 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). This limit is 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%. Unfortunately, the weak parts about having two expenditure limits in Texas with the weak constitutional spending limit and this other 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 2026-27 biennium. The Legislative Budget Board's Reported Budget compares spending to appropriations, which is like measuring apples to oranges. Both are expenditure types but appropriations is 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. And the Budget Since 2023 that uses this consistent comparison since 2022-23 to the proposed 2026-27 appropriations, which appropriations of state funds are up 42.7% in the House and up 41% in the Senate. These are historically large increases in such a short period and is a major reason for concern. It is also evidence that we should have humility to understand when there is a problem and improve, especially something so important as Texans having more money in their pockets.  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, ATR, and CFGF 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 my latest data on the federal and state budgets as part of American for Tax Reform's Sustainable Budget Project and recent publication by Club for Growth Foundation. 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.
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. Here are the latest efforts:
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.  Originally posted to EconLib.
From the dawn of civilization, societies have wrestled with the balance between order and liberty. Nations rise and fall based on how they manage power—whether through the centralized control of empires or the dispersed authority of free markets and individual rights. The United States was founded on the radical idea that the government exists to secure the rights given by God, not to grant them. Yet, over time, this vision has been eroded by expanding bureaucracies, redistributive policies, and an entrenched political class that prioritizes power over principle. If the government is to be restored to its rightful place—serving rather than ruling—the federal, state, and local levels must be fundamentally restructured to prioritize liberty, responsibility, and human flourishing. Milton Friedman argued that the government’s role should be limited to protecting life, liberty, and property—everything else is best left to markets and voluntary institutions. His work in Capitalism and Freedom laid out the case for a minimalist government that fosters an environment where individuals can pursue their own goals without interference. He warned that economic freedom is a prerequisite for political freedom—once the government takes control of the economy, it inevitably extends its reach into personal and political liberties. Despite these warnings, the federal government has far exceeded its constitutional limits. Originally designed to be a government of enumerated powers, it now dictates everything from how businesses operate to how education is administered. The centralization of power has eroded the economic dynamism that made America prosperous. Friedrich Hayek’s The Road to Serfdom warned that government planning inevitably leads to the loss of individual choice and freedom, even when implemented with good intentions. The only legitimate functions of the federal government are national defense, securing contracts and property rights, and ensuring a basic rule of law. Everything else belongs to states, local communities, and, most importantly, individuals. A significant part of the government’s failure lies in its incentives, as explained by James Buchanan’s public choice theory. Buchanan shattered the myth that politicians are selfless public servants acting in the best interest of the people. Instead, he demonstrated that they behave like everyone else—acting in their self-interest, seeking re-election, and rewarding special interests that fund their campaigns. The bureaucratic class, in turn, benefits from expanding government power, creating an entrenched system that resists reform. This cycle of political self-preservation explains why spending continues to rise, why debt is out of control, and why special interest groups dominate policy. This dynamic is evident in the way government welfare programs have expanded beyond their original purpose. Social welfare, which once relied on private charity, churches, and mutual aid societies, has been taken over by bureaucratic institutions that dehumanize and entrench dependency. Thomas Sowell, in Wealth, Poverty, and Politics, demonstrated that government intervention in welfare does more harm than good by disincentivizing work and weakening community responsibility. Politicians promise more benefits, knowing that dependency creates a voting bloc that ensures their re-election. Private charities and churches, by contrast, offer not just financial assistance but also moral and social support that helps individuals regain independence. Taxation must be simplified and made transparent. The current system punishes productivity and distorts economic incentives by taxing income multiple times—when it is earned, invested, and transferred through inheritance. This system is inherently unjust, rewarding those who manipulate loopholes while burdening those who work hard and invest wisely. Friedman’s idea of a flat consumption tax remains the best alternative—taxing only final consumption rather than punishing savings and investment. Such a system would eliminate the IRS’s complexity, remove political favoritism in tax policy, and make taxation more transparent. Perhaps the most insidious form of government control is its manipulation of money itself. The Federal Reserve was created to stabilize the economy but has instead fostered cycles of boom and bust through artificial credit expansion and reckless monetary policy. Larry White, an expert on free banking, has demonstrated that historically, competitive banking systems without central banks have led to more stable monetary environments than centrally controlled fiat currencies. Inflation, as Friedman showed, is always and everywhere a monetary phenomenon—caused not by businesses or consumers but by governments expanding the money supply. A sound monetary system cannot be centrally planned but must be rooted in free banking, where private institutions compete to issue currency backed by tangible assets like gold and silver. Honest money holds the government accountable by preventing it from printing its way out of fiscal irresponsibility. Federal regulations, another tool of government overreach, distort markets and restrict innovation. Free enterprise thrives when individuals are left to trade and produce without bureaucratic interference. Most regulations do not protect consumers but instead shield politically connected industries from competition. Licensing laws are particularly harmful, creating barriers to entry that disproportionately hurt lower-income workers who cannot afford costly training requirements. Peter Boettke’s work in Austrian economics emphasizes that regulations are often the result of rent-seeking behavior—where established businesses use the government to protect themselves from competition rather than improve their products and services. A free society relies on contract enforcement and liability law rather than preemptive government intervention. While federal overreach is the most visible threat to liberty, state and local governments also play a crucial role in either preserving or eroding freedom. States should serve as laboratories of competition, yet many have replicated Washington’s worst policies, imposing high taxes, burdensome regulations, and reckless spending. The proper role of the state government is to protect property rights, provide basic infrastructure, and maintain law