kept it alive. And legislation is making its way through the process that may continue the Board even though there’s no good reason for its existence.
Another reform that would be incredibly beneficial to incoming Texans would be full license reciprocity, something that has already been implemented for many licenses in Arizona. License reciprocity would ensure that those who have already been licensed in another state would be given the ability to work immediately without worry of having to obtain a license in Texas before they can earn a living.
The working poor can achieve prosperity through the Texas Model that’s built primarily on free market capitalism. But the Texas and federal governments must further limit government to practice more capitalism so that the evil tentacles of socialism don’t choke the real engine of an economy—people’s freedom to act.
This is the best way to raise the working poor out of poverty and allow civil society to return to its proper role as an efficient means of helping others, rather than forcefully redistributing resources through government.