Remember the scene in Jurassic Park where the Tyrannosaurus Rex is chasing a Jeep carrying Jeff Goldblum, and in the side-view mirror you catch a glimpse of T-Rex’s reflection with the words “Warning: Objects in Mirror Are Closer Than They Appear”?
Don’t look now, but something just as frightening may be closer than many Texans suspect.
When the Texas Legislature returns in January, state lawmakers will begin tackling one of the worst budget shortfalls in recent memory, projected at $11 billion to $21 billion for fiscal 2012 and 2013. And just how lawmakers go about bridging the state’s multi-billion shortfall could have serious repercussions.
With the shortfall’s size exceeding that of Texas’ “rainy day” fund and a second major stimulus package unlikely, the Legislature will have to balance the state’s budget favoring one of two approaches – either dramatically raise taxes and fees, or make significant spending cuts. Neither choice is likely to be politically popular, but the decision is unavoidable.
Complicating matters further is the fact that any major fiscal decision – whether it involves higher taxes or lower spending – is all but certain to affect the state’s fragile economic recovery, which continues to move in the right direction.
According to the latest data from the Texas Workforce Commission, the state’s job market recently recorded its sixth straight month of employment gains, bringing the total number of jobs created this year to 166,100. Over the last 12 months, Texas’ economy has created roughly three times as many net jobs as the next highest state.
Bolstered by these employment gains, Texas’ 8.2 percent unemployment rate also continues to trend well below the national average of 9.5 percent – a fact that means Texas’ unemployment rate has now been at or below the national average for 43 consecutive months.
Aside from a better-than-average employment situation, Texas’ overall economic growth is also expected to outpace the national average by year’s end. According to the Texas Comptroller of Public Accounts, Texas’ Gross State Product – the most comprehensive measure of the economic activity – is projected to grow by 2.6 percent in 2010. While relatively weak by Texas’ recent standards, it is still better than the 2 percent projected for the nation as a whole.
By most every indication, the state’s economy and employment situation are recovering faster than average and, barring any further calamities, are expected to keep marching into positive territory. That is, unless lawmakers adopt a fiscal stance that interferes with the state’s economic prospects.
Should the Legislature decide to raise taxes and fees next session, particularly of the magnitude needed to address the state’s multi-billion shortfall, we can expect that growth will decline and jobs will be lost. After all, if low taxes and limited government helped create the economy we enjoy today, shouldn’t we expect the opposite if we raise taxes and expand government too far in the other direction?
Reducing state spending is the surest, most responsible way to bridge the shortfall and protect Texas’ economic gains – doing otherwise puts us all at risk from a T-Rex of another kind, the dreaded Tax-O-Saurus Rex.
James Quintero is a fiscal policy analyst at the Texas Public Policy Foundation, a non-profit, free-market research institute based in Austin.