and order with minimal interference in economic affairs. Spending should be strictly limited, tied to a max of population growth and inflation to prevent gradual government expansion. At the local level, one of the most damaging taxes is the property tax, which effectively means no one can truly own a home outright. While states do not generally impose property taxes, local governments rely on them heavily due to excessive spending. Hayek emphasized that secure property rights are essential for economic stability and individual freedom. Homeownership should be a cornerstone of financial independence, yet property taxes function as an unrelenting rent paid to the government, making true ownership impossible. Local governments should phase out property taxes by capping spending and shifting to user-based fees where appropriate. This requires reining in school district spending, municipal pension costs, and bloated local bureaucracies that drive property taxes higher year after year. Education policy is another area where state and local governments have failed to uphold individual rights. The government monopoly on schooling has led to declining quality, ideological indoctrination, and bureaucratic inefficiency. The only way to ensure quality education is through choice, where funding follows students rather than propping up failing systems. Sowell’s research on education highlights how competition among schools improves performance while centralized control fosters mediocrity. Universal education savings accounts would allow parents to select the best option for their children, whether it be public, private, charter, or homeschool. The ultimate goal of governance should be to create an environment where people are free to make their own choices and take responsibility for their own lives. Human nature is deeply flawed, and no government can create a utopia. But history has shown that the freest societies are the most prosperous and that prosperity is not just material but moral. Sowell reminds us that cultures emphasizing personal responsibility and entrepreneurship outperform those that rely on government intervention. Societies thrive when individuals are allowed to exercise personal responsibility, build strong families, and engage in voluntary cooperation rather than coerced redistribution. This vision is rooted not just in economic theory but in theology, psychology, and law. Theologically, human dignity is best preserved when individuals are free to act as moral agents rather than subjects of the state. Psychology teaches that people thrive when they have autonomy and purpose rather than dependence and entitlement. The rule of law, as articulated in the Western legal tradition, affirms that justice requires equal application rather than arbitrary government decree. A truly free society does not require a powerful state but rather the opposite: a government so restrained that individuals, families, and communities can flourish without interference. The path to prosperity lies not in central planning but in individual liberty, responsibility, and the voluntary cooperation that has always driven progress. The task is not to reinvent government but to restore it to its rightful place—limited, accountable, and subservient to the people. Only then can we truly let people prosper.  Originally posted to National Review.
The November 2024 election delivered a mandate for change. Voters, grappling with persistent inflation, stagnant real wages, and a bloated federal government, were looking for new direction. The Trump administration began addressing these issues on day one with a flurry of executive orders and the pace has not eased up. To truly let America prosper, Trump must advance a free market agenda rooted in limited government, fiscal discipline, and economic freedom. As someone who worked in Trump’s first White House Office of Management and Budget and collaborated with national and state-level think tanks and experts across the country, I have seen firsthand what works — and what doesn’t. The best strategies are clear: cut government spending, simplify taxes, restore energy independence, expand free trade, overhaul immigration, and slash burdensome regulations. Together, these policies will unleash economic growth and create the conditions for a more prosperous future. Many of today’s economic challenges lie in Washington’s out-of-control spending. Federal outlays exploded under Trump from $4.5 trillion in 2019 to over $6.5 trillion during the pandemic, and they remain near $7 trillion today. This unsustainable trajectory fuels inflation, crowds out private investment, and burdens future generations with crushing debt. Trump must act immediately to reduce spending to pre-pandemic levels. Through executive orders, the administration can freeze unnecessary expenditures, claw back unspent Covid-19 funds, and direct agencies to identify and eliminate wasteful programs. He can also use the bully pulpit of the presidency to push Congress to make cuts proposed by the new Department of Government Efficiency (DOGE) or veto legislation without those cuts. Because Congress is invested with the power of the purse, it must take the lead by cutting government spending to at least $4.5 trillion and passing a reconciliation bill to impose spending caps tied to population growth and inflation. These sustainable budgeting practices would force policymakers to confront the true drivers of our debt crisis: “entitlement” programs like Social Security, Medicare, and Medicaid, which account for nearly 70 percent of federal spending. Without reform, these programs will bankrupt our economy and destroy any hope of future prosperity. The 2017 Tax Cuts and Jobs Act delivered historic relief, but it only scratched the surface. Trump and Congress must make these tax cuts permanent and build on them with reforms that reduce complexity and support growth. Reducing the corporate tax rate from 21 percent to at least 15 percent, as Trump has been advocating, would attract investment, create jobs, and ensure that the U.S. economy remains one of the most competitive in the world. Simplifying the individual income tax code by flattening rates, eliminating deductions and credits, and indexing capital gains for inflation would lower compliance costs and increase economic efficiency. Making full expensing permanent would encourage long-term business investment, while ending the state and local tax (SALT) deduction would ensure a more equitable tax system. These reforms would boost economic activity and allow Americans to keep more of their hard-earned money — an essential step in restoring trust and optimism in the economy. Energy independence was a hallmark of Trump’s first term — and is shaping up to be a hallmark of his second. Upon his return to the Oval Office, Trump immediately began the restoration of America’s energy dominance by declaring a national energy emergency. While this declaration may not have been necessary to achieve real reform, Trump has paved the way to reduce regulatory hurdles quickly. In order to mitigate the impending effects of Biden’s policies, the administration should reopen federal lands and offshore areas for oil and gas exploration, expedite permits for pipelines and refineries, and eliminate green-energy subsidies. These steps would help lower energy costs, create high-paying jobs, and strengthen national security. A free market energy policy will help stabilize prices and ensure the U.S. can meet its energy needs without relying on hostile foreign powers. Trade policy, however, is an area in which Trump’s first term made only marginal progress, and there’s a clear danger that this may be lost if the administration continues weaponizing tariffs. Tariffs on intermediate goods and consumer products act as hidden taxes and cost the economy during the first administration at least $80 billion annually. Rather than doubling down on