|Cato Policy Analysis No. 213||July 25, 1994|
by Dean Stansel
Dean Stansel is a fiscal policy analyst at the Cato Institute.
After a decade of dormancy, the tax revolt is back. Fed up with rapidly rising state budgets, Americans are increasingly taking matters into their own hands, voting into law limits on the ability of state lawmakers to tax and spend. In the past two years, five states approved such populist measures. This year voters in as many as six states will have the opportunity to vote on some type of tax limitation initiative.
The opposition to tax and expenditure limitations (TELs) is enormous. Opponents charge that restraining the growth of taxes and spending is impossible without doing things like taking cops off the beat and firefighters out of the firehouse. Other critics make precisely the opposite complaint about TELs, charging that TELs are ineffective and do not limit the growth of taxes and spending as promised.
This study demonstrates that properly designed TELs can and do limit the growth of state taxes and spending. For example, the growth rate of per capita state spending in TEL states fell from 0.8 percentage points above the U.S. average in the five years preceding TEL enactment to 2.9 percentage points below the U.S. average in the five years after TEL enactment.
Unfortunately, many TELs are designed in a way that minimizes their effectiveness. This study examines that issue and provides a detailed description of how an effective TEL should be designed.
If the citizens of a state wish to limit the growth of Leviathan, they should not abandon TELs; instead, they should ensure that the TELs are properly constructed.
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