The Economics of TEXIT (2024)
...the righteousness of a people that wish to separate peacefully from a polity in which they have no interest belonging, and which is harmful to them, is self-evident.
The Texas Republican Party recently affirmed a platform plank, and added another, that nominally supports the notion of Texas seceding from the United States.
The first plank, which is not new, states:
“…the federal government has impaired our right of local self-government. Therefore, federally mandated legislation that infringes upon the 10th Amendment rights of Texas shall be ignored, opposed, refused, and nullified. Texas retains the right to secede from the United States, and the Texas Legislature should be called upon to pass a referendum consistent thereto.”
The second such plank, which is new, provides more specific language:
“The Texas Legislature should pass a bill in its next session requiring a referendum in the next General Election for the people of Texas to determine whether or not the State of Texas should reassert its status as an independent nation. This referendum should be a legislative priority.”
While Republicans as a party, especially at the national level, lack the resolve to do anything besides make squeaky noises at the collectivist onslaught of their Democrat colleagues, TEXIT represents something fundamentally positive and achievable. Secession from the existing union should be pursued vigorously by the people of Texas.
The moral questions of state secession are unnecessary to cover, as the righteousness of a people that wish to separate peacefully from a polity in which they have no interest belonging, and which is harmful to them, is self-evident. The more interesting considerations are practical and economic in nature.
Net Transfers
How Much Texans Pay the Federal Government
In 2023, Texans paid the federal government over $413 billion, allocated roughly as follows:
Business income taxes of $34 billion, 8% of total
Individual income tax, FICA, SECA, etc., of $347 billion, 84% of total
Other taxes (excise tax and estate tax are the largest components of this group) of $33 billion, 8% of total
How Much the Federal Government Pays Texans
Texans pay nearly $160 billion (approximately $5.3k per capita) more to the federal government, via the taxes summarized above, than they receive.
The computation of federal funds received by Texans is somewhat complicated, as it involves federal funds paid directly from the federal government to Texas residents, semi-directly through the Texas state budget (i.e., intergovernmental transfer, or “Federal Income” as named in the Texas state budget), and indirectly through federal spending on people and services located in Texas but under the purview of the federal government. This last category includes primarily Department of Defense spending, but also things like National Parks.
Federal Funds Received Directly
Using the most recent data, Texans receive direct federal government support to the tune of $124.1 billion through two major buckets in this category.
$28.1 billion in Medicare spending (note that Medicaid does not fall into this category, as it’s administered on a joint federal-state basis and is therefore passed through the Texas state budget)
$96 billion in OASDI (i.e., social security)
Federal Funds Received Semi-Directly through the State Budget
The last few years paint a muddy picture in terms of how much Texas receives from “federal income” annually, primarily due to the massive spending splurge from the Trump and Biden administrations in the panicked response to Covid-19. But as of 2022 and 2023, a normalization has set in, and this figure can be reasonably set at $70 billion.
Referencing 2023 state budget documentation, it’s apparent that the vast majority of this funding is for Medicaid, with numerous smaller allocations behind it, including ‘Highway Planning and Construction’ and various school-related programs.
Federal Funds Received Indirectly
Here we can focus almost entirely on Department of Defense spending within Texas, which totaled $58 billion in 2022. $12.1 billion of this was spent on payroll, presumably salaries and other compensation for personnel enrolled in the various military branches. The remaining $45.6 billion was spent on defense contracts, with roughly half of that amount going to Lockheed Martin.
The National Parks budget allocation represents a small fraction of Department of Defense spending but may serve as a useful illustration of secondary spending in this category. The entire national parks budget request for 2023 was $3.6 billion. A rough allocation to Texas based on pro rata acreage might then be $125 million.
Assume $60 billion in total spending falls into this category.
On Balance
The summarized results below show that Texas sends nearly $160 billion (approximately $5.3k per capita) more to the federal government (via taxes) than it receives in direct, semi-direct and indirect payments. Texas is therefore subsidizing some of the other 49 states and territories, and a separation process is likely to make Texas economically better off.
Texas’ Share of the National Debt
The premise behind state secession is a fundamental disagreement, and the act itself is a repudiation of ideals, methods, and practices. As such, the national debt, built up through transactions not approved by the people of Texas and guided by irrational theories of money, is not a legitimate negotiating point. Texans should no more burden themselves with a portion of the national debt than they should with the costs of administering the Millennium Change Corporation.
Currency
Secession would ostensibly allow Texans to create their own state currency or share a monetary regime with the US vis-à-vis the Dollar. While I won’t attempt to outline all the relevant considerations, the ability to move to a sound money regime – one backed by gold where supply is not controlled by a central bank – would relieve Texans from, among other pernicious effects of fiat money, the covert but persistent theft of their wealth and buying power via inflation currently perpetrated by the Federal Reserve et al.
Interstate Travel and Trade
This need only be as complicated as the involved parties dictate and, in any case, the marginal economic impact to either side should be minimal, if any. There are no ostensible reasons why seceded Texans and Hoosiers, for example, should face significant economic impact by virtue of traveling to and from each other’s territory or trading with one another.
Risk vs. Reward
The decision to be made by Texans should not be beyond a calculation of risk-reward or cost-benefit. In fact, the primary decision-making basis is whether such a move is incrementally beneficial for those making it. The above analysis, and others, suggests that it certainly is from an economic standpoint.
Thank you for this concise summary of the economics of this issue. Too many people assume the federal government is necessary for too many things (or anything, perhaps), so I think it is important to show that many states, including Texas, actually support the feds far more than the feds support them. I appreciate Bob Murphy's work on this topic, too: https://consultingbyrpm.com/common-sense-the-case-for-an-independent-texas .
My feeling is that if one state can successfully do this, then we will see others do likewise in much the same way that people are more likely to leave a boring party once they see someone else leave first. Here's hoping a ballot measure comes to pass and Texans do the right thing.
Well researched and written. See also "Breaking Away" from Ryan McMaken, Mises Institute, for a good summary of this topic. Individuals can begin the process now though, no reason to wait for a government-approved secession of a state, or county. I will be speaking on "Personal Secession and the Role of Entrepreneurship" at the August 9-11 Mises Club Carolinas event in beautiful Sugar Mountain, North Carolina. All important societal change starts at home.