Government Spending Is The Problem

The late, great economist Milton Friedman said, "The real problem is government spending." This is true as spending comes before taxes or regulations. In fact, if people didn't form a government or politicians didn’t create new programs, then there would be no need for government spending and no need for taxes. And if there was no government spending nor taxes to fund spending then there would be no one to create or enforce regulations. 

​While this might sound like a utopian paradise, which I desire, there are essential limited roles for governments outlined in constitutions and laws. Of course, most governments are doing much more than providing limited roles that preserve life, liberty, and property. This is why I have long been working diligently for more than a decade to get a strong fiscal rule of a spending limit enacted by federal, state, and local governments promptly under my calling to "let people prosper," as effectively limiting government supports more liberty and therefore more opportunities to flourish.

Empirical research underscores the importance of spending restraint over tax hikes in promoting economic growth. Studies by economists Alberto Alesina and Silvia Ardagna, John Taylor, Casey Mulligan, and others have consistently shown that fiscal adjustments based on reducing government spending better foster economic growth than those based on raising taxes.

Fortunately, there have been multiple state think tanks that have championed this sound budgeting approach through what they've called either the Responsible, Conservative, or Sustainable State Budget. I recently worked with Americans for Tax Reform to publish the Sustainable Budget Project, which provides spending comparisons and other valuable information for every state. This groundbreaking approach was outlined recently in my co-authored op-ed with Grover Norquest of ATR in the Wall Street Journal. 

When Did This Budget Approach Begin?

I started this approach in 2013 with my former colleagues at the Texas Public Policy Foundation with work on the Conservative Texas Budget. The approach is a fiscal rule based on an appropriations limit that covers as much of the budget as possible, ideally the entire budget, with a maximum  amount based on the rate of population growth plus inflation and a supermajority (two-thirds) vote to exceed it. A version of this approach was started in Colorado in 1992 with their taxpayer's bill of rights (TABOR), which was championed by key folks like Dr. Barry Poulson and others.  (picture below is from a road sign in Texas)

Why Population Growth Plus Inflation?

​While there are many measures to use for a spending growth limit, the rate of population growth plus inflation  provides the best reasonable measure of the average taxpayer's ability to pay for government spending without excessively crowding out their productive activities. It is important to look at this from the taxpayer’s perspective rather than the appropriator’s view given taxpayers fund every dollar that appropriators redistribute from the private sector.

Population growth plus inflation is also a stable metric reducing uncertainty for taxpayers (and appropriators) and essentially freezes inflation-adjusted per capita government spending over time. ​The research in this space is clear that the best fiscal rule is a spending limit using the rate of population growth plus inflation, not gross state product, personal income, or other growth rates. In fact, population growth plus inflation typically grows slower than these other rates so that more money stays in the productive private sector where it belongs. To get technical for a moment, personal income growth and gross state product growth are essentially population growth plus inflation plus productivity growth. There's no reasonable consideration that government is more productive over time, so that term would be zero leaving population growth plus inflation. And if you consider the productivity growth in the private sector, then more money should be in that sector at the margin for the greatest rate of return, leaving just population growth plus inflation. Population growth plus inflation becomes the best measure to use no matter how you look at it.

Given the high inflation rate more recently, it is wise to use the average growth rate of population growth plus inflation over a number of years to smooth out the increased volatility (ATR's Sustainable Budget Project uses the average rate over the three years prior to a session year). And this rate of population growth plus inflation should be a ceiling and not a target as governments should be appropriating less than this limit. Ideally, governments should freeze or cut government spending at all levels of government to provide more room for tax relief, less regulation, and more money in taxpayers' pockets.

Overview of Conservative Texas Budget Approach

Figure 1 shows how the growth in Texas’ biennial budget was cut by one-fourth after the creation of the Conservative Texas Budget in 2014 that first influenced the 2015 Legislature when crafting the 2016-17 budget along with changes in the state’s governor (Gov. Greg Abbott), lieutenant governor (Lt. Gov. Dan Patrick), and some legislators. ​

​The 8.9% average growth rate of appropriations since then was below the 9.5% biennial average rate of population growth plus inflation since then, which this was drive substantially higher after the latest 2024-25 budget that is well above this key metric (before this biennial budget the growth rate was 5.2% compared with 9.4% in the rate of population growth plus inflation). 

This approach was mostly put into state law in Texas in 2021 with Senate Bill 1336, as the state already has a spending limit in the constitution. The bill improved the limit to cover all general revenue ("consolidated general revenue") or 55% of the total budget rather than just 45% previously, base the growth limit on the rate of population growth times inflation instead of personal income growth, and raise the vote from a simple majority to three-fifths of both chambers to exceed it instead of a simple majority.  There are improvements that should be made to this recent statutory spending limit change in Texas, such as adding it to the constitution and improving the growth rate to population growth plus inflation instead of population growth times inflation calculated by (1+pop)*(1+inf). 

But this limit is now one of the strongest in the nation as historically the gold standard for a spending limit of the Colorado's Taxpayer Bill of Rights (TABOR) has been watered down over the years by their courts and legislators, as it currently covers just 43% of the budget instead of the original 67%. 

My Work On The Federal Budget In The White House

​From June 2019 to May 2020, I took a hiatus from state policy work to serve Americans as the associate director for economic policy ("chief economist") at the White House's Office of Management and Budget. There I learned much about the federal budget, the appropriations process, and the economic assumptions which are used to provide the upcoming 10-year budget projections. In the President's FY 2021 budget, we found $4.6 trillion in fiscal savings and I was able to include the need for a fiscal rule which rarely happens (pic of President Trump's last budget).

Sustainable Budget Work With Other States and ATR

When I returned to the Texas Public Policy Foundation in May 2020, as I wanted to get back to a place with some sense of freedom during the COVID-19 pandemic and to be closer to family, I started an effort to work on this sound budgeting approach with other state think tanks. This contributed to me working with many fantastic people who are trying to restrain government spending in their states and the federal levels. Here are the latest data on the federal and state budgets as part of ATR's Sustainable Budget Project.

​From 2014 to 2023, the following happened:

Federal spending increased by 81.7%, nearly four times faster than the 23.1% increase in the rate of population growth plus inflation.

• Had the federal government limited the growth in spending to the rate of population growth plus inflation during that decade, the federal government would’ve spent $2.1 trillion less in 2023 than the $6.47 trillion. 

• If the federal government had done this over the entire decade, the national debt would have increased by $1.8 trillion instead of the actual $12.8 trillion.
• And if this had been done over the last two decades since 2003, the cumulative national debt would have increased by less than $700 billion instead of $20.2 trillion.
• This means that following a sustainable budget would help leave more money in Americans’ pockets so that they can flourish. 

Aggregate state spending, excluding funds received from the federal government, by the 50 state governments increased by 59.0% during that decade. 

• Had their spending grown by no more than the rate of population growth plus inflation from 2014 to 2023, state governments would’ve spent $1.44 trillion in 2023, which is $430 billion less than the $1.87 trillion that all state governments spent. 
• If the states had done this over the entire decade, cumulative spending would have been $1.4 trillion less than what was actually spent, resulting in more money in people’s pockets across the country.

Result: American taxpayers could have been spared more than $2.5 trillion in taxes and debt just in 2023 if federal and state governments had grown no faster than the rate of population growth plus inflation during the previous decade. And this would be even more if we considered the cumulative savings over the period.  

My hope is that if we can get enough state think tanks to promote this budgeting approach, get this approach put into constitutions and statutes, and use it to limit local government spending as well, there will be plenty of momentum to provide sustainable, substantial tax relief and eventually impose a fiscal rule of a spending limit on the federal budget. This is an uphill battle but I believe it is necessary to preserve liberty and provide more opportunities to let people prosper.

​Sustainable State Budget Revolution Across The Country

Below are the states and think tanks which I'm working with and this revolution is going, which you can find an overview of this budgeting approach in Louisiana and should be applied elsewhere. 

I update these periodically, successful versus not successful budgeting attempts being 25-9 so far.

1. Americans for Tax Reform released the Sustainable Budget Project with every state's spending compared with population growth plus inflation and valuable comparisons and data for each state.
2. Alaska: Alaska Policy Forum released its third Responsible Alaska Budget, with the first two unsuccessful but the most recent being successful as it helped define the narrative about sound budgeting.
3. Colorado: Independence Institute recently released the first Sustainable Colorado Budget.
4. Florida: James Madison Institute released its first successful Conservative Florida Budget.
5. Iowa: Iowans for Tax Relief Foundation released its fourth Conservative Iowa Budget; the first four have been mostly successful.
6. Kansas: Kansas Policy Institute released its third Responsible Kansas Budget; the first three weren't successful but improvements are being made to help rein in even more spending.
7. Louisiana: Pelican Institute recently released its second Responsible Louisiana Budget, which the first was unsuccessful. Here is a comparison of the RLB with ATR's Sustainable Budget project.
8. Michigan: Mackinac Center released its second Sustainable Michigan Budget, with the first not being successful but the second one being successful in reining in excessive spending in a tough political situation.
9. Mississippi: Mississippi Center for Public Policy recently released its first Responsible Mississippi Budget and was successful.
10. Montana: Frontier Institute released one Conservative Montana Budget and one report on Responsible Local budgets, which has resulted in two successful CMBs and improved local budgets.
11. South Carolina: SC Policy Council released its third South Carolina Sustainable Budget, with the first being successful and the second being unsuccessful. Oconee County Council in South Carolina used the SC Sustainable Budget approach and filed their own sustainable budget. 
12. Tennessee: Beacon Center released its third Conservative Tennessee Budget, with the first three being successful.
13. Texas: Texas Public Policy Foundation released its fifth Conservative Texas Budget, with the first four of five (2024-25 budget wasn't) being mostly successful, and the recent release of Responsible Local Budgets.
14. Federal: The Let Americans Prosper Project along with the Responsible American Budget to rein in federal government spending to support fiscal sanity in D.C., which is essential for the future of our country.

