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For immediate release: March 12, 2012

Dallas Fed Report Examines Texas Economy, U.S. Tax Reform, Hispanic Poverty Rates

DALLAS—The latest issue of the Federal Reserve Bank of Dallas' Southwest Economy features articles on the Texas economy, U.S. tax reform and Hispanic poverty rates.

Find the first quarter 2012 issue at: /research/swe/2012/index.cfm

The Texas economy, which moved from recovery to expansion in 2011, appears poised for another year of moderate growth, according to senior research economist and advisor Keith R. Phillips and associate economist Jesus Cañas in "Texas Economy Moves from Recovery to Expansion."

In 2011, the Texas economy grew at the same pace as in 2010, according to the authors. Employment increased by about 2 percent—212,000 jobs—compared with 1.3 percent nationally.

Led by a boom in the energy sector and strong growth in exports, Texas private sector employment growth accelerated to 3.3 percent in 2011, though a 3.3 percent decline (53,700 jobs) in state and local government jobs offset private sector expansion.

Growth should continue at a pace of about 2 percent again in 2012, the authors assert, though several factors could slow or speed economic activity in the state.

"Leading economic indicators have surged in recent months, suggesting growing momentum going into 2012," Phillips and Cañas write.

In an "On the Record" conversation, Alan D. Viard, a resident scholar at the American Enterprise Institute, says that as fiscal imbalances perpetuate, there will be pressure to reform the U.S. tax system to make it less economically inefficient.

Congressional Budget Office projections show the federal debt, which has typically been below 40 percent of annual gross domestic product but reached 69 percent during the recent recession, will rise to 187 percent of annual GDP in 2035 under a continuation of current policies, according to Viard.

Viard says the best approach for tax reform is replacing the income tax with a progressive consumption tax known as the "Bradford X tax."

"Switching from the income tax to the X tax is likely to boost saving and investment, which are key factors in driving long-run growth," Viard says.

In "Limited English Skills, Relative Youth Contribute to Hispanic Poverty Rates," Yingda Bi, Pia Orrenius and Madeline Zavodny find the biggest contributor to poverty among Hispanics in the United States is poor English-speaking ability.

Other factors that contribute to the Hispanic poverty gap in the United States include the relative youth of the Hispanic population, a lack of year-round employment and differences in educational attainment, the authors say.

Improving education among native-born Hispanics is crucial to closing the Hispanic poverty gap, according to the authors.

"Hispanic workers' skills and education will help determine the future productivity of the labor force and competitiveness of U.S. industry," the authors write.

Bi is a research analyst and Orrenius is an assistant vice president and senior economist at the Dallas Fed. Zavodny is a professor of economics at Agnes Scott College.

Media contact:
Alexander Johnson
Federal Reserve Bank of Dallas
Phone: (214) 922-5288