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. 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 were no government spending or 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 decades to enact strong fiscal rules, including a spending limit, for federal, state, and local governments. My calling is to "let people prosper," as effectively limiting government support promotes 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 are more effective at fostering economic growth than those based on raising taxes.

Fortunately, multiple state think tanks 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 recently outlined in my co-authored op-ed with Grover Norquist of ATR in The Wall Street Journal and has been discussed at NRO, the Club for Growth Foundation, and elsewhere.

When Did This Budget Approach Begin?

I began this approach in 2013 with my former colleagues at the Texas Public Policy Foundation, focusing 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 initiated in Colorado in 1992 with the passage of their Taxpayer's Bill of Rights (TABOR), which key individuals like Dr. Barry Poulson and others championed  (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 essential to look at this from the taxpayer’s perspective rather than the appropriator’s view, given that taxpayers fund every dollar that appropriators redistribute from the private sector. Population growth, combined with inflation, is also a stable metric that reduces uncertainty for taxpayers (and appropriators), essentially freezing inflation-adjusted per capita government spending over time. ​

The research in this space is clear that the best fiscal rule is a spending limit based on the rate of population growth plus inflation, rather than gross state product, personal income, or other growth rates. Population growth, combined with inflation, typically grows more slowly than these different rates, allowing more money to remain in the productive private sector, where it belongs.

To get technical for a moment, personal income growth and gross state product growth are essentially equivalent to population growth plus inflation plus productivity growth. There's no reasonable consideration that the government is more productive over time, so that term would be zero, leaving population growth plus inflation. And suppose you consider the productivity growth in the private sector. In that case, more money should be allocated to the more productive sector at the margin for the highest rate of return, leaving just population growth and inflation.

Population growth plus inflation becomes the best measure, no matter how you look at it.

Given the high inflation recently, it is wise to use the average growth rate of population growth plus inflation over several years to smooth out the increased volatility (ATR's Sustainable Budget Project uses the average rate over the three years before a session year). And this rate of population growth plus inflation should be a ceiling, not a target, as governments should be appropriating less than this limit. Ideally, governments should freeze or reduce 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

This approach was partially introduced into state law in Texas in 2021 with Senate Bill 1336, as the state already has a spending limit in its 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. 

Some improvements should be made to the recent statutory spending limit change in Texas, such as enshrining it in the constitution and adjusting the growth rate to reflect population growth plus inflation, rather than population growth times inflation calculated by (1+pop)*(1+inf). This limit is one of the strongest in the nation, as historically the gold standard for a spending limit of Colorado's Taxpayer Bill of Rights (TABOR) has been watered down over the years by its courts and legislators, as it currently covers just 43% of the budget instead of the original 67%. 

Unfortunately, the weaknesses in Texas' expenditure limits, including the weak constitutional spending limit and the consolidated general revenue spending limit, have contributed to excessive spending in recent years. The table below highlights the Texas House and Senate budgets for the latest 2026-27 biennium. The Legislative Budget Board's Reported Budget compares spending to appropriations, which is like comparing apples to oranges. Both are expenditure types, but appropriations are at the beginning or during the budget period, while spending is at the end. The table also includes the Budget Since 2024-25 with an apples-to-apples comparison between initial appropriations in each biennium. The budget since 2023, which uses this consistent comparison from 2022-23 to the proposed 2026-27 appropriations, shows that appropriations of state funds are up 42.6%. These are historically significant increases in such a short period and are a primary reason for concern. 

The figure below shows how the growth in Texas’ biennial budget was cut by 13.3% from 12% to 10.4% after the creation of the Conservative Texas Budget in 2014, which 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 10.4% average growth rate of biennial appropriations since 2016 was below the 9.3% biennial average rate of population growth plus inflation, which was driven substantially higher after the latest 2024-25 budget that is well above this key metric (previously, the biennial budget growth was 5.2% compared with 9.3% in the rate of population growth plus inflation). ​