​
If you're interested in doing this in your state, please reach out to me.

For more details, check out these write-ups on this issue by Grover Norquist and I at WSJ, Dan Mitchell at International Liberty, and The Economist.

​Joining the show today is Vance Ginn. Vance is the founder and president of Ginn Economic Consulting, where he leverages data-driven insights to shape economic policy discussions across the nation. 
 
Over the course of the show, Veronique and Vance discuss state and local government spending, federal spending, and the connection between the two.

​Originally posted here: https://www.politicsandparenting.com/p/the-economy.

​Today on the show I am joined by Vance Ginn, Ph.D. A leading economist and advocate for free-market principles and fiscal conservatism. He is the former associate director for economic policy at the White House’s Office of Management and Budget and chief economist at the Texas Public Policy Foundation.   He is the founder and president of Ginn Economic Consulting and host of the Let People Prosper Show podcast, providing high-impact economic consulting that dives deep into pressing issues with top influencers. He lives in Round Rock, Texas, with his family, championing policies that promote economic freedom and prosperity.

We discuss inflation, debt, minimum wage, currency, and tariffs. This is a great episode for average citizens trying to get a handle on this complex topic. Be sure to follow Vance on X and Substack, and check out his new article out in the Freemen-News Letter.

​Last session, despite a $32.7 billion surplus, new property tax relief was limited to just $12.7 billion. And the state budget increased by a record 32% in state funds from GAA appropriations to appropriations

This research was originally published at Iowans for Tax Relief Foundation. 

Originally published at Kansas Policy Institute.

​The Kansas Legislature will consider transformative changes to the long-standing challenges in the state’s budgeting process this fall. State law mandates that the governor provide a budget report to the Legislature. However, this practice has evolved into the governor proposing an entire budget, with the Legislature making adjustments. The Legislature should instead have a more active role in proposing the budget, working with the governor to improve it, and giving the governor ways to adjust it with line-item vetoes afterward to help provide effective fiscal management.

Opportunities Moving Forward
Regardless of who proposes the budget, the state should consider a year-round approach to spending and budget review. The budget committees should meet periodically after a regular session annually to conduct performance-based analyses. State law requires performance-based budgeting, but it has yet to be faithfully implemented, and time limits during the legislative session make it difficult to police. As part of a year-round budget process, the Legislature should notify agencies that no spending increases will be approved for agencies that fall short of performance-based budgeting expectations. This proactive approach would replace the current practice where budget committees listen to agency proposals without adequate analysis. 

Another effective method for evaluating whether programs are delivering their intended goals is through independent, external efficiency audits. Unlike internal reviews, these audits objectively assess government programs’ effectiveness, which can suffer from the “fox guarding the henhouse” syndrome. While not perfect, efficiency audits can mobilize public interest from taxpayers and watchdogs to advocate for reforms or eliminate inefficient programs, thereby reducing unnecessary taxpayer expenditures.

Other ideas include improving the sunset review process and requiring the sundown of programs and agencies to enhance Kansas’ budget effectiveness. This process can help with priority-based budgeting, which combines performance-based and zero-based budgeting. Combining better review processes during the year, sunset meetings, and program sundown at fixed intervals would improve the budget process.

Add a broad spending limit with a strong, preferably constitutional, constraint. This would compel legislators to identify inefficiencies and phase out failing programs. A fiscal rule such as the Responsible Kansas Budget could serve this purpose effectively, ensuring that spending grows sustainably, aligned with population growth and inflation.

Learning from Other States
Many states have adopted best practices to improve their budget processes, drawing from performance-based budgeting, zero-based budgeting, efficiency audits, and spending limits. Here’s an overview of what other states are doing.

Colorado

• Taxpayer’s Bill of Rights (TABOR): Colorado has a constitutional spending limit known as TABOR, which restricts the revenue the state and local governments can retain and spend. Excess revenues are refunded to taxpayers, helping enforce fiscal discipline.

Florida

• Long-Term Financial Planning: Florida emphasizes long-term financial planning, requiring a three-year outlook on budgetary impacts for proposed expenditures and revenue changes. 

Louisiana

• Top-Down Budgeting: Louisiana has a top-down approach where the governor’s proposed budget is the starting point for the Legislature to tweak.
• Efficiency Audits: Louisiana conducts efficiency audits of some programs through the state auditor’s office to assess whether state programs meet their intended goals.

Texas

• Bottom-Up, Performance-Based Budgeting: Texas’ budget starts with a ceremonial budget from the governor, like the one from the president at the federal level, then is crafted by the Legislature. The governor has a line-item veto of strategies after passage. Texas periodically conducts a performance-based budgeting system. 
• Efficiency Audits: Texas conducts independent efficiency audits of some programs whereby the state auditor contracts with a private entity for more objectivity within existing funding to evaluate whether program outcomes match the program vision.
• Spending Limit: Texas has a relatively strong spending limit that was updated in 2021 to cover about half of the total budget based on the rate of population growth and inflation.

Utah

• One-Door Policy: The Utah Model includes streamlining operations and improving service delivery through efficiency audits and performance-based budgeting. It also involves putting the workforce and safety net together under one agency, which could be part of Congress extending the Workforce Innovation and Opportunity Act (WIOA) this year.
• Constitutional Spending Limit: Utah has a constitutional spending limit that ties budget growth to a formula based on population growth and inflation.

Recommendations for Kansas
Kansas can draw inspiration from these states and ALEC’s budget reform toolkit:

• Providing Annual Budget Analysis: Evaluating the budget and specific programs through the budget committees after regular sessions annually.
• Adopting Priority-Based Budgeting: Implementing a combination of performance-based and zero-based budgeting with priority-based budgeting for thorough evaluation and justification of all expenditures of taxpayer money.
• Conducting Independent Efficiency Audits: Regular, external efficiency audits can bring transparency and accountability to government programs and savings to taxpayers.
• Strengthening Spending Limit: Imposing strong constitutional or statutory spending limits, like KPI’s Responsible Kansas Budget that is similar to Texas’ limit or Colorado’s TABOR, helps enforce fiscal discipline for state and local spending with surpluses used to lower tax rates.
• Engaging in Long-Term Financial Planning: Incorporating long-term financial planning, as practiced in Florida, can ensure sustainability and preparedness for economic fluctuations.
• Reduce Dependency on Federal Funds: The federal government is running massive deficits and will need to make major budgetary changes which could influence the federal funds sent to states so states should prepare now with transparency and reduction in federal funds received.

​
By adopting these best practices, Kansas can move towards a more efficient, accountable, and fiscally responsible budget process. Incorporating these reforms will help Kansas enhance its budget process, ensuring more effective and efficient use of taxpayer dollars. The upcoming informational hearings provide an excellent opportunity to advocate for these changes and set Kansas on a path to long-term fiscal health.

Originally published at Mackinac Center.

​Michigan is spending money at an unsustainable rate, and the state’s latest state budget shows why this can’t go on.

The state-funds budget for fiscal year 2024-25 is $46.8 billion, a 0.4% decline from the previous year. While this amount is below the Sustainable Michigan Budget level, it hides deeper problems threatening the state’s economic future.

Lawmakers are spending less because of a lack of tax revenue, not a lack of desire. Lower revenue stems from a slow-growing state economy. Michigan’s economic output ranked just 38th out of 50 states last year.

Without more taxpayer money, lawmakers irresponsibly skimped on pension contributions to pay for questionable priorities. The state-managed public school retirement system is underfunded by $29.9 billion, but lawmakers decided to lower pension contributions by $670 million.

The new budget is loaded with pork. Local district grants amount to $1 billion, taking resources away from the state’s necessary purposes and putting them toward some lawmakers’ political interests.

Pork projects in Michigan, whereby taxpayer funds are directed to specific legislative districts for political favor, represent another misuse of taxpayer money. These projects often fail to serve the broader public interest and divert resources from critical areas such as infrastructure, education and health care. Eliminating these pork projects could free up funds for more pressing needs or make it possible to return money to taxpayers through tax relief, fostering long-term economic stability.

The demand for district grants is also leading lawmakers to another unsustainable practice: spending state savings. Legislators started their term with $7 billion in cash in the state’s accounts, but administrators expect the latest budget to reduce that to $350 million.

In short, lawmakers passed an unsustainable budget that deferred pension debts and wasted money on pet projects. There are better ways to run a budget.

Lawmakers have spent about $19 billion more than sustainable levels since fiscal year 2018-19. Michigan taxpayers could have saved roughly $4 billion from the current budget alone if lawmakers had budgeted sustainably over the period, and they could have avoided dipping into savings or underfunded pensions. As a result of unsustainable budgeting, the budget includes a massive amount of pork. Next year’s Legislature will have plenty to cut if it needs to save money.

Lawmakers could do better if they abide by the Sustainable Michigan Budget, a strict budgetary method that aligns spending growth with the rate of population growth plus inflation. Spending caps and mandatory budget reviews are essential tools to maintain fiscal discipline. Legislators should allocate resources effectively and eliminate wasteful expenditures to create a more sustainable fiscal path.