protectionism and raising costs for Americans, Trump should instead prioritize expanding free trade agreements with allies in Europe and the Asia-Pacific. Removing tariffs will enhance market competition, lower consumer prices, and strengthen America’s position in the global economy. This approach would also allow the U.S. to apply strategic pressure on China to improve its flawed trade practices without resorting to tariffs on China or other countries that harm Americans or starting a trade war that hurts domestic manufacturers. While securing the border is essential, immigration reform should go beyond enforcement. America needs a market-driven immigration system that aligns with labor market demands. Expanding H-1B visas for high-skilled workers in STEM fields and implementing a merit-based system for all immigrants would help address critical workforce shortages, boost innovation, and ensure the U.S. remains competitive globally while helping people improve their lives. At the same time, reforms should also create pathways for legal entry of unskilled workers to meet the demands of industries like agriculture and construction. A balanced, market-oriented approach to immigration will strengthen the economy while ensuring border security. Deregulation was one of Trump’s greatest successes in his first term. However, much of this progress was reversed under Biden, as the regulation costs under his administration totaled over $1.8 trillion. Trump now favors expanding his previous “two-out, one-in” rule with a ten out for every one in. While he has started this process with a regulatory freeze, more should be done. Establishing a regulatory “budget” that prioritizes the elimination of outdated and burdensome rules would be another move in the right direction. Removing superfluous or unduly burdensome regulations will help foster an environment in which businesses are more productive and thus more competitive domestically and internationally. The November 2024 election wasn’t just about rejecting Bidenomics; it was about embracing a new vision for America’s economy — one more deeply rooted in the principles of free markets, limited government, and fiscal responsibility than before. Trump’s second term offers a historic opportunity to reset the country along those lines and set the stage for long-term prosperity. In some areas, most notably, perhaps, tariffs, Trump will have some different priorities. But that does not alter the fact that cutting spending, simplifying taxes, restoring energy independence, expanding, yes, free trade, reforming immigration, and slashing regulations are not just policy priorities — they are the building blocks of a competitive, dynamic economy that allows all Americans to thrive. This historic opportunity must not be wasted. It’s time to let people prosper. Originally published with John Hendrickson at The American Spectator.
The only reason God put Republicans on this earth was to cut taxes,” stated the late columnist Robert Novak, who also was a strong supporter of supply-side economics. Tax reduction is a pillar of conservative fiscal policy. The making permanent or extension of the Tax Cuts and Jobs Act of 2017 (TCJA) is a main fiscal policy priority for President Donald Trump and the Republican-led Congress. For the most part, Republicans agree that the TCJA benefits taxpayers and the economy and should be made permanent. However, tension is brewing between spending cuts and tax reductions. Republicans are in a pickle. The failure to extend or make permanent the TCJA will have severe economic consequences. But, extending the TCJA without meaningful spending reductions could make the national debt worse. For decades, there has been a bipartisan out-of-control spending problem, leading to more than $36 trillion in national debt. The Republican Party, as the more conservative party, should be more fiscally conservative, but that hasn’t always happened. With the creation of the Department of Government Efficiency (DOGE) headed by Elon Musk, President Trump appears to be serious about finding ways to reduce regulation, waste, and bureaucracy. DOGE has also encouraged members of Congress who are eager to reduce spending. The crusade to cut spending is already becoming difficult. For starters, the Washington Times has reported that some Republicans are starting to get anxious that spending cuts, especially if it impacts their district, will hurt them in the midterm election. In addition to faster economic growth with TCJA, there is a need for spending reductions not to crowd out that growth and counter the positive effects of the tax cuts. Another potential problem is that many lawmakers are advocating for special tax carve-outs. These include a tax deduction for emergency power generators, increasing the cap on the state and local tax deduction (SALT), no tax on tips, and a 15 percent corporate tax rate for companies manufacturing in the U.S., among others. While these carve-outs have different interest groups, they will reduce the amount collected to “pay for” the overall tax cut package and provide little to no incentives for growth. With a small majority in the House and having to find agreement in the Senate, Republicans do not have much room for defections. Concerns have been raised that “budget hawks” may scuttle any tax bill. As an example, the Committee to Unleash Prosperity is “worried that some House Republican budget hawks — many of whom are our friends — want to hold the tax cut hostage to force Congress’s hand on spending cuts.” It should be noted that the committee does not oppose spending cuts and, in fact, they support efforts to lower spending, but they make the correct argument that the failure to “extend the Trump tax cuts would trigger one of the biggest tax hikes in American history.” Further, the consequence of allowing the TCJA to expire would result in a massive tax increase and contribute to “reducing GDP by $1 trillion and destroying 6 million jobs.” As the committee argues, this is not only fiscally irresponsible but also disastrous for the economy. Another interesting dilemma is that both the budget hawks and the tax cutters are correct. The spending crisis must be addressed, and the TCJA must be extended or ideally made permanent. Lawmakers should also consider more pro-growth, broad-based relief, like lowering the corporate tax rate to 15 percent and flattening the brackets to ultimately a flat income tax. This is possible and Republicans only need to rediscover their fiscal conservative heritage for guidance. Presidents Warren G. Harding and Calvin Coolidge reduced tax rates and cut spending during the 1920s. The federal government was certainly different and much smaller than today, but Harding and Coolidge, along with their budget directors, had to fight for spending reductions. Andrew Mellon, who served as secretary of the treasury and was the architect of the Harding and Coolidge tax cuts, believed that balancing budgets and limiting spending were just as important. George M. Humphrey, secretary of the treasury in President Dwight D. Eisenhower’s administration, was another budget hawk like Mellon. Humphrey understood the importance of lower tax rates, but he also warned about the consequences of uncontrolled spending which led to debt and inflation. “Deficits and the theft of inflation which results [from uncontrolled spending] should be avoided like the plague,” warned Humphrey. “We must not cut taxes on borrowed money and so pass on more bills to our children and grandchildren,” stated Humphrey in 1956. Further, he argued that “a balanced budget is the first step toward another tax cut.” Republicans should learn from the Harding and Coolidge administrations as well as Mellon and Humphrey that lowering tax rates is important but balancing the budget through more economic growth and less spending is crucial.  Originally posted to Texans for Fiscal Responsibility.
