The questionable claims of Rick Perry's radio fan

Texas Governor Rick Perry hasn’t entered the presidential race and won’t be on the Iowa GOP’s Ames straw poll ballot next month, but a supporter just launched a central Iowa radio ad campaign backing Perry as a straw poll write-in. I had never heard of GrowPAC, which is paying for the pro-Perry commercials. After the jump I’ve posted the ad script, which makes unsupported claims about the Texas governor’s record. Perry’s fiscal decisions are nothing to write home about, and it’s a stretch to give him credit for job creation in Texas.

Background on GrowPAC founder David Malpass is also below. He may have more to gain from this ad campaign than Perry does.

GrowPAC provided the ad script on their website:

Hi, I’m David Malpass. As an economist and father of four, I’m appalled at Washington’s out of control debt. President Obama is making things worse. We need a president who will stop this.

Texas Governor Rick Perry has a proven track record of controlling spending and creating jobs. He succeeded in Texas by believing in less government, not more.

Rick Perry understands the 10th amendment and has the backbone to bring an upheaval to Washington.

Iowa has a chance to turn things around for America.

At the Ames Straw Poll write in Rick Perry, he can win and make America secure again.

I worked for Ronald Reagan and I know how countries create growth and jobs.

Let’s give Rick Perry a chance.

GrowPac is responsible for the content of this advertising. Paid for by GrowPAC and not authorized by any candidate or candidate committee. Visit David Malpass’ GrowPac.Com

This commercial perfect for Perry, because if it generates a lot of write-in votes, Perry will be the guy who outperformed expectations in Ames. If Perry does poorly in the straw poll, he can say he didn’t spend a dime campaigning here this summer.

I reject the premise of GrowPAC’s ad, because the federal debt isn’t the biggest problem facing the U.S. economy, and austerity policies threaten to make a weak economy weaker. Leaving aside the hardship caused by cutting government services, the federal deficit will not decline in the medium term if unemployment stays in the 9 to 10 percent range for the next decade.

Regarding the ad’s specific claims, GrowPAC says Perry “has a proven track record of controlling spending and creating jobs.” Job creation in Texas has been strong; the state with about one-twelfth of the U.S. population has accounted for more than a third of new jobs created nationwide since 2009. Perry didn’t conjure up the oil reserves that stimulated job growth when global oil prices rose. Nor did he place Texas in close proximity to Latin America trading partners, which has helped the state’s economy. The tax climate and pro-business regulatory environment in Texas attract some employers, but as Massimo Calabresi pointed out here, Perry inherited those policies.

For all those natural advantages, the unemployment rate in Texas is around 8 percent, not much below the national average and about a third higher than Iowa’s jobless rate of 6 percent.

Perry controls two economic development funds that are supposed to provide incentives for businesses to locate in Texas. Calabresi described some big problems with how those funds have operated:

The largest fund, the Texas Enterprise Fund, was created in 2003 and has awarded some $412 million in subsidies to companies nominally to create jobs. A December 2010 analysis by the Texas comptroller found that $119 million of that money went to companies that didn’t deliver on the jobs they promised. The governor’s office took back only $21 million from those underperformers, often choosing to define downward the job-creation requirements. GOP Senator Kay Bailey Hutchison, whom Perry beat in last year’s GOP gubernatorial primary, called revelations that taxpayer-funded contracts sent money overseas to create jobs “disturbing” and “unacceptable.”

The second major fund under Perry’s control, the Texas Emerging Technology Fund, has also proven controversial since its creation in 2005. It has spent some $320 million on tax credits and other subsidies for high-tech companies willing to move to Texas. An October 2010 investigation by the Dallas Morning News found that $16 million of that money was awarded to companies with investors or officers who are large campaign donors. Perry denied that politics influenced the awarding of money from the funds. He succeeded in fending off efforts to cut his massive subsidy fund budgets in the legislative session that ended last month, but the legislature did impose new controls and oversight on the funds.

Even those subsidy-chasing companies that do produce jobs don’t necessarily create long-lasting ones or increase a state’s overall prosperity. While 18% of all jobs in the U.S. failed to last the five years from 2001 to 2006, 26% of jobs created through interstate moves failed during the same period, according to researchers Jed Kolko of the Public Policy Institute of California and Donald Walls, a consultant and researcher.

