Tuesday, December 1, 2015

TPPF: Do Tax and Expenditure LIMITS Matter?!?

Senator Van Taylor speaking at today's event

"Poverty and shame will come to him who disdains correction,
But he who regards a rebuke will be honored."
Proverbs 13:18

Texas Public Policy Foundation -- Constitutional spending limitations have always been one of this website's favorite issues.  With the possible exception of eliminating taxpayer funded lobbying, no other measure would do more to restrain the footprint of government over the long run.  This afternoon, TPPF held a policy primer and released a report on the issue.

Spending growth rates in Texas have been wildly inconsistent over the years.  As just one example, the catastrophically bad budget the #TXLEGE passed in 2013 was followed by the 'reasonably not crappy' budget they passed in 2015.  As TPPF explains in today's report:
Texas’ budget of $209.4 billion in fiscal years 2016-17 (Legislative Budget Board (LBB) 2015, 3) is an increase of 69 percent over the $124 billion spent in 2004-05, according to Heflin, et al. (2015,1). It is important to compare this increase with the state’s population growth plus inflation. This key metric provides a measuring stick for fiscal responsibility by accounting for potential changes in demand for government services and in the cost of providing them.

Using actual data and projections in each budget period,* we estimate that population growth plus inflation has increased by a compounded 55 percent since 2004-05. Adjusting for this, Texas’ budget is up 8.8 percent above the pace of population growth plus inflation since 2004, amounting to excess spending of $16.9 billion in 2016-17. This excess spending has put heavy burdens on Texans costing a family of four $1,251 per year and on the economy contributing to slower economic growth from higher taxes and fees than otherwise, as has been the case in high versus low-taxing states (Moore, et al. 2015, 8-9).

Legislators have recently practiced some budget constraint, particularly during the 2003, 2011, and 2015 legislative sessions when they passed budgets that increased by less than population growth plus inflation. However, in 2005 and again in 2013 the subsequent budget adopted by the Legislature increased by significantly more than this key metric, erasing most of the gains from the previous sessions (Heflin, et al. 2015, 1). While the Foundation will be working with legislators to keep the 2018-19 budget within population growth plus inflation, a better path forward to keep this cycle from repeating would be to put this limit into law.
At today's event, Dan Mitchell of the Cato Institute explained the difference between 'balancing budgets' and actually cutting government.  49 states and the European Union currently have some sort of 'anti-deficit' rules, but too frequently those are used as excuses to raise taxes, not reduce government.  That's why you need caps on SPENDING (preferably in the Constitution) rather than a poorly defined 'balanced budget' mandate.  Mitchell then reviewed various expenditure limitations various locations have tried around the world.  Mitchell said his favorite model was the Swiss 'debt break,' which limits spending increases to 2% annually in both good times and bad.

Senator Van Taylor spoke next.  He discussed how state spending as a percentage of state GDP increased from 5% in 2000 to 7% in 2012.  While that's better than other places, it's not nearly good enough for a state that claims to be conservative (and, of course, Taylor's figure wouldn't have included the spending BINGE they went on in 2013).  Taylor echoed Mitchell's sentiment that debt and taxes are symptoms, spending is the disease.  Most interestingly, Taylor revealed that during his time in the legislature, few votes have terrified his colleagues more than votes to bust the spending cap.

During Q&A, we resisted the temptation to ask the political question we really wanted to ask and instead asked about Medicaid.  Mitchell explained how, due to the rules of the program, Medicaid represents 'free money' to both state and federal officials, which incentives them to give away goodies at an even faster rate than they would if the program was either 100% state or 100% federal.  Of course, the solution is for the Feds to block grant Medicaid to the states (or for Texas to opt out of the Federal Medicaid program entirely).

Of course, when it comes to any sort of structural spending reforms in Texas (constitutional or statutory), the real issue is political.  As is the case with so many other conservative reforms, there is only one obstacle to constitutional spending limitations in the state of Texas, and his name is Joe Straus.  During Straus' four sessions as speaker, constitutional spending limitations have languished.  Last session, Straus and his handpicked Appropriations chair John Otto gutted SB 9, a tighter spending cap that was merely statutory.  While were on the topic, it's worth pointing out that Straus has stiffed both Rick Perry and Greg Abbott over this issue.

Bottom Line: YES, tax and expenditure limits matter; they matter a lot!!!  That's why the rent seeking business as usual crowd HATES them.  Constitutional spending limits would permanently reduce the footprint of government in Texas.  Reducing the footprint of government reduces the political allocation of capital, which increases living standards for everyone.  Unfortunately, the rent-seekers have derailed any structural spending reforms the past few sessions.  But the underlying case is even stronger than it was five years ago.  Kudos to TPPF for a great event!

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