Lawmakers could have let people keep an additional 0.2% of their income had they practiced sustainable budgeting. Gov. Gretchen Whitmer rescinded a modest tax cut in the tax rate, and the latest budget spends the money from the resulting tax hike. Lowering taxes would make Michigan’s business environment more competitive, encourage job creation, spur higher wagess and foster a more vibrant economy. This approach enhances economic freedom and ensures that future tax increases are avoided, preventing additional burdens on residents.

Addressing the pension shortfall and eliminating inefficient pork projects would reduce unnecessary expenditures and allocate resources more effectively. This approach will prevent future fiscal crises and ensure the state does not have to raise taxes on its residents to cover shortfalls.

Reducing government spending is more than balancing the budget. It’s about unleashing Michigan's full potential and ensuring a brighter future. A little restraint can go a long way. It can ease the burdens taxpayers face, catch up on what is owed and leaves money in the bank. Michigan would be better positioned if lawmakers kept a Sustainable Michigan Budget.

Originally published at Dallas Morning News. 

More conservatives are likely to be elected to the statehouse in November. This is a historic opportunity in 2025 to enact a new budget that provides property tax relief, empowers all families with universal school choice and puts state spending in Texas on a more sustainable trajectory in 2025.

Texas, in a nation grappling with unsustainable government spending, stands out for its relative fiscal restraint and economic dynamism. However, despite historically prudent budgetary policies, Texas lawmakers enacted the largest two-year budget increase last year and the second-largest property tax relief measure (though many claimed it was the largest).

According to the Sustainable Budget Project by Americans for Tax Reform, Texas, unlike the federal government and the vast majority of states, has done better at aligning its budget growth with the average taxpayer’s ability to pay for government spending, as measured by the rate of population growth plus inflation.

Over the past decade, federal spending has escalated by an astonishing 81.7%, nearly quadrupling the 23.2% rate of population growth plus inflation, according to Americans for Tax Reform data. In stark contrast, Texas has exhibited fiscal restraint, ensuring its spending did not spiral out of control.

The implications of such fiscal prudence are profound. If the federal government had followed the sustainable budget approach from 2014 to 2023, it could have saved taxpayers an estimated $2.1 trillion in 2023 alone. Texas’ measured approach during this period allowed the state to spend and tax $22.0 billion less than it might have otherwise, benefiting taxpayers and the broader economy.

The recent and uncharacteristic budgetary excesses in Texas diminish the capacity for property tax relief. Further property tax reform is crucial. Property taxes are unfair, burdensome, and they keep people renting from the government by paying property taxes forever.

The competitive landscape is also evolving, with states like North Carolina and Florida thriving by implementing aggressive tax cuts and regulatory reforms. Texas must respond by intensifying its commitment to pro-growth policies and fiscal conservatism if the Lone Star State is to maintain economic leadership.

A constitutional spending limit, similar to Colorado’s Taxpayer Bill of Rights, would help put state spending in Texas on a sustainable trajectory. Even in a blue state where progressives are in charge, this measure has effectively kept state and local spending in check. Its adoption in Texas would ensure that state and local budgets grow in line with the average taxpayer’s ability to pay.

To truly distinguish itself, Texas should consider a strategic overhaul of its tax system, particularly in property taxes. With no personal income tax, Texas could relieve property holders of a significant financial burden by eliminating school district maintenance and operations property taxes. This shift, funded through better-controlled state and local government spending, could transform the economic landscape for homeowners and businesses.

The state could achieve this monumental feat by using the resulting surpluses from spending restraint to reduce school district M&O property tax rates, aiming to phase them out over the next decade. The Texas Legislature already controls the school finance formulas so this property tax is mostly “local” in name only, and legislators have been phasing it down in recent years.

It’s possible to reduce and even eliminate truly local property taxes by cities, counties, and special purpose districts through spending restraint that would produce surpluses, which can then be used to drive property tax rates down to zero over time. Some localities would take longer than others to accomplish this, but as people vote with their feet to places without property taxes, other local governments would look for ways to eliminate theirs.

The result would be less government spending and little to no property taxes in Texas. This shift in a pro-growth direction would enhance homeowners’ financial freedom and support more economic growth through increased personal savings and business investment.

Texas’ economic policies have historically positioned the state as a leader in job creation and financial freedom, helping to achieve record economic growth, job growth and in-migration. However, the path forward requires conserving and enhancing these policies. Texas must adapt to the changing economic landscapes by fostering a more favorable business climate, reducing governmental interference, and revamping its tax system to maintain and strengthen its competitive status.

By prioritizing spending restraint, strategic tax relief and universal school choice, Texas can secure a prosperous economic future and set a standard for budgetary sustainability.

Grover Norquist is president of Americans for Tax Reform, a taxpayer organization founded in 1985 at the request of President Ronald Reagan. Vance Ginn is a senior fellow at ATR, president of Ginn Economic Consulting, and previously served in the White House’s Office of Management and Budget.

Originally published at National Review Online.

​States must restrain spending growth while cutting and flattening income-tax rates.

Economist Milton Friedman famously said, “I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it’s possible. The reason I am is because I believe the big problem is not taxes, the big problem is spending.”

This sentiment encapsulates the driving force behind the tax-cut revolution transforming the American economic landscape. This movement toward lower, flatter, and, in some cases, no income taxes is reshaping state fiscal policies to relieve taxpayers from funding excessive government.

For instance, Georgia’s reduction of the state income-tax rate from 5.49 percent to 5.39 percent and Idaho’s shift to a flat income-tax rate of 5.8 percent enhance competitiveness and support more economic activity. Iowa’s adoption of a flat income tax rate of 3.8 percent, one of the lowest in the nation, further exemplifies this trend.

Arkansas reduced individual and corporate tax rates, providing tax relief for the third time in 15 months. Hawaii’s substantial increase in standard deductions and adjustment of tax brackets aims to provide relief to low- and middle-income families. Kansas included property-tax relief alongside consolidating its income tax from three to two brackets.

The tax-cut revolution represents a shift towards more efficient and equitable tax systems. By adopting flatter, lower tax rates, states can enhance their economic competitiveness and improve the quality of life for their residents.

However, these tax cuts must be accompanied by sustainable budgeting practices that limit government spending.

In 2023, Americans for Tax Reform (ATR) launched The Sustainable Budget Project, which monitors state government spending and tracks which states have or have not enacted sustainable budgets.

The project defines a sustainable budget as one that limits the pace of state government spending to lower than the rate of population growth plus inflation. This approach ensures that government growth is kept in check, preventing excessive taxation and debt accumulation.

Examining spending trends from 2014 to 2023 reveals the crux of the problem. Aggregate 50-state spending, excluding funding from taxpayers through the federal government, increased by 59.1 percent during this period.

If states had restrained their spending to the rate of population growth plus inflation, they would have spent $1.44 trillion in 2023, $430 billion less than the $1.87 trillion spent. Over the entire decade, this would have saved $1.4 trillion, leaving more money in taxpayers’ pockets.

Some states have demonstrated the benefits of sustainable budgeting.

ATR found that six states held total spending growth below population growth plus inflation: Alaska, Colorado, North Dakota, Oklahoma, Texas, and Wyoming.

Additionally, six other states held growth in state funds, which excludes federal funds, below the rate of population growth plus inflation: Louisiana, Massachusetts, Montana, North Carolina, Ohio, and Rhode Island.

Sustainable budgeting is the key to ensuring long-term prosperity. By focusing on responsible budgeting and reducing obstacles to economic growth, such as high spending, taxes, and regulations, states can create an environment where everyone can prosper.

Originally published at Law & Liberty.

The Congressional Budget Office (CBO) just released the February 2024 Budget and Economic Outlook, and projections look grim. This year, net interest cost—the federal government’s interest payments on debt held by the public minus interest income—stands at a staggering $659 billion in 2023 and has recently soared to about $1 trillion. Unless politicians face these facts and restrain spending, Americans can expect rising inflation and painful tax hikes without improvement in public services. 

Some politicians quickly blamed a lack of tax revenue, calling for repealing the 2017 Trump tax cuts. But how much more money can they take? New IRS data shows that 98% of all income taxes are paid by the top 50% of income earners, those making at least $46,637.

Moreover, 35% of Americans feel worse off than 12 months ago and inflation remains the primary concern for those across the income spectrum. So perhaps, rather than taking more money, the government should own up to its mistakes.

The massive net interest costs result from bad spending habits, not a lack of revenue. This requires the federal government to adopt strict fiscal and monetary rules to rein in wasteful deficit spending and money printing that fuel higher interest rates and inflation.

Net interest cost is the second largest taxpayer expenditure after Social Security and is higher than spending on Medicaid, federal programs for children, income security programs, or veterans’ programs. And it’s expected to grow.

The CBO projects net interest to surpass Medicare spending this year and balloon to $1.6 trillion in 2034 as a result of higher debt and higher interest rates. Interest rates on Treasury debt are at the highest since 2007, paying between 4% and 5.5%, and the rates are expected to rise further.

As the stockpile of gross federal debt is expected to grow by about $20 trillion to $54 trillion over the next decade, politicians will face an increasing temptation to rely on the Federal Reserve to pay for it by printing money. If the Fed does, the dollar’s value will decline, and Americans will continue to struggle financially.