Recent proposals by President Donald Trump to establish a U.S. Sovereign Wealth Fund (SWF) and by Texas Lieutenant Governor Dan Patrick to remove the cap on Texas’s Economic Stabilization Fund (ESF) are deeply flawed. Both ideas assume that government-run investment funds can replace responsible fiscal policy. Instead of hoarding excess taxpayer money, Texas and the federal government should cut taxes, limit spending, and allow the free market to drive economic growth. Federal Concerns: A Sovereign Wealth Fund Amidst Mounting Debt On February 3, 2025, President Trump signed an executive order directing the Treasury and Commerce Departments to develop a plan for a U.S. sovereign wealth fund within 90 days. The administration argues that such a fund could:
The U.S. national debt now exceeds $36 trillion, and unfunded liabilities from Social Security and Medicare surpass $100 trillion. While well-intentioned, creating a sovereign wealth fund would not fix these problems—instead, it would give future politicians another pot of money to mismanage. Rather than relying on government-run investment schemes, the real solution is quite simple:
At the state level, Lieutenant Governor Dan Patrick’s Senate Bill 23 (SB 23), authored by Senator Charles Schwertner, proposes removing the cap on the Economic Stabilization Fund (ESF), also known as the rainy day fund. The ESF—created in 1988—was initially designed to help Texas manage revenue volatility from oil and gas production, which once accounted for 25% of Texas’s economy (compared to less than 10% today). Currently, the ESF cap is 10% of certain general revenue over the previous biennium. Based on Comptroller Glenn Hegar’s January 2025 Biennial Revenue Estimate, the fund is expected to hit its $26.51 billion cap by 2026. Without the cap, the fund could balloon to over $80 billion by 2035—money that should instead go back to taxpayers. The Case for Cutting Severance Taxes Instead Instead of removing the ESF cap and hoarding revenue, Texas lawmakers should cut severance taxes on oil and gas production.
Why Removing the Cap Is a Bad IdeaRemoving the ESF cap would:
While well-intentioned, Trump’s proposed federal sovereign wealth fund and Patrick’s push to remove the ESF cap suffer from the same flaw: they prioritize government control over taxpayer freedom. Texans and Americans don’t need more government-run investment funds—they need lower taxes, limited government, and free-market energy policies. Texas and the federal government shouldn’t hoard money when it could be used to cut taxes, promote economic growth, and strengthen the energy industry. Let people prosper--not politicians.  Originally published at The Daily Economy.
Driven by progressive policies that stifled growth and burdened Americans with skyrocketing debt, elevated inflation, and economic malaise, has President Biden’s administration cemented its economic legacy as a failure? Despite promises of a “build back better” economy, the results are troubling, with policies rooted in overspending, overtaxing, and overregulating, pushing many Americans further from prosperity. Under President Biden, the national debt grew substantially, especially without a war or pandemic, surging past $36 trillion — a staggering $10 trillion increase since 2020. This debt explosion stemmed from massive spending initiatives, including the American Rescue Plan Act, the so-called Inflation Reduction Act, and many other reckless spending packages. Far from stimulating growth, this spending fueled inflation and undermined economic stability. The Federal Reserve, charged with combating inflation, was forced to hike interest rates at a record pace, raising the federal funds rate from near zero to over five percent in just two years. These hikes directly responded to the monetary inflation crisis created by the Federal Reserve and exacerbated by Biden’s profligate fiscal policies. While interest rates have come down some over the last year, Americans face higher borrowing costs for homes, cars, and businesses, squeezing family budgets and discouraging investment. Though there are signs of an economic recovery, real weekly earnings have declined by two percent since Biden took office as inflation outpaced wage growth for most of his presidency. This decline in purchasing power disproportionately hurts low- and middle-income households, the very groups progressive policies claim to champion. Adding to the economic woes is a labor market hampered by a declining labor force participation rate. While the unemployment rate appears low at around four percent, this masks the reality that millions of Americans remain out of the workforce. Policies that disincentivize work — such as enhanced unemployment benefits, expanded welfare programs, and increased regulatory burdens on businesses — have created a perfect storm of lower productivity and higher dependency on government programs. Regulatory overreach has further compounded economic challenges. According to the American Action Forum, the Biden administration issued $1.8 trillion in costly final rules, making it one of the most regulatory-heavy administrations in US history. These rules, which include onerous environmental regulations, expansive labor mandates, and restrictions on energy production, acted as a hidden tax on us. They drove driven up costs for businesses and consumers. The administration’s war on artificial intelligence (AI) and corporate mergers were among the most damaging regulatory efforts. The Federal Trade Commission (FTC) and Department of Justice (DOJ) aggressively sought to stifle innovation and business growth under the guise of protecting competition through antitrust action. Instead of fostering a dynamic economy, these agencies created a climate of uncertainty that discourages investment in new technologies and impedes market efficiency. AI, which holds transformative potential for economic growth, was targeted with heavy-handed oversight that risks driving innovation overseas. One of the most glaring examples of regulatory overreach was the Biden administration’s stance on mergers and acquisitions (M&A). The FTC and DOJ adopted a hostile posture toward M&A activity, essential for fostering business growth and increasing efficiency. By blocking mergers without sound economic justification, these agencies undermined businesses and sent a chilling message to investors. Such interference in private-sector decisions contradicted free-market capitalism and harmed the economy by stifling growth opportunities. Similarly, the administration’s push for sweeping regulations on artificial intelligence threatened to derail a promising industry. Instead of embracing AI as a tool for economic advancement, the administration appeared intent on imposing burdensome compliance requirements that would discourage innovation and reduce America’s competitiveness on the global stage. The path to reversing this economic malaise lies in rejecting the overspending, overtaxing, and overregulating policies that define Bidenomics. President Trump and Congress must prioritize fiscal discipline by cutting government spending to at least pre-pandemic levels and limiting it to sustainable levels. This should be done through a strict fiscal rule that caps expenditure growth at a maximum rate of population growth plus