No, Paul Krugman, Texas Is Not Broke

In terms of harbingers of the apocalypse, it isn’t exactly dogs and cats living together or John Bolton exchanging facial-hair-grooming tips over sugary mint tea with ayatollahs, but, brace yourselves: Texas is facing a projected budget deficit. I know, I know: horrors, right?

Paul Krugman is practically rubbing his hands together with glee like some thin-mustached and top-hatted melodrama villain: Bwahahaha! If Texas goes down, conservative economics goes down with it!I shall rule the world! Look for the usual liberal snots to be talking up the story: Texas is finished, baby!

Keep your pants on, professor. Texas is not going to have a budget shortfall.

Texas’s present situation is not exactly unprecedented. It happens in Texas from time to time: You have a state with no income tax, property taxes assessed at the local level (where the taxpayers are apt to fire the taxspenders), and very little else, revenue-wise — Texas has one of the lowest tax burdens in the country — which leaves the state sales tax and the 1-percent “franchise” tax, which is a fancy way of saying a weird little business-revenue tax on firms with more than $1 million in sales. (Hey, New Jersey:  How’d you like to trade your current state-tax burden for a 1-percent business tax and a 6.25 percent sales tax? You get most of the nation’s  new jobs in the deal, too.) So, money’s always tight for Lone Star State government, and lots of Texans kind of like it like that.

But Texas, despite its small-government reputation, is not exactly Galt’s Gulch — you’ve still got to pay those menacing state troopers and the surly fat lady down at the DMV, etc. On top of all that, Texas has a boomier-bustier economy than most other states do, mostly because of the outsize role the oil business plays in the economy, and hence in the tax-revenue stream.

Ergo, the occasional shortfall projection.

Except that Texas doesn’t do shortfalls. Texas starts from scratch: Every year is basically Year Zero when it comes to the state budget — there is no assumption that next year’s funding will match or exceed this year’s, and the state’s constitution explicitly forbids any legislature to tie the hands of a subsequent legislature, financially or otherwise. When necessary, Texas implements zero-baseline budgets, in order to keep the state living within its means, even if Paul Krugman thinks it beastly.

Rick Perry established a pretty good standard for gubernatorial brass-dangling the last time there was a projected budget shortfall, in 2003. Governor Perry and his colleagues in the Texas legislature took a radical right-wing approach to government budgeting, inasmuch as they started by asking: “How much money do we have?” (Insane, right?) After they figured out how much money they were going to have, they then decided how to divvy it up, in total and radical and right-wingish contravention of the Washington model of budgeting, which goes: Spend everything you have, spend everything you can borrow, and then spend some more, regardless of how much you actually have to spend. And then spend some more; repeat. Which is totally how James Madison wanted it, I am sure.

In 2003, Governor Perry and Texas Republicans took the state’s budget baseline to zero, and told state agencies to write new budgets, based on what they actually needed to spend to accomplish their missions, rather than based on increasing by 3 percent or 4 percent or 30 percent or 40  percent what they spent last year. And the Republicans handled the politics pretty well: Instead of calling state agency chiefs down to the legislature to be dressed down by pompous elected types or denouncing them from the governor’s office, they had a bunch of what must have been drearily tedious private meetings with them, and helped them to sweat their budgets down in a rigorous but respectful way. It worked. Texas balanced the books, and the place does not look like Afghanistan.

Republicans like to brag that they balanced the budget with no tax increases, which is almost true (some fees and such went up, and some new ones were created). The franchise tax, which had originally kicked in at around $300,000 in revenue but had been pushed up to $1 million, is coming back down to a $600,000 threshold. It’s a tax increase, but it’s not much of one. If congressional Republicans in D.C. performed as well as Republicans in Austin, we’d be pinning medals on their chests.

Texas’s low-B.S. approach has had some salubrious effects, as I’ve documented here and here. It also left Texas with surpluses that allowed the state to put about $10 billion in its rainy-day fund, which could come in handy now that the economy seems to be clouding up a little. Could, but probably won’t: Republicans plan to introduce a budget that comes in within current revenue without touching the rainy-day fund. Get your head around that: There’s a multibillion-dollar pot of cash sitting there in front of politicians who must be just slavering inside at the thought of it, and they aren’t going to touch it — even though they have a pretty good excuse. Imagine a Congress that could do that.

They haven’t delivered yet, but Perry’s Republicans did the stand-up thing last time around and reaped the rewards. Expect them to do it again.

And it may not be all that hard: Pace Krugman et al., Texas’s potential shortfall probably is not $25 billion. The inside guys talk about $11 billion to $15 billion, spread out over a two-year budget. (Texas writes one budget every two years, and has a legislature that meets every two years.) Even the liberal bedwetters over at the Center for Budget and Policy Priorities expect the budget hole to amount to about 10 percent of the whole enchilada, as compared to more than 50 percent in basketcase California.

Of that $11–$15 billion, about $8 billion will be Medicaid  — and that is the real budget problem faced by Texas and many other states. Rules changes associated with Obamacare will add about 71 percent to Texas’s Medicaid expenses over the first ten years of implementation — that’s Texas’s out-of-pocket expense, not money that the feds reimburse under Medicaid — an increase that quite literally threatens to bankrupt the state. Analysts predict that Medicaid expenses could outstrip all state revenue within a few decades — meaning that Texas could not pay its Medicaid expenses, even if it dedicated 100 percent of its tax revenue to them. That is going to have to change, and I’m going to bet that Texas has better ideas for fixing that problem than Paul  Krugman does.

Texas doesn’t need a new tax to fix it; it ain’t broke.

UPDATE: A reader points out something I should have pointed out:

Krugman points to our middlin’ unemployment rate, saying “it’s about the same as the unemployment rate in New York or Massachusetts.”

Well, that is true. But he forgets one thing. Texas has a 7.9% unemployment rate after a net inflow of 1.78 million job seekers and their families over the  last ten years, while New York’s 8% unemployment rate come after 847,000 people left the state.

If Mr. Krugman would look at the data with a more discerning eye, he’d realize how amazing this statistic is.

Indeed, it is. I also winced a little at Krugman’s assertion that Texas has to create lots of jobs just to keep up with all the people moving there. Why does the good professor think people are moving there in the first place? Ballet Lubbock is great and  all, but I suspect it’s the jobs.

– Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, now available at Amazon.com. You can buy an autographed copy through National Review Online here.


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