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Human nature often leads us to believe we will not be harmed by events in faraway places. However, when it comes to the proposed $3.5 trillion budget reconciliation bill in our nation’s capital, Texans should not succumb to this fallacy. If passed, the bill will adversely affect our state for years to come.
The most obvious effect on Texans is that $3.5 trillion in new federal spending means Texans will have to pay their share of the cost. Whether through direct taxation, higher costs, or inflation, Texans can be expected to cough up roughly $300 billion over the next 10 years. That is more than $10,000 for every man, woman, and child living in the state.
The news gets worse. Most Texans will likely have less money in the future to pay these costs because two provisions in the bill will significantly reduce job growth and economic opportunity in the state.
The first of these is Congress’ all-out assault on the Texas energy sector. While budget reconciliation bills are supposed to focus on taxes and spending, this bill will radically shift U.S. energy policy.
The direct target of the shift is the production of oil and gas, one of the main drivers of the Texas economy. Not only are hundreds of thousands of Texans employed in well-paying jobs related to oil and gas production, but the low energy costs from their work promote investment in Texas’ manufacturing, financial, and other industry sectors. These driver of Texas’ economic growth will shrink under the proposed federalization of the energy market in the reconciliation bill.
The bill would radically reduce the use of oil and gas in every sector of the U.S. economy. Gasoline-powered cars and electricity generated from natural gas are targeted to become relics of the past, replaced by wind turbines, solar panels, batteries, and electric cars. Texans will pay for this through reduced economic growth and higher energy costs because of subsidies contained in the bill for these energy sources and uses.
But the harm to the Texas economy will be much broader than just the energy sector. The budget reconciliation bill also takes aim at Texas businesses engaged in international commerce.
There are 503 U.S. multinational businesses with operations in Texas that employ 894,000 Texans. The companies are a big reason why our state is a major center of international trade and the number one exporter in America. Many Texas jobs are dependent on the revenue these businesses earn through overseas holdings. Unfortunately, that revenue—and the jobs that come with it—is another target of the reconciliation bill.
The Biden Administration and Congress are going after this revenue by raising the Global Intangible Low Tax Income (GILTI) tax, a tax on certain earnings of the foreign subsidiaries of Texas- and other U.S.-based multinational corporations. While the taxes may be on earnings from overseas, the effects will be felt in Texas.
A recent study from the Bureau of Business Research at the University of Texas at Austin found that the “proposed GILTI changes would impact US MNCs with operations in Texas.” Those negative effects would spread to Texas workers; job losses in the first year after an increase in the GILTI would range from 6,000 to 100,000. These “job losses at US MNCs with operations in Texas would have effects on the broader economy of Texas.”
Texas workers and our economy would be hard hit because of the central role trade plays in our economy. And the effect would extend beyond large businesses: “the reduction in economic activity at impacted US MNCs would reduce payments to the suppliers of these companies. This, in turn, would reduce employment at these suppliers … reduce the consumer spending of these employees.”
As with all tax increases, Texas could also see unintended consequences from the reconciliation bill. Less economic growth would affect not only Texas businesses and workers but local Texas governments. If they see decreases in tax revenue, local governments will likely make up for the losses in higher property tax rates and increased fees.
The old saying that “businesses don’t pay taxes; people do” remains true. Texans will experience this truth if Washington politicians pass the reconciliation bill. Because the effects will not occur in faraway places but will be experienced in households right here in Texas.
Bill Peacock is the policy director at The Energy Alliance.