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Caps and Limits

States across the country continue to struggle with balancing their year to year budgets as a result of increasing spending and a lagging economy. Many state legislatures have also accumulated massive amounts of debt which taxpayers will have to pay due to years of overspending combined with state employee pensions and benefits.

The Issue

Every dollar the government puts into the economy through spending or so-called stimulus is done so by first taking a dollar out of the economy. Politics causes government spending to rise beyond the level most people, even most elected officials, believe is ideal. During good economic times, elected officials come under enormous pressure to spend every available tax dollar. During bad economic times, the beneficiaries of new programs oppose any spending cuts. It is a recipe for inefficient government growth, fiscal crises, and tax increases.

Restoring correct incentives to government can be done in a number of ways. One approach is to require super-majority votes for tax increases. A better way is to adopt a tax and expenditure limitation (TEL) limiting growth of taxes or spending to the sum of inflation and population growth, so government grows no faster than the private sector. Any revenue collected above this limit is either saved in a rainy day fund or returned to taxpayers. Colorado’s Taxpayer’s Bill of Rights (TABOR) offers one model for such limitation.

Tax and expenditure limitations effectively keep more money in the pockets of families and job creators. The best TELs are constitutional because statutory limitations are often evaded. TELs can allow voters to override the limit in a special election. TELs also should apply to local governments to avoid cost shifting from the states to local governments.

In addition to TELs, states should eliminate so-called “economic development” schemes, these include film tax credits, government-owned golf courses, and publicly financed stadiums. For years states have been manipulating the market and favoring certain business sectors, or in some cases individual people States across the country continue to struggle with balancing their budgets as a result of increasing spending and a lagging economy. Many states also have accumulated massive amounts of debt that taxpayers will have to pay due to years of overspending combined with state employee pensions and benefits.

Our Stance

Government spending is not a cost effective way of generating economic growth. As we’ve all too often seen, surging property values, strong retail sales, and other factors which drive up government revenues are often used as an excuse to expand government. Before long the locked-in spending drives the request for still more tax revenue. Higher taxes burden families, weaken businesses, and act as a drag on the economy.