Tax Triggers Need Spending Restraint

Originally published on Substack. 

States across the country are learning the same lesson: tax triggers can be helpful, but they are not enough.

A tax revenue trigger can lower tax rates when collections come in strong. Good. That is better than letting government pocket every extra dollar forever.

But if lawmakers do not also restrain spending, those tax cuts will always be vulnerable to the next downturn, the next budget scare, or the next politician who thinks every extra dollar flowing into the capital belongs there.
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That is why the bigger issue is not whether tax triggers are good or bad. It is whether they rest on a strong enough foundation to last.

​North Carolina Is A Good Example

North Carolina has built one of the better tax-reform records in the country, and it should not lose its nerve now.

The state’s flat individual income tax rate fell from 4.25 percent in 2025 to 3.99 percent in 2026. The latest consensus revenue forecast says revenues in both FY 2025–26 and FY 2026–27 are high enough to trigger two more cuts, taking the rate to 3.49 percent in 2027 and 2.99 percent in 2028.

The same forecast puts General Fund revenue at about $35.079 billion for FY 2025–26 and $34.720 billion for FY 2026–27. That is real, pro-growth reform, and North Carolina should stay the course.

But tax triggers need restraint if they are going to last.

The Real Problem Is Spending

North Carolina does not have a tax-cut problem. It has a spending problem.

That is where the latest Americans for Tax Reform’s North Carolina budget data based on my analysis are useful. The budget data notes that from 2016 to 2025, North Carolina’s budget grew faster than the sustainable benchmark of population growth plus inflation on both the state-funds side and the all-funds side.

The 2025 state funds budget is $7.0 billion higher than it would have been if spending had grown only at that benchmark over the past decade, and cumulative excess state-funds spending over the decade reached $16.9 billion.

On the all-funds side, ATR estimates the 2025 budget is $20.2 billion higher than that sustainable path, with cumulative excess all-funds spending of $72.6 billion from 2016 to 2025.

Those are not abstract numbers. They are a sign that government has been growing faster than the average taxpayer’s ability to support it.

What This Cost Families

The family cost matters because that is where budget policy becomes real life.

I calculate that in the 2025 budget alone, excessive state-funds spending above population growth plus inflation cost a family of four $626. On the all-funds side, the 2025 budget cost per family of four was $1,806.

Over the full decade from 2016 to 2025, ATR estimates the cumulative cost per family of four was $6,023 on the state-funds side and $25,934 on the all-funds side. That is not a revenue shortage. That is what happens when government grows too fast for too long.

Why This Matters For Tax Reform

This is why I have argued before that tax reform without spending restraint is a mirage. Lower tax rates are real, and they help workers, families, entrepreneurs, and investors.

But politically, they are only as durable as the budget discipline behind them. When revenues soften, and they always eventually do, critics of tax relief will say the cuts went too far. What they usually will not say is that the real problem was letting spending balloon when times were good.

That is the weakness of tax revenue triggers by themselves.

A tax revenue trigger says: cut taxes if collections hit a target. Better than nothing.

TBut if the spending side remains loose, those cuts sit on a shaky foundation. The first rough patch in the economy gives lawmakers an excuse to say the tax relief was irresponsible, when the deeper problem was a budget that never had enough restraint in the first place. That is why tax triggers need restraint.

A Better North Star

The stronger model is what I would call a surplus trigger.
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The idea is straightforward: tie spending growth to a maximum of population growth plus inflation and treat that as a hard ceiling, not a target. Then, if revenues exceed what is needed to fund that disciplined budget, route the resulting surplus automatically into lower tax rates.

That changes the whole incentive structure. It tells lawmakers that excess revenue does not belong to government by default. It belongs back with taxpayers unless a compelling case is made otherwise. That is much more durable than relying on nominal revenue growth alone.
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It is also consistent with my broader work on Responsible State Budgets Across the U.S. and conservative budgeting in Iowa, where the same lesson applies: spending restraint should come first, and tax relief should be the reward for discipline.

North Carolina Should Finish The Job

North Carolina has done a lot right. Its tax reforms have made the state more competitive, and it should keep the scheduled cuts. But if lawmakers want those reforms to last, they need stronger fiscal guardrails underneath them.

That means keeping the tax-cut path. It also means imposing firmer spending discipline so future tax relief rests on actual surpluses created by restraint, not just on good revenue years that can come and go. The state’s latest forecast is encouraging. The spending record is more cautionary. Both are true at the same time.

That is the real lesson here.

Tax relief built on spending restraint is durable. Tax relief built on spending growth is fragile.

Three Takeaways for Policymakers

1. Keep the tax cuts.

North Carolina’s latest forecast supports reductions to 3.49 percent in 2027 and 2.99 percent in 2028.

2. The real threat is overspending.

ATR says North Carolina overspent by $16.9 billion on the state-funds side and $72.6 billion on the all-funds side from 2016 to 2025 relative to population growth plus inflation.

3. Make surplus triggers the North Star.

Revenue triggers are a good start. But a hard spending ceiling plus automatic tax relief from real surpluses is a more durable framework for reform. That is how reform lasts. That is how taxpayers win.