Thursday, March 31, 2011

Claims of Job Loss From Tx CSHB 1 De-Bunked

Dr. Arthur Laffer is Chairman of Laffer Associates, a supply-side investment research firm, and a Senior Fellow of the Texas Public Policy Foundation. Laffer was a member of President Ronald Reagan’s Economic Policy Advisory Board for both of his terms. He has issued a statement on the opinion circulating among liberals and some news outlets that Texas would lose 272,000 jobs next year if the House approves CSHB 1, the proposed 2012-13 state budget.

“The passage of CSHB 1 will not cause less jobs in Texas relative to any other option at hand,” Dr. Laffer wrote. “In fact, I can think of no response to the current Great Recession that the Texas state government could do that would be better for state employment than CSHB 1.”

Last week, the Legislative Budget Board (LBB) issued a dynamic economic impact statement that included a table at the bottom indicating Texas would have 272,000 fewer jobs next year than in a baseline scenario where spending and available revenue remained at the levels contained in the 2010-11 budget. Available revenue for the 2012-13 biennium is currently projected to be $10 billion lower than in the current biennium.

“There has been an impression created in the press and embraced by many that the [Legislative Budget Board] report suggests that adoption of the bill CSHB1 by Texas would cost Texas 272,000 jobs in 2012 and 335,000 jobs in 2013,” Dr. Laffer wrote. “This answer, at least as interpreted by the press, is wrong and not based on sound economics.”

Dr. Laffer, a member of President Ronald Reagan’s Economic Policy Advisory Board for both his terms, challenged the LBB model’s apparent assumption that there is a positive correlation between government spending and job creation.

“This approach is indicative of a mistaken belief that government spending creates jobs and represents a failure to understand that government doesn’t have a single entry accounting system,” Dr. Laffer wrote. “Government can’t bail someone out of trouble without putting someone else into trouble. For every transfer recipient there’s a transfer payer. It’s as simple as that. Neither borrowing nor taxing to overspend helps the economy.”

Dr. Laffer’s report cites time series data showing that states and countries with lower government spending as a percentage of their economies realize stronger economic growth than those states and countries where government spending is the highest.

“Texas has been on the right track and shouldn’t change now,” Dr. Laffer concluded. “Texas is the example others should follow, not the reverse.”

Dr. Laffer endorses the passage of CSHB 1, the proposed 2012-13 state budget it will debate tomorrow, and disputes the claim that Texas would lose hundreds of thousands of jobs if the bill becomes law.

This is a link to Dr. Laffer's report:

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