Professor Michael Porter of Harvard Business School says tax-credit funds used to lure jobs from one state to another often “ultimately don’t support long-term prosperity” because companies that can move easily “are looking for the best deal, and when the deal runs out, they move,” taking their jobs with them. Anti-corporate-welfare advocates, like Greg LeRoy, executive director of the Washington-based group Good Jobs First, say the tax-credit game is worse than zero sum, because when a company gets a tax credit to move to a new state, the departed state loses jobs, while the destination state’s residents get stuck with higher taxes or worse services.

Even if you believe Perry’s economic development strategy has worked for Texas, the same approach wouldn’t work at the federal level. The president can’t fix the national economy by bribing companies to move from one state to another.

Returning to the GrowPAC radio commercial: Has Perry really controlled state spending? Earlier this year, the Center on Budget and Policy Priorities looked at fiscal conditions in every state. Analysts found that going into the 2012 fiscal year, Texas had the second-largest projected state budget shortfall in the country, expressed as a percentage of 2011 state government spending. By comparison, North Dakota (another state with a large oil sector) hasn’t had projected budget shortfalls in recent years.

Perry and the Republicans who control of the Texas legislature acted to close the projected budget gap. However, they did so without dipping into any Texas reserve funds. Why have a “rainy day” fund if you’re not going to use it coming out of the deepest U.S. economic downturn since World War II? Lawmakers and Perry inflicted unnecessary pain on vulnerable populations (all emphasis in original):

Texas faced a shortfall of $18 billion for the coming two-year budget period, yet legislators and the governor declined to utilize any of the state’s $6 billion in reserves. Instead, the state imposed very deep cuts to preschools, K-12 schools, universities, health care, and other services, some of which are described below. Texas also used a gimmick – deliberately underfunding its Medicaid program – to close its budget. When the state legislature meets again in 2013, it likely will face a sizeable shortfall in funding for Medicaid, and will need either to find new revenues (perhaps by drawing on the state’s sizeable reserves at that time) or to impose additional deep spending cuts. […]

Texas eliminated state funding for pre-K programs that serve around 100,000 mostly at-risk children, or more than 40 percent of the state’s pre-kindergarten students. The budget also reduces state K-12 funding to 9.4 percent below the minimum amount required by the state law. Texas already has below-average K-12 education funding compared to other states, and this cut would depress that low level even further at a time when the state’s school enrollment is growing. This would likely force school districts to lay off large numbers of teachers, increase class sizes, eliminate sports programs and other extracurricular activities, and take other measures that undermine the quality of education. […]

Texas reduced general revenue spending on higher education by 9 percent over two years. This includes a cut of 5 percent to college and university formula spending, a cut of 10 percent in formula spending for health institutions, such as nursing schools, and a cut of 25 percent to funds for university research centers, graduate programs, and other non-operations spending. Enrollment growth is not funded for any higher education institution. The budget also cuts by 10 percent financial aid awards under the Texas grant program, which combines state and institutional money to cover tuition and fees for public school students with financial need and good academic records. The cut will likely result in smaller awards. […]

Texas is cutting Medicaid hospital provider rates by 8 percent, making it more difficult for Texas doctors to accept Medicaid patients because of the state’s already-low reimbursement levels relative to private insurance and Medicare. The state also plans to reduce spending by over $800 million over the next two years by reducing the health services for which low-income adults (other than seniors) are eligible under Medicaid. Even once those cuts are implemented, the amount budgeted for Medicaid is not expected to fund the program over the entire two-year budget period, which will mean legislators will have to reconvene to fill that gap later on. […]

Texas is cutting programs helping to prevent child abuse and neglect by nearly half.

Education and other public services in Texas are already quite poor. As Linda Feldman of the Christian Science Monitor wrote, “Texas has some of the lowest high school graduation rates and highest poverty rates in the country.” Perry’s approach to “controlling government spending” will likely make those problems worse.

GrowPAC praises Perry for understanding the 10th amendment and having “the backbone to bring an upheaval to Washington.” Depending on how the debt ceiling negotiations go this week, we may be about to find out whether upheaval in Washington is really good for the national economy.

Who is David Malpass anyway, and why would Iowa Republicans care what he thinks? Malpass has written a regular column in Forbes magazine and contributes occasionally to the Wall Street Journal editorial page, but probably the vast majority of central Iowa radio listeners haven’t heard of him. In the ad, he identifies himself as an economist and father of four who “worked for Ronald Reagan” and therefore knows “how countries create growth and jobs.” Dropping Reagan’s name is always helpful in GOP circles, but Malpass’ press release on the Perry ad made a number of questionable claims:

“We need a presidential candidate who can win and reverse the big-government takeover of health care and the economy. […] Washington’s wasteful spending, uncontrolled regulation, and constant thirst for more taxes are weakening our economy and mortgaging our children’s future. Rick Perry understands that, can stop it, and should be encouraged to run for President.”