inflation. Spending less can alleviate the debt burden that threatens future generations. Second, tax reform should focus on lowering tax rates, broadening the base, and simplifying the tax code to incentivize work, investment, and innovation. High taxes discourage productivity and entrepreneurship, while a pro-growth tax system can unlock the potential of American workers and businesses. Third, regulatory reform is essential to restoring economic freedom and unleashing the full potential of the private sector. This includes reining in agencies like the FTC and DOJ, which have overstepped their bounds in pursuing ideological goals at the expense of economic progress. It also means adopting a balanced approach to AI governance that promotes innovation while addressing legitimate concerns without stifling progress. The economic legacy of Bidenomics will be remembered as a cautionary tale of how progressive policies undermine prosperity. The administration’s decisions imposed significant costs on the American people, from an explosion in national debt to inflation, higher interest rates, regulatory overreach, and declining real wages. Voters chose a different direction with Trump. The better approach is returning to the principles that have historically driven American prosperity: limited government, fiscal responsibility, and economic freedom. By embracing these principles, we can chart a path toward sustainable growth, higher living standards, and greater opportunities for all Americans.  Originally posted at Kansas Policy Institute. Rising property taxes are squeezing Kansas families and businesses, creating financial stress and threatening economic stability. While a local spending limit would provide the most effective approach to rein in tax growth, it is politically impractical today. In its absence, pairing a more effective property tax increase limit with a new valuation cap offers a sound approach. Kansas lawmakers must address this issue urgently and focus on crafting reforms that balance immediate relief with long-term sustainability while avoiding the pitfalls seen here and in other states. The Property Tax Problem in Kansas The table below shows that Kansas property taxes grew at a staggering rate between 1997 and 2023. Residential property taxes increased by 342%, far outpacing Kansas population growth of 12.8% and CPI for Midwest Cities inflation of 80%.  Over the same period, the share of property taxes paid by residential properties rose from 39% to 55%, while the share paid by commercial and industrial properties dropped from 29% to 24%. These shifts have burdened many homeowners, particularly young families and first-time buyers, who are struggling to keep up with rising costs.
As property valuations climb—sometimes by double digits annually—many taxpayers are being priced out of their homes. Meanwhile, local government spending grows unchecked, driving higher tax bills regardless of appraisal changes. These trends underscore the need for targeted reforms that protect taxpayers and promote fairness. The Role of Valuation Caps: A Step, But Just Part of the Solution A property valuation cap, which limits the annual increase in appraised property values, provides immediate relief to homeowners by stabilizing their tax bills. This improved predictability can help families budget more effectively and avoid sudden, unaffordable increases. However, valuation caps come with understandable concerns. California’s Proposition 13 highlights the risks. By capping annual valuation increases at 2% and tying assessments to 1% of appraised value, Prop 13 has created inequities in the tax system. Long-time property owners enjoy artificially low tax bills, while new buyers—including young families—shoulder a disproportionately high burden. This shift discourages mobility, often locking people into their homes, and distorts the housing market. On the other hand, too many people are being taxed out of their homes, so policymakers must consider these tradeoffs. While a valuation cap can improve the situation, it cannot address the root cause of tax increases: local government spending. Without broader reforms, valuation caps risk creating long-term distortions and providing only temporary relief. A More Comprehensive Approach A tax increase limit, which caps the total property tax revenue local governments can collect, offers a more balanced and effective solution when combined with a valuation limit. This helps protect taxpayers from runaway valuation changes and restricts local officials from unilaterally imposing large tax increases. Tax increase limits address the core issue of rising tax bills, but on their own, they don’t protect families against large valuation increases and the loss of their property. Texas offers lessons on both the potential and pitfalls of tax increase limits. Despite imposing rollback rates in 2019 that limit annual property tax revenue growth to 3.5% for cities and counties and 2.5% for school districts, Texas left loopholes for new property valuations, natural disasters, and other exemptions. As a result, local governments could increase revenues substantially despite the limits. In 2023, Texas allocated $12.7 billion over two years in state funds to reduce school district maintenance and operations property taxes, which are essentially a statewide property tax, resulting in a $4.5 billion decline in school district property taxes in 2023. But overall property tax collections still rose by $650 million (up 0.8%) that year because other local governments raised their property taxes by $5.1 billion. Kansas must learn from Texas’s experience by implementing a strict tax increase limit with no exemptions and requiring voter approval for all increases. The Ideal but Impractical: Local Spending Limits Local government spending is the ultimate driver of rising property taxes. Between 1997 and 2023, total property tax revenue in Kansas grew by 216%, driven largely by budget increases at the local level. Spending limits that tie changes in local government budgets to a maximum rate of population growth plus inflation are the most effective ways to control tax burdens. Colorado’s Taxpayer’s Bill of Rights (TABOR) provides a model for such limits, requiring voter approval for revenue increases and aligning government growth with economic realities. While spending limits face significant political resistance in Kansas, they represent the ideal solution for long-term sustainability. A Better Path Forward Given the current political landscape, Kansas should pursue a combination of valuation caps and tax increase limits to address the immediate burden on taxpayers. To be effective:
A Brighter Future for Kansas Property tax reform is essential to making Kansas a more affordable and attractive place to live and do business. By addressing the immediate burden with valuation and tax increase limits—and committing to long-term solutions like spending controls—lawmakers can protect taxpayers and foster economic growth. This legislative session offers a chance to take meaningful action. Thoughtful reforms, grounded in sound tax policy, can create a better future for all Kansans. With bold leadership, Kansas can become a national model for responsible, equitable property tax policy.  Originally published with John Hendrickson at The Gazette.