Making matters worse, the growth of the budget has increased substantially faster than population growth plus inflation in Texas since Republicans gained their first trifecta in control of the Governor's mansion, Senate, and House in 2003. Their first budget was in 2004-05, which the work of House Appropriations Chairman Talmadge Heflin (one of my wonderful mentors) helped address by addressing a budget shortfall without raising taxes but through spending cuts and restraint. The figure above highlights how the budget has grown nearly 30% faster than the average taxpayer's ability to pay for it over this period. The figure above illustrates how these excesses have accumulated over time, resulting in massive spending and substantial tax burdens on Texans. There is more work to do!​

Sustainable Budget Work With Other States, ATR, and CFGF

When I returned to the Texas Public Policy Foundation in May 2020, I sought to regain a sense of freedom during the COVID-19 pandemic and be closer to family. I started an effort to work on this sound budgeting approach with other state think tanks. This contributed to my working with many fantastic people who are trying to restrain government spending at the state, local, and federal levels. Here are my latest data on the federal and state budgets as part of American for Tax Reform's Sustainable Budget Project and a recent publication by the Club for Growth Foundation.

​From 2015 to 2024, the following happened:

Federal spending skyrocketed 88.0%—more than three times faster than the 27.6% increase in population and inflation.

• If Congress had restrained spending to this sustainable growth rate:
  • The federal government would’ve spent $2.2 trillion less in 2024.
  • The national debt would’ve fallen by $1.8 trillion instead of growing by $14.3 trillion.
  • Cumulative debt since 2005 would have risen by $2.5 trillion, not $21.7 trillion.
• That’s trillions of dollars that could’ve stayed in people’s pockets or been invested in future prosperity, not siphoned off to fund bloated bureaucracies and waste.

Aggregate state spending, by the 50 state governments, excluding funds received from the federal government, increased by 54.2% during that decade. 

• Had their spending grown by the maximum rate of 27.6% in population growth plus inflation from 2015 to 2024:
  • State governments would’ve spent $328 billion less than the $1.90 trillion in 2024.
  • Cumulative spending across that decade would have been $1.3 trillion less than what was spent, resulting in more money in people’s pockets.

Result: When combining federal and state overspending, Americans lost over $2.5 trillion in 2024 and more than $13.4 trillion in excess taxes and debt across the decade.

I hope 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 that let people prosper.

​Sustainable State Budget Revolution Across The Country

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

Here are the latest efforts:

1. Americans for Tax Reform released the Sustainable Budget Project, which compares every state's spending with population growth and inflation, along with valuable comparisons and data for each state.
2. Alaska: Alaska Policy Forum released the Responsible Alaska Budget.
3. Colorado: The Independence Institute recently released the Sustainable Colorado Budget.
4. Florida: James Madison Institute released the Conservative Florida Budget.
5. Iowa: Iowans for Tax Relief Foundation released the Conservative Iowa Budget.
6. Kansas: Kansas Policy Institute released the Responsible Kansas Budget.
7. Louisiana: Pelican Institute released the Responsible Louisiana Budget, see comparison of RLB with ATR's Sustainable Budget project.
8. Michigan: Mackinac Center released the Sustainable Michigan Budget.
9. Mississippi: Mississippi Center for Public Policy released the Responsible Mississippi Budget.
10. Montana: Frontier Institute released a Conservative Montana Budget and a report on Responsible Local budgets.
11. South Carolina: SC Policy Council released the South Carolina Sustainable Budget. Oconee County Council in South Carolina employed this approach and submitted its sustainable budget. 
12. Tennessee: Beacon Center released the Conservative Tennessee Budget.
13. Texas: Texas Public Policy Foundation released the Conservative Texas Budget and Responsible Local Budgets. Texans for Fiscal Responsibility released a similar metric.
14. Federal: The Let Americans Prosper Project, along with the Responsible American Budget, aims to rein in federal government spending to support fiscal sanity in Washington, D.C., which is essential for the future of our country.

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If you're interested in pursuing this initiative in your state, please don't hesitate to contact me.

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

Originally published on Substack. 

How do states compare in taxes? Jared Walczak just co-authored the Tax Foundation’s 2026 State Tax Competitiveness Index, and the message is clear: tax competition matters! But spending is to blame for high taxes.

