Fiscal Discipline Wins

Originally published on Substack. 

As state legislative sessions move deeper into spring, the contrast in fiscal policy is getting harder to ignore.

Some states are proving that disciplined budgeting can create room for lasting tax relief and stronger growth. Others are still trapped in the usual cycle of overspending, budget gimmicks, and late-session chaos.

That divide matters because sustainable budgets are not an accounting exercise. They are the difference between letting families and businesses keep more of what they earn or handing more of it over to government.

The best benchmark for a responsible budget is simple: keep government spending growth at or below the rate of population growth plus inflation. That is the most reasonable measure of the average taxpayer’s ability to pay for government spending without being taxed into poverty or priced out of prosperity.

When government grows faster than that, it is taking more resources than the private economy can comfortably support.
The ATR Sustainable Budget Project still offers one of the best ways to think about that framework, even though its full update is not yet complete and should be refreshed for each state soon.

The most recent available data still make the point clearly: from 2016 to 2025, aggregate state spending excluding federal transfers rose 65.8%, while the sustainable benchmark rose only 32.4%.

Had states held spending to that ceiling, they would have spent $419 billion less in 2025 alone and $1.8 trillion less cumulatively over the decade.

When state and federal overspending are combined, Americans lost more than $20.8 trillion in excess taxes and debt over that period.

That is the real story too many politicians still refuse to tell. We do not have a revenue problem. We have a spending problem.

The Benchmark Matters

A sustainable budget is not anti-government. It is anti-excess.

If spending grows only with population growth plus inflation, government can still do core functions while leaving more room for production, investment, hiring, and higher wages in the private sector.

Once spending outruns that benchmark, lawmakers are effectively choosing bureaucracy over prosperity.

As Bastiat taught, the biggest losses are often the unseen ones: the business not opened, the job not created, the home not purchased, the family budget quietly squeezed.

West Virginia Chose Relief

West Virginia offers one of the better examples of what fiscal discipline can produce. Governor Patrick Morrisey recently signed about $230 million in annual tax relief, including a 5% across-the-board personal income tax cut effective for the 2026 tax year.

The package also aligned West Virginia’s tax code more closely with permanent provisions of the federal Tax Cuts and Jobs Act, including bonus depreciation, larger child and dependent care benefits, and better treatment for research investment.

That is what happens when lawmakers create room to return money to the people who earned it instead of treating every extra dollar as government’s to keep.

New York Chose Drift

Then there is New York, where lawmakers passed their second one-week budget extender this April while fighting over a proposed budget of at least $263 billion.

Governor Hochul has not delivered a single on-time budget since taking office in 2021, and last year’s budget was not finished until May 8, the latest since 2010.

New York’s problem is not that it lacks revenue. Its problem is that without a real spending ceiling, every budget cycle becomes a feeding frenzy for special interests. When there are no guardrails, delay and dysfunction are not surprises. They are the predictable outcome.

Why Padding Matters

The most important long-run lesson is this: permanent tax relief requires budget padding.

When lawmakers keep actual spending growth meaningfully below the sustainable ceiling, they create a structural surplus.

That surplus is not “new money” for politicians to spend. It is tax revenue the government collected but did not need. The honest answer is to return it.

That is the logic behind frameworks like the South Carolina Responsible Budget, which lays out a path to permanent income-tax elimination through spending restraint and ratchet-down tax relief. That is how states move from temporary tax cuts to lasting reform.

Three Takeaways for Policymakers

1. Population growth plus inflation is the right ceiling for a fiscal rule at every level of government.

Any spending growth above that benchmark is government taking more than the average taxpayer can sustainably support.

2. Overspending is costly and measurable.

The latest available ATR budget data still show states overspending by $419 billion in 2025 alone relative to the sustainable benchmark, even as the full project update remains pending.

3. Discipline creates room for tax relief.

West Virginia and Georgia are showing how restraint can support real tax cuts, while New York keeps showing what happens when there are no spending guardrails.

The states that embrace sustainable budgeting now will be the ones attracting workers, investment, and families in the years ahead. The ones that do not will keep passing extenders, growing government, and wondering why prosperity keeps leaving.