Property taxes are crushing taxpayers nationwide, and Iowa is no exception. In the past two decades, Iowa’s property taxes have surged by more than 110%, with local governments collecting over $7 billion in Fiscal Year 2025 — a 7% increase from the previous year. This explosive growth far outpaces population growth and inflation, leaving taxpayers struggling to keep their homes and businesses, particularly those on fixed incomes. The root cause of these rising taxes isn’t increasing property values; it’s excessive government spending. Local governments have expanded their budgets without considering taxpayers’ ability to pay. This disconnect has created a scenario where property owners feel they are merely renting from the government, with the constant threat of being priced out of their homes. Gov. Kim Reynolds has set a high standard for fiscal discipline at the state level. Her leadership in cutting income taxes and tying state spending growth to population and inflation has strengthened Iowa’s economy and provided much-needed tax relief. But local governments aren’t following the same playbook. Without similar spending restraints, they continue to shift the tax burden onto property owners. The situation in Texas offers a cautionary example. The state allocated $12.7 billion in surplus funds to reduce school district maintenance and operations (M & O) property taxes. While this provided some relief, the benefits were undermined by excessive local government spending, loopholes in levy limits, and a reliance on raising the homestead exemption to $100,000 rather than reducing tax rates. Texans are still among the country's most heavily taxed property owners because structural spending issues remain unresolved. The lesson is clear: Temporary fixes like exemptions or one-time infusions of surplus funds will not solve the property tax crisis unless paired with strict spending controls. States like Utah and Colorado have shown that lasting relief is possible by focusing on spending discipline. Utah’s Truth-in-Taxation law requires local governments to hold public hearings and justify proposed tax increases, ensuring transparency and accountability. Colorado’s Taxpayer Bill of Rights (TABOR) limits budget growth to the combined rate of population and inflation, creating a sustainable framework for fiscal responsibility. Iowa needs bold reforms that address the spending side of the equation. Levy limits, such as a maximum of a 2% increase per year, must be imposed without loopholes or exemptions. More importantly, local government spending should reflect the successful approach taken at the state level under Reynolds. This ensures that taxpayers are not continually squeezed to fund bloated budgets. The rise in property taxes represents a fundamental failure to adhere to sound economic principles. Taxes should not outpace the private sector that funds them, and government spending should reflect taxpayers’ ability to pay. High property taxes discourage investment, suppress economic growth, and impose a recurring financial burden on property owners that functions as an unrealized capital gains tax. Iowa must prioritize spending limitations, transparency, and rate reductions to address this crisis. Aligning local government practices with the principles championed by Gov. Reynolds at the state level will ensure that property ownership is a source of stability and pride, not financial anxiety. Tax and spending are two sides of the same coin. If Iowa’s local governments continue their current trajectory, taxpayers will remain trapped in a cycle of rising property taxes. It’s time for local leaders to follow Gov. Reynolds’ example and embrace fiscal discipline to create a fairer, more prosperous future for all Iowans. What if everything you thought you knew about tariffs and taxes was wrong? In this episode of the Let People Prosper Show, Erica York, senior economist and research director at the Tax Foundation, unpacks the truth behind tariffs, the future of the Tax Cuts and Jobs Act, and why states compete to lead on tax reform.
If you want to understand how these policies impact your wallet and why states like Texas and Kansas are shaking things up with bold reforms, this episode is for you. Erica’s insights go beyond the headlines, offering a clear picture of what’s driving economic change—and what it means for your future. See show notes at vanceginn.substack.com. (0:00): Intro: The real impact of tariffs and tax policies (3:20): Why tariffs hurt Americans more than they help (8:45): The smarter alternative to tariffs: Free trade agreements (12:10): How the Tax Cuts and Jobs Act changed the economy (18:30): What happens when the tax cuts expire? (22:45): State-level tax reform: Flat taxes and property tax reductions (29:00): Why competition among states matters for growth (36:05): Practical reforms that create long-term prosperity (40:50): Final thoughts: How policy drives opportunity  Originally posted at Texans for Fiscal Responsibility. Texas ranks 7th in the 2025 State Tax Competitiveness Index, benefiting from its lack of an individual income tax and a competitive unemployment insurance tax system. However, high property taxes, a complex corporate tax system, and excessive government spending, all help to prevent Texas from reaching the top spot. With millions of people and businesses relocating to Texas, the state has a unique opportunity in the 89th Legislative Session to solidify its position as the economic leader by addressing these three key challenges.  What Is the State Tax Competitiveness Index? The State Tax Competitiveness Index, formerly known as the State Business Tax Climate Index, evaluates how effectively states design their tax systems. It ranks states based on five key categories:
States with transparent, low-rate, and neutral tax systems perform best in the index. Top Five Overall States
Texas excels in individual income taxes (ranked 1st due to having no tax) and unemployment insurance taxes (ranked 30th), but its rankings in other areas, particularly property taxes and corporate taxes, highlight significant room for improvement.  While Texas outperforms neighboring states in overall competitiveness, high property tax burdens and a low corporate tax ranking highlight significant barriers to achieving the top spot.