In an ideal world, politicians will organize the budget process to focus on funding a limited government and ensuring Americans keep their hard-earned money. They would also have plans to cut spending during times of economic downturn to reduce tax burdens on families and businesses and avoid the Keynesian fallacies of deficit spending to fill gaps in economic growth.

However, America isn’t Shangri-La.

As Thomas Sowell poignantly notes, a politician’s first goal is to get elected, the second goal is to get reelected, and the third goal is far behind the first two. So long as there are investors happy to purchase Treasury debt, there will be politicians who are happy to sway voters with generous spending programs financed by public debt. This must end.

Instead, Washington should require strong institutional constraints with a spending limit. The limit should cover the entire budget and hold any budget growth to a maximum rate of population growth plus inflation. This growth limit represents the average taxpayer’s ability to pay for spending. Following this limit from 2004 to 2023 would have resulted in a $700 billion debt increase instead of the actual increase of $20 trillion.

Such a policy has been in effect in Colorado since 1992. It is the Taxpayer’s Bill of Rights (TABOR) amendment to the Colorado Constitution. TABOR has revenue and expenditure limitations that apply to state and local governments. The revenue limitation applies to all tax revenue, prevents new taxes and fees, and must be overridden by popular vote. Expenditures are limited to revenue from the previous year plus the rate of population growth plus inflation. Any revenue above this limitation must be refunded with interest to Colorado citizens.

A spending cap like TABOR is necessary but not sufficient to solve the problem because politicians in Washington can still pressure the Federal Reserve to pay for the increased debt by printing money. Therefore, it must be combined with a monetary rule to force fiscal sustainability while requiring sound money with fewer distortions in the economy.

Monetary rules can come in many forms. While no rule is perfect, research shows that a rule-based monetary policy can result in greater stability and predictability in money growth than the current policy of “Constrained Discretion” whereby the Fed follows rules during “normal times” and has discretion during “extraordinary times.” Whether we are in ordinary or extraordinary times is up to policymakers, who typically don’t want to “let a good crisis go to waste,” as they say.

Milton Friedman advocated for a money growth rate rule, the “k-percent rule.” This rule states that the central bank should print money at a constant rate (k-percent) every year. A variation of this rule was used by Fed Chair Paul Volcker in the late 1970s and early 1980s to tackle the Great Inflation with much success. Unfortunately, the Fed had already done too much damage with excessive money growth before then, so the cuts to the Fed’s balance sheet contributed to soaring interest rates that forced destructive corrections in the economy, resulting in a double-dip recession in the early 1980s.

This led to the Fed abandoning money growth targeting in October 1982. It is important to note, though, that this “monetarist experiment” was not bound to any law, constitutional or statutory. During that time, the Fed still operated under discretion, which is why it was able to abandon the monetary growth rule just a few years after it had begun, unfortunately.

There are other rules that could be applied.

John Taylor proposed what’s been coined the Taylor Rule, which estimates what the federal funds rate target, which is the lending rate between banks, should be based on the natural rate of interest, economic output from its potential, and inflation from target inflation.

Scott Sumner most recently popularized nominal GDP targeting, which uses the equation of exchange to allow the money supply times the velocity of money to equal nominal GDP. It has different variations, but the key is that velocity changes over time, so the money supply should change based on money demand to achieve a nominal GDP level or growth rate over time.

By focusing on a rules-based approach to spending and monetary policy, Americans do not have to worry about electing the perfect candidate every election. Proper constraints will nudge even the worst politicians to make fiscally responsible choices and reduce net interest costs. Furthermore, America will be better positioned to respond to crises at home and abroad. If Congress wants to see who is to blame for the grim CBO projections, they should look in the mirror. Stop looking to take hard-earned money away from Americans and focus on sound budget and monetary reforms now.

Originally published at Kansas Policy Institute. 

​Kansas, like most states, has a spending problem, not a revenue problem. The 2025 Responsible Kansas Budget offers several ways that the state can limit its spending to pave the way for tax reform and economic growth in the future.

In June 2023, Kansas ended FY 2023 with collected tax revenues at $10.2 billion – a 4.1% or $402 million increase over the collected tax revenues of FY 2022.  According to the Kansas Legislative Research Department, even if Kansas had enacted a flat tax bill during its 2023 legislative session, the state would end FY 2028 with $2.7 billion in its ending balance and $1.8 billion in the Budget Stabilization Fund, totaling $4.5 billion in reserves.

At the same time, spending has grown massively over the last decade. According to the FY 2025 Governor’s Budget Report, the approved FY 2024 General Fund budget of $9.918 billion is 13.6% more than the approved 2023 budget. In FY 2020, the State Fund appropriations equaled $12.6 billion, but has ballooned into and after the COVID-19 pandemic to be $19 billion in FY 2023 and a base of $18.4 billion for FY 2024.

​If Kansas’s annual appropriations had grown at the rate of population growth plus inflation since FY 2005, State Fund appropriations would be $6.4 billion lower in FY 2024 than the actual base appropriations. This equates to a $46.6 billion cumulative difference from FY 2005 to FY 2024. What this number represents is higher taxes on Kansans, slower economic growth, and fewer opportunities for people to flourish.

Originally published at Pelican Institute. 

​The report to achieve Louisiana’s 2024-2025 Responsible Budget presents solutions to rein in
the extraordinary growth of the budget in order to give the state a competitive advantage, much
like those used in other states, such as Texas and Florida, limiting the amount of funding
appropriated at the beginning of each fiscal year.
​
Over the past decade, state spending has increased an average of 5.9% per year. Using the
recommended Responsible Budget growth limit outlined in this report, state spending would
have increased by only 2.1% per year, which would allow the excess state revenue to be saved
for tax relief for Louisiana families.

​Originally  posted at South Carolina Policy Council.

Thanks to a robust state economy, plentiful business opportunities, and a relatively low cost of living, South Carolina remains one of the fastest-growing states in the nation. To maintain this strong position and promote further growth, it is crucial for S.C. legislators to limit state spending and reduce the government’s burden on taxpayers.

The S.C. Policy Council created the South Carolina Sustainable Budget (SCSB) to assist in this effort. The SCSB is a maximum limit on annual recurring general funds[1] appropriations based on the rate of state population growth plus inflation. First published in 2022 and again in early 2023, it has served as a data-driven resource to help rein in unsustainable spending and provide more opportunities for tax relief. Unfortunately, the state did not adhere to the SCSB limit of $11.20 billion for its fiscal year (FY) 2024 budget; instead, it appropriated $11.64 billion – a 12.56% increase above the FY23 base of $10.34 billion.

To turn the tide of excessive budget growth and provide more room for tax relief, the Policy Council is issuing its third SCSB. Table 1 provides the results outlined in this report for the FY25 SCSB.  

Table 1. The FY25 South Carolina Sustainable Budget for Appropriations of Recurring General Funds

​Based on population and inflation data in 2023, the recommended recurring general funds appropriations limit[2] for South Carolina’s FY25 budget is $12.27 billion.
With inflation moderating somewhat since reaching a 40-year high in 2022, primarily because of the errant policies in D.C., the SCSB ceiling is higher than it would be under normal economic circumstances. For example, the average annual rate of population growth plus inflation since 2013 has been 3.78%. Accordingly, the S.C. Legislature should consider freezing spending at the current FY24 budget of $11.64 billion. This would help correct recent overspending in the state’s budget and help put the state on a more sustainable budget path. It would also leave more money available for needed tax relief. At a minimum, recurring general fund appropriations in the FY25 budget must remain below $12.27 billion. 

Overview

A sustainable budget – sometimes called a conservative or responsible budget – is a model for state budgeting that sets a maximum limit on appropriations or spending based on the rate of population growth plus inflation. This metric serves as an indicator of what the average taxpayer can afford to pay for government provisions. It accounts for 1) More people in the state who could potentially pay taxes; 2) Wage growth that’s typically tied to inflation over time to pay taxes; and 3) Economies of scale, as not every new person or wage increase should be associated with new government spending.

The SCSB does not make specific recommendations on how general funds should be appropriated in the budget. Instead, it gives legislators the flexibility to appropriate taxpayer dollars to government programs as determined by the General Assembly, while ensuring that spending growth remains in line with what people can afford.

Such a voluntary spending limit is key to putting South Carolina in a position for further tax relief. In 2022, Gov. Henry McMaster and lawmakers enacted the first-ever state personal income tax cut, which immediately reduced the top rate from 7% to 6.5% and collapsed the lower bracket to 3%. It also scheduled additional yearly 0.1% cuts to the top rate until it reaches 6%, though general fund revenues must project at least 5% annual growth for the cuts to trigger.  

The problem with this approach is that it relies on continued revenue growth to deliver incremental tax relief. Following the SCSB would help to accelerate this process, freeing up revenue to buy down the top rate to 6% immediately and fueling other tax cuts. On the other hand, unsustainable spending could build pressure to reverse course and raise taxes, leaving South Carolinians with fewer opportunities to flourish.


SC Appropriations vs. Sustainable Budget
Figure 1 compares the previous twelve years[3] of South Carolina’s recurring general fund budget appropriations (FY13 to FY24) to those appropriations when limited each year to the rate of population growth plus inflation.