States with simple, broad-based, and low tax systems are winning. Those that cling to complex, high-rate, carveout-laden tax codes are falling behind. In short, the states that trust people to prosper are leading America’s economic race.
​
At the top of the 2026 rankings are Wyoming (#1), South Dakota (#2), and New Hampshire (#3) — all notable for not taxing individual income.

At the bottom: New York (#50), New Jersey (#49), and California (#48), where excessive taxes drive people and businesses away.

Texas, with its strong no-income-tax model, ranked #7 overall, just below Montana (#6). Property taxes in Texas, however, remain an anchor on competitiveness — ranked 38th among the states. Anyone who’s tried to buy a home in Austin or Dallas knows the frustration: it’s not freedom if you’re effectively renting your home from the government through endless tax bills.

🔍 What Makes a State Competitive?

The Index evaluates five major areas of each state’s tax structure:

1. Corporate income tax
2. Individual income tax
3. Sales tax
4. Property tax
5. Unemployment insurance tax

​The key isn’t just how much a state collects — it’s how it collects it. A competitive tax code should be neutral, simple, and predictable, encouraging investment and innovation rather than penalizing growth or distorting decisions.

The top-ranked states tend to either lack one or more major taxes or maintain flat, broad-based, low-rate systems. The bottom-ranked states suffer from complexity, narrow bases, and punitive rates that erode opportunity and fiscal health.

💸 Texas and the Path Forward

Texas earns high marks for having no personal income tax, but its property tax burden — ranking 38th nationwide — reveals a major policy challenge. The problem isn’t valuation; it’s spending. Local government growth has outpaced population growth plus inflation for decades, fueling tax hikes even amid record state surpluses.

As I’ve emphasized across my writings and policy work with multiple states, sustainable reform requires spending restraint first. By limiting spending growth to less than population plus inflation and using surplus funds to buy down school district property tax rates, Texas can move toward phasing out property taxes altogether — responsibly and permanently.

This isn’t a radical idea. It’s the next frontier of fiscal reform — one that would strengthen property rights, make homeownership attainable, and ensure long-term prosperity.

🚦 The National Picture

These rankings are more than bragging rights; they map the economic migration of the 21st century.

• Florida and Tennessee continue to attract families and businesses with growth-friendly tax climates.
• California, New York, and New Jersey are losing hundreds of thousands of residents each year.
• The gap between top and bottom states is widening, and not because of weather — it’s because of policy.

People vote with their feet, and the data prove they’re moving toward economic freedom, not away from it.

🧭 The Bottom Line

Tax competition works because it’s rooted in human nature. When people are free to choose, governments must compete for them — not exploit them.

The states embracing that truth are building durable prosperity. Those ignoring it are doubling down on failure.
​
If policymakers want a blueprint for growth, it’s simple: limit spending, simplify taxes, and trust people — not politicians — with their money.
​
That’s how to let people prosper.

Originally published on Washington Examiner. 

​When government bureaucrats start creating programs to solve problems that already have solutions, taxpayers should take notice — and grab their wallets.

The Internal Revenue Service’s “Direct File” program is a case study in duplication, waste, and mission creep.

​Marketed as a “free,” government-run tool to help Americans file their taxes, it’s neither free nor needed. From a federal budget standpoint, it’s a disaster in the making—and from a governance standpoint, it hands the IRS far too much control over the financial lives of ordinary Americans.
​
As a former chief economist at the Office of Management and Budget, I’ve seen how these initiatives take root. They start with a small appropriation hidden deep in a spending bill and quietly metastasize into costly, permanent bureaucracies. 

​The so-called Direct File “pilot program,” first launched during the Biden years, is following that same pattern.
​
During last year’s pilot program, fewer than 1% of eligible taxpayers even bothered to use the program. When a government service can’t attract more than a rounding error of participants despite massive taxpayer subsidies, that’s far from a success.

A Treasury Department Inspector General report found that taxpayers “did not like Direct File’s limited tax scope and its complexity.” 30 million taxpayers qualified for the program, 423,450 signed up, and yet only 140,803 ultimately submitted their returns through Direct File. That’s telling. 
 
