This commentary originally appeared in Forbes on May 25, 2015.
The end of the 140-day, every two-year, legislative session of the 84th Texas Legislature is quickly approaching on June 1.
While Texas has been the nation’s jobs engine for years based on the successful Texas model, legislators may give it a tune-up by passing a conservative budget, historic tax relief, spending limit reform, and structural property tax reform.
The latest Texas employment data for April provides evidence of the successful pro-growth policies, expanded foreign trade, and a diversified economy despite strong headwinds from the drop in oil prices and appreciated U.S. dollar.
After ending a remarkable 53 consecutive months of positive nonfarm job creation in March, the state returned to positive job growth last month with 1,200 jobs added.
These headwinds contributed to job losses of 8,300 in the oil and gas sector and 4,300 in manufacturing in April. But there were 19,200 more service industry jobs added last month indicating a strengthening labor market.
Though critics of the Texas model argue that the state would start hemorrhaging jobs from the drop in oil prices, this hasn’t been the case. There have now been 287,000 jobs added during the last twelve months with a monthly average of 23,917 jobs created.
The state’s 4.2 percent unemployment rate is at the lowest level since July 2007 and has now been at or below the national average for 100 consecutive months. Moreover, it remains lower than in states with the largest populations and economies—California, New York, and Florida.
This isn’t a new phenomenon. Comparing average monthly labor market statistics among these largest states and national averages from 2000 to 2014, there’s no doubt that Texas leads the way.
Texas’ averages during the fifteen year period were best with the highest 1.6 percent annual job creation, lowest 5.7 percent unemployment rate, highest 62.6 percent share of the population employed, and highest 66.6 percent labor force participation rate.
Taking it a step further, Texas’ 1.5 million total jobs created since the Great Recession started in December 2007 is almost two times more jobs added than the rest of the nationcombined.
The Texas model works.
It’s not all about the weather or some other arbitrary factor that critics suggest. What they don’t want to admit is that the conservative, pro-growth policy framework helps set the stage for more economic activity and job creation because it clashes with their liberal worldview.
Even with this unmatched prosperity, there’s room to improve the Texas model.
Before the 2015 Legislative Session, the Texas Public Policy Foundation (TPPF) carefully reviewed the last decade’s state budgets and published The Real Texas Budget to provide a transparent look at how taxpayers’ money is spent since government documents can be difficult to decipher.
Since the Legislature chose to remove $6.1 billion in patient income from appropriations to health-related institutions of higher education during the 2013 Legislative Session, we removed this amount from prior budgets providing an apples-to-apples comparison. We also added in the latest supplemental bill to fully fund Medicaid and other expenditures during the current budget.
With these appropriate adjustments that any business would have to make, we find that the 2014-15 budget of $202 billion is up 63 percent since 2004. Compared with measures of Texans’ ability to support their government, compounded state population growth plus consumer price index inflation is up only 45 percent in that same period.
Clearly, lawmakers have more than met the basic needs of the state and it’s time for them to effectively limit growth of the budget so that Texans are not burdened by higher future taxes and fees.
TPPF then published The Conservative Texas Budget that recommends state funds and all funds of the 2016-17 budget increase by no more than 6.5 percent based on population growth plus inflation for the last two fiscal years. Fourteen other members of theConservative Texas Budget Coalition joined us in supporting this recommendation along with other liberty-related policies.
TPPF’s latest publication The 2016-17 Texas Budget shows that both versions of all funds spending are currently under the conservative budget maximum growth rate at 4.6 percent in the Senate and 3.8 percent in the House.
The top budget writers indicate the final negotiated budget could increase by about 4 percent to around $210 billion, making it a conservative budget that will restrain the growth of the footprint of state government. Of course, the details will need to be thoroughly scrutinized.
There’s also movement—though that may end shortly—to substantially strengthen the state’s weak spending limit by broadening the base from roughly 40 percent of the budget to about 50 percent. It bases the limit on population growth and inflation for the last two and upcoming two fiscal years instead of personal income growth for the two upcoming fiscal years.
This reform coincides with spending limit research that finds this is the best way for state spending to match the needs of citizens.
Fortunately, holding spending in check has led to a tax cut discussion that follows prescriptions recommended by TPPF for years, particularly with cutting the business franchise tax as much as possible with eventual elimination.
Governor Greg Abbott set the tone for both chambers by stating in his State of the State speech that he won’t sign a budget without franchise tax cuts.
Though there were disagreements between the original Senate and House tax relief plans, the final package looks to provide a historic $3.8 billion in tax relief.
This includes the House’s $2.6 billion plan to cut the franchise tax by reducing the tax rates 25 percent and increasing the ceiling to file a simple form to $20 million at a lower 0.331 percent tax rate. The other part is the Senate’s $1.2 billion plan to reduce the state’s 14th most punitive local property taxes by increasing the homestead exemption $10,000 to $25,000.
To provide long-lasting local property tax relief, it looks like the final package will include legislation that would require local government bodies, such as city councils, to adopt tax rates above the effective tax rate with a 60 percent vote rather than a simple majority.
Deliberations during the last few days of session and in the future should include an examination of which tax cuts would most improve the lives of Texans. Rising personal income and private nonfarm job creation are two good measures of opportunity and prosperity.
Using those measures as benchmarks, both the Legislative Budget Board (LBB) and TPPFdynamic economic models find the largest economic boost comes from repealing the franchise tax.
Specifically, these findings show that there could be gains of $8 billion to $16 billion in personal income and 110,000 to 129,000 in private sector jobs by 2020 if this onerous tax is eliminated.
With franchise tax collecting less than $5 billion per year in revenue, the best way to increase opportunities to prosper for Texans, particularly the working poor, would be to put all tax relief dollars towards cutting the franchise tax.
Full elimination would allow Texas to join only Nevada, South Dakota, and Wyoming without a direct business tax or an individual income tax. This would improve Texas’ overall business tax climate from tenth to third best nationwide according to the Tax Foundation.
The state’s leadership has stated their ultimate goal is to eliminate this tax though it’s not happening this session. This transformational policy would make Texas a leader for America—and even the world—in tax policy.
It’s encouraging to see during this historic moment in Texas history that state officials are offering key reforms to restrain a growing footprint of government safeguarding Texans from higher taxes and fees. These actions will keep Texas as the model of opportunity and success for the nation.