NCPA - National Center for Policy Analysis

Taxes and Spending Limits

July 25, 1994

Twenty-three states have limitations on taxes and expenditures. When designed properly, these limitations are effective tools for restraining the growth of both.

  • In states with the limitations, the five-year growth rate of per capita spending fell from 0.8 percentage points above the U.S. average before enactment to 2.9 percentage points below the U.S. average after enactment.
  • A family of four in a state with limitations faced a tax burden, on average, of $650 less than if there had been no limitation.
Critics of limitations on state taxes and spending claim that they merely shift the burden to local governments. The data suggest some cost shifting has occurred, but still, when combined state and local spending in the 23 states are considered, the five-year growth rate per capita fell from 2.3 percentage points above the U.S. average to 1.2 percentage points below the average.

Limitations have been more effective in some states than others, and have been conclusively ineffective in some. The reasons can be found in the design of the various limitations.

  • Successful limitations usually have originated with and been approved by the voters rather than the legislature, and have been done by constitutional amendment rather than statute.
  • Successful limitations usually cap 100 percent of the budget rather than only certain categories, and cap spending rather than revenue or taxes.
  • Evidence suggests that linking spending growth to population growth plus inflation is more successful than linking it to the growth in personal income.

To be effective, a limitation should include the statement that taxpayers have legal standing to sue to enforce its provisions and should require injunctive relief to prohibit any illegal taxes or spending while suits are pending.

Source: Dean Stansel, "Taming Leviathan: Are Tax and Spending Limits the Answer?" Policy Analysis No. 213, July 25, 1994, Cato Institute, 1000 Massachusetts Avenue, NW, Washington, DC 20001, (202) 842-0200.


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