Addressing the Property Tax Challenge Texas ranks 40th in property tax competitiveness, primarily due to its heavy reliance on local property taxes to fund public services. Local governments impose some of the highest property tax rates in the nation, with school district maintenance and operations (M&O) property taxes comprising nearly half of total property tax collections. Recent reforms provide some relief but fail to address systemic issues. To achieve meaningful property tax relief, Texas must use its state budget surplus to buy down school district M&O property tax rates, aiming to eliminate them in about a decade. This approach ensures sustainable relief without compromising funding for essential services. Reforming the Corporate Tax System Texas’s gross receipts tax, known as the business franchise or margin tax, ranks 46th in corporate tax competitiveness. This tax applies to gross revenues rather than net profits, making it especially burdensome for businesses with low-profit margins. Phasing out the margin tax would simplify the corporate tax system, attract investment, and improve Texas’s competitiveness. Spending Restraint: The Foundation for Sustainable Reform Unchecked government spending is the root cause of Texas’s tax challenges. As TFR’s Frozen Texas Budget outlines, excessive state and local spending drives high property taxes and undermines long-term prosperity. To address this, Texas must adopt constitutional spending limits with a maximum rate of population gr owth plus inflation at both the state and local levels, but there is a need for spending cuts in the near term to correct past excesses. This disciplined approach prevents budget bloat and ensures that fiscal deficits or future tax hikes do not follow tax reductions. Strategic Recommendations for Texas Policymakers
Texas is well-positioned to lead the nation in economic competitiveness, but achieving the top spot in the State Tax Competitiveness Index requires bold action. Texas can attract even more businesses and residents by prioritizing property tax relief, corporate tax reform, and spending restraint while fostering a thriving, dynamic economy.  Listen here!
On this episode of the podcast, Vance Ginn, former Trump White House economic advisor, dives into the pressing economic challenges facing the new Trump administration and offers solutions rooted in pro-growth policies. Ginn outlines strategies to curb inflation and address the staggering $36 trillion national debt, emphasizing the need to cut government spending, implement tax reform, deregulate industries, and pursue free trade agreements. The former Office of Management and Budget Chief Economist also evaluates the impact of Trump’s plans to impose new tariffs, the effectiveness of Trump-era tax cuts, and the Department of Government Efficiency's role in reducing wasteful spending. Ginn makes a bold case for eliminating the federal minimum wage to foster competition and create new jobs. See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.  Originally published at Pelican Institute. Louisiana ranks 40th in the 2025 State Tax Competitiveness Index, reflecting its historically complex and burdensome tax system. However, sweeping tax reforms enacted in 2024 are set to improve its ranking significantly in future reports. These reforms, which simplify income taxes, eliminate the business franchise tax, and address key structural challenges, mark a major step forward. Yet, to ensure these gains are sustainable, Louisiana must embrace spending restraint and use surplus revenues to further reduce and eventually eliminate income taxes.  What Is the State Tax Competitiveness Index? The State Tax Competitiveness Index, formerly the State Business Tax Climate Index, measures how well states structure their tax systems. It evaluates five key areas: corporate taxes, individual income taxes, sales taxes, property taxes, and unemployment insurance taxes. States that rank highest have tax systems that are simple, transparent, and designed to minimize economic distortions. Louisiana’s low ranking has long been driven by its high combined sales tax rates, punitive inventory taxes, and a franchise tax that penalized investment. The following tables show the rankings for Louisiana by tax category and compare them with those of other states.  Top Overall States
Bottom Overall States
Neighboring States
Transformative 2024 Tax Reforms The 2024 tax reforms during a special session called by Louisiana Governor Jeff Landry addressed several of these issues, creating a foundation for improved competitiveness:
These reforms will likely raise Louisiana’s ranking in the 2026 State Tax Competitiveness Index, closing the gap with states like Texas and Florida, which do not have income taxes. The Role of Spending Restraint While these tax changes represent meaningful progress, they will only deliver sustainable benefits if accompanied by spending discipline. Louisiana can use its current surplus to buy down income tax rates further and eventually eliminate them. Adopting a fiscally conservative framework would prevent unsustainable budget expansions and allow tax relief to last. Spending restraint ensures that tax reductions are not followed by future tax hikes, preserving Louisiana’s competitiveness in the long term. Recommendations for Bold Progress
The 2024 tax reforms provide Louisiana with a transformative opportunity to overhaul its economic trajectory. These changes simplify the tax code, improve business competitiveness, and set the stage for Louisiana to rise in future editions of the State Tax Competitiveness Index. To fully capitalize on these gains, Louisiana must pair its tax reforms with strong spending restraint and use its surplus strategically to phase out income taxes. By doing so, the Pelican State can emerge as a leader in economic growth and competitiveness, attracting businesses, residents, and investment.  Originally published at Kansas Policy Institute. Kansas remains steady at 25th overall in the 2025 State Tax Competitiveness Index, a continuation of its position from 2024, according to the Tax Foundation. While having incremental improvements in specific taxes, Kansas must address its systemic issues through spending restraint and eliminating income taxes to fully capitalize on its economic potential. Understanding the State Tax Competitiveness Index The State Tax Competitiveness Index, previously called the State Business Tax Climate Index, evaluates how effectively states design their tax systems, focusing on corporate, individual income, sales, property, and unemployment insurance taxes. States that rank highest typically feature lower, flatter rates and neutral systems that minimize economic distortions, compliance burdens, and hidden costs. Kansas’ Rankings: 2025 vs. 2024 While Kansas’s overall ranking remains unchanged at 25th, its rankings in various tax categories show slight improvement. Below is a summary of the latest figures alongside comparisons to the revised 2024 rankings:  Key Takeaways
Spending Restraint: The Essential Missing Piece Without controlling spending, any gains in tax competitiveness will be unsustainable. Kansas should adopt fiscal policies that cap government spending growth to a maximum rate of population growth plus inflation, as done in KPI’s Responsible Kansas Budget. This approach ensures that tax reductions do not create fiscal deficits, providing a foundation for long-term prosperity. Kansas has failed to prioritize spending restraint before. During the tax reform experiment of the last decade, high spending levels undermined tax relief efforts, resulting in political backlash and eventual tax hikes. To avoid repeating this mistake, Kansas must institutionalize spending controls. Eliminating Income Taxes: A Competitive Edge Kansas lags behind states like Texas, Florida, and Tennessee, which thrive without individual income taxes. Phasing out income taxes would attract businesses and residents, boosting the state’s economy. Kansas can ensure fiscal sustainability while fostering growth by coupling income tax elimination with spending restraint and using surplus revenue for tax relief. Recommendations for Kansas Policymakers
The Path Forward Kansas has the opportunity to become a leader in tax competitiveness, but achieving this requires more than incremental improvements. Kansas can establish itself as an economic powerhouse by implementing spending restraint and committing to bold tax reforms, including eliminating income taxes. The time for action is now, as other states aggressively pursue policies that attract businesses and residents. Kansas must rise to the challenge or risk being left behind. This week’s newsletter dives into the critical issues shaping economic policy, from President-elect Trump’s sweeping tariff proposals to the challenges Texas faces under rising government spending. As Americans brace for potential economic consequences, now is the time for bold reforms to protect taxpayers and ensure economic freedom thrives. Watch the episode on YouTube below, listen to it on Apple Podcast or Spotify, and visit my website for more information.
 Originally published at Texans for Fiscal Responsibility.
States across the country are rethinking tax reform to stay competitive for residents and businesses. Many are exploring ways to phase out personal income, business franchise, and property taxes to attract workers, foster economic growth, and ensure property rights. But doing so requires careful planning to ensure stability and fiscal responsibility. One of the most important decisions in this process is choosing the right mechanism to trigger tax cuts. Two common approaches are revenue triggers and surplus triggers. While both have their merits, surplus triggers are far more reliable and sustainable. They base tax cuts on actual fiscal surpluses rather than optimistic revenue projections and address the core problem of government: spending. Why Spending Limits and Surplus Triggers Make Sense Tax reform doesn’t happen in isolation—it needs to be part of a broader strategy to limit government growth and promote fiscal discipline. This is where spending limits come into play. A spending limit ties annual increases in government spending to measurable factors like population growth and inflation. By keeping spending under control, surpluses naturally occur when revenues grow faster than the spending limit, creating the perfect opportunity for meaningful tax cuts. Here’s why a surplus trigger, paired with a spending limit, is the best approach for phasing out taxes: 1. Stability Over Speculation Revenue triggers rely on meeting specific revenue targets before tax cuts are implemented. While this sounds straightforward, it assumes continuous economic growth—a risky gamble. If revenues fall short due to economic downturns or other factors, tax cuts may be delayed or reversed, creating uncertainty for taxpayers and businesses. Surplus triggers, on the other hand, only initiate tax cuts when there are genuine excess funds at the end of the year. This approach ensures that tax relief is stable, reliable, and based on real financial health rather than speculation. 2. Encouraging Fiscal Discipline A surplus trigger works hand-in-hand with a spending limit, which naturally generates surpluses by controlling government expansion. This ensures that tax cuts are backed by actual savings, not temporary windfalls. Revenue triggers, by contrast, don’t address the root cause of fiscal instability—unrestrained spending. Without limits, even rising revenues can be outpaced by unchecked spending growth, leaving little room for tax relief. By focusing on spending, surplus triggers encourage long-term fiscal discipline, making tax reform sustainable. 3. Reducing the Risk of Tax Reversals Revenue-triggered tax cuts can be politically fragile. If revenue growth slows, lawmakers may feel pressured to raise taxes again, undermining the entire reform effort. Surplus triggers avoid this problem by tying tax reductions to actual fiscal conditions. This ensures that cuts are less likely to be reversed, providing certainty for taxpayers and businesses alike. How Surplus Triggers Work in Practice A surplus trigger takes the revenue collected above the spending limit at the end of each fiscal year and allocates it toward specific priorities. Here’s a practical example of how this can work: 90% of the surplus is directed to a Tax Relief Fund to reduce the income tax rate gradually over time. This fund can also act as a buffer to cover limited spending needs, if necessary. Any leftover funds can go toward paying down debt, further strengthening the state’s financial health. The remaining 10% (or less) is left in the general fund or a rainy day fund for unforeseen revenue shortfalls due to a recession, natural disaster, or other reasons. But the focus during those shortfalls should be reducing spending so more money remains for tax relief when people tend to be hurting the most. By splitting surplus funds between tax relief and rainy day funds, states can provide immediate benefits while laying the groundwork for future prosperity. Flexible, Sustainable Tax Reform Unlike revenue triggers, surplus triggers don’t lock states into rigid tax cut schedules. Instead, they allow flexibility to adjust the pace of tax reductions based on actual surpluses. This makes a complete phase-out of the income tax achievable within a reasonable timeframe, such as a decade, while ensuring that essential services and fiscal stability are preserved. When combined with a spending limit, surplus-triggered tax relief delivers significant economic benefits. Lower income taxes increase disposable income for families, encourage consumer spending, and attract businesses looking for a more favorable tax environment. Over time, the resulting economic growth broadens the tax base, generating additional revenue from sales and property taxes to offset the reduced reliance on income taxes. Research shows that phased tax relief can drive billions in economic growth and create thousands of new jobs. It’s a strategy that not only improves the fiscal health of the state but also enhances the quality of life for residents. The Bottom Line Surplus triggers, paired with a spending limit, offer a sustainable and disciplined path to meaningful tax reform. They provide a reliable framework for reducing and eventually eliminating personal income taxes, ensuring that tax cuts are based on real fiscal health rather than speculative revenue growth. By focusing on spending restraint, states can achieve tax reform that is both responsible and transformative, paving the way for economic growth and competitiveness for years to come. The choice is clear: surplus triggers are the smarter, more stable way to deliver lasting tax relief and fiscal stability. |
Vance Ginn, Ph.D.
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