How to Limit Government Spending? Use a TEL
January 13, 2015
Tax and expenditure limits, or TELs, are limits on government spending. They may be statutory or part of a state's constitution. State TELs differ in the ways that they constrain spending, but the general idea is the same: they limit government spending growth.
Today, thirty states have TELs. States can use different metrics to limit their spending. For example:
- Twenty-three states limit state spending based on individuals' personal income growth, meaning that state government spending cannot grow faster than residents' income.
- Seven states restrict state expenditures based on population growth and inflation.
- States can also limit spending based on gross state product growth.
If so many states have TELs, why is government spending growth such a problem? Many TELs are weak. In a new report from the Texas Public Policy Foundation, Talmadge Heflin and Vance Ginn explain why Texas' TEL is insufficient and how lawmakers could reform it.
In Texas, personal income growth is used to constrain spending. However, Heflin and Ginn say the metric doesn't work appropriately: it requires lawmakers to predict personal income growth when setting the budget, and projections tend to be far from reality. Instead, they suggest that Texas use a population growth model: had the state used the population growth metric, its budget in 2014 would have been $11.5 billion smaller than it actually was. What does that mean for taxpayers? Those dollars translate into $1,700 more retained by taxpayers for each family of four.
Source: Talmadge Heflin and Vance Ginn, "Reforming Texas' Tax and Expenditure Limit," Texas Public Policy Foundation, January 2015.
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