​Figure 1. South Carolina General Fund Appropriations v. SCSB
12-year GF appropriations: $98.5 billion (+91.1%)
12-year GF appropriations limited to population growth + inflation: $86.5 billion (+50.0%)

​Notes. Budget amounts are based on data from South Carolina’s state budget publications, Fed FRED for state population growth and U.S. chained-CPI inflation, and authors’ calculations. Appropriations did not increase from FY20 to FY21 because the state operated on a continuing resolution in FY21.[4]


Key takeaways (see Table 2):

1. Had the state followed the SCSB over time, the FY24 budget would be $2.50 billion less than the current budget, meaning taxes could be $2.50 billion lower. When summing the total annual budget differences over the 12-year period, state appropriations were $11.95 billion higher than the SCSB.
   
   
2. The gap between actual and SCSB-limited appropriations continues to grow. Actual FY24 appropriations ($11.64 billion) are 27.42% higher than SCSB-limited appropriations ($9.13 billion) for the same year, whereas actual appropriations exceeded SCSB-limited appropriations by 19.06% for FY23.
   
   
3. Appropriations grew by 91.14% from FY13 to FY24. If limited to the rate of population growth plus inflation, appropriations across the same period should have increased by no more than 50.0%.
   
   
4. By not following the SCSB over this period, individual taxpayers carry an additional tax burden of $2.50 billion for the FY24 budget, which is about $460 per person, or $1,800 for an average family of four. When considering the cumulative $11.95 billion difference since FY13, the average additional tax burden is almost $2,200 for individuals and nearly $8,800 for families of four.
   
   

Table 2. General Funds Appropriations Over Time

​Note. Budget amounts are based on data from South Carolina’s state budget publications, Fed FRED for state population growth and U.S. chained-CPI inflation, and authors’ calculations.

These data provide clear evidence that there is room for the state to limit spending growth to reduce taxes substantially. South Carolina has been one of the 25 states in the last three years to cut income taxes, which has helped the state improve compared to its neighbors. However, North Carolina recently passed legislation that could eventually bring their income tax rate to 2.49%, which would be the lowest in the country, excluding the seven states without personal income taxes. On that list are Florida and Tennessee, two major competitors for jobs and investment in the Southeast.

South Carolina could improve its position by passing sustainable budgets and using the surplus revenue to cut taxes, especially income taxes. See Table A in the Appendix for more comparisons of South Carolina with other states.

Follow the SC Sustainable Budget
We strongly encourage legislators to follow the SCSB when drafting South Carolina’s FY25 budget. As a data-driven resource, the SCSB sets a clear spending limit based on what the average taxpayer can afford to pay for government services. Surpassing this limit will fuel excessive government growth and promote unsustainable spending, leaving less revenue that can be used to lower taxes. 

Recent budget projections show a historic opportunity for tax relief – if legislators are willing to take it.

In its November 2023 forecast, the S.C. Board of Economic Advisors (BEA) estimates a recurring budget surplus of $673.1 million for FY25. It also projects the cost of lowering South Carolina’s top personal income tax rate from 6.4% to 6.3% to be roughly $100 million (which is accounted for by BEA prior to their $673.1 million projection). Based on current data, we estimate[1] it would cost an additional $300 million in revenue to cut the top rate immediately to 6% in the new budget. Accordingly, this all-at-once cut could be achieved using less than half of the projected recurring surplus.

Passing a sustainable budget would be easier if state agencies followed South Carolina’s legal budget process. Under current law, agencies are supposed to justify every dollar they are requesting when submitting their annual budget plans to the governor – explaining why both new and current programs deserve taxpayers’ money. The law follows a concept known as zero-based budgeting, where all expenses need to be justified annually based on need and performance without regard to previous budgets. Despite this legal mandate, agencies only provide details for new spending requests each year.

Fortunately, South Carolina is decently prepared for a rainy day should it occur. Voters in 2022 approved two amendments to increase contributions to the state reserve funds – raising the General Reserve Fund from 5% to 7% (over several years) and the Capital Reserve Fund from 2% to 3% of the previous year’s general fund revenue. By law, the reserve funds act primarily as a shield against year-end budget deficits. While these reserve funds are important to withstand volatility in the budget, lawmakers should focus on limiting or cutting the budget for it to be sustainable over time.

Conclusion
Following the SCSB will put South Carolina in a better position to reduce taxes, avoid the cost of excessive government growth, and give citizens more opportunities to flourish. Had this been done since 2013, the state could have substantially lowered personal income taxes, if not eliminated them. Fortunately, the upcoming budget provides state leaders with another crucial opportunity to rein in spending and deliver much-needed relief. South Carolina taxpayers are counting on it.

Appendix: How Does South Carolina Compare with Other States?
Table A shows how South Carolina compares with the largest four states in the country (i.e., California, Texas, Florida, New York) and neighboring states (i.e., Arkansas and Mississippi) based on measures of economic freedom, government largesse, and economic outcomes.

Table A. Comparison of States for Measures of Economic Freedom and Outcomes

​Notes. Dates in parentheses are for that year or the average of that period. Data shaded in blue indicate “best,” and in red indicate “worst” per category by state.

These rankings show that South Carolina is better than most states in terms of economic freedom, but is substantially less economically free than its neighbors of Georgia and North Carolina. South Carolina does better than others in this comparison in terms of having the lowest supplemental poverty rate and near the best in net migration. South Carolina has the highest state and local government spending per capita among its neighbors and a substantially worse business tax climate than North Carolina.
​
The data show that states with less economic freedom (e.g., New York, California, and South Carolina) tend to perform economically worse. On the other hand, those states with more economic freedom (e.g., Florida, Texas, Georgia, and North Carolina) tend to perform economically better. Given these comparisons, South Carolina has much room for improvement to be more competitive and, more importantly, provide more opportunities for human flourishing.

This was originally published at National Review.

C​olorado governor Jared Polis (D) and Art Laffer, the economist and Presidential Medal of Freedom honoree, recently critiqued the state’s Taxpayer’s Bill of Rights (TABOR) at this venue. While not meritless, much of their argument is paradoxical, highlighting an overarching issue of fiscal unsustainability that warrants a reality check.

TABOR recently had its 30th birthday. Voters approved the constitutional amendment in 1992, establishing the strongest tax and expenditure limit in the country. It’s been the gold standard for a sound spending limit ever since.

Under the amendment, annual growth in spending cannot exceed the state’s population growth plus inflation, which is a good measure of the average taxpayer’s ability to pay for spending. When adopted, the limit covered about two-thirds of state spending. It requires voter approval for tax increases and mandates refunds to taxpayers if tax revenue exceeds the limit.

In their critique, Polis and Laffer correctly acknowledge that TABOR surpluses indicate that income-tax rates are too high. They’re correct that the state should seek to reduce income-tax rates to prevent overcollection instead of handing out refunds. They’re also correct that a broader tax base is preferable. It enables the tax rates, and therefore the marginal effect of the tax burden, to be reduced as much as possible for all.

But Polis and Laffer incorrectly criticize TABOR without realizing its pivotal role in achieving their purported goal to reduce taxes. Without a crucial spending check such as TABOR, the state would tie its budget directly to revenue levels, eliminating any surplus.

While Polis has only recently touted reducing state income-tax rates with surpluses, the Independence Institute has long supported a plan called “Path to Zero.” The plan simply limits government spending and uses resulting surpluses to lower tax rates until they’re zero. This is similar to my efforts in Texas, Louisiana, and other states, which start with a sustainable budget approach, as recently explained in a release by Americans for Tax Reform.

Unfortunately, courts and politicians have eroded the strength of TABOR over time, primarily because of politicians’ lack of fiscal restraint. The result has been that TABOR now covers less than half of state spending, allowing expenditures of all state funds, which excludes federal funds, to grow faster than population growth plus inflation.

Specifically, appropriations of all state funds have increased by 74.2 percent, compared with an increase of just 46.5 percent in population growth plus inflation over the last decade. This has resulted in the state appropriating $4.2 billion more in just fiscal year 2023–24 than if it had been limited to the rates of population growth plus inflation over time, amounting to higher spending and taxes of about $3,300 per family of four. The summed difference each year in all state funds above this metric over the decade amounts to $16.3 billion, or $11,300 per family of four.

These amounts don’t necessarily mean that the state needs to start cutting its budget to get back on track, but they do mean that the time to start reining in the budget is now, to reduce these excessive burdens on taxpayers. To that end, Ben Murrey, director of the Independence Institute’s fiscal-policy center, and I have shown the path forward with the Sustainable Colorado Budget (SCB).

The SCB is a maximum threshold for the initial appropriations of all state funds and is based on TABOR’s rate of population growth plus inflation. This will help reinforce the original intent of TABOR, by broadening the spending limit to all state funds. The plan would limit nearly two-thirds of state spending each year, as when voters first adopted TABOR. Doing so will result in larger surpluses to reduce income-tax rates yearly until they’re zero. Polis and Laffer are right to want rate reductions, but there are none if there is no surplus.

For the upcoming FY 2024–25, the SCB proposes an all-state funds ceiling of $27.70 billion. This uses the prior FY 2023–24 amount of $26.15 billion and increases it by 5.9 percent, calculated using TABOR’s current method and reflecting a 1.0 percent increase in the state’s population and 4.9 percent inflation. As noted above, it would be even better to grow the budget by less or not at all to correct past budgeting excesses. This more robust TABOR approach outlined in the SCB helps to freeze inflation-adjusted spending per capita, allowing the average taxpayer to afford the cost of government.