And yet, now, after the Trump administration made known its plan to scrap Direct File earlier this year, the IRS is gearing up to release a glowing anonymous feedback “survey” meant to show overwhelming public approval of the program. The approval to start such a survey was wedged into the Big, Beautiful Bill by congressional Democrats. But don’t be fooled: this survey will be as scientific as a high school popularity contest.

Users could take this survey as many times as they wanted, with no IP address verification, meaning one person could submit dozens—or even hundreds—of fake responses. AI bots could submit hundreds of thousands more. The survey’s design will conveniently ask whether users love the Direct File service, and no doubt, the IRS will make sure that satisfaction number looks very promising. But the results will mean nothing. 

Again, at the end of the day, less than 1% of taxpayers used Direct File last year. That’s all the proof Congress should need that it’s underused, overpriced, and unnecessary. 

Direct File costs roughly $814 per return processed last year — many times what private providers charge for equivalent services. If this were a private business, Direct File would have gone bankrupt by now. 

​Americans already have abundant options for no-charge or low-cost tax preparation and filing—including public-private partnerships like the IRS’s own Free File program, which has successfully connected millions of taxpayers with free, reliable filing tools for decades. Rather than improve and expand those existing partnerships, bureaucrats decided to build a duplicative system from scratch, using taxpayer dollars to compete with the private sector.

Taxpayers don’t want to use Direct File because they believe the IRS exists solely to collect taxes, not also to prepare our tax returns. Allowing the same agency that has every incentive to maximize its annual revenue collection to also determine what you owe on top of auditing you and enforcing payment would create a built-in conflict of interest. It would be the fiscal equivalent of letting the referee join one of the teams. The result would be a system that’s ripe for abuse, especially when the same agency has a history of targeting conservative nonprofit groups and mishandling sensitive taxpayer data.

At OMB, we asked one simple question about every program: Is this a core function of the federal government, or is it just more bureaucracy? It’s clear that Direct File falls in the latter camp. From backlogged returns to unanswered customer service calls to cybersecurity lapses, the IRS already struggles to manage its existing workload — and now it’s diverting resources toward a politically-motivated vanity project.

Congress should ignore the demands of unelected IRS bureaucrats and stop Direct File in its tracks. Every dollar spent on the program is a dollar not for reducing the deficit, modernizing IRS systems, or strengthening taxpayer privacy protections.

​President Donald Trump promised to restore accountability and fiscal restraint to Washington. Ending wasteful, duplicative programs like Direct File is a fantastic place to start. Because when the IRS becomes both tax preparer and tax collector, it’s strengthening The Swamp, not draining it. And that’s in no one’s interest.

Originally published on South Carolina Policy Council.

For years, critics have pointed to Kansas as a failed tax experiment—“cut taxes and calamity follows.” That’s a myth. The real problem wasn’t the tax cuts; it was the refusal to restrain spending. Kansas lowered income-tax rates in 2012 but let government outlays surge. By 2017, deficits ballooned, and lawmakers passed the largest tax hike in state history.
​
The lesson is simple: tax reform succeeds only when paired with strict spending discipline. You cannot reduce revenue growth while spending more.

Look at North Carolina, which cut taxes, created a flat tax, and capped spending growth. It is now on track to eliminate its corporate income tax entirely. Arkansas, Mississippi, and Oklahoma are also phasing out income taxes—precisely because they combined tax relief with fiscal restraint.

South Carolina has started down this path. The 2022 reform lowered rates, with the top individual rate to 6.0%. That’s progress—but without durable spending rules, the state could repeat Kansas’ mistakes. 

Here’s how South Carolina can be “Kansas-proof”:

• Cap spending growth: Limit increases to population growth plus inflation as a hard maximum, not a target. That keeps the government from outpacing taxpayers’ ability to pay. Lawmakers should enact legislation stating that any spending changes must be less than population growth plus inflation. They should then require a high bar such as a two-thirds supermajority in order to override.
  
