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The American Rescue Plan Act is providing $40 billion to Texas and a panel discussion examined how that money should be used.
That was one of the topics under discussion Oct. 7 as Texas Public Policy Foundation chief economist Vance Ginn, Jonathan Williams of the American Legislative Exchange Council and Patrick Gleason of Americans for Tax Reform talked money — big money — and its major impact on the nation and the economy.
“We received $40 billion of funds. These are taxpayer dollars,” Ginn said. “It doesn't matter if it's coming out of your left pocket or your right pocket, or going to the state government or the federal government. It's still your money. It's still your taxpayer dollars. And so we need to make sure that we are spending these dollars wisely or allocating, I should say, if we're going to accept them at all.”
He noted the national debt is more than $28 trillion and a major point of contention is whether to raise the debt ceiling. Ginn said President Joe Biden's Build Back Better Agenda calls for $6.2 trillion in spending, but add another $4.5 trillion of national debt.
“And we have a paper that just came out yesterday from the Tax Foundation that shows that we would lose 5.3 million jobs over the next decade if all these policies, all this big government socialism went into place,” he said.
Other studies say the policies would not cost a loss of jobs.
Ginn said the final impact of this runaway spending would be to make states more dependent on the federal government.
“And we've got to make sure that we put things in place that would make sure that we block that from happening,” he said. “Federalism is so important here in the United States. It's one of the great things that allows us to be more prosperous.”
Williams was speaking remotely from Washington, D.C., or as he calls it “the land of make believe.”
He said conservatives are relying on the 2,000 men and women who serve in state legislatures who are the “tips of the spear” in protecting the essential American principle of federalism.
“Most good ideas don't come from a big central government here in Washington, D.C., in this island surrounded by reality, as Ronald Reagan would say, they come from states and from distributed government and decision-making and of course, the people of the states ultimately,” Williams said.
He said the federal government is discussing ignoring states with right to work laws, and is targeting other state decisions, including states that have declined to expand Medicaid.
“You add all of those policy concerns, together with the bailout of the states, that was a part of the ARPA package that you referenced earlier this year, signed into law by President Biden,” Williams said. “There is never such a thing as a free lunch, as the great Milton Friedman would always remind us every time a dollar comes from Washington and goes to the states or to local units of government. There is a real cost to that in terms of regulation, in terms of loss of state autonomy and this idea of federalism and the well-meaning free market leaders out there that are ALEC members and others wanting to do.”
He said some state officials have talked about rejecting federal dollars through this package. The consequences outweigh the benefits, they believe.
“But secondly, they're looking for ways to spend it on one-time uses,” Williams said. "That's one of the key principles that we learn whenever you have temporary funds coming from the federal government to the states is match it with one-time spending so you don't get yourself into a huge problem. And then they're looking at other innovative ways … perhaps we're looking at unemployment insurance trust funds, like Texas has and some of these discussions looking at ways to pay down state debt and maybe even looking at ways to enhance economic competitiveness.”
Gleason of Americans for Tax Reform said many states look to Texas as a leader and a model for sound governance. He said Americans for Tax Reform is urging states not to use these federal dollars for new spending programs.
“If you take these funds and you put them toward ongoing expenditures or programs, what you're doing is you're essentially creating a placeholder for a future state tax increase, a future state spending reduction elsewhere in the budget or a combination of the two,” he said. “You really want to avoid that.”
Gleason said a good way to use this windfall is to replenish state unemployment insurance trust funds. These took a major hit during the economic downturn in 2020, and refilling them could lead to higher taxes on employers.
Ginn said states must promote pro-growth policies, pass conservative budgets like Texas did and always keep taxpayers in mind when pondering decisions.
Williams said he concurs with Gleason on the need to rebuild unemployment insurance trust funds.
“I think that's probably the best thing states can do because it avoids the tax increase on employers as they look to hire,” he said. “Another thing that we're talking about nationally is … Treasury gave some initial guidance on … a real threat to federalism what the Senate did at the end of the discussion on ARPA, to say that states can directly or indirectly cut taxes with the federal money. I think we're going to end up winning in the federal courts. We've already seen some victories in Ohio and Kentucky from federal courts saying this is an unconstitutional coercion on states and they're going to strike that down.
“But important, the UI trust funds … the federal guidance allows for conformity to federal tax changes,” Williams added. “States that want to enhance the net operating loss ability of companies to write off losses to make sure that PPP-forgiven loans are not taxable at the state level. Of course, Texas not having a state personal income tax helps massively."
He said other proposals are “high-value infrastructure projects” such as increasing cybersecurity infrastructure that otherwise would come out of general fund support in the future.
“Those are all certainly things that we've talked to legislators about in recent months,” Williams said.
Gleason responded to a question from the audience on how the average person can help stop reckless spending at the state and federal levels, noting that proper handling of these federal dollars is the first step.
“When I think of Texas, I always go straight to the margins tax,” he said. “Yes, the property tax burden is something we need to address and it means federal funds can be used for that, at least temporarily. But, hopefully, we get more permanent property tax relief that we certainly need. Addressing the margins tax is something you really want to do, putting that ultimately on the path to phase out.”
Ginn said the overall theme for state lawmakers is fiscal responsibility, and ensuring government focuses not on how much it spends, but how much it saves.
“And so we've really got to keep an eye on spending and make sure that it's restrained over time,” he said.