In recent years, the current TABOR limit alone has already produced substantial surpluses that have been refunded to Coloradans. But instead of using this year’s $1.7 billion TABOR surplus to refund overcollected taxpayer dollars, the legislature could have cut the income-tax rate from a flat rate of 4.4 percent, which ranks 14th in the country, to 3.81 percent.

Further, had the state over the past decade followed the SCB, which has a larger base budget, lawmakers could have lowered the income-tax rate to 2.96 percent, putting it on a faster path to becoming the lowest flat income-tax rate in the country, below North Carolina’s 2.49 percent. It would also pave the way to zero income taxes by 2042.

Polis in his recent article criticizes TABOR for acting as a spending restraint rather than a mechanism to reduce tax rates. Indeed, his track record in the governor’s office demonstrates his distaste for limitations on spending. The state budget has grown 45 percent since he took office less than five years ago; his budget request for the upcoming fiscal year would constitute an astounding 52 percent increase. In a state with a constitutional balanced-budget requirement, it’s paradoxical to support tax cuts without spending restraints.

Unfortunately, given his poor track record on spending and his critique of TABOR’s spending restraints — which he and Laffer improperly call a revenue limit — Polis is unlikely to adopt our sustainable budget to produce larger surpluses with which to cut tax rates. On the contrary, this year he supported a measure that would have increased state spending above the current limit, erroneously claiming that it would cut taxes using state surpluses.

“A similar tax-rate reduction for property taxes, Proposition HH, failed on the ballot recently in Colorado,” Polis and Laffer write in their recent NRO article. While a clever misdirection, this argument doesn’t hold up.

Prop HH didn’t directly offset the TABOR surplus through tax cuts, as an income-tax reduction would. That’s because the measure influenced only local property-tax revenue. Because the State of Colorado generates no tax revenue from property taxes, as those are collected only by local governments, reducing those rates won’t affect the TABOR surplus. Polis and Laffer contend that the state budget indirectly benefits from local property taxes. However, Prop HH would have lessened the state’s share of local funding by only approximately $125 million.

Originally published at Independence Institute. 

​In 1992, Colorado voters adopted the Taxpayer’s Bill of Rights (TABOR) to limit the growth in state and local spending. Over the past three decades, however, politicians from both parties and a complicit judicial branch have exempted more and more state spending from the TABOR limit. When voters adopted TABOR, 67% of state spending was subject to the limit. Today, the majority of state spending is not subject to the limit. Consequently, state spending has far outpaced Coloradans’ incomes over the last decade.

To uphold the original intent of voters when they adopted TABOR, Independence Institute proposes the Sustainable Colorado Budget (SCB), which limits state spending from state funds (excluding federal funds) at the rate of population growth plus inflation. The state should then use the surplus revenue above the SCB spending limit to reduce the income tax rate for all taxpayers.

Originally posted at Pelican Institute where I co-wrote it with Jamie Tairov.

​The Pelican Institute has highlighted the need for better state budgeting and tax reform. This includes the Responsible Louisiana Budget (RLB), which was released earlier this year. The RLB shows that Louisiana’s budget has been growing at unsustainable levels, and that an improved growth factor for the expenditure limit and initial appropriations is needed.

Recently, Americans for Tax Reform released a similar comparison for all 50 states, including Louisiana, in its Sustainable Budget Project. This report shows that, on the surface, Louisiana’s spending has not been as unsustainable as the RLB shows.

Why is there a different outcome in the two reports?

1. The RLB is using initial appropriations, otherwise known as the state’s operating budget at the beginning of the fiscal year; whereas ATR is using actual spending, which is a backward-looking measure. The differences between amounts budgeted and what is actually spent can vary greatly.
2. The RLB is based only on state funds—state general fund, fees and self-generated revenues, and statutory dedications; whereas ATR’s study uses total funds, including federal dollars.

Outcomes of Each Report 
The Responsible Budget model is currently being used successfully in other states to rein in spending. This is what Louisiana’s budget would have looked like had the RLB been employed over the last ten years.

​

• State funds appropriations were 0.9% higher than it would have been if the state had used the RLB over the last decade.
• State funds appropriations were $18.7 billion in 2022, which is 11.8%, or $2 billion, higher than what a Responsible Budget would have been.
• This means that the average household is paying about $2,700 more in taxes this year.

​Here are the findings from ATR’s Sustainable Budget study over the last decade:

• Over the last ten years, spending of state funds and total funds has exceeded the population plus inflation growth factor. State funds spending was lower in the first five years of the decade, increasing by an average of 1.2% per year while population growth plus inflation increased by 2.0% per year. However, state funds spending greatly increased in the last half of the decade by an average of 4.9% per year, where the growth factor was only 1.5%.

​Total spending in FY 22 was 34.4%, or $11.2 billion, higher than the improved expenditure limit. This means that a family of four is paying $8,800 more in taxes to pay for the excess spending, which is not sustainable spending.

​Is One Report Better Than the Other?
No. Both reports are accurate and serve different purposes.

The RLB uses initial appropriations which helps lawmakers easily compare appropriation amounts from year to year as they are drafting the budget during session.

Because it covers spending instead of appropriations, the ATR study is a backwards-looking metric that can be used for making longer-term spending decisions, but it will be limited in its use during a legislative session.

Both reports compare the current expenditure limit with a proposed improved expenditure limit. The current limit is the three-year average of personal income growth, which is an extremely volatile measure. The proposed improved limit is the three-year average of population growth plus inflation. The RLB and ATR reports can work together, providing limits on the front and back end to ensure that spending remains responsible throughout the year.

Both reports show recent elevated appropriations and spending. There is clearly room for budgeting restraint in Louisiana. These measures have benefits to lawmakers and the public so that they can have the tools necessary to restrain government spending and provide a responsible budget. Doing so will have many payoffs over time, including making the comeback in the Pelican State happen more quickly by eliminating personal income taxes, providing a more dynamic economy, and improving opportunities for people to flourish.

​Federal and state layouts are vastly outpacing the combined rate of inflation and population growth.

​The U.S. national debt recently passed $33 trillion, more than 120% of gross domestic product. Left-wing politicians assert that Americans are undertaxed, but the data show that the government spends too much.

Americans for Tax Reform launched the Sustainable Budget Project in September to document the rise in government spending over the past decade. The results are clear: Overspending is the problem.

Between 2013 and 2022, aggregate annual spending by the 50 state governments, excluding federal funds, increased 51.7%. Total annual federal spending rose 69.4% during the decade, more than three times as fast as the 21.6% increase in the rate of population growth plus inflation. If government grows faster than this rate, then it is growing faster than what the average taxpayer can afford.

Had the federal government limited the growth in spending to a maximum of the population growth rate plus inflation during that decade, in 2022 the federal government would have spent $1.6 trillion less than it did, resulting in at least a $200 billion surplus. If the federal government had done this over the past two decades, the national debt would have increased by less than $500 billion instead of $19 trillion.

If state governments had limited spending growth to the rate of population growth plus inflation during the last decade, they would have spent $1.39 trillion in 2022, $344 billion less than the $1.74 trillion they actually spent.

Had federal and state governments simply grown no faster than the rate of population growth plus inflation, taxpayers could have been spared at least $2 trillion in taxes and debt in 2022 and trillions of dollars more over time. The U.S. hasn’t needed drastic budget cuts, just slower, more sustainable debt growth.

Our project defines each state’s overspending problem by providing a dollar-figure spending ceiling and allowing anyone to see how government spending in a state has grown relative to the rate of population growth plus inflation. It will publish and promote an annual benchmark spending level for every state, which lawmakers must not exceed if they want to keep state spending in check.

Limiting state spending to the Sustainable Budget Project benchmark isn’t impossible. Lawmakers in more states are beginning to implement the sorts of structural reforms necessary to slow the rate of government spending to a sustainable clip. During the past decade, Colorado and Texas have demonstrated that this can be done.

Colorado spent a cumulative $12.8 billion less over the past decade than what could have been available under the benchmark. State lawmakers could have dramatically cut the state’s individual income tax. Instead, there is a push in Colorado to raise taxes and destroy the Taxpayer’s Bill of Rights, the state’s constitutional requirement that all tax increases be subject to voter approval and revenue collected in excess of the state spending cap be refunded to taxpayers.

Texas spent $16.4 billion less than the benchmark over the past decade, savings that could have been used to eliminate its gross-receipts-style franchise tax and other bad taxes. Rather than continuing to keep state spending in check, Texas lawmakers instead passed the largest state budget in the state’s history this year.

Excessive spending at the federal, state and local levels of government deserves more attention. Tax hikes are easy to identify, but there has been no objective, binary metric to determine whether a state government spends too much. By focusing on the rate of population growth plus inflation, the Sustainable Budget Project provides such a standard.

Governors and state legislators need to implement reforms and practice restraint to slow the steep upward trajectory of government spending. That lawmakers in large, politically important states have already demonstrated this ability has shown their counterparts in other states and in Washington that sustainable budgeting is possible. With more modest growth in state government spending, lawmakers can lower taxes and Americans can keep more of what they earn.

Mr. Norquist is president of Americans for Tax Reform. Mr. Ginn, a senior fellow at ATR, served as chief economist of the White House’s Office of Management and Budget, 2019-20.

Originally published at Wall Street Journal.

​In 2023, Americans for Tax Reform launched The Sustainable Budget Project, a new venture that monitors state government spending and tracks which states have or have not enacted sustainable budgets.

The Sustainable Budget Project defines a sustainable budget as one that limits the pace of state government spending to lower than the rate of population growth plus inflation, which accounts for the average taxpayer’s ability to pay for government spending. 