  
• Use surplus buydowns to cut rates: Dedicate surpluses first to buy down the income-tax rate to a flat tax and then to zero. This ensures tax relief is tied to real fiscal results—not wishful thinking.
  
  
• Flatten and simplify: Move to one low flat rate as quickly as surpluses allow, then continue to zero. Stability and predictability are magnets for people and businesses.
  
  
• Full expensing: Let businesses deduct new investments immediately, which frees up cash for expansion, jobs, and higher wages—while the spending cap ensures long-term balance.
  
  
• End carve-outs and subsidies: Stop picking winners and losers. Cut the rate for everyone instead of handing out narrow tax breaks.
  
  

South Carolina has a chance to be more than just another reform state—it can be a national leader. Roughly half the states have some form of spending cap or taxpayer bill of rights (TABOR), but most are riddled with loopholes or weak enforcement. 

Colorado’s TABOR is the most well-known, and North Carolina has paired its cap with real tax relief. Yet few states have taken the bold step of tying a strict population-plus-inflation cap directly to surplus-driven income tax elimination. If South Carolina does this, it would set the standard for fiscal discipline nationwide.

This is not austerity; it’s alignment. A population-plus-inflation cap ensures the government grows only as fast as taxpayers can sustain. Surplus buydowns provide a responsible path to a flat tax and ultimately no income tax. 

Kansas shows what happens when politicians cut taxes without controlling spending. North Carolina and others show what happens when states do it right. South Carolina should follow the proven path: spending restraint plus surplus-driven tax elimination. That’s a formula to let people prosper.

Originally published on Substack.

Across America, a quiet revolution is reshaping state tax codes. From Texas to North Carolina, from Arizona to Iowa, lawmakers are replacing complicated, graduated income tax systems with flat rates—or eliminating them. According to Americans for Tax Reform, by January 1, 2026, about half of all states will either have no personal income tax, be on a path to no personal income tax, or have a flat income tax.

That’s worth celebrating! Lower, simpler taxes make states more competitive, attract new residents, and give workers and entrepreneurs more freedom to thrive. But here’s the catch: without meaningful spending restraint, those tax cuts are temporary sugar highs. The bill will come due—and when it does, it will be taxpayers who will foot the bill through higher property taxes, sales taxes, or hidden fees.

The Zero & Flat Tax Revolution

The ATR Zero & Flat Income Tax States Map shows the momentum:

Without it, tax-cutting states risk falling into the same trap as Kansas did a decade ago—cutting rates without restraining spending, leading to budget shortfalls and political backlash. That’s a recipe for reversing reforms.

Who’s Getting It Right

• Iowa: Cutting to a 3.8% flat tax by 2027, with further reductions triggered by revenue performance.
• Arizona: Locked in a 2.5% flat tax while keeping spending under control.
• North Carolina: On track to lower its flat rate to 3.99% by 2027 while maintaining a decade of disciplined budgeting.

These states are combining competitive tax policy with responsible fiscal management, ensuring that reforms are permanent.

​Who’s at Risk

• Texas: No income tax, but seventh-highest property tax burden in the U.S. thanks to local overspending.
• Louisiana: Cutting rates without consistent spending restraint.
• Kansas: Moving toward a flat tax, but history shows that without discipline, gains can vanish quickly.

Let-People-Prosper Path Forward

If states want to lock in prosperity, they must:

1. Adopt zero or flat income taxes for simplicity and growth.
2. Tie spending growth to a maximum of population growth + inflation to prevent runaway budgets.
3. Use surpluses to buy down rates (“surplus buydown) or pay off debt—not more spending.

​My Take:

Tax competition is healthy—and it’s working. But it’s not enough to cut rates and call it a day. Without strict budget rules, today’s tax relief becomes tomorrow’s tax hike. True reform requires both sides of the ledger: competitive taxes and disciplined spending.

Conclusion:

States that get this right will be magnets for opportunity and investment. Those that don’t will find themselves back where they started—wondering why the tax cuts they passed just a few years earlier didn’t stick.

For more information on my work on this issue and potential topics I could present at your next event, please visit my website, check out my Policy Guide, and watch this video: