New research shows pathway to fiscal stability without increased taxes, government budget cuts

Harrisburg-based Commonwealth Foundation announced last week that their study on Taxpayer and Expenditure Limits (TELs) can help states reach fiscal stability without tax increases or cuts to government spending.

The study found that TELs effectively reduce the rate of annual spending budget growth by an estimated 1 percent per year. TELs work, the study found, as a counterbalance to legislatures increasing taxes to cover overspending rather than reducing spending.

“Our analysis shows that while TELs reduce the growth of government spending, even the strictest TELs do not result in direct cuts to spending,” said Commonwealth Foundation Policy Analyst Tirzah Duren. “For states like Pennsylvania, an effective TEL could ensure a reasonable level of spending growth, remaining under state income growth and protecting against tax increases to cover deficits.”

Attributes that make TELs more effective include adopting them by referendum or constitutional convention, enacting them as constitutional amendments, applying the TELs to spending, requiring a supermajority to override them, automatically refunding surpluses, and prohibiting unfunded mandates.

“More effective TELs have multiple features that define the limits on state taxes and expenditures,” continued Duren. “Some of the most effective features stem from the authority of the people over their government, rather than relying on lawmakers to limit themselves. When a TEL is enacted via referendum and is a constitutional amendment, it provides a better control on overspending and tolerance of a structural deficit.”

The study also highlighted the disparity between government spending and prosperity. A review of other literature found that a St. Louis Federal Reserve study showed that government spending has no discernable impact on job creation and that tax increases have a “strong negative effect on investment spending.”

The study said that TELs could help avoid economic stagnation caused by overspending and spur economic expansion by limiting government spending growth.

Current legislation being considered by the Pennsylvania General Assembly, HB 71 and SB 286, are considered TEL legislation. Commonwealth Foundation researchers think if they are enacted, they could slow the rate of budget growth in that state by between 0.75 and 1.11 percent.