• The Sustainable Budget Project looks at the changes in state government spending over the past decade and next year. The findings illustrate how, in most states, overspending is the problem, not under-taxation.

From 2013 to 2022, the following happened:

• Federal spending shot up by 69.4%, more than three times faster than the 21.6% increase in the rate of population growth plus inflation.

• Had the federal government limited the growth in spending to the rate of population growth plus inflation during that decade, the federal government would’ve spent $1.6 trillion less in 2022 than it did.

• If the federal government had done this over the entire decade, the national debt would have increased by less than $500 billion instead of $19 trillion. 

Aggregate state spending, excluding funds received from the federal government, by the 50 state governments increased by 51.7% during that period. 

• Had their spending grown in line with the rate of population growth plus inflation during the past decade, state governments would’ve spent $1.39 trillion in 2022, $344 billion less than the $1.74 trillion that all state governments spent. 

Result: American taxpayers could have been spared more than $2 trillion in taxes and debt if federal and state governments had grown no faster than the rate of population growth plus inflation during the previous decade.  

There four states that held growth in state funds and all funds below the rate of population growth plus inflation over the last decade, thereby keeping taxes lower than the average taxpayer can afford:

• Alaska
• Colorado
• West Virginia
• Wyoming

There are seven states that held growth in state funds, but not all funds, below the rate of population growth plus inflation over the last decade, thereby keeping taxes for state funds lower than the average taxpayer can afford.  

• Connecticut
• Louisiana
• Massachusetts
• Montana
• North Carolina
• Oklahoma
• Texas

There is the one state that held growth in all funds, but not state funds, below the rate of population growth plus inflation over the last decade, thereby keeping taxes for all funds lower than the average taxpayer can afford.

• Mississippi

Go to ATR's Sustainable Budget Project to find out the following information:

• How government spending has changed in each state for all funds (including federal funds) and state funds (excluding federal funds) over the past decade,
• How the change compares to the rate of population growth plus inflation,
• What the dollar amount of the upcoming budget would need to stay below to be classified as a sustainable budget, and
• How each state compares with other states and other helpful fiscal and economic facts.

Originally posted at Americans for Tax Reform.

​Overview

• Texas is a leader in economic freedom and is a place where people move from other states. This “Texas Model” of no personal income tax, relatively less government spending and taxes, and sensible regulation supports robust economic growth and job creation. Voter-approved constitutional amendments that have prohibited personal income taxes and statewide property taxes are contributing to this. 

• But this year, the Texas Legislature passed the largest budget increase in Texas history that left just the second-largest property tax cut in the state’s history. Clearly, there is more to do. People cannot claim their God-given right to own property, as they continue to rent their property from local governments. There are ways to correct this, starting with spending less. 

• Many of Texas’ more than 4,500 local governments have increased spending and property taxes to unsustainable, unaffordable amounts. Not only are taxpayers burdened, but Texas’ localities look more like big-government municipalities in blue states, such as California. Additionally, the state has risked declining in economic freedom, competitiveness, and prosperity. The Lone Star State will lose its competitive advantage without spending less and eliminating property taxes. 

• This report examines the spending, debt, and property taxes in four of Texas’ largest cities, Dallas, Austin, Houston, and San Antonio, where one out of every five Texans live. Historically, these localities have had too much spending, debt, and taxes, which indicate the urgent need for local government reforms before Texas becomes less competitive and less affordable.

​Debt
A recent report by the Texas Bond Review Board notes that Texas’ total outstanding local government debt is $280 billion, resulting in debt per capita of $8,869. This puts Texas’ local debt per capita in third place of the largest 10 states, behind only New York ($10,788) and California ($9,621), and nearly twice as high as in Florida ($4,753) (Figure 1). 

The following figures show the Texas Comptroller’s data for nominal and real (inflation-adjusted) outstanding general obligation (GO) debt for four of the largest cities in Texas (Austin, Dallas, Houston, and San Antonio). Each of them shows increased GO debt per capita from 2011 to 2020 in nominal and real amounts. But these amounts per capita show some differences. ​

• Austin’s debt per capita increased by 12.4% to $1,548 (the largest of these four) in nominal terms and by 29.3% in real terms. ​
• Dallas decreased debt per capita by 3.5% to $1,447 in nominal terms but increased it by 11.1% in real terms.
• Houston decreased debt per capita by 0.5% to $1,476 in nominal terms but increased it by 14.5% in real terms.

• San Antonio increased debt per capita by 28.9% to $1,237 in nominal terms and by 48.3% in real terms.

The unsustainable deficit accumulation across many of Texas’ local governments reflects irresponsible spending. Economist Michael Munger called this “Deficits Are Future Taxes” (DAFT), meaning, increased debt signals a current spending issue and a future taxation problem for the next generations. This is a significant challenge for the state’s future and drives up property taxes higher than otherwise. 

Spending
My analysis in June 2022 found that Texas’ four major cities have exceeded a responsible city budget for years, contributing to higher taxes and debt. This responsible budget sets a maximum threshold based on the average taxpayer’s ability to pay for it, which is best represented by a fiscal rule of a spending limit with the rate of population growth plus inflation. Of course, this growth is a maximum as the budget really should be frozen or even cut for most governments given their spending excesses over time. Truth in Accounting defines the local taxpayer burden as “the approximate dollar amount that would be required of each taxpayer in order to pay off all of a government’s liabilities today. It is calculated by dividing the ‘money needed to pay bills’ by the estimated number of taxpayers in the state or city,” demonstrating the depth of debt.

• Austin was spending at least $2.2 billion more in 2022 because of overspending compared with if it had followed this fiscal rule since 2013 (Figure 6). Truth in Accounting’s 2023 financial report gave Austin a D grade because of the nearly $3 billion in liabilities and $9,400 in taxpayer burden. Clearly, there is much work to do to limit government which is contributing to the unaffordability in Austin.

​

• Houston was spending $2.7 billion more in 2022 than if it had not exceeded this fiscal rule since 2013 (Figure 8). Truth in Accounting’s 2023 financial report showed Houston’s liabilities reached $6 billion, and the taxpayer burden is $8,900. This results in a grade of D by Trust in  Accounting.

​

• San Antonio was spending $1.3 billion more in 2022 than if it had spent no more than this fiscal rule since 2013 (Figure 9). Truth in Accounting’s 2023 financial report revealed San Antonio had a C grade with liabilities at nearly $708 million and a taxpayer burden of $1,700.

​When local governments want to spend more given their balanced budget requirements, they must raise taxes, and they primarily raise property taxes.

Tax Revenue
The Texas Comptroller reports that property taxes are the biggest revenue source for local governments. Here are the current total property tax rates for these large cities:

• Austin’s current property tax rate is 44.58 cents per $100 valuation of property, which is the effective property tax rate in Austin and one of the nation’s highest. 
• Dallas’ current property tax rate is 74.58 cents per $100. 
• Houston’s current property tax rate is 55.00 cents per $100. 
• San Antonio’s total property tax rate for 2023 is 54.16 cents per $100. 

​According to the Tax Foundation, Texas currently has the sixth-highest property tax burden on those with a home in the country (Figure 10)

​Although the Lone Star State has no income tax, its substantial property tax burden increases because of excessive local government spending increases in recent decades has burdened renters and holders of a home, reducing the state’s affordability. The Tax Foundation’s state business tax climate ranks Texas 38th out of 50 for the burden of property taxes. 

The Texas Legislature recently passed and Governor Greg Abbott signed Senate Bill 2 with $12.7 billion in property tax relief. This package includes reducing the school district maintenance and operations (M&O) property taxes by 10.7 cents per $100 valuation. It also includes raising the homestead exemption for school district property taxes by $60,000 to $100,000. However, this package should have been much larger, as there were $33 billion in surplus funds available and tens of billions of dollars more available, leaving plenty of taxpayer money to return. The property tax bills provided further complicate the tax system and will not result in as much relief as some are advertising. The best approach was to reduce school district M&O property tax rates with all the relief provided. This should have been at least $21 billion for a reduction of 25 cents per $100 valuation. This would have provided the largest property tax cut in Texas history (Figure 11) instead of the second largest because of the largest spending increase in the state’s history. 

Recommendations 
For the state to stay competitive and improve the future for Texans, Texas should seek to reform the largest hindrances to its economic flourishing: government spending and property taxes. 

• State government must spend less and eliminate school district M&O property taxes. Texas has done a better job restraining spending than many states, but more must be done, especially after this year’s spending bonanza. By controlling spending better and passing a Frozen Texas Budget, the Legislature can use surplus funds to buy down school district M&O property tax rates each period until they are zero. This tax is essentially controlled by the Legislature now with the school finance formulas, so it is best positioned for the state to eliminate it. This process for elimination would take about ten years, based on conservative estimates, for the state to fund 100% of the state’s school finance formulas as intended by the Texas Constitution (Article VII, Section 1).

• Local governments must spend less and eliminate their property taxes. This should at least include imposing a responsible local budget that increases by no more than the rate of population growth plus inflation. Local governments could impose this on themselves, or the state could pass a law that would extend the state’s spending limit based on this rate for all local governments. It would force municipalities to prioritize spending better and make essential modifications or cuts where needed, and it would protect taxpayers from higher property taxes to fund excessive spending. Doing so would result in surpluses at the local level because tax revenues from sales taxes and fines and fees generally increase faster than this fiscal rule. The surpluses should be returned to taxpayers by buying down their own property taxes until they are zero, which could also take about a decade. Localities that cannot do this with other revenue sources or choose not to do so should substantially reduce their property taxes to compete with other localities. Over time, this process of competition would help eliminate all property taxes in Texas or many local areas will be left behind.

