January 18, 2005
Ohio TEL Proposal

Today the Buckeye Institute in Ohio released this report titled "Should Ohio Limit Government Spending and Taxes?" It was co-authored by myself and co-blogger Josh along with Russ Sobel (West Virginia University) and Barry Poulson (U. of Colorado). It outlines the case for a constitutional tax and expenditure limitation (TEL) in Ohio.

Needless to say the special interests and their media mouthpieces are already screaming that such proposals will cause mass starvation, illiteracy, and disease throughout the land.

My press conference remarks are copied below for those interested.

TEL Press Conference Remarks, 1/18/05
Robert A. Lawson

For almost a generation Ohio’s voters have been signaling a desire to reign in government taxation and spending. They have elected a succession of Republican governors and legislative majorities, and they have consistently voted down statewide tax and spend initiatives. Despite this, Ohio’s state and local governments continue to tax and spend at a pace that far outstrips inflation and population growth and even personal income growth. As a result, over the last few decades Ohio has gone from being a low tax, high growth state to being a high tax, low growth state.

Today we are releasing this report about the role and importance of Tax and Expenditure Limitations (a.k.a. TELs). TELs are rules that limit the ability of the government to tax and spend beyond the capacity of the citizens to pay.

Why do we need a rule limiting the ability to tax and spend? The simple answer is that the political process is broken. Voters demand lower taxes but politicians deliver higher taxes as they cater to special interest groups inside and outside of government. No doubt you will be hearing from many such groups over the coming weeks and months as we debate this issue. They will tell you that government budgets are tight and that a TEL would threaten the very existence of many necessary government services. Don’t believe them. The fact is that for years and years, the rate of taxation and spending growth has been 5+ percent per year. The people suffering most are Ohio’s taxpayers who continue to see larger and larger shares of their incomes going to taxes to feed the insatiable appetite of the special interests.

Ohio would not be alone in adopting a TEL. Some 23 states have TELs of one form or another, though they have been effective in only a few states. In our survey of the effectiveness of TELs we highlight three things that are a must if you want to have a TEL that actually works as a constraint on government taxation:

1. The TEL must be constitutional. Many states have attempted legislative TELs, but any rule created by the legislature is easily broken by the legislature. The TEL must be made constitutional so that politicians cannot break it with a simple majority.
2. The TEL must specifically limit the growth of spending to inflation plus population growth. This allows government spending to keep pace but not outpace our ability to pay. The limits should also be comprehensive applying to all taxes and spending types at all levels of government, state and local.
3. Surplus revenue, above and beyond the TEL limit, must be refunded to taxpayers in some manner. Rebate checks are one option but another is to use surplus revenue as a way to fundamentally reform the tax code—something politician have been talking about doing for years.

Some worry that TELs will create budget crises by limiting the state’s ability to raise taxes. On the contrary, we argue that TELs should reduce the severity of budget crises by preventing the overspending that is the root cause of many such crises. In any case, a TEL proposal can easily be combined with a proposal for a budget stabilization fund (‘rainy-day fund) to help offset the problem of a recessionary budget crunch.

A TEL would be a way for the voters to force politicians to live up to their campaign promises to be wise fiscal stewards.

Posted by Robert Lawson at 04:30 PM  ·  TrackBack (23)

The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it. -Adam Smith

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