David Malpass is a nationally recognized economist, an established expert on federal budget and tax policy, and an independent voice for a brighter American future. As a senior Treasury and State Department official during the Reagan and Bush 41Administrations, Mr. Malpass helped enact pro-growth legislation, including landmark bills such as the 1986 tax reform, which ushered in two decades of unprecedented American prosperity. During his 17 years as a leading Wall Street economist and policy analyst, he has studied and encouraged job-creating economic programs around the world. His core belief is that long term U.S. prosperity and job growth require limiting the federal government’s expansion including reduced federal spending, holding the line on taxes and pro-growth policies to create a strong and stable dollar.

Those are great buzzwords if you live in the GOP echo chamber, but what “constant thirst for more taxes” is Malpass talking about? The 2009 stimulus bill contained lots of tax cuts. Federal income taxes “are at historically low levels.” Don’t take my word for it, here’s former Reagan administration economist Bruce Bartlett writing in May 2011:

The broadest measure of the tax rate is total federal revenues divided by the gross domestic product.

By this measure, federal taxes are at their lowest level in more than 60 years. The Congressional Budget Office estimated that federal taxes would consume just 14.8 percent of G.D.P. this year. The last year in which revenues were lower was 1950, according to the Office of Management and Budget.

The postwar annual average is about 18.5 percent of G.D.P. Revenues averaged 18.2 percent of G.D.P. during Ronald Reagan’s administration; the lowest percentage during that administration was 17.3 percent of G.D.P. in 1984.

In short, by the broadest measure of the tax rate, the current level is unusually low and has been for some time. Revenues were 14.9 percent of G.D.P. in both 2009 and 2010.

Yet if one listens to Republicans, one would think that taxes have never been higher, that an excessive tax burden is the most important constraint holding back economic growth and that a big tax cut is exactly what the economy needs to get growing again.

Just last week, House Republicans released a new plan to reduce unemployment. Its principal provision would reduce the top statutory income tax rate on businesses and individuals to 25 percent from 35 percent. No evidence was offered for the Republican argument that cutting taxes for the well-to-do and big corporations would reduce unemployment; it was simply asserted as self-evident.

One would not know from the Republican document that corporate taxes are expected to raise just 1.3 percent of G.D.P. in revenue this year, about a third of what it was in the 1950s.

The G.O.P. says global competitiveness requires the United States to reduce its corporate tax rate. But the United States actually has the lowest corporate tax burden of any of the member nations of the Organization for Economic Cooperation and Development.

I got a kick out of Malpass claiming that Reagan’s 1986 tax reform “ushered in two decades of unprecedented American prosperity.” Lots of factors contributed to the Clinton-era employment boom, but I doubt many economists would cite the 1986 tax reform as the key ingredient. The federal surpluses of the late 1990s would not have emerged without the Poppy Bush and Bill Clinton tax increases on the wealthy years earlier.

GrowPAC’s press release states, “During his 17 years as a leading Wall Street economist and policy analyst, [Malpass] has studied and encouraged job-creating economic programs around the world.” Malpass worked for the Wall Street giant Bear Stearns for 15 years and was the firm’s chief economist from 2001 to 2007. For some reason, he never figured out that the Bush tax cuts did little to stimulate job creation or economic growth.

He didn’t predict the “great recession” either. On the contrary, in an August 2007 editorial for the Wall Street Journal he urged investors not to worry about the credit market or the overall state of the U.S. economy. In December 2007, Malpass rejected “the notion of a housing-led recession” and lowered his odds of a recession to 20 percent. In fact, the U.S. economy was already in recession in December 2007.

Bear Stearns collapsed in early 2008, after which Malpass created the Encima Global economic consulting firm. He also got more involved in New York Republican politics, running for the U.S. Senate against Kirsten Gillibrand in 2010. Malpass lost the GOP primary.

If Malpass has further political ambitions in New York, or wants to secure another federal government job, or simply wants to boost contributions to his PAC, it makes sense for him to hitch his wagon to Perry now. The declared field of Republican presidential candidates is undeniably weak. The latest round of FEC financial reports suggest that lots of major donors are still on the sidelines.

My hunch is that this radio ad campaign is more about boosting Malpass’ reputation than about persuading Perry to run for president. All signs point to Perry having made that decision already. Why else would he be calling many of Iowa’s most influential Republican politicians and activists? Malpass has just raised GrowPAC’s profile with wealthy Republicans who might lean toward Perry anyway.

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