How much government is enough? As little as possible

This commentary originally appeared in the Friendswood Journal on February 21, 2014.

Texas leads most states by a wide margin in economic growth and job creation. Despite this, liberals look for any avenue to discredit the Texas Model of low taxes, government spending, and regulation because it challenges their core belief in big government.

If you consider another large state with similar demographics and a governing philosophy that liberals should love, California provides the best comparison. Since California’s economic opportunity trails Texas in most categories, liberals find any avenue possible to chastise Texas. A recent example is the results from the Corporation for Economic Development’s (CFED) 2014 Assets & Opportunity Scorecard.

This report claims to enable “states to benchmark their outcomes and policies against other states in five issue areas: Financial Assets & Income, Businesses & Jobs, Housing & Homeownership, Health Care, and Education.”

The Scorecard ranks Texas 37th in household financial security and 41st in passing policies to reduce a family’s financial insecurity. On the other hand, the big government state of California ranks similarly in financial security (34th) despite ranking much higher (17th) in its policy approach.

Several of CFED’s 67 state policies that purportedly improve financial security rest on a state having a progressive income tax. These include whether the state has regulated tax preparers, ban on add-on tax fees, and an Earned Income Tax Credit.

Since Texas does not have an income tax, it loses out on CFED’s criteria that suggests big government is the answer, giving Texas a failing grade. There are three major problems with this argument.

First, the poverty rate chosen by the CFED is the U.S. Census Bureau’s official measure. Though CFED discusses this measure’s shortcomings of not including government benefits and cost-of-living differences across the nation, which are included in the Census Bureau’s alternative supplemental poverty index, they calculate state rankings with the old official measure anyway.

Census’ alternative index shows California with the highest poverty rate and Texas ranking near the national average. Instead of California ranking 31st in the Scorecard’s income poverty rate, the alternative index would rank the state last and drop the overall outcome rank further. With Texas’ low cost of living, the supplemental poverty index would rank the state much higher under the Scorecard’s criteria and higher in financial security.

Second, discounting the state’s performance because it does not have an income tax presupposes that an income tax is beneficial. However, this fallacy is noted by economists and by comparing states’ actual economies. While conservative economist Art Laffer is a leading opponent of an income tax because of its supply-side effects, even the liberal economist Lawrence Summers’ research notes the benefits of not having an income tax.

Which brings us to the third point: Texas leads California in economic opportunity.

The percentage of the adult population who are employed, often considered the best labor market measure, of 61 percent in Texas hovers above California’s 57 percent at the end of 2013, marking a full decade of a stronger labor market performance.

To further dilute the liberal argument, Texas leads California in higher per capita output since 2011 and for the first time became the top tech exporter in 2012.

These problems lead to a widely different conclusion relative to the one that liberals like to highlight from reports like the CFED’s Scorecard.

Instead of expanding government to improve the financial security of some by reducing others’ security, a better approach is to reduce the burden of government by shrinking its economic footprint – thereby generating greater overall prosperity.

The good news is that there are alternatives. A contracting-governance model to increase private sector efficiency; a sales tax relief fund to allow surplus funds to lower the sales tax rate; a zero-based budget approach to write a budget from scratch; and a promise to never pass an income tax-all these would generate more certainty, stability, and therefore prosperity than expanding government.

While liberals continue to find ways to detract from Texas’ success, the Texas Legislature must remember that less government fosters economic prosperity through free enterprise and individual liberty.

So, how much government is enough? As little as possible.

The Honorable Talmadge Heflin is Director of the Center for Fiscal Policy with the Texas Public Policy Foundation, a non-profit, free-market research institute based in Austin. He may be reached at [email protected].

Vance Ginn, Ph.D., is a staff economist for the Center for Fiscal Policy at the Texas Public Policy Foundation, a non-profit, free-market research institute based in Austin.. He may be reached at [email protected].

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