TEL-Tale Heart: Crafting Effective Policies to Reduce Spending
- Increases in state spending do not result in greater prosperity for state residents, across an array of measures. In fact, increased state spending can reduce economic growth.
- Reducing the relative size of the state budget is best achieved by slowing spending growth, avoiding deficits and the resulting tax increases.
- Tax and Expenditure Limits (TELs) are a popular policy to control budget growth. If done correctly, TELs can reduce state and local budget growth rates by about 1 percent.
- More effective TELs have multiple features, termed “stringency indicators,” that further define the limits on state taxes and expenditures. This analysis finds that each indicator will reduce the rate of budget growth by between 0.25 to 0.37%.
- Taxpayer Protection Act legislation—which has three indicators—could, if enacted, slow the rate of Pennsylvania budget growth by between 0.75 and 1.11%. Over the last 20 years, annual state spending growth has averaged 3.5%.
- If automatic taxpayer refunds are added to the existing bills or separate bills, the rate of spending growth could be slowed by between 1.0 and 1.48%. For context, 1% of Pennsylvania’s total operating budget for 2021–22 is almost $970 million.
- Additional reforms to strengthen this bill and control state spending growth would include automatic refunds of revenue surpluses, a supermajority vote to raise taxes, and requiring automatic deposits into the Rainy Day Fund.