• The Legislature should freeze school district M&O property taxes and reduce the voter approval rate for all taxing entities to the no-new-revenue rate for new and existing properties without loopholes. This will help to more quickly eliminate these property taxes and put more power in the hands of taxpayers.

• State and local governments should increase transparency for debt and property taxes. There has been more transparency added to debt and property taxes in recent years, but more is needed. For example,  any debt issued should have the amount of taxes being raised to pay for the debt in total and for the average homeowner in that locality. There should also be caps on how much debt can be issued, as this is just current and future tax hikes.

Conclusion
The ultimate burden of government is not how much it taxes, but how much it spends. This is true at the national, state, and local levels. Texas boasts many metrics of economic freedom, including no personal income taxes, less burdensome regulations, and relatively less government spending. Recent increases in these areas hinder opportunities to prosper. Immediate policy changes to state and local budgeting that will eliminate property taxes, increase transparency for budgets, debts, and taxes, and strengthen their fiscal situation will help Texas better support prosperity for Texans today and for generations to come. Moreover, this will finally give Texans their God-given right to own property instead of renting from the government forever. Stop renting, start owning!
​
Originally published with links to all sources at Texans for Fiscal Responsibility.

President Calvin Coolidge regarded “a good budget as among the most noblest monuments of virtue.” Government spending is at the heart of sound public policy. President Coolidge understood the importance of economy in government in order to achieve sound public policy. President Coolidge’s fiscal conservatism is being exemplified at the state level by Iowa Gov. Kim Reynolds, who is making fiscal conservatism a priority resulting in benefits to Iowans. Gov. Reynolds, just as with Coolidge, understands that prudent budgeting is a virtue.

Despite the national economic malaise from high inflation and stagnant growth, Iowa’s fiscal foundation was strong heading into the 2023 legislative session.

Last year, Gov. Reynolds and the Iowa Legislature continued to place a priority on prudent budgeting. The general funds budget for fiscal year 2023 was $8.2 billion, increasing by just 1 percent from the prior year. This session the legislature enacted an $8.5 billion budget for fiscal year 2024, which is a 3.6 percent increase from the previous year’s budget.

This holds the budget well below the Conservative Iowa Budget, which set a cap on the budget of $8.8 billion based on the maximum rate of population growth plus inflation of 7.4 percent. In other words, taxpayers benefit from the budget growing well below the growth of the economy, allowing more money in the productive private sector.

In January, Gov. Reynolds proposed an $8.48 billion budget, which reflected her priorities including funding the Students First Act, which created a universal Education Savings Account program. After budget negotiations between the House and Senate, the Legislature passed a budget that was a slight increase from the governor’s original proposal. The $8.5 billion budget spends only 88.25 percent of projected tax collections.

Since 2018, Gov. Reynolds and the Legislature have placed an emphasis on passing tax reforms and restraining the growth of spending. This approach has left more money in taxpayers’ pockets with a substantial tax relief package headed toward a low flat tax by 2026. What too many people overlook is that significant tax cuts like Iowa’s are only made possible by years of prudent and conservative budgeting. Without spending restraint, any tax relief, regardless of the tax, becomes impossible.

The evidence is clear that prudent budgeting is paying off for Iowans.

Iowa’s budget continues to be in surplus. The surplus for fiscal year 2023 is projected to be $1.7 billion and the current estimated surplus for fiscal year 2024 is projected to be $2 billion. In addition, Iowa’s reserve accounts (Cash Reserve Fund and the Economic Emergency Fund) will continue to be funded at their statutory limits with a combined balance of over $961 million. The Taxpayer Relief Fund will also continue to increase. The balance in the Taxpayer Relief Fund for fiscal year 2023 is $2.7 billion and this is estimated to increase to $3.5 billion in fiscal year 2024.

Both Gov. Reynolds and legislative leaders have signaled that further income tax reform will be a priority for the 2024 legislative session. The Taxpayer Relief Fund, which was originally created for the purpose of income tax relief, will be instrumental in further income tax rate reductions. Iowa Senate Republicans introduced an income tax reform proposal this past session that if enacted would have sped up the income tax rate cuts and used the Taxpayer Relief Fund to phase-out the income tax altogether.

In addition to restraining spending, Gov. Reynolds also made some important reforms that will impact future state spending.

One of her major priorities was to reform state government. Gov. Reynold’s state government reform measure consolidates and makes government more efficient. Currently, Iowa has 37 executive branch cabinet agencies – more than all neighboring states. The governor’s proposal will reduce the number of executive-level agencies to 16, streamlining and cutting bloated bureaucracy while saving taxpayer dollars. It is estimated that this plan will save taxpayers over $214 million over four years. This was the first major reform of Iowa’s bureaucracy in nearly 40 years.

Further, Reynolds issued an executive order at the beginning of the legislative session that requires an extensive review process of Iowa’s regulatory code. Both reforming Iowa’s bureaucracy and reducing burdensome regulations are essential in the path to sustaining limited spending.

​In its Fiscal Policy Report Card on America’s Governors 2022, the Cato Institute ranked Gov. Reynolds as the best governor. “Governor Reynolds has been a lean budgeter and dedicated tax reformer since entering into office in 2017,” wrote Chris Edwards and Ilana Blumsack, authors of the report.

This year, Gov. Reynolds and the Legislature are continuing this trend. Iowa is at the forefront of conservative budgeting that other states and the federal government should follow.

Originally published at The Center Square and co-authored with John Hendrickson at Iowans for Tax Relief Foundation.

​Thank you for checking out the 8th episode of "This Week's Economy,” where I briefly share insights every Friday on key economic and policy news across the country. Subscribe to receive new posts and support my work. 

Today I cover:
1) National: Breaking down the latest report on CPI inflation and how it relates to real average weekly earnings, what’s going on with the debt ceiling debate, and why the Fed should continue to raise its interest rate target and cut its balance sheet;
2) States: ALEC's newest "Rich States, Poor States" report findings related to where Texas stands in comparison with Utah and Florida, what the legislatures are doing late in the sessions of Texas (here), Louisiana (LA jobs report and tax relief), and elsewhere; and
3) Other: New findings on the importance of work-life balance, the value of the U.S. dollar, and more.

​You can watch this episode and others along with my Let People Prosper Show on YouTube or listen to it on Apple Podcast, Spotify, Google Podcast, or Anchor (please share, subscribe, like, and leave a 5-star rating!).

For show notes, thoughtful insights, media interviews, speeches, blog posts, research, and more, continue to check out my website (https://www.vanceginn.com/) and please subscribe to my Substack newsletter (https://vanceginn.substack.com).

​In Let People Prosper episode #42, I talk w James Hohman with Mackinac Center for Public Policy about improving Michigan's economy, right-to-work policies, corporate welfare, and budget.

​On today's episode of the "Let People Prosper" show, I'm thankful to be joined by James Hohman, Director of Fiscal Policy at the Mackinac Center for Public Policy and host of The Overton Window Podcast.

We discuss:
1) Right-to-work policies, workers' unions, and corporate welfare;
2) How shutdowns impacted the economy of his home state, Michigan; and
3) A path forward for the state, and others, to prosper with a Sustainable Michigan Budget and more.

​You can watch this interview on YouTube or listen to it on Apple Podcast, Spotify, Google Podcast, or Anchor (please share, subscribe, like, and leave a 5-star rating).

​James’ bio:

• James M. Hohman is the director of fiscal policy at the Mackinac Center for Public Policy, which publishes The Overton Window Podcast that he hosts. He holds a degree in economics from Northwood University in Midland, Mich.
  

​In Let People Prosper episode #41, I talk w Dan Mitchell, Ph.D., about the need government spending limits, benefit of flat tax revolution, Fed's booms and bust cycles, and more to let people prosper.

On today's episode of the "Let People Prosper" show, which was recorded on March 24, 2023, I'm thankful to be joined by Dr. Dan Mitchell, President of the Center for Freedom and Prosperity and blogger at ⁠International Liberty⁠.

We discuss:
1) Lessons from history on government spending and why strong spending limits are needed at every level of government;
2) Issues with the Fed creating artificial cycles of booms and busts; and
3) Reasons to be optimistic about the flat tax & and school choice revolutions happening in states across the country.

​You can watch this interview on YouTube or listen to it on Apple Podcast, Spotify, Google Podcast, or Anchor (please share, subscribe, like, and leave a 5-star rating).

Dan Mitchell’s bio:

• Dan Mitchell is President of the Center for Freedom and Prosperity, a pro-market public policy organization he founded in 2000. His major research interests include tax reform, international tax competition, the economic burden of government spending, and other fiscal policy issues.
• Having also worked at the Heritage Foundation and Cato Institute, he has decades of experience authoring papers, writing editorials, working with the public policy community, and presenting the free-market viewpoint to newspaper, television, and radio media. 
• Dan has spoken to a wide variety of groups in dozens of cities and more than 50 foreign countries. He also served on the editorial board of the Cayman Financial Review, and holds a Ph.D. in economics from George Mason University.

​For show notes, thoughtful economic insights, media interviews, speeches, blog posts, research, and more, check out my personal website and subscribe to my Substack newsletter where you can get every episode in your inbox.