Krugman vs. Williamson: The Texas Deficit

Economist Paul Krugman turned a blog post – whose facts we and others disputed  — into a NYTimes column on Thursday. His basic point: Haha, Texas the Conservative Poster Boy is in just as much trouble as California, New Jersey, etc. Kevin Wiliamson at National Review fired back yesterday arguing that Texas is just fine, thank you.

Here’s what happens when two ideologues throw facts at each other to make an argument that supports their ideology: Both get it wrong. Texas in no way compares to California’s fiscal debacle –  a deficit approaching 50 percent — as Krugman asserts. On the other hand, Texas does have a structural deficit, which Williamson ignores. Revenues simply do not cover expenses. In the last biennial budget, the state was saved by a $12 million cash infusion from the Obama stimulus program. This time, there is no stimulus. Williamson is right to say Texas has a Rainy Day Fund (although it is projected at $8 billion not $10 billion, as Williamson asserts). But where Williamson gets the notion that the state’s deficit is only $11-15 billion escapes me. The state will be lucky if it is $18 billion, and most people say $22-25 billion. (The number depends on how high the comptroller forecasts sales tax revenues.) What’s more, that structural deficit is not going away.

As Republican Senator John Corona pointed out yesterday at the Dallas Friday Group, only 17 percent of the Texas budget is not devoted to education and Medicaid. Cut that entire 17 percent and you still don’t cover the deficit. So Williamson’s scenario is too rosy, while Krugman’s seems largely invented.

The fact is, as even Williamson acknowledges, you gotta pay for things like state troopers and the lady at the DMV, not to mention (which Williamson doesn’t) new roads and rail in the nation’s fastest growing state. Rick Perry, primping for his vice presidential pick, has announced he will veto any new taxes or fees. But what about the business tax, which has come in $8 billion lower than originally projected? Can that be fixed — or will Perry make a show of opposing even that? With no improvements in revenues how can the numbers balance, which under the Texas Constitution they have to do? We can only hope that there are enough non-ideologues left in the Legislature to face reality and make the tough choices. But with Perry in the governor’s seat — and as usual, looking out only for Perry — don’t expect any miracles.

In that, Krugman’s larger point is right, although it is a bit more ironic than he lets on. Texas has a problem paying for its prosperity. Its economy is so robust that its government needs to invest to keep up with it. California, New York, and New Jersey should be so lucky.